The more I read about Kabul Bank, the more I get depressed about our presence in Afghanistan. As near as I can tell, the executives at the bank, many of whom had multiple links to the ruling government (Karzai’s brother has a 7% stake), decided to massively over-speculate in luxury properties in Dubai with depositor receipts. The chairman of the bank put most of these villas in his and his wife’s name. When this backfired, people started withdrawing their money and causing a run on the bank. Afghan’s Central Bank has taken steps to throw out the management, but the bank runs continue.

Only 5% of Afghans have bank accounts, but Kabul Bank processes payments for the Afghan security forces, and many of the depositors do business with the US government and are crucial to development. That dichotomy shows the difficulty of modernizing a society and building a security apparatus that costs many times the country’s overall GDP. A country that mostly runs on subsistence farming certainly doesn’t need a finance sector this open to corruption. As Juan Cole writes:

The same world-wide real estate crisis that abruptly revealed the ponzi scheme of Bernie Madoff has undone Da Bank Kabul. But imagine if Madoff had not merely been a criminal who preyed on the wealthy, but had bankrolled a president’s political campaign with his ill-gotten gains and had brought the president’s brother and the brother of the vice-president into his inner circle. And imagine if he had been only one of a handful of financiers in New York with substantial capital [...]

President Hamid Karzai is notorious for running interference for his corrupt cronies, and that (Kabulk Bank founder Sherkhan) Farnood and (bank executive Khalilu’llah) Frozi were out of control appears to have been known for some time but nothing was allowed to be done about it. The two have now been forced out, but the question is whether it is in time to save not only the bank (doubtful) but also the entire Afghan financial system, rebuilt after the fall of the Taliban.

The Karzai government is corrupt and rotten to the core. Not a single US soldier should die to prop it up. The lie that we are fighting “al-Qaeda” in Afghanistan needs to be exposed. The US and NATO are fighting four or five groups of Pashtun insurgents, some of them until fairly recently US allies. The goal of the fighting is to keep the Karzai government from falling to the guerrillas and to train up an army and police force that could go on defending Kabul. The Afghanistan National Army from all accounts has poor morale. No wonder. What Afghan soldier or policeman would die for a ponzi scheme?

In a way, this could only have succeeded through a Ponzi scheme. The security apparatus that America thinks Afghanistan needs to prevent an Al Qaeda takeover is not even close to sustainable. Only through funny money or mass transfer payments from Washington could it be perpetuated. And that led predictably to corruption and suffering.

Once again, the myth of a “credible partner” in Afghanistan has been shattered.