American capitalism - led by and caricatured as the financial industry centered on Wall Street - is predicated on the notion that the market is driven by fundamentally economic motives. To its admirers, that means its dynamics are dictated by profit motivation. Wall Street's critics call it greed.
The rules and regulations that govern our stock transactions largely reflect this assumption. We discourage undesirable behavior primarily by levying fines and otherwise making it costly to engage in it.
Forgive the obviousness of this question but, what if actors who are interested in affecting our stock market and economy more generally are motivated, not by making money, but by some larger strategic interest? In that case, financial disincentives are likely to prove completely ineffectual.
For example, would our present Maginot line of financial defenses - much of them constructed by legislators bearing names like Chris Dodd, Barney Frank, Paul Sarbanes and Michael Oxley - protect us if avowed enemies of this country sought to inflict a major, and possibly decisive, blow against us, and didn't care if they lost money in the process?
This proposition is explored in a riveting book that will be published later this month by one of my colleagues, Kevin D. Freeman, a Senior Fellow of the Center for Security Policy. In fact, as the title of Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It Can Happen Again suggests, Freeman's thesis is that it has already occurred, with devastating effect. And that worse may yet be in the offing.
By training a certified financial analyst who worked for a decade with one of the giants of modern finance, investment maven Sir John Templeton, the author knows his stuff. Among other things, Freeman reminds us that U.S. enemies - potential and actual - have repeatedly served notice that they understand our market's vulnerabilities to attack.
For instance, in 1999, two senior Chinese colonels wrote an officially sanctioned book entitled Unrestricted Warfare. It identified "bear raids" on stocks to trigger a market collapse as the first in a long list of unconventional weapons that could devastate America.
Another threat of financial warfare was issued by the late leader of al Qaeda. Osama bin Laden boasted that his jihadists were as "aware of the cracks in the Western financial system as they are aware of the lines in their own hands." That from a man who selected the World Trade Center as a target for the 9/11 attacks so as to do massive economic harm to the United States. It was not lost on bin Laden - or America's other enemies - that when the U.S. economy declines, calls intensify for cutting back spending on America's defenses.
No less troubling should be the fact that a very-much-alive spiritual leader of the Muslim Brotherhood, Sheikh Yusuf al-Qaradawi, has described the use of proceeds from shariah-compliant finance as "jihad with money."
Worse, Qaradawi is a top shariah authority for the sovereign wealth fund of Qatar. That position and his preeminence in Islamic jurisprudence world-wide (thanks in part to his popular jihadist program broadcast by al Jazeera Arabic TV) has helped make Qaradawi a driving force in what is now said to be a trillion-dollar "Islamic finance" industry. Under his influence, Islamists have successfully enlisted Western capitalists to help them exploit free markets as a strategic tool for promoting and insinuating their toxic, supremacist politico-military-legal doctrine throughout the Free World, including the United States.
(Incredibly, this stealth jihadist is the man the Obama administration has reportedly tapped to help broker peace talks with the Taliban on Afghanistan. Presumably, it is no accident that the latter have chosen to set up their new diplomatic mission in Qaradawi's adopted home town, the Qatari capital of Doha.)
Is it a coincidence that, as the Wall Street Journal reported in August 2007, shariah authorities gave their blessing to the practice of "short selling" just as the stock market was peaking?
As even former Obama economic guru and Treasury Secretary Lawrence Summer has observed, sovereign wealth funds (SWF) serve the interests of the sovereign first, and profit second. Freeman believes we face a particular danger from the fact that most of the world's SWF sovereigns are in China and the Middle East - the latter, increasingly governed by the dictates of shariah-compliant finance.
I have accompanied Kevin Freeman in briefings he has conducted at senior levels in official Washington and with top financial players in New York, Dallas and Houston. Those of his interlocutors in the national security community seemed, without exception, to accept that economic threats to the United States could come from quarters not interested in monetary returns. Unfortunately, such folks typically lack Freeman's deep understanding of financial markets, their vulnerabilities and how they could be exploited.
By contrast, when Kevin Freeman has presented his findings to financial market participants, they rarely get it. Typically, they fall back on the traditional assumption that anyone who buys Credit Default Swaps, stocks or bonds has an exclusively economic motive. The idea that these instruments could be used as weapons is so foreign to them that they often push back angrily, denying the obvious.
Yet, despite willful blindness and blistering attack, Freeman's warnings stand up to scrutiny. His Secret Weapon should receive it at the highest levels of both the national security and financial security communities, and at once.