Mark Thoma points us to a new paper by Michael Greenstone that tries to evaluate the effect of the surge. The news is not good.
This paper shows how data
from world financial markets can be used to shed light on the central question
of whether the Surge has increased or diminished the prospect of today’s Iraq
surviving into the future. In particular, I examine the price of Iraqi state
bonds, which the Iraqi government is currently servicing, on world financial
markets. After the Surge, there is a sharp decline in the price of those bonds,
relative to alternative bonds. The decline signaled a 40% increase in the
market’s expectation that Iraq will default. This finding suggests that to date
the Surge is failing to pave the way toward a stable Iraq and may in fact be
undermining it.
It’s amazing how far we have come since 2003 when Robin Hanson’s DARPA-funded Policy Analysis Market was ridiculed and canceled.
But what has been going on with the Iraqi stock market? Isn’t that market dominated by Iraqi insiders,
with inside knowledge, whereas state bonds are owned by foreigners reading the New York Times?
But that only suggests that things have gotten worse after the surge. It’s not evidence that things got worse because of the surge. For all we know, things might have been even worse without the surge.
I don’t think the performance of the Iraqi state bonds has all that much to do with the surge,
except in the broad sense that the surge was supposed to bring about national political harmonization,
and what we are now being sold on is a ground-up soft partition, with al-Anbar the poster boy, at least
until Sheikh Abu Risha got offed.
No, the economic bottom line is oil. And now we have the spectacle of Bush buddy and appointee to the
Foreign Intelligence Advisory Board, not to mention trustee of SMU in Dallas who organized the W. Bush
library to be there, signing a contract for his company, Hunt Oil, with the Kurdistan Regional Government,
a contract since declared illegal by the Iraqi national Oil Minister, Hussein al-Shahristani, leading the
Kurdish leaders to demand his removal, all in the context of no agreement on a national Iraqi national
oil law.
The bottom line is that the best informed Bush-Cheney insider is betting on the disintegration of Iraq.
No wonder their bonds are in the toilet (and if the prediction markets could not pick up on this, they
really would be worth doodley-squat).
The paper is a bad joke.The author doesn’t even know how to calculate default probabilities.
hrh, have you tried plotting BBB CMBS spreads to Treasuries? Apparently the news from Iraq in July affected them too, or something.
But, bza, there is a big discontinuity at the time that troubles developed in the United States subprime mortgage market. What does this tell us?
http://kentsimperative.blogspot.com/2007/09/markets-for-prediction-versus.html
…We thus were initially quite interested in a new paper which attempts to evaluate the Surge through the lens of a prediction market approach. However, the key difference we note is that the paper is an attempt to measure…
Note for others – y81 spent many, many comments on the Washington Monthly
post demonstrating that reading comprehension isn’t among his/her skills.
Posted by: Hei Lun Chan:
“For all we know, things might have been even worse without the surge.”
In that case, since the surge (a) hasn’t demonstrated any lasting effect,
and (b) isn’t sustainable, ….
Tom: “More or less looks like a response to the Democratic reaction that that “we have already lost the war”(Reid). Investors are pulling out after it has became evident that we’d (those in charge in Congress) prefer NOT to win, rather than that things are not going well.”
Just in case you haven’t been reading the news for the past four years,
things have been going downhill since May, 2003. During a time of GOP
dominance. When Bush was getting everything that he wanted for the war.
Despite reassurrance after reassurrance after reassurrance that things
would get better any day now. Despite highly confident predictions that
some event (killing Saddam’s sons, capturing Saddam, elections,
various new generals, various new tactics, etc.) would save the day.
But now y81 is back at his job in the bond market, having tired of explaining credit spreads to wingnuts.
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