Abstract
I will begin this talk with a short discussion of the function of warning in the US national security community, and the analytic methodology used by US intelligence agencies (in 1941 and since) to address the problem of warning. I will then present a formal model for crisis warning consisting of a Partially Observable Markov Decision Process (POMDP) intended to assist an intelligence analyst in deciding when to issue an alert to a foreign policy principal decision maker such as the President. The lead time demanded by the principal is a key element in the model. I will spend the remainder of the talk illustrating this warning model in the context of the brewing crisis in the Pacific from July to December 1941, and present results from test runs of the model using historical raw intelligence data from that period. While a probabilistic approach to warning is not a new idea, this research addresses three outstanding issues left unresolved from past efforts to develop such an approach:

1. The need to process multiple dependent signals in a manner that is combinatorially feasible;
2. Incorporation of the time dimension in which intelligence data is received into the inference, and the effect of dynamics on a warning decision where a finite horizon is imposed;
3. Consideration of the fact that the analyst serves as an advisor to the principal decision maker but is not completely aware of the principal’s preference set.

Together with my thesis advisor, Prof Elisabeth Pate-Cornell, I am currently writing a paper that covers the presented material, and I hope to incorporate feedback from this presentation into the paper. Because the paper is currently a work in progress, I am not distributing it at this time.

David Blum attends Stanford University, where he is a 3rd year Ph.D. student in the Department of Management Science & Engineering as well as a U.S. Department of Defense SMART Scholar. He is currently developing a probabilistic model of national security crises, with the goal of improving crisis early warning. His interests also include targeting in counter-terrorism, signatures of WMD proliferation, and models of decisions made by adversarial actors as games with incomplete information. He is a graduate intern in the Counter-Proliferation Operations-Intelligence Support program at Lawrence Livermore National Laboratory.

Between 2004 and 2008 David worked at the U.S. Department of Defense as an operations research analyst. He deployed twice to Iraq, in 2007 and 2008, where,  as member of Multi-National Corps Iraq, he provided direct analytic support to conventional and special operations units. He received his Master's degree from MIT in political science, concentrating in security studies, and his Bachelor's degree from Columbia University in history and physics.

Susan Hyde is an Assistant Professor of Political Science and International Affairs at Yale University, where she is affiliated with the MacMillian Center and the Institute for Social and Policy Studies. She earned her Ph.D. from the University of California, San Diego in 2006, and has held fellowships at the Brookings Institution in Washington, D.C. and Princeton University's Niehaus Center for Globalization and Governance. Her research interests include international influences on domestic politics, elections in developing countries, international norm creation, election manipulation, and the use of natural and field experimental research methods. Her current research explores the effects of international democracy promotion efforts, and her research has been published in World Politics, Comparative Political Studies, Perspectives on Politics, the Journal of Politics. She has recently completed a book entitled The Pseudo-Democrat's Dilemma: Why Election Monitoring Became an International Norm.  She has served as an international observer with several organizations for elections in Albania, Indonesia, Nicaragua, Pakistan and Venezuela, and has worked for the Democracy Program at The Carter Center. She teaches courses on international organizations, democracy promotion, the global spread of elections, and the role of non-state actors in world politics.

CO-SPONSORED BY COMPARATIVE POLITICS

Elias Muhanna is a PhD candidate in Near Eastern Languages & Civilizations at Harvard University and the author of QifaNabki.com, a blog devoted to Lebanese political affairs. He has written extensively on contemporary cultural and political affairs in the Middle East for several general-interest publications, including The Nation, Foreign Policy, The Guardian, The National, Mideast Monitor, World Politics Review, Bidoun, and Transition, and is regularly quoted in media outlets such as The New York Times, The Washington Post, The Financial Times, The Los Angeles Times, National Public Radio, The Christian Science Monitor, Slate, and Al-Jazeera International.

From 2007 to 2010, a financial and economic crisis gripped the United States, Europe and the world. 7 million Americans lost their jobs, 10 million were pushed below the poverty line, thousands of families lost their homes, and many lost their savings. Somewhat lower numbers were reported from Europe, although the structural mechanisms behind the crisis were seemingly similar, eventually affecting not only the West, but the whole world. It is foreseen that the effects of the crisis will last for years, and it is still uncertain if a full recovery will be possible.

Given that a variety of highly speculative practices put into place by the banking and finance sector during the "neoliberal“ decades between the early 1990s and 2007 allegedly played a role in triggering the crisis, the request for more down-to-earth and sustainable ways of dealing with money and finance has surfaced to international attention. Particularly in Europe, social banks were among the most successful financial institutions during the crisis years, with annual growth rates of up to 30%, factually doubling their assets between 2007-10. This unprecedented success was supposedly due to the fact that many European savers shifted their assets from mainstream banks to social banks, driven by the hope that the latter would handle their money in less abstract and egoistic, and more realistic and community oriented ways. In recent years, social banks have forged influential global networks such as the Global Alliance of Banking on Values and the International Association of Investors in the Social Economy, which pursue the ambitious strategy of reaching out to 1 billion people by 2020.

Given that, not least as a result of the crisis, increasing numbers of people are improving their financial literacy and are taking a growingly critical stance towards the mainstream international banking and finance sector as we knew it before the crisis, the seminar poses the questions of whether (and how) social banking and social finance may concretely contribute to improving the current financial system, and how they might help to restore confidence in capitalism by providing “best practice” examples in selected fields.

The seminar will try to provide some answers to these questions by examining the pros and cons of contemporary social finance and by outlining perspectives of structural complimentarity and cooperation between speculative and sustainable finance.

Audio Synopsis:

In his seminar, Professor Roland Benedikter argues that too little has been done to reform the banking and financial sectors in the wake of the recent crisis, then presents social banking and social finance as an alternative system. First, he argues that the widespread bank bailouts of the past few years have "saved the wrong system" and points out that many of the largest US banks, for example, have actually grown since the crisis despite calls by the Obama administration for these banks to downsize or break in to smaller pieces. He acknowledges that new measures initiated by both the Obama administration (establishing a consumer protection bureau; imposing limits on fees by financial intermediaries) and by European countries (banning high-risk transactions in Germany; reducing public liability for private bank bailouts) are steps in the right direction. He adds his own suggestions, including increased regulation, better international agreements on regulating capital flows, a fee on high-risk speculative transactions, and a preventative tax on banks to protect against future crises. Many of these reforms, however, have faced enormous opposition from the major players in the banking and finance sectors in Britain, the United States, and China.  Progress seems to have stalled, with popular figures like Niall Ferguson, who once led calls for dramatic reform, now insisting that the system is too resistant to change, and that simpler goals such as a new hippocratic oath for the financial sector will suffice.

Benedikter then presents social banking and social finance as an answer to the seemingly intractable problems of the traditional system.  He first describes the industry in terms of what it is not. Traditional banks, he argues, made three major mistakes leading up to the crisis: irresponsibility (loans that were too high, too much derivative investment); lack of transparency; and unsustainability (by participating in speculation and contributing to market bubbles). The current economy, he explains, is based on a tripolar system: a "real" economy of manufacturing and tangible goods; and two "side economies" of real estate and financial derivatives, which have steadily drawn capital away from the real economy since 1989. A breakdown of this unsustainable system was predicted by multiple think tanks before 2007, based partly on the frantic growth of the derivatives market (from  $100 trillion to $516 trillion annually between 2001 and 2006 - for perspective, Benedikter cites the annual world GDP figure of approximately $50 trillion).

Social banks, on the other hand, invest 100% of their capital toward responsible, transparent, and sustainable ventures such as green technology and social initiatives. Banks emphasize knowing their customers, which requires them to operate on a smaller scale than traditional banks, and conversely customers know where their money is invested and can even participate in making investment decisions. These decisions  are meant to take the potential social as well as financial return on an investment into account. Benedikter describes this as a "Triple Bottom Line" approach, emphasizing profit, people, and the planet.

A discussion period following the presentation addressed questions including:  What are the mechanisms available to enforcing the triple bottom line approach in social banking and social finance? Are social banks guided by a common charter? What are the details of the proposed high-risk transaction fee? Why have some US social banks been successful while others have struggled?