None more blind than he who doesn’t want to see
None so deaf than he who doesn’t want to hear

There is much drama about the events in Pakistan, where the discovery and killing (or was it the other way around) of Osama bin Laden last weekend has brought out of the proverbial woodwork a host of people prone to finger-wagging. Such luminaries as the CIA head and the United States president’s counterintelligence adviser have weighed in with what Pakistan as a country should or shouldn’t have been doing in this matter.

This column has long criticized the actions of the government and military in Pakistan (see The ‘tragi-terror’ that is Pakistan, Asia Times Online, September 14, 2010) and blamed the myopia of the US and Europe in seeing and hearing abject reality for what it is. There is here, therefore, neither there surprise nor the consternation shown by American and European lawmakers and other commentators in this regards. Indeed, the discovery and killing of Osama in a country other than Pakistan would have been the real surprise.

In any event, the key focus of this article is to examine the pattern of self-deceit that appears to be sustaining a host of governments in matters of state as well as more mundane subjects such as the economy, financial systems and jobs growth. Expressed in simplistic terms, politicians across Europe and America have neither the willingness nor the ability to confront harsh truths.

For a few days after 9/11, the US government of George W. Bush and Dick Cheney dilly-dallied about how to treat the renegade nuclear power that was Pakistan before accepting a delusional version of reality that somehow the country that had spawned multitudes of terror movements, including the Taliban ruling Afghanistan at the time, could actually be trusted to turn 180 degrees and start supporting America in its “war on terror”. So a financial package worth a few billion dollars was crafted that was somehow going to turn Asia’s basket case into a viable partner.

Fast forward a few years, and the same delusion exhibited itself when another tough decision had to be made in the days after the collapse of Lehman Brothers (technically the key event, ie rejection of Federal aid for Lehman, was on 9/11 of 2008, but that’s one coincidence too many, so the actual bankruptcy was pushed to September 15, 2008) when the US government of George W. Bush and Treasury Secretary Hank Paulson had to decide what to do with the other banks that were looking a little worse for wear. Once again, a romantic notion of “redemption” was ushered into the public parlance and a rescue package was crafted with firm promises that the banks would learn to behave properly from thereon.

Pakistan from the mid-1980s but much more so from the beginning of 2002 had been weaned by two parental figures; namely the Wahhabi Kingdom of Saudi Arabia and the United States of America. One provided cheap oil and money to keep the madrassas that recruited warriors into a holy war going; the other provided military aid that would make nervous opponents like India and Israel back off into the quiet corner. The idea was that economic and military aid would lead to a stronger Pakistan that could shake off its feudal society and arrive on the global stage as a full-fledged and responsible player. And yet no one really considered what the sum total of these opposing philosophies would be on the evolution of Pakistan as a society.

The same vein of (il)logic has applied in the global financial system since 2008; namely that between the parental figures in governments (in Europe and the US) and central banks there was a great attempt at inflating the financial positions of banks so that they could return to profitability and thereby resume a useful role in society. This has come to naught as none of the rescued banks have bothered to start lending more to governments and people in their home countries; instead they are using all their newfound capital and liquidity to purchase junk securities and speculate in commodity markets.

Think through this logic in moral terms. When you have socially destructive errant behavior, the worst thing possible may well be to bail out certain culprits in the obscene hope that their ways can be changed. If you wanted to stop drug pushers in the neighborhood, it would be a good idea to remove demand – ie cure the addicted folks – rather than attempt to buy the drug pushers out. The latter course of action would only result in the perverse situation of more people taking up drug-running in the hopes of either making money or being bought out.

For Pakistan, the aid given for the fight against Bin Laden was simply too lucrative to actually pursue him and his cohorts: he became the proverbial golden goose. Additionally, the fear of confronting Pakistan that was shown by the US and Europe in 2001 created worse behavior in the years hence, such as nuclear proliferation. In the case of the US and European banks rescued by taxpayers, the result was just the same as for the drug pushers described above: to create perverse incentives for even worse behavior.

Transgressions were ignored and evidence of clear crimes was hurriedly swept under the carpet. In the case of Pakistan, revelations around the proliferation of nuclear technology to Iran and North Korea were quietly brushed out of the airwaves as politicians in the US and Europe averred that Pakistan was as much a victim as a perpetrator of such crimes.

In the world of banking, various scandals in the construction, sale and disposal of risky assets (Collateralized Debt Obligations, Asset-Backed Securities and whatever else have you) were all quietly dropped from public view. As I wrote recently, the likelihood that bankers will ever be brought to justice for their crimes is too remote to even bother calculating (see With friends like these … , Asia Times Online, April 22, 2011). Some of the worst practitioners may become respected CEOs of their banks and, even worse, others may even be employed to run central banks – such as Mario Draghi who previously worked for Goldman Sachs and is now a frontrunner to be the next president of the European Central Bank. Similar odds exist for the event that Pakistani intelligence and military folks responsible for housing Osama bin Laden will ever be brought to justice. Heck, one of them could become the country’s next president.

Amid all this self-deceit, various other survival strategies are slowly bobbing up to the top, in turn promising to upset the carefully positioned apple carts. An unpopular president desperate to win back a majority in public support against an ever-rising tide of Republican lawmakers’ demands was one such catalyst. Instead of using the “usual channels” favored by the previous administration, President Obama decided to send a kill force without giving any information to the government of Pakistan when the nature of the suspected occupant of House no. 254 was revealed.

In much the same way, a number of similarly desperate officials working among the regulators – the Securities and Exchange Commission in the US and the Financial Services Authority in Britain among others – have been harrying the banks to settlement positions on various transgressions. Somewhere along the line, a broadside will end up blowing the cover off one scandal or the other (an “Osama moment” for the financial system) and bring down the whole deck of cards.

That however, is the entire extent of the good news in this matter. The general public as well as the investing public who are paying for the misadventures of governments around the world would like some results from time to time. It is their tragedy that any results that will arise will do so purely by happenstance.