The Banks Matter
By 
For those of us without a full grip on what’s happening with Iran, here’s a useful explainer about the banking crisis that led to the currency collapse that has led to the current mess:
Late last year, Ayandeh Bank, run by regime cronies and saddled with nearly $5 billion in losses on a pile of bad loans, went bust. The government folded the carcass into a state bank and printed a massive amount of money to try to paper over all the red ink. That buried the problem but didn’t solve it.
Instead, the failure became both a symbol and an accelerant of an economic unraveling that ultimately triggered the protests that now pose the most significant threat to the regime since the founding of the Islamic Republic half a century ago. The bank’s collapse made clear that the Iranian financial system, under strain from years of sanctions, bad lending and reliance on inflationary printed money, had become increasingly insolvent and illiquid. Five other banks are thought to be similarly weak.
The crisis hit at the worst possible time. The Iranian government’s credibility had already been battered by a 12-day war with Israel and the U.S. in June that showed it couldn’t defend its population from attack. Its leaders had refused to budge in negotiations over the country’s nuclear program, putting sanctions relief out of reach. In November, Israel and the U.S. threatened to strike again if Iran tried to reconstitute its ballistic missile arsenal or nuclear efforts.
The country’s beleaguered currency, the rial, tipped into a new downward spiral the country had little ability to stop. U.S. enforcement actions had cut Iran off from its crucial flow of dollars from Iraq, significantly reduced its hard currency earnings from oil sales and put its overseas reserves of foreign exchange out of reach with sanctions.
There’s no one to cheer for here, apart from protestors in the streets. The Iranian government is full of butchers, and both the Israelis and the Americans would be fine with that if the government wasn’t also anti-Israel and anti-US. In my experience of talking with anti-regime activists over the years, there’s some interest in replacing the Islamic Republic with democratic structures in the Iranian-American diaspora (although less than you’d think; lots of Pahlavi dead-enders, even now), but in the organized DC anti-Iran lobby there’s almost zero interest in creating actual democratic institutions that might still be anti-Israel (and to a lesser extent anti-US). Those folks just want a friendly Shah back, or a reasonable facsimile.
As for the latest, it seems likely to me that the Iranian government forestalled US military action by making some set of promises yesterday… whether that will be enough remains to be seen.
A fierce crackdown by Iranian security forces that has killed thousands of people protesting against the country’s autocratic leaders has forced demonstrators off the streets in some cities, with residents reporting an eerie quiet after days of escalating violence.
Iran’s government has blocked the internet and deployed large numbers of police and troops in an effort to quell the biggest threat to the regime since a 1979 revolution that established theocratic rule overseen by Shiite clergy. Iranians said they were afraid to leave their homes.
President Trump on Wednesday said Iran had stopped killing people, after days of threatening to take action against the regime if it killed protesters. Asked if military action was off the table, he said, “We’re going to watch it and see what the process is, but we were given a very good statement by people that are aware of what’s going on.”
My read, which will probably be proven inaccurate within hours… The Iranian government made a commitment to Trump to slow the crackdown because it thinks it has killed enough people to have a grip on the rebellion. If it didn’t think it had a grip it would keep killing people while hunkering down for the airstrikes. That the US isn’t really prepped right now for an extended air campaign probably makes everything a bit easier.