Saturday, April 27, 2013

Two Muslim Brothers Who Took the Assimilation Path. By Kenan Trebincevic

Two Muslim Brothers Who Took the Assimilation Path. By Kenan Trebincevic
The Wall Street Journal, April 27, 2013, on page A11

'I hope they're not Muslim," I told my brother, Eldin, when we first saw the pictures of the Boston bombers. We soon found out that Dzhokhar and Tamerlan Tsarnaev shared our religion, as we'd dreaded, when my Jewish college roommate jokingly texted: "Hey, would you please tell your people to stop blowing things up?"

I laughed, in sadness, but soon felt completely unnerved by how much the Tsarnaevs' story mirrored our own. My brother and I were born six years apart, and we're two foreign-born-and-named, athletic, Islamic brothers from difficult backgrounds in Eastern Europe, where we had experienced persecution and then been generously taken in by Americans. The 26-year-old Tamerlan Tsarnaev, killed in the police shootout, was the eldest, strong-minded child, like Eldin. Dzhokhar Tsarnaev, now in a federal medical detention center in Massachusetts, looked up to his sibling, as I always looked up to my strong-minded brother.

Boxing is big in Chechnya and nearby regions where the Tsarnaev family has its roots, and the brothers excelled in the sport, like their father. Martial arts are big in the Balkans, where we're from. Our dad owned a gym in our hometown of BrĨko, Bosnia, where he trained athletes and where Eldin and I won brown belts and awards for karate.

The Tsarneavs were caught in the confusing war between Chechnya and Russia that erupted in 1999, and they wound up emigrating in 2003 to Cambridge, Mass. Caught in the bloody war between Bosnia and Serbia, factions of the former Yugoslavia, my family moved to Westport, Conn., in 1993.

Like the Tsarnaevs' father, our father suffered setbacks to his career in America, and to his health. While Anzor Tsarnaev reportedly toiled as a mechanic for $10 an hour, our dad, Senahid, slung poultry at a fast-food chicken place and took other low-paying jobs. While the Tsarnaevs' mother, Zubeidat, did facials at a Boston spa and later at their home to make ends meet, my mother, Adisa, baby-sat and found work at a data-processing firm. We too had little money, and it was hard to get jobs without connections or language skills.

Yet the Tsarnaev boys became angry, alienated young men who never quite assimilated into their new country (Tamerlan said on Twitter: "I don't have a single American friend, I don't understand them"), while my brother and I made many friends in the U.S. and wound up on the more successful side of the American dream.

There is a well-documented connection between unhappy, disenfranchised immigrants who can't connect and crime and terrorism. When I first moved here at age 13 I felt as lost, estranged and resentful as Tamerlan Tsarnaev appeared to be. In the days since the Boston bombing, I kept comparing Eldin's and my circumstances with the Tsarnaevs' to see where our paths diverged and what saved us from becoming embittered.

I was struck by news accounts that the Tsarnaev parents moved back to Russia, where they separated two years ago. One of their daughters lived in New Jersey, and she admitted that she hadn't spoken to her brothers in years. I was fortunate that my immediate family of four stayed together, first in Connecticut until my mother died of cancer in 2007, then in Queens, N.Y., where my father, brother and I now live blocks away from each other.

Even when I moved into my college dorm room at the University of Hartford and Eldin moved to the Stony Brook campus in Long Island, we spoke to our mother, father and each other daily—either by cellphone or email. I'm convinced that remaining a close-knit family kept my brother and me saner and safer. The Tsarnaev family, by contrast, seemed constantly roiled—by war, immigration, work and financial difficulties, serious illness and a marriage breakup. Throw in radical religion and, in retrospect, it seems a recipe for disaster.

Perhaps because my family survived the ethnic cleansing in the Balkans to wipe out Muslims, my family members—unlike Tamerlan Tsarnaev and his mother—did not seek solace with any specific religious figure or house of worship. While we remained proud of our heritage, we were sponsored by the Interfaith Council in Connecticut, a group of liberal churches and synagogues.

When we arrived in 1993 at JFK airport, we were met by the Rev. Don Hodges, a Methodist minister. He drove us to his Westport home, where we stayed for four months. It's not surprising or wrong for immigrants to deepen their focus on religion in a strange land. But I would speculate that in our case we felt such gratitude to the people of differing faiths who helped us that our chances of assimilating, and succeeding, in America were enhanced.

When my mother found a lump in her breast, the late surgeon Dr. Malcolm Beinfeld at Norwalk Hospital operated on her. Dr. Beinfeld, who was Jewish, told us that the Bosnian genocide against Muslims reminded him of the Holocaust. We never received a bill for the surgery or for my mother's subsequent radiation and chemotherapy.

A Protestant dentist, Richard Sands, asked my mother: "What does your son need?" At 13, I was taken to an orthodontist who gave me braces and took care of me for two years. I was embarrassed but deeply grateful that he never asked for a dime.

On my first day of school in Westport, Dr. Glenn Hightower, the principal, and a member of Mr. Hodges's church, introduced me to the seventh-grade English class with his arm draped around my shoulders. He explained that my family had been exiled in the Bosnian war, and he asked the other students to help me out. I had a foreign name, strange accent and could barely speak the language. I felt scared and pathetic, like a mutt waiting to be adopted. I was immediately befriended by Miguel Peman, a Catholic Spanish-American student, who offered me a seat.

When the school-bus driver who drove me home noticed that I had a long walk to Mr. Hodges's house, he introduced himself as Offir, from Israel, and dropped me off right at the driveway, making me promise not to tell anyone. Later, my Greek Orthodox soccer coach, Ted Popadoupolis, gave me rides to practices and games when my parents couldn't.

My brother and I didn't pursue sports with the dreams of Olympic glory that Tamerlan Tsarnaev apparently did. At schools in Westport, Norwalk and Hartford, a series of teachers and mentors helped us formulate a realistic career plan. They geared us toward a more feasible field than sports stardom: physical therapy.

We didn't experience the sort of disappointment and resentment that Tamerlan seems to have endured when his boxing dream went sour. Instead, sports teams gave us a sense of belonging.

Since my athletic father was a health nut, under his strong influence, my brother and I steered clear of the alcohol and drugs that seem to have plagued the Tsarnaevs—and might have fueled depression and hopelessness that, I would guess, twisted their judgment.

It is impossible to know what went on in someone else's childhood or what is happening in another's mind or heart. The Tsarnaevs took one path. My brother and I, despite our family's war displacement, persecution and years of poverty, thrived—but only with stable parents by our side, good jobs and help from many and diverse guardian angels. During a dark week, it was easy to forget that countless immigrants to America have similar stories to tell.

Mr. Trebincevic, a physical therapist who lives in Queens, is the coauthor, with Susan Shapiro, of "The Bosnia List," to be published by Viking next year.

Structural bank regulation initiatives: approaches and implications

BIS Working Papers No 412
April 2013
The paper examines the basic rationale and features of the proposals adopted to separate specific investment and commercial banking activities (Volcker rule, Vickers and Liikanen proposals). In particular, it focuses on the likely implications of such initiatives for: (i) financial stability and systemic risk; (ii) banks' business models; and (iii) the international activities of global banks.

Keywords: regulation, bank business models, systemic risk, economies of scale, economies of scope, too big to fail

JELclassification: G21, G28


The Volcker rule is narrow in scope but otherwise quite strict. It is narrow in that it seeks to carve out only proprietary trading while allowing market-making activities on behalf of customers. Moreover, it has several exemptions, including for transactions in specific instruments, such as US Treasury and agency securities. It is strict in that it forbids the coexistence of such trading activities and other banking activities in different subsidiaries within the same group. It similarly prevents investments in, and sponsorship of, entities that could expose institutions to equivalent risks, such as hedge funds and private equity funds. That said, it imposes very few additional restrictions on the transactions of banking organisations with other financial firms more generally (eg such as through constraints on lending or funding among them). However, it is worth remembering that the current US legislation does constrain the activities of depository institutions.

The Liikanen Report proposals are somewhat broader in scope but less strict.  They are broader because they seek to carve out both proprietary trading and market-making, without drawing a distinction between the two. They are less strict because they allow these activities to coexist with other banking business within the same group as long as these are carried out in separate subsidiaries. The proposals limit contagion within the group by requiring, in particular, that the subsidiaries be self-sufficient in terms of capital and liquidity and that transactions between the legal entities take place on market terms. Just like the Volcker rule, the proposals do not envisage significant restrictions between the protected banking unit and other financial firms, except that they require the separation of exposures to entities such as hedge funds and special investment vehicles (SIVs) in the trading entity.

The Vickers Commission proposals are even broader in scope but have a more articulated approach to strictness. They are broader in that they exclude a larger set of banking business from the protected entity, including also securities underwriting and secondary market purchases of loans and other financial instruments. A very narrow set of retail banking business must be within the protected entity (retail deposit-taking, overdrafts to individuals and loans to small and medium-sized enterprises (SMEs)); and another set may be conducted within it (eg some other forms of retail and corporate banking, including ancillary operations to hedge risks to support them). The approach to strictness is more articulated because it involves both intragroup and inter-firm restrictions (the “ring fence”). As in the Liikanen Report, protected activities can coexist with others in separate subsidiaries within the same group but subject to intragroup constraints that are somewhat tighter, including on the size of the linkages.3 Moreover, a series of restrictions limit the extent to which the banking unit within the ring fence can interact with other financial sector firms. An in-depth exploration of the economic underpinnings of the reforms is provided in Vickers (2012).


A number of jurisdictions are considering whether to implement regulations that impose restrictions on the scope of banking activity, or have already taken concrete steps towards doing so. These initiatives include the so-called Volcker rule in the United States, the proposals of the Vickers Commission in the United Kingdom and the European Commission’s Liikanen Report. Draft legislation on structural bank regulation is underway in Germany and France.

The proposals for structural bank regulation break with the conventional wisdom that the banking sector’s efficiency and stability stands only to gain from the increased diversification of banks’ activities. Rather, structural bank regulation sees the combination of commercial banking and certain types of capital market-related activities as a source of systemic risk. The common element of all the proposals is to restrict universal banking by drawing a line somewhere between “commercial” and “investment” banking businesses. Hence, the various initiatives on structural bank regulation aim at changing how banks organise themselves.

Structural bank regulation initiatives are designed to reduce systemic risk in several ways. First, they can shield the institutions carrying out the protected activities from losses incurred elsewhere. Second, they can prevent any subsidies supporting the protected activities (eg central bank lending facilities and deposit guarantee schemes) from cutting the cost of risk-taking and inducing moral hazard in other business lines. Third, they can reduce the complexity and possibly the size of banking organisations, making them easier to manage, more transparent to outside stakeholders and easier to resolve.

However, the initiatives also raise some challenges. One risk is that banks may respond to the reforms by shifting activities beyond the perimeter of consolidated regulation. In fact, one reason why the Liikanen Report opts for subsidiarisation rather than full separation is to reduce this risk. Migration would be a concern if these activities proved to be systemic in nature.

Second, structural regulation may, through various channels, affect the international activities of universal banks in particular. For example, disincentives for global banking may be created by initiatives seeking to protect depositors and cut the costs of the official safety net within the home country jurisdiction. Moreover, ring-fencing and subsidiarisation may constrain the allocation of capital and liquidity within a globally operating banking group. Through these channels, structural regulation may contribute to a fragmentation of banking markets along national lines.

A third risk is that structural regulation may create business models that are, in fact, more difficult to supervise and resolve. For example, resolution strategies may be rather complex to design and implement for globally operating banks that have to face increasing heterogeneity in permitted business models at the national level.

Financial sector ups and downs and the real sector in the open economy: Up by the stairs, down by the parachute

By Joshua Aizenman, Brian Pinto and Vladyslav Sushko

BIS Working Papers No 411
April 2013

We examine how financial expansion and contraction cycles affect the broader economy through their impact on real economic sectors in a panel of countries over 1960-2005. Periods of accelerated growth of the financial sector are more likely to be followed by abrupt financial contractions than are periods of slower financial sector growth. Sharp fluctuations in the financial sector have strongly asymmetric effects, with the majority of real sectors adversely affected by contractions, but not helped by expansions. The adverse effects of financial contractions are transmitted almost exclusively through the financial openness channel, with precautionary foreign exchange reserve holdings serving as a key buffer.

Keywords: financial cycles, financial and trade openness, real transmission of financial shocks, foreign exchange reserves

JELclassification: F15, F31, F36, F4

South Korea: Give Nukes a Chance. By Denny Roy

South Korea: Give Nukes a Chance. By Denny Roy
Asia Pacific Bulletin, no. 204
Washington, D.C.: East-West Center
March 27, 2013


It is only a matter of time before North Korea fields an actual nuclear-tipped missile that works. With the persistent security threat from North Korea seemingly worsening, recent public opinion surveys show that a majority of South Koreans favor getting their own nuclear weapons. There is no doubt that South Korea is capable of making its own nuclear weapons, probably within a year. Indeed, the Republic of Korea (ROK) has explored this possibility occasionally since the 1970s, each time backing off under outside pressure.

There are some good reasons why, in principle, the world is better off with a smaller, rather than larger, number of nuclear weapon states. Nevertheless, there are two additional principles that apply here. First, nuclear weapons are a powerful deterrent; they are the main reason why the Cold War remained cold. Second, there may be a specific circumstance in which the introduction of a new nuclear weapons capability has a constructive influence on international security—call it the exception to the general nonproliferation rule.

Given the ROK’s present circumstances, Washington and Seoul should seriously consider the following policy change. Seoul gives the required 90 days notice required for it to withdraw from the Nuclear Nonproliferation Treaty, which allows for deratification in the case of “extraordinary events” that threaten national security. The ROK announces its intention to begin working toward a nuclear weapons capability, with the following conditions: (1) the South Korean program will match North Korea’s progress step-by-step towards deploying a reliable nuclear-armed missile; and (2) Seoul will commit to halting and shelving its program if North Korea does the same. For its part, Washington announces that US nonproliferation policy is compelled to tolerate an exception when a law-abiding state is threatened by a rogue state—in this case North Korea—that has both acquired nuclear weapons and threatened to use them aggressively. Pyongyang has repeatedly spoken of using its nuclear weapons to devastate both the ROK and the United States.

This policy change is necessary because US, ROK and (half-hearted) Chinese efforts to get North Korea to denuclearize are not working. [...]

An ROK nuclear weapons capability would impose a meaningful penalty on the DPRK for its nuclear weapons program. Aside from the sanctions ordered by the United Nations Security Council, which have proved no more than a nuisance and are amply compensated for by the growing economic relationship with China, Pyongyang has suffered no significant negative consequences for acquiring nuclear weapons. A South Korean nuclear capability would change that. The North Koreans would understand that their act brought about an outcome they very much do not want [...].

ROK nukes, furthermore, will help deter North Korean provocations. A capacity to attack a neighbor with nuclear weapons provides North Korea with cover for limited conventional attacks. Pyongyang has established a pattern of using quick, sharp jabs against South Korea. The goal is to rattle Seoul into accommodating North Korean economic and political demands. Seoul insists that future North Korean attacks will result in military retaliation by South Korean forces. Since South Korea has not hit back after previous incidents, it is uncertain whether this pledge will deter Pyongyang from trying this tactic again. A DPRK nuclear weapons capability worsens this already dangerous situation. North Korean planners might conclude that Seoul would not dare retaliate against a DPRK strike out of fear that the next step would be a nuclear attack on the ROK. A South Korean nuclear capability, however, would redress this imbalance. If ROK conventional military capabilities are superior to the DPRK and equal or superior at the nuclear level, deterrence against a North Korean attack is stronger.

South Korean nukes would close the credibility gap in the US-ROK alliance. The “umbrella” of America’s nuclear arsenal covers South Korea and theoretically negates the DPRK nuclear threat. However, South Koreans have always questioned the reliability of this commitment which potentially puts a US city at risk in order to protect a South Korean city. The doubts are growing more acute now that a North Korean capability is apparently close to realization. An ROK nuclear arsenal would remove this strain on the alliance and give the South Koreans a sense of greater control over their own destiny.

Pyongyang would not be the only target audience for Seoul’s announcement of intent to deploy nuclear weapons. Like the North Koreans, the People’s Republic of China (PRC) is deeply opposed to an ROK nuclear capability. The announcement would also signal to Beijing that the cost of failing to discipline their client state is rising dramatically. The Chinese are already debating whether the status quo of a rogue DPRK has become so adverse to Chinese interests that China must pressure Pyongyang more heavily even at the risk of causing regime collapse. South Korea’s imminent—and reversible—acquisition of nuclear weapons would strengthen the argument that the PRC must get tougher with the DPRK.

To be sure, this policy change would create its own problems. An ROK nuclear capability would pressure Japan to follow suit. A US-friendly, stable, law-abiding, liberal democratic country getting nukes is not necessarily a bad thing. But if so, the solution is for Washington and Seoul to emphasize that South Korea’s nuclear capability would be temporary and contingent, so Tokyo can remain non-nuclear.  Thankfully, there are precedents for middle-sized states giving up their nuclear weapons.

South Korea’s security situation is deteriorating and for the ROK’s leadership, national security is job number one. It is now time to get past the visceral opposition to proliferation and recognize that in this case, a conditional change of South Korea’s status to nuclear-weapon state can help manage the dangers created by a heightened North Korean threat.