Edinburgh to Kabul


the regional meeting of the Mont Pelerin Society in Stockholm from August 16 –
20 I waited out the go ahead to proceed to Kabul in Edinburgh. Afghanistan’s
elections took place on the 20th and our security people wanted to
see how conditions in Kabul developed in the week following before approving my
travel. Thus I spent a week enjoying the Edinburgh Festival in the midst of a
month long orgy of music, dance, and drama. Combining the International
Festival with the Fringe Festival, there are thirty to forty performances every
day to choose from.


is a beautiful old European city located in the lushly green rolling hills of
central eastern Scotland. The heavens watered the countryside several times
every day I was there. I was the guest of a fellow Cayman Islands Monetary
Authority director and former dean of the University of Edinburgh Law School,
whose house is in the tree lined, stately neighborhood of The Grange and close
enough to the center to walk to all of the Festival events.


all of the U.K., Scot’s drive on the left hand side of the road. Usually that
means that pedestrians also walk on the left side of walking paths, but I could
not detect such a habit in Edinburgh. In addition to thoroughly enjoying the
Festival and walking past the flowering yards of Gothic and Georgian homes
built centuries ago, I was confused and amused by the fact that the backs of
buses liked very much like their fronts, making it all the more difficult to
figure out which way they were going, adding to my confusion over driving on
the left. Another “amusement” was the fondness of taxi drivers, like their
London counterparts, for making as many turns as possible between any two


hours after leaving Edinburgh early Thursday morning I was in Kabul (which
included a seven hour stop over in Delhi) to continue my technical assistance
to the central bank in formulating and implementing monetary policy. Delhi was
an interesting bridge between the developed West and the utterly impoverished
Afghanistan. India has been growing rapidly for almost two decades but
continues to house hundreds of millions of extremely poor people. If it can
continue to grow, this will continue to change for the better. But India
remains the most overly bureaucratized country I have ever been in. Twenty-five
or so years ago, I counted 12 checkpoints from the entrance to the Delhi
airport to the plane. This involved rechecking and rechecking the same two or
three items. Today, post 9/11 where they have new things to check for (such as
the souvenir match book in my computer case—discovered at the last check while
boarding the plane) the number of check points has been greatly reduced (to
five or six—I lost track) but still employed several dozen people just to check
me and my carry on.


is a different world all together. It seems a time two thousand years earlier
and after several decades of war totally devoid of any of the simple charm it
might have once had. Though Kabul has change a lot since my first visit in
January 2002—this is my 9th visit since then—it has not been rebuilt
as much as it should have been over the past seven and a half years. You can
see earlier pictures and earlier notes at www.facebook.com/wcoats. It does
finally have a new international air terminal and a few new buildings downtown,
but is characterized by dust, ruble, and trash.


security briefing this time was longer and more restrictive than earlier. The
Table of Contents of my Briefing Notes includes, for example, “Immediate
Actions on Rocket Explosions, heavy small arms fire” and “Earthquake emergency
procedures” which seems to cover a broad range of possibilities. It includes Security
Advisory No.3, which begins with: “You will see, below, that a security
advisory has been sent out by the CSA on behalf of the DO to the SMT members
and ASCs.” ????


security is event everywhere. The security around the central bank and the car
entrance has been dramatically strengthened. I am no longer allowed to got out
of my armored car outside the gates and walk in. To enter the Governor’s office
within the bank, my brief case is now thoroughly search and I must surrender my
Blackberry and two-way radio to armed guards for the duration of my visit with
him. On the other hand a new building on the central bank grounds has been
completed and occupied and the courtyard cleaned up. It actually looks quit
nice. The old water well pump is still there and still used but now looks more
out of place.


our first meeting of this visit, the Governor, who returned from exile in the
U.S. to again lead the central bank just one week ahead of my own first arrival
in January 2002, reminisced about those early “post” Taliban days. “Everything
was so hopeful then,” he said. “Your country made a tragic mistaken to leave
Afghanistan to fight Iraq. Now look where we are.” His central bank, on the
other hand, is becoming a stronger more professional institution with every passing


conversations on this visit have been dominated by discussions of the still
unknown outcome of the Presidential elections held here August 20th. The
results (whether President Karzai will win out right or be required to face
Abdullah Abdullah, a former Foreign Minister, in a run off) will not be known
until after I have left. At a dinner at the Canadian Embassy (the new Canadian
Ambassador is my old friend Bill Crosbie), Mina Sherzoy made the interesting
observation that despite many allegations of significant voting fraud and
irregularities, this election represents significant progress in the
development of democratic institutions in Afghanistan. She said that the
televised sight of the President having to defend himself in debates with other
candidates and open public discussions among the population would have been
unthinkable a few years ago. Mina was born in Kabul, fled to the U.S. during
Soviet occupation and returned in 2002. She is the founder of World
Organization for Mutual Afghan Network (WOMAN), founder of Afghan Women
Business Association (AWBA) in Afghanistan, the founder of Afghan Women
Business Federation (AWBF), and a beautiful woman. She allows some of us to

Lockerbie Bomber – Comments

I received very interesting comments about the Lockerbie
bomber from some of you. Thanks. I should add that my Edinburgh host lost a
student on that fight and one of my IMF colleagues missed it and thus is still
with us. He is a Lebanese Palestinian and no he didn’t miss it on purpose.



In 1988 I was serving as a flight attendant for Pan Am,
regularly crossing the Atlantic on flights from Washington.  I had
joined the company in January of that year, and during training had met and
befriended an extraordinary young woman whose (short term) goals were the same
as mine – take advantage of a rare opportunity to go places and see things that
we might not have otherwise have been able to do. 

She opted to transfer to the London base in the fall of
that year, and, as fate would have it, decided to work Pan Am 103 on December
21st – a flight she was not originally scheduled to work.

I do not know whether Mr. Al-Megrahi is guilty or
not.  Nor can I know whether he was truly released for humanitarian

What I can say is that when I think back to that December
day I remember the wonderful woman I met, thought so fondly of, and
whose bright life was stopped tragically short….along with so many people
just like her.  


Bill (Moore, Falls Church, Va)



Hi Warren,


Interesting.  I had
forgotten about the Iranian airliner.  But you piqued my interest in
suggesting Libya had no motive for bombing the Pan Am.  The link below may
be of interest.  It includes the other hostile actions between US-Libya,
notably, the US bombing of Tripoli, which killed one of Gadafi’s children and
injured two others.  Two years later the Pan Am was bombed.  http://en.wikipedia.org/wiki/Bombing_of_Libya



Bob (Gregorio, Arlington Va)



Pretty disgusting is what I make of it. Really no shame.
If the Scots wanted to be humanitarian they could have flown in his friends and
relatives for the final weeks of his life. How humanitarian were the Libyans by
holding on totally trumped up charges these French and Bulgarian nurses for I
don’t know how long?


Jan Willem van der Vossen (IMF colleague)



A very nice man
therefore. Oddly enough I heard about Megrahi many years before Lockerbie from
my Milano friend. Ing. Franco Giugovaz was a contractor in Libya who fell out
with his local partner, who called in his secret police friends, in the usual
way. Megrahi threatened to have him killed if he did not leave the country
& all his equipment behind. Megrahi also personally took Franco’s
hand-made 4×4  desert SUV with all sorts of gadgets. It is still parked in
front of his house. Do pay a call on Megrahi when next there and ask him where
he got it from.


Edward (Luttwak, Washington,



No doubt there is plenty more to the investigation than
a history of clothing, but it makes me wonder if a man should be nervous should
clothing go missing from his wardrobe, and whether a man should ever give used
clothing to charity for fear that a stray hair will make him the object of
enthusiastic detectives.


David (Garland, Roanoke, Va)



Bravo, Warren, for a bit of level-headed commentary.
When one considers that the circumstantial evidence which led to al-Megrahi’s
conviction was supplied by a Maltese shopkeeper who was paid for his evidence
by the Americans and taken fishing by the Scottish police afterwards, the
security of the conviction does indeed become questionable. And the witness
statement that the baggage room at Heathrow was entered, and, possibly, another
case added, was never admitted to the court for examination. Much has been made
by the “guiltyists”, to coin a term, of the fact that he has never expressed
any remorse. Well, he has always maintained his innocence, so why should he? No
one is arguing that he is a nice guy, but it seems plain, as you suggest, that
our dear governments have been busy with something else in the background.



Martin (Anderson, A Scotsman living in London)






That is a very thoughtful and balanced letter.  It
should be run in the LA TIMES and San Francisco Comical.  You might have
mentioned how unreliable eye witness testimony is, as well.  Forensic
evidence is no better than eye witness testimony when it is coupled (as here)
with it.  I hope that the covered up evidence of the "railroad"
is forthcoming.


Bill (Hulsy, Santa Anna, CA)


Lockerbie bomber – Where is she?

The sight of the convicted Lockerbie bomber arriving home in
Tripoli to a hero’s welcome is repugnant to anyone who believes Mr. al-Megrahi
is guilty. My friend Tom Lauria asks: “What are we to make of al-Megrahi’s
official hero’s welcome? It is so offensive to me for Libyans to be cheering
the murderer of 270 innocent people. I will never comprehend the Arabist
mentality.” Be careful. Why assume that Libyan’s were cheering someone they
thought was a murderer? Most of the families of the victims here in Britain think
Megrahi is innocent and are angry that the killer(s) have never been brought to
justice. Here is a BBC interview of the father of one of those who died over Lockerbie:
In this context did Libyans behave any differently than American’s would if,
say, the Iranian’s released an American we believed to be innocent?  

Lockerbie bomber

I arrived in Edinburgh yesterday to the news that the
Scottish government was about to release Abdelbaset Ali al-Megrahi, convicted
of killing 270 people when Pan Am Flight 103 blew up over Lockerbie in 1988, on
compassionate grounds. Mr. Megrahi is expected to die of cancer within three
months. I am staying here in Edinburgh with the former dean of the Law school
of the University of Edinburgh and his medical doctor wife. To my surprise my
law Professor friend had been involved in the Megrahi case. He provided me with
the most fascinating background and speculations on the case and these most
recent developments. They provide a very different picture than gained from the


The explosion of Pan Am 103 over Lockerbie precipitated the
largest criminal investigation in British history. Impressive forensic investigations
traced clothing in the suitcase carrying the bomb to a shop in Malta. The
identification of Megrahi from pictures by the Maltese shop keeper many months
later as the person who bought the clothing—the primary evidence against him—has
been the subject to much debate. When the U.S. and Brittan issued indictments
against Mr. Megrahi he was home in Tripoli. Libya refused requests to extradite
Mr. Megrahi for trial in the U.S. or U.K. on the grounds that, as is the case
of all civil law countries, its constitution and practice did not permit it to
extradite its citizens for trail abroad. President Gaddafi offered to try
Megrahi in Libya. This offer was refused and the West imposed economic sanctions
on Libya for its “lack of cooperation.” My host became involved as a result of
the growing dissatisfaction of western commercial interests and of Middle
Eastern government’s with the economic sanctions and isolation of Libya. Every
one wanted to find a face saving way to allow Megrahi to be tried in a way all
sides could agree to. My host developed a plan that Gaddafi indicated he would
accept for a trail conducted in the Hague by the International War Crimes
Tribunal. As the crime had occurred over Scotland, Scottish courts had jurisdiction.
My hosts too easy and too cheap plan was rejected in favor of a $200 million
plan to build a court on an unused Scottish air base in the Netherlands and try
Megrahi there (technically on Scottish soil from the Scottish perspective)—I am
not making any of this up. Mr. Megrahi was convicted by a court of judges rather
than a jury of peers but his alleged accomplice was acquitted on the grounds of
insufficient evidence.


One of many problems with the conviction of one and the acquittal
of the other was that Libya had no motive for such a crime. The most plausible alternative
scenario involves Iran outsourcing the crime to Syrians in Damascus as revenge
for the American Air Force shooting down an Iranian commercial passenger plane
and killing all (several hundred) passengers under the mistaken belief that the
plane was military and heading toward an American ship—surely one of our bigger
embarrassments. The British families of those killed in the crash largely
believe that Mr. Megrahi is innocent and the American families largely believe
the opposite.  


My host pointed out that Mr. Megrahi’s second appeal was
underway. He is of the view that the appeal was likely to reveal very embarrassing
improprieties in the investigation and efforts of the authorities to obtain a
conviction. If Mr. Megrahi died in prison the appeal would have to go forward.
However, as part of Mr. Megrahi’s release the appeal was dropped. If the facts
would have been embarrassing, the American and British authorities will now be
spared that embarrassment forever. His release may have had nothing to do with
compassion. Today’s The Times (of
London) states on its front page: “Last week, al-Megrahi abandoned his appeal
against conviction amid allegations that a top-level cover-up had been agreed
to prevent the exposure of a grave miscarriage of justice.” 


I think it is time to go enjoy the Festival. The Lady Boys
of Thailand are performing in the park near by next to the tent of the Moscow

A note from Wolfie

After living in Europe for
many years, my friend
Ernest McCall
returned to the U.S. in May for a few months to test whether he wanted to relocate
back to North America. For the time being his answer is no. I asked him why and
here is his reply. His letters are always fun to read.


Hi from Amalfi…   we
took the hydrofoil here yesterday morning from Capri.


Im sitting in our
hotel’s lobby, the cloister of a convent founded in the 1200s by St. Francis,
using Anton’s MacBook (the one I gave him when I got back from DC).


To answer your
question, not very succinctly I fear: after 14 yrs. in Europe (3 in high
school, 1984-87, and then continuously since 1998), I feel as comfortable or
more comfortable here than in the US.  Better food, nicer architecture,
more educated people (not the elite, just the average guy on the street),
better public transport, longer history, a bit more realism or maybe cynicism
about human creation/accomplishment, blah blah blah.


I don’t want to rent two
places, e.g., here and in the US (DC or SF are my first choices, Portland or LA
or San Diego would be second choices), because everyone I know with two homes
spends most of their time in one or the other, as opposed to going to new
places.  I have a friend who has rented an apartment in St. Moritz for
about ten years, and needless to say, he never skis anywhere else.  My
brother has a house on a little island in the San Juans (Wash. State), he can
fly his family up there easily from Portland and their cabin backs onto the
landing strip, but again, they then end up hardly going anywhere else.  I
do not feel rich enough to maintain two homes (where rented or owned) and then
to spend another 3-4 months elsewhere.  And I don’t want (yet?) to spend
all my time in the same two places, no matter how different (another friend, a
painter, lives between an apartment on 56th St. just off Fifth Ave. and a tiny
Umbrian hill town).  So, if the choice is staying in Europe or coming back
to the US…   I dunno…   maybe it’s just inertia/laziness.
 Like most people, I *hate* moving, esp. internationally.  I can always
come back to the US whenever I want, right? It’s probably cheaper and much
easier to pay a lot more per month for a fully furnished apartment through an
agency like pied-a-terre, for three months here or four months there, than to
in fact move to DC and sign a long-term lease, sign up for utilities, etc.,
esp. if I don’t want to give up my apartment in Europe.


Then there’s always the
thought of moving somewhere else, e.g., Berlin or Paris or Rome or whatever.
 For a variety of reasons – subject of another drawn-out email, ha ha ha –
I’ve decided not to do that for now, I plan on renewing my lease in October of
this year.  I pay annually and in advance (my landlady loves me), so maybe
next summer, I’ll start whining about this matter again, where oh where in this
big wide world to live???  Basically, I get tired of certain things about Istanbul
at times, but when I’m gone, I miss it, esp. my panoramic view of the
Bosphorus, the wonderful seafood, my funny & entertaining group of friends,
the level of service / low cost of labor, etc.  And I am old enough to
know the grass is not greener, etc., I would get very sick of certain aspects
of Berlin or Paris or Rome, too.


I think the real problem is
that we die.  It sounds silly, but I’m being serious.  My dad totally
understands, i.e., not enough time for that spring in Seville and that summer
in Siberia and that autumn in Amsterdam and so forth.  He once asked me
about going somewhere or other, and I told him, "oh, you should go there
in October, the weather’s lovely then," to which he replied, "Ernest,
the weather’s lovely *everywhere* in October… in our mid-70s, your mother
& I need more Octobers in our lives, dammit!"


OK, off with Anton to the
saltwater pool + diving area, sort of built into the cliffs below the hotel.
 We just toured the oldest paper factory in Europe this morning. I didn’t
know that Amalfi was a center of papermaking since the 10th century.  It
was also – hard to believe for such a tiny place – a real rival to Venice and
Genoa and Pisa. These four cities still today hold an annual Regatta dei
Quattro Reppublichi (it changes location each year, i.e., each city gets it
every four years). Amalfi had ambassadors in Constantinople [Istanbul] and all
around the Arab world, it had 80,000 people at its peak, but most of them slid
into the sea in an earthquake in 1350 or so…   bummer.  Today the
town itself (without the surrounding villages) has about 3,000 people, so told
us the boy who sold Anton a belt this morning.


Renting a motorboat tomorrow
and going to Positano, some sort of local festa with fireworks, and then it
becomes a techno-rave-party on the beach, no doubt full of GORGEOUS tanned
Italian teenagers, our mouths hang open as we walk around these little towns.


OK, that’s enough for now.


Enjoy your time in Scotland
and London, good luck in Delhi and Kabul.




Pay Bonuses

My March 19 and 23 blogs on AIG Bonuses hit many nerves. It is a difficult and sensitive topic. Today’s Washington Post has two excellent follow up articles on the subject that I highly recommend to anyone interested in that topic. Just click on the titles.

Brady Dennis and Tomoeh Murakami Tse,  “Pay Czar Quietly Meets With Rescued Companies”, The Washington Post, Sunday, August 9, 2009, Page A01.

Amity Shlaes, “A Better Umpire for Corporate Pay” The Washington Post, Sunday, August 9, 2009, Page A17.

Unintended Consequences


I would like to share two quick thoughts with you that fall
under the heading of Unintended Consequences.


Sectarian strife in
: Late Monday I attended a presentation at the New America Foundation
by Wadah Khanfar, the director general of the Al Jazeera Network (the Arab TV
news network headquartered in Qatar, now with an English language channel). He
is a very interesting and impressive guy. His first observation was to totally
refute the nonsense that Muslims, Arabs or Arab Muslims dislike American values
of liberty, respect for the individual, religious freedom, etc. (it’s the
policies stupid).


Mr. Khanfar was the Al Jazeera bureau chief in Baghdad
during America’s invasion of Iraq. At Monday’s presentation he was asked if Al
Jazeera had a Sunni or Shia bias in its Iraq reporting. He replied that Al
Jazeera has strict, professional reporting standards and does its best to
adhere to them. He noted that in 2003 he and his fellow reporters did not even
know whether public figures in Iraq were Sunni, Shia, Christian, Jewish or
something else. Only when the U.S. designed elections requiring a balance of
religious group representation on slates of candidates did these officials need
to state their religious affiliations, thus bringing that issue into public
focus—the opposite of the intended purpose. You can see his entire presentation
here: http://www.youtube.com/watch?v=thg0owasbLw


Executive pay and
corporate governance
: A cornerstone of capitalism is the belief that the
desire for profit by owners will maximize the prospects over time of capital
being allocated to the uses most wanted by consumers. Long-run profit
maximization is a good thing. Venture capitalists deliberately take large risks
for potentially big gains knowing that they will often fail, but it is their
money they are risking. Owners (shareholders) of established companies are
generally interested in the long-run survival and profitability of the firms
they own and are thus less interested in short-run gains that jeopardize the
long run profits of these firms. If paying high prices for the best talent
contributes to the prospects of greater profits over time, owners will want to
do so.


This characterization of capitalism is hard to reconcile
with the rules of corporate governance we now have in the U.S. “New York
Attorney General Andrew M. Cuomo reported that the nation’s nine largest banks
handed out $32.6 billion in bonuses last year even as they ran up more than $81
billion in losses and accepted tens of billions of dollars in emergency federal
Do such bonus rules reflect the judgment of owners of how to maximize profits
or the exploitation by management of short-term rents at the expense of
owners?  It may shock you, as it
did me, to learn how little owners can control the remuneration of those who
manage the firms they own.


“’Under this bill, the question of compensation amounts will
now be in the hands of shareholders and the question of systemic risk will be in
the hands of the government,’ said Rep. Barney Frank (D-Mass.), who leads the
House Financial Services Committee and who authored the bill.”[2]
Among other things the “bill also gives shareholders the right to reject a pay
package, but their vote would be
[3] I always
thought that they had the full authority to approve pay packages. This is
shocking. Corporate governance rules need to be strengthened more than Barney Frank’s timid bill to put owners in
charge of managers.

[1] By David
Cho and Tomoeh Murakami Tse
, "House
Backs Greater Say on Pay by Shareholders"
  The Washington Post,
August 1, 2009, page A9.

[2] Ibid.

[3] Ibid.