Central Bank director Riad Salameh has been the toast of financial analysts everywhere for having apparently steered Lebanon through the global credit crisis unscathed. A friend of mine has penned a minority report, which I offered to publish on the blog. He goes by J of Chalcedon, and is a former resident of the magic kingdom. Enjoy the ride!
Bank Triumphant – The Canonisation of Riad Salameh
By J of Chalcedon
And if that wasn’t enough, the rabble are now horning in on the most exclusive of papal privileges. There’s a new saint in town, and his name is Riad Salameh.
How is Lebanon’s central bank governor crashing the canon? Simple: he’s pulled off the miracle of the moment, detailed faithfully in the English-language press. Capitalism may be in flames, but Lebanese financial know-how has kept the country from even getting singed – in fact, they’re doing better than ever.
The hagiography of Riad the Prudent goes like this:
1) He saw others sowing the whirlwind, and spared Lebanon the storm
… the silver-haired banker became a hero by playing it very, very safe. In 2005, he defied pressure from the Lebanese business community and bucked international trends to issue what now looks like a prophetic decree: a blanket order barring any bank in his country from investing in mortgage-backed securities, which contributed to the most dramatic collapse of financial institutions since the Great Depression.
So as major banks in America and Europe were shuttered or partly nationalized and thousands of people in the U.S. financial sector were laid off, Lebanon’s banks had one of their best years ever.
Billions in cash continue to pour in to the relative safety of Lebanese savings accounts, with comfy but not extravagant yields of 6%. A nation shunned for years as the quintessential failed state has become a pretty safe bet, or as safe a bet as investors are likely to find in this climate.
“Being able to survive and to do well in this crisis,” Salame said, savoring a deep sigh. “I can tell you I was proud of this achievement.”
2) When financial sorcery was fashionable, he stuck to common sense
Banks need to know who they are lending to, said Mr Salameh… Banks also tend to be well-capitalised, partly because they are mindful of previous political crises and consequent economic disruption.
3) He’s always been clever
One incentive for this flight to safety is the growing international reputation of Lebanon’s bankers. The London-based magazine The Banker this month named Central Bank Governor Riad Salameh as the best central bank chief in the Middle East for 2008. Salameh was also named the world’s best central bank governor by Euromoney magazine in 2007.
4) He led the flock out of the wilderness, and into hedonistic comfort
Riad Salameh of the Central Bank, who in the past was often criticised for his conservative approach, feels vindicated.
“I think I’ve proved my point,” he says. “I have personally been stubborn about keeping a very conservative approach to banking, as I believe that this wild extension of credit, these high leverages in order to get more profits into financial institutions were against the very nature of banking.”
As the night falls, the dance floor of the Casino, one of Beirut’s many glitzy nightclubs, is full.
The rest of the world is now being forced to sober up after the wild excesses of the global markets, but here the party’s on.
The Lebanese are a nation of survivors, who have paid a heavy price for the fortunes they are reaping now. Through their troubles they have learned how to party as if tomorrow will never come, but also, against the odds, how to bank for their future.
And the amen chorus is kind of right. RS does look pretty smart, compared to the U.S. geniuses who hit on the idea of taking mortgages that people couldn’t afford, dicing them into products blessed by ratings agencies, and offering a can’t-miss buy in a world where house prices only go up. Whatever the failings of Lebanon’s financial caste, they are innocent of this particular attempt to run dogshit through a Cuisinart and emerge with foie gras. (There’s a suggestive parallel, albeit in the wrong tradition, with St. Thaddeus, who shunned flashy gifts and kept up the good work before ending his career in Beirut. Sample hymn: The Church ever sees you as a shining star, O apostle Thaddeus/Your miracles have manifested great enlightenment.)
A guy from a little country with a hypertrophied bank sector who opts to play it close to the vest in an era of cheap money comes off even better compared to say, anybody in Iceland. What happens when rubes roll the dice? Ask Thorhallur Vilhjalmsson, PR chief for the grandiose Reykjavik concert hall that’s fallen victim to the financial crisis:
“The West is having this great, long cocktail party,” Vilhjalmsson says. “And then, late in the evening, in comes this cute little dwarf, Iceland. And he gets drunk.”
Let’s be fair to the press as well. All of the stories above note, in passing, the broader context of the Lebanese miracle. The banking sector’s position in one of the world’s heaviest public debts, reliance on remittances and deposits from the diaspora, the implicit (if shaky) guarantee from Gulf brethren to underwrite Lebanon – they all rate a mention.
But that’s all they rate, because these accounts of a wee land’s brave stand against economic turmoil are going someplace special: namely, “Lebanon.” Ever heard of it? It’s a quirky little destination, not exactly coincident with any 10,000 square kilometres on the eastern Mediterranean. No, “Lebanon” is something else altogether, perhaps best understood through the following categories that any hack worth his/her salt would invoke.
Climate: Defies characterization. You can swim AND ski.
Society: Open, liberal, cosmopolitan; clannish, feudal, sectarian. War criminal and fief holder, formerly “socialist”, embodies “liberalism.”
Demography: a) women – sloe-eyed, long-limbed creatures, not necessarily cited in direct speech. Their tank tops are held to evince “liberal” political sensibility. See Society, above b) men – mostly unspecified. Chief types include cleric, gunman, magnate and intellectual.
Economy: Services, mainly banking and tourism, notably from the Gulf (see Demography – a).
This Description du Liban, even if it never appeared between two covers, has a genealogy, of course: it originates in English-language print media during The Events. It’s impossible to overstate the influence that the war had on the notion of “foreign correspondent,” for both contemporaries and successive generations. Some of that first generation had a notable run without being enslaved by it. Others sensed the possibilities of a pithy accounting of the world, and never looked back.
The mythic figure of the Lebanese finance guru itself acquired some of its key elements in those days. Consider the case of Edmond Naim, who died in 2006 at the age of 9,500. He wasn’t merely the last surviving eyewitness to Genesis; Naim’s turn as central bank chief provided some of the seminal accounts of homo economicus under fire.
From The Independent on Sunday, 23 September, 1990 (sorry, no link):
We ate on the terrace of his tiny flat atop the central bank building. Had we been able to see out, we would have noticed that every window was broken in the prime minister’s office across the street. But 12-foot walls rose up around us, and all we could see of the sky above was a tiny square in which shone the hungry full moon. It was like sitting in a drawing-room without a roof. The walls were supposed to keep out Christian shellfire.
Before I raised the subject of the gold, Dr Naim told me how he came to have a wall-to-wall lawn on his roof-top terrace. “I tried many things,” he said. “And then, you know, one day I discovered Astroturf. Only Astroturf doesn’t shrink or wrinkle or fade.” In a city where death comes so fast and so unexpectedly, durability is a matter of pride…
I wondered what was at the root of Naim’s power. In a nation of such consummate traders, it had to have something to do with the gold hoard in his basement.
Had the governor actually seen it?
“Every month.” He spoke slowly. He said it was because his false teeth didn’t fit as they should, and the dentist hadn’t been in to visit him.
“What does it look like?”
“It is kept in the vault, in special boxes.”
“Can I see it?”
“There are many keys and many people involved.”
“Perhaps when the governor pays his next monthly visit?”
“Perhaps,” he said, fiddling with the offending dentures. “Perhaps.”
That was a different time, though, and given exceptional circumstances you can perhaps understand a bit of Lebanon exceptionalism. That’s the doctrine that gives us the press that now gives us “Lebanon.” It’s a place so unique, so utterly resistant to the categories and processes which otherwise apply, that you don’t need to ask certain questions.
You can describe people who have learned how to party as if tomorrow will never come, but also, against the odds, how to bank for their future. No need to inquire what becomes of that future if the fiscal deus ex machina of Lebanon’s children and friends breaks down. You can invoke a Lebanese lesson about the crisis of capitalism elsewhere. Don’t bother querying a marriage of finance and state that’s about as unholy as anything Wall Street (R.I.P.) had to offer, or whether the local bank titans aren’t just as responsible as petty politicians for the ruin of Lebanon’s finances and government.
And if anyone from the press corps feels sheepish for swallowing the national tale, maybe they shouldn’t. Guys who wear bigger hats have gone for it as well:
“At this exceptional assembly we wish to declare before the world the importance of Lebanon, its historical mission, accomplished down the centuries.” Guess who?