Saturday, January 30, 2010

Obama is right to bash the bankers - discuss

Obama is right to bash the bankers
Intelligence Squared Debate
29 Jan 2010

PRO

VOLCKER AND OBAMA’S REFORM HITS THE BULLS EYE: IT DIRECTLY TACKLES THE INHERENT DANGER

There’s a clear economic logic in insuring that from now on the basic utility aspects of banking – making ordinary loans to businesses and households and managing the nation’s payment system – is kept quite separate from the casino aspects of banking – all those credit default swaps, synthetic derivatives and special purpose vehicles which make up the hugely profitable but risky “proprietary trading arms” of the big banks. It was those "proprietary" activities that fuelled the bonanza in all those super dodgy mortgage-backed securities that led to the credit crunch of 2008. The new ban on insured, deposit-taking banks engaging in proprietary trading is a good first step on the road to total separation of these two activities.


THE REFORM IS GROUNDED IN THE LESSONS OF HISTORY

Between 1933 and the 1980s, finance was remarkably stable – and this was an era when the spheres of banking were kept safely separate by the Glass-Steagall Act in the USA and by various rules and regulations in the City of London. But then, when free-market Thatcher abolished the separations in London in 1986 and Clinton put the last nails into the coffin of Glass-Steagall in the late 90s, it was farewell stability; hello financial crisis. So even if economists find it hard to explain precisely why the separation worked, we should trust the historical evidence: the separation did work and Volcker's plans are a welcome return to responsible thinking.


THE REFORM RESTORES CRUCIAL ELEMENTS OF ACCOUNTABILITY AND CONTROL

Finance in the first decade of the 21st century had become too complicated to control; indeed, the sheer complexity of deregulated finance was a big part of what led to the crisis. Financial firms had lots of competing regulators with no one quite knowing what activity should be regulated where. What deregulation should have taught us is that financiers are endlessly creative at finding new ways to take gambles, and that we need protection from that sort of creativity. That’s where the ban on proprietary trading comes in: it returns us to some kind of transparency. By splitting proprietary and deposit-taking functions, regulators know who should be doing what, and keeping financiers to the rules becomes possible once again. In fact, Obama could go further in reestablishing transparency and insist on full disclosure of derivatives positions – something that would have really helped in spotting how much trouble Lehman's collapse was going to cause.


PUTTING A SIZE LIMIT ON BANKS IS AN ESSENTIAL ANTIDOTE TO THE "TOO BIG TO FAIL" PROBLEM

The terrible thing about big banks is that they can hold the whole economy hostage: "bail-us out or we'll sink you" is their basic message. And you can be sure that once they know they're in that position of strength, they'll use it...by taking on the sorts of risks you do when you know that failure goes unpunished. Obama's plan proposes to extend the size limits that already apply to deposit-taking banks to other parts of the financial system. With a well-implemented size limit, the government should be able to stare down the "let-me-fail-if-you-dare" threat that was used to such effect by Wall Street in 2008.


BANKS SHOULD BE SMALLER ANYWAY

Banks are pretty clearly too big and insufficiently competitive - how else can you explain the $1.2 trillion in "excess" profits that the sector has made in the last decade according to Deutsche Bank? Nor is it true that giant global businesses need to rely on giant global banks. That notion is "pure poppycock", says The EpicureanDealMaker blog, which is written by a New York banker in mergers and acquisitions. As he points out, "institutional clients make a point of using more than one investment or commercial bank for virtually all their financial transactions, no matter what they are. In fact, the bigger the deal, the more banks the customer usually uses. This is because banking clients want to make sure none of these oligopolist bastards has an exclusive right to grab the client by the short and curlies."


THE LEVY IS A GOOD WAY TO KEEP BANKS' RISK-TAKING UNDER SOME SORT OF CONTROL

Now that the casino aspects of banking are to be separated out, it seems an inspired idea to have a pop at the casino – especially since the casino operators have benefited so much from taxpayer bailouts. It’s good to think the taxpayer is getting some return, and good to know that the levy, by being based on the amount banks have lent above some minimum threshold, is designed to be more expensive the more risk a bank has taken on. More money for the taxpayer and less risk-taking by banks – what on earth is wrong with that? The only problem is that the levy does not go far enough: at 0.15% of assets above $50bn, it is designed only to recoup over many years the amount spent on bailouts, whereas it should be a permanent part of the landscape.


THIS ISN'T POPULISM, IT'S DEMOCRACY IN ACTION

The financial industry lobbied furiously during the boom-time to be allowed to carry on with their risky lending practices, and they have spent hundreds of millions on lobbying since then to make sure the gravy-train does not stop. The finance industry currently employs three lobbyists for every member of Congress. Along with the healthcare lobby, it is the biggest, best funded and most powerful group in Washington. Obama is at last getting tough with them – a long overdue reassertion that the good of all should be prioritised over the pay-packets of the few. Even if it took a defeat in Massachusetts to get Obama back on track, this is a splendid example of democracy at work.

CON

OBAMA’S REFORM MISSES THE TARGET ALTOGETHER

Proprietary trading by deposit-taking banks had little or nothing to do with the present crisis. The crisis came from the US mortgage market, which was the most heavily regulated part of the finance industry. The fund managers who bought the overly-complex securitised mortgage products could still have done so whether they acted as arms of deposit taking banks or not. In fact, the main source of the trouble had little to do with the big banks anyway: Lehman Brothers was not that big; Northern Rock in the UK was a small mortgage lender with no proprietary trading operations whatsoever.


THERE WAS A MUCH BETTER WAY OF ADDRESSING THE PROBLEM, ONE THAT WOULD ACTUALLY WORK

The root cause of the present crisis shouldn't be guessed at by making spurious comparisons with earlier historical eras. It was quite obvious: financial firms were able to take on too much risk, and didn’t have sufficient resources to cover it. The simple solution is to regulate leverage – that is, limit the amount that banks can lend out to a strict percentage of their safe, liquid assets. Even better, follow the proposal put forward by Britain’s Lord Turner, and grant central banks the power to vary the permitted leverage, tightening the limits at times when credit looks as if it may be getting out of control.


LIKE ALL POPULIST POLICY, THIS REFORM SOUNDS GREAT BUT CAN'T ACTUALLY BE IMPLEMENTED

There are just too many activities that a bank performs for its deposit clients or its borrowers that are indistinguishable from prop trading. When a bank trades a security for a client, it will hold that security for some period of time. When it makes a market, it needs to provide liquidity in this or that instrument and so expose itself to market movements. When it offers a fixed rate loan or a mortgage, it insures itself against exposure to interest rate movements with a derivative. In all this, how can a regulator tell what is prop trading and what is sound banking? You'll always be able to dress up the first as the second. Nomi Prins, a former director at Goldman Sachs, says that the way banks shift money from one part of their business to another is so opaque that the ban on proprietary trading will be impossible to police. "Bank of America, for example, has its fixed income, currency and commodities trading figures merged together, making it impossible to see the contribution of Merrill Lynch’s sizeable trading activities, as well as the line between proprietary and possibly customer-oriented trading." Making rules you can't police adds to the regulatory confusion that got us into this trouble in the first place. And anyway, it'll just push the banks to do their proprietary trading elsewhere: London, Singapore and Geneva just can't wait.


LARGE BANKS ARE POSITIVELY SAFER THAN SMALL BANKS

Obama wants to limit the size of all financial institutions. But the Great Depression saw linked runs on hundreds of small banks. Indeed, one of the real problems during a financial crisis is that no one knows if a counterparty will be good for their money. The more transactions happen within a single firm, the less uncertainty there is. The European-style "universal banks" like Deutsche Bank and Societe Generale combine deposit-taking, investment, trading, advisory and even insurance roles. They have been more resilient to crisis than specialised and quite small operations like Lehman Brothers. It all points to Obama's populism: design a plan that bashes the foreigners, undermines global solutions and appeals to stereotypes of the big bad corporation.


A GLOBAL ECONOMY CAN’T DO WITHOUT BIG BANKS

Even if a giant corporation spreads some of the financial risk between financial institutions, they still want to be dealing with major global banks. When Kraft Foods looks to raise $7 billion of debt to finance its takeover of Cadbury's, you can't expect it to have to go cap in hand to hundreds of small deposit-taking institutions to put a loan together. Business on a global scale is efficient and the path to economic growth everywhere. You need smoothly running capital markets to oil the wheels of globalisation, and artificial barriers to bank size will put a break on prosperity for all.


THE LEVY WILL BE CIRCUMVENTED - IT JUST MAKES MONEY FOR CORPORATE TAX LAWYERS

The levy is going to be based on banks' total US assets. But it is a simple matter for legal departments of banks to make assets appear where in the world they want. If Goldman Sachs in the US lends a hedge fund shares in Kraft Foods for the hedge fund to short them, that'll appear as a taxable asset under the levy. But assets and income can be moved around - a Goldman Sachs vehicle in the British Virgin Islands can enter the lending agreement with the hedge fund and no tax will be incurred. The levy just throws money at lawyers and reduces transparency. What is needed is a global regulatory system that does away with this wasteful game of cat and mouse.


OF COURSE IT'S POPULISM: OBAMA DESPERATELY NEEDED A BIT OF PUBLIC THEATRE

Obama’s first year in office has been a bit of a disaster: his healthcare plans have gone nowhere, unemployment has reached its highest for a quarter of a century, his approval rating has plummeted to around 50%. Then there was this January’s electoral humiliation, deep in supposedly Democrat territory, when an unknown Republican won Ted Kennedy’s old Senate seat in Massachusetts. So, with November’s mid-term elections fast approaching. Obama needed a media stunt which would appeal to working-class Americans, and take the focus off his failures. This populist assault on the money men of Wall St was just the ticket, especially with JP Morgan and Goldman Sachs reporting huge profits and bonus pools again. Indeed, Goldman delayed announcing record results until the day the Obama plan was announced, so diverting attention away from its embarrassment of wealth. In reality, we should actually be saluting the restoration of bank profits as the great achievement of the last few years and recognizing that a big part of repairing bank profitability has come from their proprietary trading desks. Which is why one might worry about Obama’s populist assault, were it not obvious that the administration isn’t really serious about getting tough. It’s shadow punching. Timothy Geithner, the Treasury Secretary, has on many occasions flatly repudiated the stated ambitions of the plan’s architect, Paul Volcker. Ben Bernanke, the Wall Street-friendly chairman of the central bank, looks certain to be reappointed. This is exactly how you'd expect an administration to behave when it was trying to say to Wall Street: "don't worry - we're just appeasing the mob".

Friday, January 15, 2010

Gladwell! Pinker! Fight! Fight!

Gladwell and Pinker have a polite falling out:

http://gladwell.typepad.com/gladwellcom/2009/11/pinker-on-what-the-dog-saw.html

Monday, January 11, 2010

Oops - Oliver Stoned does it again!

'Talking to critics, Stone, a three-times Oscar winner, explained that Hitler had been “an easy scapegoat throughout history” and that his new series would put things into their proper context. “We can't judge people as only 'bad' or 'good'. [Hitler] is the product of a series of actions,” he noted. “It's cause and effect.”

Stalin, that other product of events, would also be subject of a “more factual representation”, Stone added.

Now, joking aside, there are two things that are grim about this. The first is the obvious gripe about gross moral relativism. It seems to me to be fairly clear that moral absolutes do exist, and herding off millions of people to gas chambers or gulags puts you beyond them.

Secondly, it is shocking that Stone feels it necessary to explain that history needs context – as though this fact has escaped his less beady-eyed peers. Ian Kershaw, whose superlative biography of Hitler is divided into two volumes, the first entitled “Hubris: 1889-1936” may feel he has spotted the link, as Stone so eloquently puts it, between “cause and effect”.

If America really does need enlightening on this fact then we are all in trouble. But in the meantime, Stone’s real achievement is to have said something so banal and yet so offensive.'


Article here

Thursday, January 07, 2010

Provocative processions

Oliver kamm on Wootton Bassett and the battle of Cable Street:

"Padraig Reidy of Index on Censorship, an invaluable free-speech pressure group, comments on the proposed march by an Islamist buffoon, Anjem Choudary, and his supporters in Wootton Bassett. He concludes:

"Support for free expression includes support for the right to expression of “particularly offensive” sentiments (though not support for the sentiments themselves). It would follow then, that Choudary and his friends should be allowed to march through Wooton Bassett without hindrance. But does this mean the residents of Cable Street were wrong?"

I entirely agree with Padraig about the demonstration. Wootton Bassett is not hallowed ground, and the right to assembly extends to those who hold obnoxious views, in the same way that the right to free speech extends to racists and Holocaust deniers. But I'll have a go at answering his question.

Yes, those who tried to stop the British Union of Fascists from marching in the East End in October 1936 were wrong. The BUF had a democratic right to march in peacetime, and the attempt to stop them did them a power of good. Mosley was looking for a way to call it off anyway, so that he could get to Berlin and secretly marry Diana Mitford Guinness in Goebbels's drawing room (which he managed to do two days later). Support for Mosley in the East End increased after the Battle of Cable Street, as did antisemitic violence. Thugs attacked Jews and their properties, in the so-called Pogrom of Mile End, a week later.

In the end, despite an appalling failure among leaders of the main parties in the 1930s (Stanley Baldwin and Neville Chamberlain, Herbert Samuel and the ineffably foolish George Lansbury) to recognise the threat from the dictators, it was democratic politics that defeated Mosley and secured economic recovery, not opposition on the streets. When he was interned in 1940, Mosley was a permanently discredited figure."

Anti-semitism vs anti-Zionism - Dershowitz

With the upcoming (12/01/10) documentary Defamation on Channel 4, featuring amongst others the charming Norman Finkelstein, the ever clear-thinking Alan Dershowitz provides a checklist for distinguishing anti-semitism and anti-Zionism:

When Legit Criticism Crosses the Anti-Semitism Line
Alan Dershowitz
Huffington Post
01/07/05

...

A CHECKLIST OF FACTORS THAT TEND TO INDICATE ANTI-SEMITISM

1. Employing stereotypes against Israel that have traditionally been directed against "the Jews." For example, portraying Israel as devouring the blood of children or characterizing Israeli leaders with long hook noses or rapacious looks.

2. Comparing Israel to the Nazis or its leaders to Hitler, the German army, or the Gestapo.

3. Characterizing Israel as “the worst,” when it is clear that this is not an accurate comparative assessment.

4. Invoking anti-Jewish religious symbols or caricaturing Jewish religious symbols.

5. Singling out only Israel for sanctions for policies that are widespread among other nations, or demanding that Jews be better or more moral than others because of their history as victims.

6. Discriminating against individuals only because they are Jewish Israelis, without regard to their individual views or actions.

7. Emphasizing and stereotyping certain characteristics among supporters of Israel that have traditionally been used in anti-Semitic attacks, for example, “pushy” American Jews, Jews “who control the media,” and Jews “who control financial markets.”

8. Blaming all Jews or “the Jews” for Israel’s policies or imperfections.

9. Physically or verbally attacking Jewish institutions, such as synagogues or cemeteries, as a means of protesting against Israel.

10. Stereotyping all Jews as fitting into a particular political configuration (such as “neo-conservatives,” Zionists, or supporters of Sharon).

11. Accusing Jews and only Jews of having dual loyalty.

12. Blaming Israel for the problems of the world and exaggerating the influence of the Jewish state on world affairs.

13. Denying, minimizing, or trivializing the Holocaust as part of a campaign against Israel.

14. Discriminating against only Israel in its qualification for certain positions or statuses, such as on the Security Council, the International Court of Justice, and the International Red Cross.

15. Blaming the Jews or Israel, rather than the anti-Semites, for anti-Semitism or for increases in anti-Jewish attitudes.

16. Taking extreme pleasure from Israeli failures, imperfections, or troubles.

17. Falsely claiming that all legitimate criticism of Israeli policies is immediately and widely condemned by Jewish leaders as anti-Semitic, despite any evidence to support this accusation.

18. Denying that even core anti-Semitism—racial stereotypes, Nazi comparisons, desecration of synagogues, Holocaust denial—qualifies as anti-Semitic.

19. Seeking to delegitimate Israel precisely as it moves toward peace.

20. Circulating wild charges against Israel and Jews, such as that they were responsible for the September 11 attacks, the anthrax attacks, and the 2005 tsunami.

A CHECKLIST OF FACTORS THAT TEND TO INDICATE LEGITIMATE CRITICISM OF ISRAEL

1. The criticism is directed at specific policies of Israel, rather than at the very legitimacy of the state.

2. The degree and level of criticism vary with changes in Israel’s policies.

3. The criticism is comparative and contextual.

4. The criticism is political, military, economic, and so forth, rather than ethnic or religious.

5. The criticism is similar to criticism being raised by mainstream Israeli dissidents.

6. The criticism is leveled by people who have a history of leveling comparable criticisms at other nations with comparable or worse records.

7. The criticism is designed to bring about positive changes in Israeli policies.

8. The criticism is part of a more general and comparative criticism of all other nations.

9. The criticism is based on objective facts rather than name calling or polemics.

10. The critic subjects his favorite nation to comparable criticism for comparable faults.

...

Sunday, January 03, 2010

Guantanamo

Amazing we've never had a Guantánamo Bay thread, so am starting one now.

Why now? Well, in view of Obama's failure to close Guantanamo as promised, and the involvement of AQAP (Al Qaeda in the Arabian Peninsula) - some of whose leaders are ex-Guantanamo detainees - in Umar Farouk Abdulmutallab's failed attempt to blow up a Christmas Day flight from Amsterdam to Detroit, now seems as good a time as any.

I've posted a Stratfor article below on the difficulties of dealing with suspected al-Qaeda types apprehended in a war zone. They are neither soldiers nor normal criminals, hence the legal limbo. I wouldn't wanna be in Obama's shoes trying to decide what to do with these people.

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Obama admits Guantanamo won't close by Jan. deadline
Washington Post
November 18, 2009

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"I Had a Good Time at Guantánamo, Says Inmate"
by Daniel Pipes
February 8, 2004

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Freed by the U.S., Saudi Becomes a Qaeda Chief
New York Times
January 22, 2009

The emergence of a former Guantánamo Bay detainee as the deputy leader of Al Qaeda’s Yemeni branch has underscored the potential complications in carrying out the executive order President Obama signed Thursday that the detention center be shut down within a year.

The militant, Said Ali al-Shihri, is suspected of involvement in a deadly bombing of the United States Embassy in Yemen’s capital, Sana, in September. He was released to Saudi Arabia in 2007 and passed through a Saudi rehabilitation program for former jihadists before resurfacing with Al Qaeda in Yemen.


The new Al-Qaeda chiefs bringing terror to the world
The Sunday Times
January 3, 2010


Said Ali al-Shihri
Said Ali al-Shihri
Wikipedia

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Deciphering the Mohammed Trial
November 16, 2009
Stratfor Geopolitical Intelligence Reports
By George Friedman

U.S. Attorney General Eric Holder has decided that Khalid Sheikh Mohammed will be tried in federal court in New York. Holder’s decision was driven by the need for the U.S. government to decide how to dispose of prisoners at Guantanamo Bay, a U.S. Naval base outside the boundaries of the United States selected as the camp in which to hold suspected al Qaeda members.

We very carefully use the word “camp” rather than prison or prisoner of war camp. This is because of an ongoing and profound ambiguity not only in U.S. government perceptions of how to define those held there, but also due to uncertainties in international law, particularly with regard to the Geneva Conventions of 1949. Were the U.S. facility at Guantanamo a prison, then its residents would be criminals. If it were a POW camp, then they would be enemy soldiers being held under the rules of war. It has never really been decided which these men are, and therefore their legal standing has remained unclear.

WAR VS. CRIMINAL JUSTICE

The ambiguity began shortly after 9/11, when then-U.S. President George W. Bush defined two missions: waging a war on terror, and bringing Osama bin Laden and his followers to justice. Both made for good rhetoric. But they also were fundamentally contradictory. A war is not a judicial inquiry, and a criminal investigation is not part of war.

An analogy might be drawn from Pearl Harbor. Imagine that in addition to stating that the United States was at war with Japan, Franklin Roosevelt also called for bringing the individual Japanese pilots who struck Hawaii to justice under American law. This would make no sense. As an act of war, the Japanese action fell under the rules of war as provided for in international law, the U.S. Constitution and the Uniform Code of Military Justice (UCMJ). Japanese pilots could not be held individually responsible for the lawful order they received. In the same sense, trying to bring soldiers to trial in a civilian court in the United States would make no sense. Creating a mission in which individual Japanese airmen would be hunted down and tried under the rules of evidence not only would make no sense, it would be impossible. Building a case against them individually also would be impossible. Judges would rule on evidence, on whether an unprejudiced jury could be found, and so on. None of this happened, of course — World War II was a war, not a judicial inquiry.

It is important to consider how wars are conducted. Enemy soldiers are not shot or captured because of what they have done; they are shot and captured because of who they are — members of an enemy military force. War, once launched, is pre-emptive. Soldiers are killed or captured in the course of fighting enemy forces, or even before they have carried out hostile acts. Soldiers are not held responsible for their actions, but neither are they immune to attack just because they have not done anything. Guilt and innocence do not enter into the equation. Certainly, if war crimes are in question, charges may be brought; the UCMJ determines how they will be tried by U.S. forces. Soldiers are tried by courts-martial, not by civilian courts, because of their status as soldiers. Soldiers are tried by a jury of their peers, and their peers are held to be other soldiers.

International law is actually not particularly ambiguous about the status of the members of al Qaeda. The Geneva Conventions do not apply to them because they have not adhered to a fundamental requirement of the Geneva Conventions, namely, identifying themselves as soldiers of an army. Doing so does not mean they must wear a uniform. The postwar Geneva Conventions make room for partisans, something older versions of the conventions did not. A partisan is not a uniformed fighter, but he must wear some form of insignia identifying himself as a soldier to enjoy the conventions’ protections. As Article 4.1.6 puts it, prisoners of war include “Inhabitants of a non-occupied territory, who on the approach of the enemy spontaneously take up arms to resist the invading forces, without having had time to form themselves into regular armed units, provided they carry arms openly and respect the laws and customs of war.” The Geneva Conventions of 1949 does not mention, nor provide protection to, civilians attacking foreign countries without openly carrying arms.

The reasoning behind this is important. During the Franco-Prussian war, French franc-tireurs fired on Prussian soldiers. Ununiformed and without insignia, they melded into the crowd. It was impossible for the Prussians to distinguish between civilians and soldiers, so they fired on both, and civilian casualties resulted. The framers of the Geneva Conventions held the franc-tireurs, not the Prussian soldiers, responsible for the casualties. Their failure to be in uniform forced the Prussians to defend themselves at the cost of civilian lives. The franc-tireurs were seen as using civilians as camouflage. This was regarded as outside the rules of war, and those who carried out such acts were seen as not protected by the conventions. They were not soldiers, and were not to be treated as such.
An Ambiguous Status

Extending protections to partisans following World War II was seen as a major concession. It was done with concerns that it not be extended so far that combatants of irregular forces could legally operate using their ability to blend in with surrounding civilians, and hence a requirement of wearing armbands. The status of purely covert operatives remained unchanged: They were not protected under the Geneva Conventions. Their status remained ambiguous.

During World War II, it was U.S. Army practice to hold perfunctory trials followed by executions. During the Battle of the Bulge, German commandos captured wearing U.S. uniforms — in violation of the Geneva Conventions — were summarily tried in field courts-martial and executed. The idea that such individuals were to be handed over to civilian courts was never considered. The actions of al Qaeda simply were not anticipated in the Geneva Conventions. And to the extent they were expected, they violated the conventions.

Holder’s decision to transfer Khalid Sheikh Mohammed to federal court makes it clear that Mohammed was not a soldier acting in time of war, but a criminal. While during times of war spies are tried as criminals, their status is precarious, particularly if they are members of an enemy army. Enemy soldiers out of uniform carrying out reconnaissance or espionage are subject to military, not civilian, justice, and frequently are executed. A spy captured in the course of collecting information is a civilian, particularly in peacetime, and normally is tried as a criminal with rules of evidence.

Which was Mohammed? Under the Geneva Conventions, his actions in organizing the Sept. 11 attacks, which were carried out without uniforms or other badges of a combatant, denies him status and protection as a POW. Logically, he is therefore a criminal, but if he is, consider the consequences.

Criminal law is focused on punishments meted out after the fact. They rarely have been preventive measures. In either case, they follow strict rules of evidence, require certain treatments of prisoners and so on. For example, prisoners have to be read the Miranda warning. Soldiers are not policeman. They are not trained or expected to protect the legal rights of captives save as POWs under the UCMJ, nor protect the chain of custody of evidence nor countless other things that are required in a civilian court. In criminal law, it is assumed that law enforcement has captured the prisoner and is well-versed in these rules. In this case, the capture was made without any consideration of these matters, nor would one expect such consideration.

Consider further the role of U.S. covert operations in these captures. The United States conducts covert operations in which operatives work out of uniform and are generally not members of the military. Operating outside the United States, they are not protected by U.S. law although they do operate under the laws and regulations promulgated by the U.S. government. Much of their operations run counter to international and national law. At the same time, their operations are accepted as best practices by the international system. Some operate under cover of diplomatic immunity but carry out operations incompatible with their status as diplomats. Others operate without official cover. Should those under unofficial cover be captured, their treatment falls under local law, if such exists. The Geneva Conventions do not apply to them, nor was it intended to.

Spies, saboteurs and terrorists fall outside the realm of international law. This class of actors falls under the category of national law, leaving open the question of their liability if they conduct acts inimical to a third country. Who has jurisdiction? The United States is claiming that Mohammed is to be tried under the criminal code of the United States for actions planned in Afghanistan but carried out by others in the United States. It is a defensible position, but where does this leave American intelligence planners working at CIA headquarters for actions carried out by others in a third country? Are they subject to prosecution in the third country? Those captured in the third country clearly are, but the claim here is that Mohammed is subject to prosecution under U.S. laws for actions carried out by others in the United States. And that creates an interesting reciprocal liability.

A FAILURE TO EVOLVE

The fact is that international law has not evolved to deal with persons like Mohammed. Or more precisely, most legal discussion under international law is moving counter to the Geneva Conventions’ intent, which was to treat the franc-tireurs as unworthy of legal protection because they were not soldiers and were violating the rules of war. International law wants to push Mohammed into a category where he doesn’t fit, providing protections that are not apparent under the Geneva Conventions. The United States has shoved him into U.S. criminal law, where he doesn’t fit either, unless the United States is prepared to accept reciprocal liability for CIA personnel based in the United States planning and supporting operations in third countries. The United States has never claimed, for example, that the KGB planners who operated agents in the United States on behalf of the Soviet Union were themselves subject to criminal prosecution.

A new variety of warfare has emerged in which treatment as a traditional POW doesn’t apply and criminal law doesn’t work. Criminal law creates liabilities the United States doesn’t want to incur, and it is not geared to deal with a terrorist like Mohammed. U.S. criminal law assumes that capture is in the hands of law enforcement officials. Rights are prescribed and demanded, including having lawyers present and so forth. Such protections are practically and theoretically absurd in this case: Mohammed is not a soldier and he is not a suspected criminal presumed innocent until proven guilty. Law enforcement is not a practical counter to al Qaeda in Afghanistan and Pakistan. A nation cannot move from the rules of counterterrorism to an American courtroom; they are incompatible modes of operation. Nor can a nation use the code of criminal procedures against a terrorist organization operating transnationally. Instead, they must be stopped before they commit their action, and issuing search warrants and allowing attorneys present at questioning is not an option.

Therefore — and now we move to the political reality — it is difficult to imagine how the evidence accumulated against Mohammed could enter a courtroom. Ignoring the methods of questioning, which is a separate issue, how can one prove his guilt beyond a reasonable doubt without compromising sources and methods, and why should one? Mohammed was on a battlefield but not operating as a soldier. Imagine doing criminal forensics on a battlefield to prove the criminal liability of German commandos wearing American uniforms.

In our mind, there is a very real possibility that Mohammed could be found not guilty in a courtroom. The cases of O.J. Simpson and of Jewish Defense League head Rabbi Meir Kahane’s killer, El Sayyid Nosair — both found not guilty despite overwhelming evidence — come to mind. Juries do strange things, particularly amid what will be the greatest media circus imaginable in the media capital of the world.

But it may not be the jury that is the problem. A federal judge will have to ask the question of whether prejudicial publicity of such magnitude has occurred that Mohammed can’t receive a fair trial. (This is probably true.) Questions will be raised about whether he has received proper legal counsel, which undoubtedly he hasn’t. Issues about the chain of custody of evidence will be raised; given that he was held by troops and agents, and not by law enforcement, the chances of compromised evidence is likely. The issue of torture will, of course, also be raised but that really isn’t the main problem. How do you try a man under U.S. legal procedures who was captured in a third country by non-law enforcement personnel, and who has been in military custody for seven years?

There is a nontrivial possibility that he will be acquitted or have his case thrown out of court, which would be a foreign policy disaster for the United States. Some might view it as a sign of American adherence to the rule of law and be impressed, others might be convinced that Mohammed was not guilty in more than a legal sense and was held unjustly, and others might think the United States has bungled another matter.

The real problem here is international law, which does not address acts of war committed by non-state actors out of uniform. Or more precisely, it does, but leaves them deliberately in a state of legal limbo, with captors left free to deal with them as they wish. If the international legal community does not like the latter, it is time they did the hard work of defining precisely how a nation deals with an act of war carried out under these circumstances.

The international legal community has been quite vocal in condemning American treatment of POWs after 9/11, but it hasn’t evolved international law, even theoretically, to cope with this. Sept. 11 is not a crime in the proper sense of the term, and prosecuting the guilty is not the goal. Instead, it was an act of war carried out outside the confines of the Geneva Conventions. The U.S. goal is destroying al Qaeda so that it can no longer function, not punishing those who have acted. Similarly the goal in 1941 was not punishing the Japanese pilots at Pearl Harbor but destroying the Japanese Empire, and any Japanese soldier was a target who could be killed without trial in the course of combat. If it wishes to solve this problem, international law will have to recognize that al Qaeda committed an act of war, and its destruction has legal sanction without judicial review. And if some sort of protection is to be provided al Qaeda operatives out of uniform, then the Geneva Conventions must be changed, and with it the status of spies and saboteurs of all countries.

Holder has opened up an extraordinarily complex can of worms with this decision. As U.S. attorney general, he has committed himself to proving Mohammed’s guilt beyond a reasonable doubt while guaranteeing that his constitutional rights (for a non-U.S. citizen captured and held outside the United States under extraordinary circumstances by individuals not trained as law enforcement personnel, no less) are protected. It is Holder’s duty to ensure Mohammed’s prosecution, conviction and fair treatment under the law. It is hard to see how he can.

Whatever the politics of this decision — and all such decisions have political dimensions — the real problem faced by both the Obama and Bush administrations has been the failure of international law to evolve to provide guidance on dealing with combatants such as al Qaeda. International law has clung to a model of law governing a very different type of warfare despite new realities. International law must therefore either reaffirm the doctrine that combatants who do not distinguish themselves from noncombatants are not due the protections of international law, or it must clearly define what those protections are. Otherwise, international law discredits itself.