Speculation and uncertainty are the Devil

What is it with politicians and CDS?
Available at http://ftalphaville.ft.com/blog/2009/01/29/51850/what-is-it-with-politicians-and-cds/

FT Alphaville does not believe credit default swaps are The Devil, but many politicians and a host of people who really should know better are convinced that the CDS market is the cause of all the world’s ills, and should be regulated out of existence – immediately. Take the draft bill proposed by Collin Peterson, chairman of the agriculture committee of the US House of Representatives. His bill would require all CDS trades to be processed by a clearing house; more significantly, it would ban “naked” CDS trading – i.e. any trades in which protection buyers did not own the underlying bond referenced by the contract. Naked CDS trades account for about 80 per cent of the market.

This approximates to requiring anyone who is trading in the oil market to be prepared to take physical delivery of barrels of oil, or, as professor Mark Williams of Boston University put it to Bloomberg:
Saying you only can trade if you have the physical is like saying you only can write calls if you own the underlying. Imagine what impact that would have on our existing options market if such a ‘naked’ rule was mandated.

ISDA, the de-facto voice of the industy, is less than impressed, as per this terse statement:
“This bill would increase the cost and reduce the availability of essential risk management tools while failing to address the true causes of the credit crisis,” said Eraj Shirvani, ISDA Chairman and Head of European and Pacific Credit Sales and Trading at Credit Suisse.” Throughout the crisis, credit default swaps have remained available and liquid. They have been the only means of hedging credit exposures or expressing a view at a critical time for the industry. Impairing their use would be counterproductive to efforts to return the credit markets to a healthy, functioning state.”Not even the lawyers like the proposal. Robert Claassen, who chairs the derivatives and structured products group at Paul Hastings in New York, finds it “difficult to understand where the House agricultural committee is coming from”:

To the extent the committee is concerned about speculation in CDS, they should consider giving the CFTC or the Federal Reserve Board the right to establish margin requirements for CDS exchange trades that are not ‘bona fide hedges’ or the like, similar to the rules governing futures contracts. But an outright ban? While they are at it, why not prohibit the writing of any call option that isn’t a covered call? Or perhaps prohibit anyone from owning a house unless they intend to live there … the possibilities are endless! The CDS market has become a whipping boy for politicians, policy makers and talking heads attempting to earn some populist credentials. Is it too much to ask that they also seek to understand the role of the markets they are so fond of vilifying?


My Recent Publication


Dear Readers,

I am very grateful to share my recent publication in the International Review of Business Research, Volume 5 No.1, January 2009 entitled “Corporate Governance from Western and Islamic Perspective”. This piece is an improved version of a working paper presented in the Annual London Conference on Money, Economy and Management held at the Imperial College, London last year. This article is available at http://www.bizresearchpapers.com/attachments_2009_01_13/23.Zulkipli.pdf

Enjoy Reading!

Best Regard

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  • A True Story

    By Ilan Pappe. Available at http://www.lrb.co.uk/web/14/01/2009/papp01_.html

    In 2004, the Israeli army began building a dummy Arab city in the Negev desert. It’s the size of a real city, with streets (all of them given names), mosques, public buildings and cars. Built at a cost of $45 million, this phantom city became a dummy Gaza in the winter of 2006, after Hizbullah fought Israel to a draw in the north, so that the IDF could prepare to fight a ‘better war’ against Hamas in the south.

    When the Israeli Chief of General Staff Dan Halutz visited the site after the Lebanon war, he told the press that soldiers ‘were preparing for the scenario that will unfold in the dense neighbourhood of Gaza City’. A week into the bombardment of Gaza, Ehud Barak attended a rehearsal for the ground war. Foreign television crews filmed him as he watched ground troops conquer the dummy city, storming the empty houses and no doubt killing the ‘terrorists’ hiding in them.

    ‘Gaza is the problem,’ Levy Eshkol, then prime minister of Israel, said in June 1967. ‘I was there in 1956 and saw venomous snakes walking in the street. We should settle some of them in the Sinai, and hopefully the others will immigrate.’ Eshkol was discussing the fate of the newly occupied territories: he and his cabinet wanted the Gaza Strip, but not the people living in it.

    Israelis often refer to Gaza as ‘Me’arat Nachashim’, a snake pit. Before the first intifada, when the Strip provided Tel Aviv with people to wash their dishes and clean their streets, Gazans were depicted more humanely. The ‘honeymoon’ ended during their first intifada, after a series of incidents in which a few of these employees stabbed their employers. The religious fervour that was said to have inspired these isolated attacks generated a wave of Islamophobic feeling in Israel, which led to the first enclosure of Gaza and the construction of an electric fence around it. Even after the 1993 Oslo Accords, Gaza remained sealed off from Israel, and was used merely as a pool of cheap labour; throughout the 1990s, ‘peace’ for Gaza meant its gradual transformation into a ghetto.

    In 2000, Doron Almog, then the chief of the southern command, began policing the boundaries of Gaza: ‘We established observation points equipped with the best technology and our troops were allowed to fire at anyone reaching the fence at a distance of six kilometres,’ he boasted, suggesting that a similar policy be adopted for the West Bank. In the last two years alone, a hundred Palestinians have been killed by soldiers merely for getting too close to the fences. From 2000 until the current war broke out, Israeli forces killed three thousand Palestinians (634 children among them) in Gaza.

    Between 1967 and 2005, Gaza’s land and water were plundered by Jewish settlers in Gush Katif at the expense of the local population. The price of peace and security for the Palestinians there was to give themselves up to imprisonment and colonisation. Since 2000, Gazans have chosen instead to resist in greater numbers and with greater force. It was not the kind of resistance the West approves of: it was Islamic and military. Its hallmark was the use of primitive Qassam rockets, which at first were fired mainly at the settlers in Katif. The presence of the settlers, however, made it hard for the Israeli army to retaliate with the brutality it uses against purely Palestinian targets. So the settlers were removed, not as part of a unilateral peace process as many argued at the time (to the point of suggesting that Ariel Sharon be awarded the Nobel peace prize), but rather to facilitate any subsequent military action against the Gaza Strip and to consolidate control of the West Bank.

    After the disengagement from Gaza, Hamas took over, first in democratic elections, then in a pre-emptive coup staged to avert an American-backed takeover by Fatah. Meanwhile, Israeli border guards continued to kill anyone who came too close, and an economic blockade was imposed on the Strip. Hamas retaliated by firing missiles at Sderot, giving Israel a pretext to use its air force, artillery and gunships. Israel claimed to be shooting at ‘the launching areas of the missiles’, but in practice this meant anywhere and everywhere in Gaza. The casualties were high: in 2007 alone three hundred people were killed in Gaza, dozens of them children.

    Israel justifies its conduct in Gaza as a part of the fight against terrorism, although it has itself violated every international law of war. Palestinians, it seems, can have no place inside historical Palestine unless they are willing to live without basic civil and human rights. They can be either second-class citizens inside the state of Israel, or inmates in the mega-prisons of the West Bank and the Gaza Strip. If they resist they are likely to be imprisoned without trial, or killed. This is Israel’s message.

    Resistance in Palestine has always been based in villages and towns; where else could it come from? That is why Palestinian cities, towns and villages, dummy or real, have been depicted ever since the 1936 Arab revolt as ‘enemy bases’ in military plans and orders. Any retaliation or punitive action is bound to target civilians, among whom there may be a handful of people who are involved in active resistance against Israel. Haifa was treated as an enemy base in 1948, as was Jenin in 2002; now Beit Hanoun, Rafah and Gaza are regarded that way. When you have the firepower, and no moral inhibitions against massacring civilians, you get the situation we are now witnessing in Gaza.

    But it is not only in military discourse that Palestinians are dehumanised. A similar process is at work in Jewish civil society in Israel, and it explains the massive support there for the carnage in Gaza. Palestinians have been so dehumanised by Israeli Jews – whether politicians, soldiers or ordinary citizens – that killing them comes naturally, as did expelling them in 1948, or imprisoning them in the Occupied Territories. The current Western response indicates that its political leaders fail to see the direct connection between the Zionist dehumanisation of the Palestinians and Israel’s barbarous policies in Gaza. There is a grave danger that, at the conclusion of ‘Operation Cast Lead’, Gaza itself will resemble the ghost town in the Negev.

    Ilan Pappe is chair of the history department at the University of Exeter and co-director of the Exeter Centre for Ethno-Political Studies. The Ethnic Cleansing of Palestine came out in 2007.

    The United States Promotes Israeli Genocide Against the Palestinians

    By Professor Francis A. Boyle. Available at: http://www.informationclearinghouse.info/article21722.htm

    As long ago as October 19, 2000, the then United Nations Human Rights Commission (now Council) condemned Israel for inflicting “war crimes” and “crimes against humanity” upon the Palestinian people, most of whom are Muslims. The reader has a general idea of what a war crime is, so I am not going to elaborate upon that term here. But there are different degrees of heinousness for war crimes. In particular are the more serious war crimes denominated “grave breaches” of the Fourth Geneva Convention. Since the outbreak of the first Intifada in 1987, the world has seen those heinous war crimes inflicted every day by Israel against the Palestinian people living in occupied Palestine: e.g., willful killing of Palestinian civilians by the Israeli army and by Israel’s illegal paramilitary settlers. These Israeli “grave breaches” of the Fourth Geneva Convention mandate universal prosecution for the perpetrators and their commanders, whether military or civilian, including and especially Israel’s political leaders.

    But I want to focus for a moment on Israel’s “crimes against humanity” against the Palestinian people—as determined by the U.N. Human Rights Commission itself, set up pursuant to the requirements of the United Nations Charter. What are “crimes against humanity”? This concept goes all the way back to the Nuremberg Charter of 1945 for the trial of the major Nazi war criminals in Europe. In the Nuremberg Charter of 1945, drafted by the United States Government, there was created and inserted a new type of international crime specifically intended to deal with the Nazi persecution of the Jewish people: Crimes against humanity: namely, murder, extermination, enslavement, deportation, and other inhumane acts committed against any civilian population, before or during the war, or persecutions on political, racial or religious grounds in execution of or in connection with any crime within the jurisdiction of the Tribunal, whether or not in violation of the domestic law of the country where perpetrated.

    The paradigmatic example of “crimes against humanity” is what Hitler and the Nazis did to the Jewish people. This is where the concept of “crimes against humanity” came from. And this is what the U.N. Human Rights Commission determined that Israel is currently doing to the Palestinian people: crimes against humanity. Expressed in legal terms, this is just like what Hitler and the Nazis did to the Jews. That is the significance of the formal determination by the U.N. Human Rights Commission that Israel has inflicted “crimes against humanity” upon the Palestinian people. The Commission chose this well-known and long-standing legal term of art quite carefully and deliberately based upon the evidence it had compiled.

    Furthermore, the Nuremberg “crimes against humanity” are the historical and legal precursor to the international crime of genocide as defined by the 1948 Genocide Convention. The theory here was that what Hitler and the Nazis did to the Jewish people was so horrific that it required a special international treaty that would codify and universalize the Nuremberg concept of “crimes against humanity.” And that treaty ultimately became the 1948 Genocide Convention. Article II of the Genocide Convention defines the international crime of genocide in relevant part as follows:

    In the present Convention, genocide means any of the following acts committed with intent to destroy, in whole or in part, a national, ethnical, racial or religious group as such: (a) Killing members of the group; (b) Causing serious bodily or mental harm to members of the group;(c) Deliberately inflicting on the group conditions of life calculated to bring about its physical destruction in whole or in part. As documented by Israeli historian Ilan Pappe in his seminal book The Ethnic Cleansing of Palestine (2006), Israel’s genocidal policy against the Palestinians has been unremitting, extending from before the very foundation of the State of Israel in 1948, and is ongoing and even intensifying against the 1.5 million Palestinians living in Gaza. Zionism’s “final solution” to Israel’s much touted “demographic threat” allegedly posed by the very existence of the Palestinians has always been genocide.

    Certainly, Israel and its predecessors-in-law—the Zionist agencies, forces, and terrorist gangs—have committed genocide against the Palestinian people that actually started on or about 1948 and has continued apace until today in violation of Genocide Convention Articles II(a), (b), and (c). For at least the past six decades, the Israeli government and its predecessors-in-law—the Zionist agencies, forces, and terrorist gangs—have ruthlessly implemented a systematic and comprehensive military, political, and economic campaign with the intent to destroy in substantial part the national, ethnical, racial, and different religious (Jews versus Muslims and Christians) group constituting the Palestinian people. This Zionist/Israeli campaign has consisted of killing members of the Palestinian people in violation of Genocide Convention Article II(a). This Zionist/Israeli campaign has also caused serious bodily and mental harm to the Palestinian people in violation of Genocide Convention Article II(b). This Zionist/Israeli campaign has also deliberately inflicted on the Palestinian people conditions of life calculated to bring about their physical destruction in substantial part in violation of Article II(c) of the Genocide Convention.

    Article I of the Genocide Convention requires all contracting parties such as the United States “to prevent and to punish” genocide. Yet to the contrary, historically the “Jewish” state’s criminal conduct against the Palestinians has been financed, armed, equipped, supplied and politically supported by the “Christian” United States. Although the United States is a founding sponsor of, and a contracting party to, both the Nuremberg Charter and the Genocide Convention, as well as the United Nations Charter, these legal facts have never made any difference to the United States when it comes to its blank-check support for Israel and their joint and severable criminal mistreatment of the Palestinians—truly the wretched of the earth!

    The world has not yet heard even one word uttered by the United States and its NATO allies in favor of “humanitarian intervention” against Israel in order to protect the Palestinian people, let alone a “responsibility to protect” the Palestinians from Zionist/Israeli genocide. The United States, its NATO allies, and the Great Powers on the U.N. Security Council would not even dispatch a U.N. Charter Chapter 6 monitoring force to help protect the Palestinians, let alone even contemplate any type of U.N. Charter Chapter 7 enforcement actions against Israel – shudder the thought!. The doctrine of “humanitarian intervention” so readily espoused elsewhere when U.S. foreign policy goals are allegedly at stake has been clearly proved to be a joke and a fraud when it comes to stopping the ongoing and accelerating Israeli campaign of genocide against the Palestinian people.

    Rather than rein in the Israelis—which would be possible just by turning off the funding pipeline—the United States government, the U.S. Congress, and U.S. taxpayers instead support the “Jewish” state to the tune of about 4 billion dollars per year, without whose munificence this instance of genocide – and indeed conceivably the State of Israel itself – would not be possible. What the world witnesses here is (yet another) case of “dishumanitarian intervention” or “humanitarian extermination” by the United States and Israel against the Palestinians and Palestine. In today’s world genocide pays so long as it is done at the behest of the United States and its de jure or de facto allies such as Israel. Of course miracles can always happen. But I anticipate no fundamental change in America’s support for the Israeli campaign of genocide against the Palestinians during the tenure of the Obama/Clinton administration.

    Best Regard

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  • Peace Demonstration for Palestine in Durham

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  • Daily Vigil for Palestine Solidarity Campaign

    Islamic Finance News Award: Poll 2008

    Quoted from Islamic Finance News. Available at: http://www.islamicfinancenews.com.

    The fourth annual Islamic Finance news Poll results are in after a record-breaking 2,491 unique votes were cast by the Islamic fi nance industry’s leading practitioners and participants. In the financial sphere 2008 was deemed by many as an annus horribilis with the global markets plummeting due mainly to the US mortgage industry. The Islamic fi nance industry also succumbed to market forces but by and large fared better than its conventional counterparts.

    What is clear, from the results of the 2008 Islamic Finance news Poll, is that the more focused and specialized Islamic financial institutions are favored to those of the larger global historically conventional institutions with Islamic operations. With 2,491 votes cast, this is the industry’s most comprehensive and definitive survey. In the Best Overall Islamic Bank category Kuwait Finance House again ran out easy favorite for the second year running. Malaysia’s CIMB Islamic climbed one place to second this year with Saudi Arabia’s Al Rajhi taking third spot. One notable absentee from this category is two-time winner and runner up in 2007, Dubai Islamic Bank.

    As more of the world’s fi nancial centers announce their interest in attracting Islamic fi nance to their shores one would assume the Best Central Bank in Promoting Islamic Finance category would be more competitive. Not so. For the fourth straight year Bank Negara Malaysia was voted number one with more than double the votes of its nearest rival, the State Bank of Pakistan, which itself leapfrogged the Central Bank of Bahrain into second place.

    In new categories for the 2008 Poll, BMB Islamic won Best Islamic Shariah Advisory Firm and KFH Research was voted best Islamic Research Firm. In a year when many banks collapsed or merged, the Islamic fi nance industry witnessed a number of new arrivals ensuring a hotly contested Best New Islamic Bank category, with the UK’s Gatehouse Bank scraping victory over Maybank Islamic, which was a close second.

    In other categories Norton Rose climbed from second in 2007 to fi rst in the Best Law Firm in Islamic Finance, Moody’s Investors Service was voted Best Islamic Rating Agency, Path Solutions won Best Islamic Technology Provider, Oasis Asset Management was named Best Islamic Fund Manager and Takaful Ikhlas the Best Takaful/reTakaful Provider for 2008. In the Best Islamic Banks by Country category there were notable wins for MCCA (Australia), Faisal Islamic Bank (Egypt), Bank of London and The Middle East (UK) and Bank Muamalat Indonesia.

    A record 2,491 unique votes counted towards the fi nal results of the 2008 Islamic Finance news Poll, an increase of 66% over the votes cast in 2007. Thirty-six categories were contested in the 2008 poll, one more than the previous year. Islamic fi nance issuers, investors, non-banking fi nancial intermediaries and government bodies from around the world were invited to participate. Participants were requested to take only 2008 into consideration when casting their votes. All votes were screened and only those passing through the strict due diligence process were counted. (Voters could not vote for themselves or associated organizations, all votes were to be accompanied by a valid business email and telephone number and individuals could only vote once.)

    Best Overall Islamic Bank
    1st 2nd 3rd- Kuwait Finance House — 15% CIMB Islamic Bank — 8% Al Rajhi Bank — 6%

    Best Central Bank in Promoting Islamic Finance
    1st 2nd 3rd-Bank Negara Malaysia — 47% State Bank of Pakistan — 21% Central Bank of Bahrain — 19%

    Best Islamic Bank by Country
    Africa-ABSA, Australia- Muslim Community Co-operative (Australia), Bahrain-Bahrain Islamic Bank, Bangladesh-Islami Bank Bangladesh, Brunei -Bank Islam Brunei Darussalam, Egypt -aisal Islamic Bank, Europe- Bank of London and The Middle East, Indonesia- Bank Muamalat Indonesia, Iran-Bank Melli, Jordan- Jordan Islamic Bank, Kuwait-Kuwait Finance House, Malaysia-CIMB Islamic, North America-American Finance House — LARIBA, Pakistan- Meezan Bank, Qatar- Qatar Islamic Bank, Saudi Arabia- Al Rajhi Bank, Singapore-The Islamic Bank of Asia, Turkey-Albaraka Türk, UAE- Dubai Islamic Bank,

    Best Islamic Retail- Bank Al Rajhi Bank
    Best Islamic Private Bank-HSBC Amanah
    Most Innovative Islamic Bank- Kuwait Finance House
    Best New Islamic Bank- Gatehouse Bank
    Best Islamic Consultancy -Ernst & Young
    Best Islamic Wealth Management Provider- Dubai Islamic Bank
    Best Islamic Shariah Advisory Firm -BMB Islamic
    Best Islamic Research Company -KFH Research Ltd
    Best Islamic Index Provider- Dow Jones Islamic Market Indexes
    Best Law Firm in Islamic Finance -Norton Rose
    Best Islamic Leasing Provider – First Leasing Bank
    Best Islamic Ratings Agency- Moody’s Investors Service
    Best Islamic Takaful/reTakaful Provider- Takaful Ikhlas
    Best Islamic Fund Manager- Oasis Asset Management
    Best Islamic Technology Provider -Path Solutions

    Best Regard

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  • Dubai, UAE

    Israel Resumes Bombardment of Gaza

    Quoted from Al Jazeera News available at: http://english.aljazeera.net/news/middleeast/2009/01/2009118156881174.html

    Aid agencies say Israel’s continuing assault threatens to bring humanitarian catastrophe to Gaza [Reuters].
    Israeli fighter jets have continued to bombard the Gaza Strip for a sixth day, as the United Nations fails to agree on the wording of a draft resolution. Early on Thursday morning, Israeli air strikes hit government offices – including the parliament building itself and the justice ministry. Palestinian officials said the attacks left four people dead and at least 25 people injured.


    Meanwhile, Hamas rockets were again fired at the southern Israeli town of Beer-sheva, which lies around 40 km from the border. Ayman Mohyeldin, Al Jazeera’s correspondent in Gaza, said Israeli fighers had hit the Palestinian Legislative Council – the parliament building and both the education and justice ministries.
    He said the overnight strikes brought the total Palestinian death toll to around 400 – including many civilians. Mohyeldin said the parliament building held special significance for Hamas – who overwhelming won parliamentary elections held in 2006 in both the Strip and the West Bank.

    International pressure

    With international pressure mounting on both sides to agree a ceasefire, the UN security council failed to agree on the wording of a draft resolution to end the violence at an emergency meeting held late on Wednesday in New York. The special session of the security council followed calls from Arab countries for an urgent resolution demanding an immediate ceasefire, and warnings from aid agencies that the people of Gaza are facing a humanitarian catastrophe. The attempt to draft a resolution failed after the US and the UK requested that the document should be amended to mention Hamas rocket attacks against Israel.
    The US has said any lasting ceasefire is dependent on concrete assurances from Hamas – in terms that are acceptable to Israel – that the rocket attacks will stop. Israel has so far rejected calls for a ceasefire and has continued to build up its forces along the border in preparation for a possible ground invasion. It says the assault is aimed at the Hamas leadership in Gaza and intended to destroy the ability of its fighters to launch rocket attacks on Israeli towns and cities. Our correspondent in Gaza said the UN’s failure to reach an agreement over Gaza “doesn’t come as a surprise to Palestinian people” who have “little faith when it comes to any kind of UN resolution that will really make any impact on the ground”.

    Humanitarian crisis

    With food and fuel also running dangerously low in the blockaded Strip, aid agencies and the UN itself has warned of a looming humanitarian catastrophe in Gaza. “If Israel did send troops in and started to lose soldiers… then I think that public opinion would leap away from this operation very quickly”. Alan Fisher, Al Jazeera’s correspondent at the Erez border crossing. The UN food distribution centre in Gaza, which has been closed for two weeks because of a shortage of supplies after Israel stepped up its blockade of the Strip, is expected to open on Thursday. “There is a great security threat to their (UN) staff and they are driving the staff to work in armoured vehicles because they now how random the Israeli attacks are,” said Mohyeldin. Alan Fisher, reporting for Al Jazeera from the Israeli side of the Erez crossing, said Israel continued to amass troops and tanks along its border with the Gaza Strip, prompting speculation it is planning a land invasion. “If Israel did send troops in and started to lose soldiers… then I think that public opinion would leap away from this operation very quickly,” he said. While the chances of agreeing a ceasefire appear remote, Fisher said: “It seems it is almost up to the international community to come up with some sort of deal that will allow both sides to walk away.”
    Diplomatic push

    In the latest diplomatic push to end the violence, Tzipi Livni, the Israeli foreign minister, and Nicholas Sarkozy, the French president, are expected to hold talks in Paris later on Thursday. Despite the fact Sarkozy ceased to hold the rotating presidency of the European Union as of midnight on Wednesday, he will host the meeting aimed at brokering some form of ceasefire. Earlier on Wednesday, the Israeli cabinet rejected a French proposal to agree a 48-hour ceasefire on the grounds it was seeking a “durable solution” and that a temporary truce would simply allow Hamas fighters to regroup and re-arm.

    Al Jazeera’s Alan Fisher said Sarkozy’s diplomatic efforts at the time of last year’s war between Russia and Georgia had been widely praised. Other diplomatic efforts are under way in the region, with Recep Tayyip Erdogan, the Turkish prime minister, on a tour of the Middle East in a bid to broker a peace deal that would have the backing of key Arab states. At least 1,600 Palestinians have been injured as Israeli warplanes and helicopter gunships have dropped hundreds of bombs and missiles on the densely-populated strip. Israel has described itself as in an “all-out war” with Hamas – the Palestinian faction that has controls the Gaza Strip – since a fragile six-month ceasefire between the two sides came to an end on December 19.

    Special Note: There will be a demonstration in front of the Israeli embassy ini High Kessington Street, London this Saturday, 3rd January 2009. At the same time the Durham County Palestine Solidarity Campaign will also organise a demonstration in Durham. Please join this demonstration and bring your friends as many as you can to express outrage at the Israeli attacks and support for the Palestinians, and to urge international leaders to act now to restrain Israeli aggression and violence.