TheCenterLane.com

© 2008 – 2013 John T. Burke, Jr.

European Sovereign Debt Crisis Gets Scary

Comments Off

The simplest explanation of the European sovereign debt crisis came from Joe Weisenthal at the Business Insider website.  He compared the yield on the 5-year bond for Sweden with that of Finland, illustrated by charts, which tracked those yields for the past year:

Basically they look identical all through the year up until November and then BAM.  Finnish yields are exploding higher, right as Swedish yields are blasting lower.

The only obvious difference between the two:   Finland is part of the Eurozone, meaning it can’t print its own money. Sweden has no such risk.

While everyone’s attention was focused on the inability of Greece to pay the skyrocketing interest rates on its bonds, Italy snuck up on us.  The Italian debt crisis has become so huge that many commentators are voicing concern that “sovereign debt contagion” across the Eurozone is spreading faster than we could ever imagine.  The Los Angeles Times is now reporting that Moody’s Investors Service is ready to hit the panic button:

Throwing more logs on the Eurozone fire, Moody’s Investors Service said early Monday that the continent’s debt crisis now is “threatening the credit standing of all European sovereigns.”

That’s a not-so-subtle warning that even Moody’s top-rung Aaa ratings of countries including Germany, France, Austria and the Netherlands could be in jeopardy.

Meanwhile, every pundit seems to have a different opinion about how the crisis will unfold and what should be done about it.  The latest buzz concerns a widely-published rumor that the IMF is preparing a 600 billion euro ($794 billion) loan for Italy.  The problem with that scenario is that most of those billions would have to come from the United States – meaning that Congress would have to approve it.  Don’t count on it.  Former hedge fund manager, Bruce Krasting provided a good explanation of the Italian crisis and its consequences:

I think the Italian story is make or break.  Either this gets fixed or Italy defaults in less than six months.  The default option is not really an option that policy makers would consider.  If Italy can’t make it, then there will be a very big crashing sound.  It would end up taking out most of the global lenders, a fair number of countries would follow into Italy’s vortex.  In my opinion a default by Italy is certain to bring a global depression; one that would take many years to crawl out of.  The policy makers are aware of this too.

So I say something is brewing.  And yes, if there is a plan in the works it must involve the IMF.  And yes, it’s going to be big.

Please do not read this and conclude that some headline is coming that will make us all feel happy again.  I think headlines are coming.  But those headlines are likely to scare the crap out of the markets once the implications are understood.

In the real world of global finance the reality is that any country that is forced to accept an IMF bailout is also blocked from issuing debt in the public markets.  IMF (or other supranational debt) is ALWAYS senior to other indebtedness of the country. That’s just the way it works.  When Italy borrows money from the IMF it automatically subordinates the existing creditors. Lenders hate this.  They will vote with their feet and take a pass at Italian new debt issuance for a long time to come.  Once the process starts, it will not end.  There will be a snow ball of other creditors.  That’s exactly what happened in the 80′s when Mexico failed; within a year two dozen other countries were forced to their debt knees.  (I had a front row seat.)

I don’t see a way out of this box.  The liquidity crisis in Italy is scaring us to death, the solution will almost certainly kill us.

Forcing taxpayers to indemnify banks which made risky bets on European sovereign debt is popular with K Street lobbyists and their Congressional puppets.  This has led most people to assume that we will be handed the bill.  Fortunately, there are some smart people around, who are devising better ways to get “out of this box”.  Economist John Hussman of the Hussman Funds, proposed this idea to facilitate significant writedowns on Greek bonds while helping banks cope the impact of accepting 25 percent of the face value of those bonds, rather than the hoped-for 50 percent:

Given the extremely high leverage ratios of European banks, it appears doubtful that it will be possible to obtain adequate capital through new share issuance, as they would essentially have to duplicate the existing float.  For that reason, I suspect that before this is all over, much of the European banking system will be nationalized, much of the existing debt of the European banking system will be restructured, and those banks will gradually be recapitalized, post-restructuring and at much smaller leverage ratios, through new IPOs to the market.  That’s how to properly manage a restructuring – you keep what is essential to the economy, but you don’t reward the existing stock and bondholders – it’s essentially what we did with General Motors.  That outcome is not something to be feared (unless you’re a bank stockholder or bondholder), but is actually something that we should hope for if the global economy is to be unchained from the bad debts that were enabled by financial institutions that took on imponderably high levels of leverage.

Notably, credit default swaps are blowing out even in the U.S., despite leverage ratios that are substantially lower (in the 10-12 range, versus 30-40 in Europe).  As of last week, CDS spreads on U.S. financials were approaching and in some cases exceeding 2009 levels.  Bank stocks are also plumbing their 2009 depths, but with a striking degree of calm about it, and a definite tendency for scorching rallies on short-covering and “buy-the-dip” sentiment.  There is a strong mood on Wall Street that we should take these developments in stride.  I’m not convinced.  Our own measures remain defensive about the prospective return/risk tradeoff in the stock market.

The impact this crisis will have on the stock market explains why mainstream news media coverage has consistently understated the magnitude of the situation.  It will be interesting to observe how the “happy talk” gets amped-up as the situation deteriorates.


Harsh Reality

Comments Off

Several years ago, at one of the seven Laurie Anderson performances I have attended, Ms. Anderson (now Mrs. Lou Reed – although I seriously doubt whether she uses that moniker) described her first meeting with Philip Glass.  Immediately after meeting Glass, she anxiously asked him:  “Are things getting better or are things getting worse?”

These days, that same question is on everyone’s mind.  It appears as though the mainstream news media are hell-bent on convincing us that everything is just fine.  Nevertheless, many of us remember hearing the same thing from Ben Bernanke and Hank Paulson during the summer of 2008.  As a result, we ponder the onslaught of rosy prognostications about the future of our economy with a good degree of skepticism.  Regardless of whether there might be some sort of conspiracy to convince the public to go out and spend money because everything is all right  . . . consider these remarks by Steve Randy Waldman from a discussion about market monetarist theory:

Self-fulfilling expectations lie at the heart of the market monetarist theory.  A depression occurs when people come to believe that income will be scarce relative to prior expectations and debts.  They nervously scale back expenditures and hoard cash, fulfilling their expectations of income scarcity.  However, if everybody could suddenly be made to believe that income would be plentiful, everyone would spend freely and fulfill the expectations of plenty.  The world is a much more pleasant place under the second set of expectations than the first.  And to switch between the two scenarios, all that is required is persuasion.  The market-monetarist central bank is nothing more than a great persuader:  when “shocks happen”, it persuades us all to maintain our optimism about the path of nominal income.  As long as we all keep the faith, our faith will be rewarded.  This is not a religion, but a Nash equilibrium.

The persuasion described by Steve Waldman has been drowning out objective analysis lately.  Obviously, the sovereign debt crisis in Europe has created quite a bit of anxiety in the United States.  The mainstream media focus is apparently targeting that consensual anxiety with heavy doses of “feel good” material.  One must search around a bit before finding any commentary which runs against that current.  I found some and I would like to share it with you.  The first item appeared in Bloomberg BusinessWeek on November 22:

Pacific Investment Management Co.’s Chief Executive Officer Mohamed A. El-Erian said U.S. economic conditions are “terrifying” as the nation struggles to recover from recession.

The odds of the U.S. returning to recession are as much as 50 percent, El-Erian said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu.  U.S. economic growth was worse than expected and congressional policy makers are gridlocked over what to do about the economy and the deficit, which risk exacerbating an already weak recovery, he said.

“We have less economic momentum than we thought we had and we have no policy momentum,” said El-Erian, who also serves as co-chief investment officer with Pimco founder Bill Gross at the world’s largest manager of bond funds.

“What’s most terrifying,” he said, “we are having this discussion about the risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time then the fiscal deficit is at 9 percent and at a time when interest rates are at zero.”

Let’s not forget that all of this is happening at a time when we are plagued by the most dysfunctional, stupid and corrupt Congress in our nation’s history.  President Obama is currently preoccupied with his re-election campaign.  His own leadership failures are conveniently re-packaged as products of that feckless Congress.  As a result, Americans have plenty of justification for being worried about the future.

One of my favorite commentators, Paul Farrell of MarketWatch, recently shared some information with us, which he acquired by attending an InvestmentNews Round Table, as well as from reading Gary Shilling’s expensive newsletter:

Get it? Main Street America, you should “expect very slow growth” in 2012.  That was the response when asked what “scenarios are you painting for your clients?”  The panelist at a recent InvestmentNews Round Table then added:  “It’s going to be ugly and violent.”  Why?  Because the politicians “are driving things” and they are “capricious, which leads to volatility.”  And clients are “not really happy,” but “they lived through ‘08 and ’09,” so 2012 will be “just a little bump in the road.”

*   *   *

So don’t kid yourself folks, recent economic and market “ugliness and violence” not only won’t end soon, it’ll get meaner and meaner for years after 2012 elections … no matter who wins.  Only a fool would believe that a new bull market will take off in 2013.  Ain’t going to happen.  That’s a Wall Street fantasy.  Fall for that, and you’re delusional.

In fact, you better plan on a very long secular bear the next decade through 2020.  With the European banks, credit and currency on the edge of a global financial meltdown, there’s a high probability that a black swan virus, a contagion will sweep the world, making all investing “uglier” and more “violent” for Americans in 2013, indeed for the rest of the decade.

*   *   *

Shilling sees “a secular bear market really started in 2000 and may persist for a decade as a result of slower GDP growth,” yes, persist till 2020 “with 2% to 3% deflation.”  He warns:  “Nominal GDP might not gain at all,” like recent flat-lining.  Which coincides with the expectations of America’s professional financial advisers.

Are you still feeling optimistic?  Consider the closing thoughts from a piece by Karl Denninger entitled, “The Game Is About Done”:

30+ years of lawless behavior has now devolved down to blatant, in-your-face theft.  They don’t even bother trying to hide it any more, and Eric “Place” Holder is too busy supervising the running of guns into Mexico so the drug cartels can shoot both Mexican and American citizens.

What am I, or anyone else, supposed to do in this sort of “market” environment?  Invest in…. what?  Land titles are worthless as they’ve been corrupted by robosigning, margin deposits have been stolen, Madoff’s clients had confirmations of trades that never happend and proved to worthless pieces of paper instead of valuable securities and while Madoff went to prison nobody else has and the money is still gone!

Without enforcement of the law — swift and certain — there is no deterrent against this behavior.

There has been no enforcement and there is no indication that this will change.

It will take just one — or maybe two — more events like MF Global and Greek CDS “determinations” before the entire market — all of it — goes “no bid” as participants simply stuff their hands in their pockets and say “screw this.”

It’s coming folks, and I guarantee you this:  Whatever your “nightmare” scenario is for such an event, it’s not bearish enough.

Keep all of this in mind as you plan for the future.  I would not expect that you might hear any of this on CNBC.


Plutocracy Is Crushing Democracy

Comments Off

It’s been happening here in the United States since onset of the 2008 financial crisis.  I’ve complained many times about President Obama’s decision to scoff at using the so-called “Swedish solution” of putting the zombie banks through temporary receivership.  One year ago, economist John Hussman of the Hussman Funds discussed the consequences of the administration’s failure to do what was necessary:

If our policy makers had made proper decisions over the past two years to clean up banks, restructure debt, and allow irresponsible lenders to take losses on bad loans, there is no doubt in my mind that we would be quickly on the course to a sustained recovery, regardless of the extent of the downturn we have experienced.  Unfortunately, we have built our house on a ledge of ice.

*   *   *

As I’ve frequently noted, even if a bank “fails,” it doesn’t mean that depositors lose money.  It means that the stockholders and bondholders do.  So if it turns out, after all is said and done, that the bank is insolvent, the government should get its money back and the remaining entity should be taken into receivership, cut away from the stockholder liabilities, restructured as to bondholder liabilities, recapitalized, and reissued.  We did this with GM, and we can do it with banks.  I suspect that these issues will again become relevant within the next few years.

The plutocratic tools in control of our government would never allow the stockholders and bondholders of those “too-big-to-fail” banks to suffer losses as do normal people after making bad investments.

As it turns out, a few of those same banks are flexing their muscles overseas as the European debt crisis poses a new threat to Goldman Sachs and several of its ridiculously-overleveraged European counterparts.  Time recently published an essay by Stephan Faris, which raised the question of whether the regime changes in Greece and Italy amounted to a “bankers’ coup”:

As in Athens, the plan in Rome is to replace the outgoing prime minister with somebody from outside the political class.  Mario Monti, a neo-liberal economist and former EU commissioner who seems designed with the idea of calming the markets in mind, is expected to take over from Berlusconi after he resigns Saturday.

*   *   *

Yet, until the moment he’s sworn in, Monti’s ascension is far from a done deal, and it didn’t take long after the markets had closed for the weekend for it to start to come under fire.  Though Monti, a former advisor to Goldman Sachs, is heavily championed by the country’s respected president, many in parliament have spent the week whispering that Berlusconi’s ouster amounts to a “banker’s coup.”  “Yesterday, in the chamber of deputies we were bitterly joking that we were going to get a Goldman Sachs government,” says a parliamentarian from Berlusconi’s government, who asked to remain anonymous citing political sensitivity.

At The New York Times, Ross Douthat reflected on the drastic policy of bypassing democracy to install governments led by “technocrats”:

After the current crisis has passed, some voices have suggested, there will be time to reverse the ongoing centralization of power and reconsider the E.U.’s increasingly undemocratic character. Today the Continent needs a unified fiscal policy and a central bank that’s willing to behave like the Federal Reserve, Bloomberg View’s Clive Crook has suggested.  But as soon as the euro is stabilized, Europe’s leaders should start “giving popular sovereignty some voice in other aspects of the E.U. project.”

This seems like wishful thinking.  Major political consolidations are rarely undone swiftly, and they just as often build upon themselves.  The technocratic coups in Greece and Italy have revealed the power that the E.U.’s leadership can exercise over the internal politics of member states.  If Germany has to effectively backstop the Continent’s debt in order to save the European project, it’s hard to see why the Frankfurt Group (its German members, especially) would ever consent to dilute that power.

Reacting to Ross Douthat’s column, economist Brad DeLong was quick to criticize the use of the term “technocrats”.  That same label appeared in the previously-quoted Time article, as well:

Those who are calling the shots in Europe right now are in no wise “technocrats”:  technocrats would raise the target inflation rate in the eurozone and buy up huge amounts of Greek and Italian (and other) debt conditional on the enactment of special euro-wide long-run Fiscal Stabilization Repayment Fund taxes. These aren’t technocrats:  they are ideologues – and rather blinders-wearing ideologues at that.

Forget about euphemisms such as:  “technocrats”, “the European Union” or “the European Central Bank”.  Stephen Foley of The Independent pulled back the curtain and revealed the real culprit  .  .  .  Goldman Sachs:

This is the most remarkable thing of all:  a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti.  The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis.  Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons.

Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence.

*   *   *

This is The Goldman Sachs Project.  Put simply, it is to hug governments close.  Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort.  Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government.  The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

*   *   *

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent.  Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries’ debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under.  No bank – and especially not the Vampire Squid – can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less.  The alternative is a second financial crisis, a second economic collapse.

The previous paragraph explains precisely what the term “too-big-to-fail” is all about:  If a bank of that size fails – it can bring down the entire economy.  Beyond that, the Goldman situation illustrates what Simon Johnson meant when he explained that the United States – acting alone – cannot prevent the megabanks from becoming too big to fail.  Any attempt to regulate the size of those institutions requires an international effort:

But no international body — not the Group of -20, the Group of Eight or anyone else — shows any indication of taking this on, mostly because governments don’t wish to tie their own hands. In a severe crisis, the interests of the state are usually paramount. No meaningful cross-border resolution framework is even in the cards.  (Disclosure:  I’m on the FDIC’s Systemic Resolution Advisory Committee; I’m telling you what I tell them at every opportunity.)

What we are left with is a situation wherein the taxpayers are the insurers of the privileged elite, who invest in banks managed by greedy, reckless megalomaniacs.  When those plutocrats are faced with the risk of losing money – then democracy be damned!  Contempt for democracy is apparently a component of the mindset afflicting the “supply side economics” crowd.  Creepy Stephen Moore, of The Wall Street Journal’s editorial board, has expounded on his belief that capitalism is more important than Democracy.  We are now witnessing how widespread that warped value system is.


Nasty Cover-Up Gets Exposed

Comments Off

Ever since the Deepwater Horizon oil rig disaster occurred on that horrible, twentieth day of April 2010, I have been criticizing the cover-up concerning the true extent of this tragedy.  Sitting here in my tinfoil hat, I felt frustrated that the mainstream media had been facilitating the obfuscation by British Petroleum and the Obama administration in their joint efforts to conceal an ongoing environmental disaster in the Gulf of Corexit.  On July 22 of that year, I wrote a piece entitled, “BP Buys Silence of Expert Witnesses”.  On August 26 of 2010, I expressed my cynicism in a piece entitled “Keeping Americans Dumb”:

As time drags on, it is becoming more apparent that both BP and the federal government are deliberately trying to conceal the extent of the damage caused by the Deepwater Horizon blowout.

I got some good news this week when I learned that the mainstream media are finally beginning to acknowledge the extent of this cover-up.  While reading an essay by Gerri Miller for Forbes, I learned about a new documentary concerning the untold story of the Deepwater Horizon Disaster:  The Big Fix.

Once my enthusiasm was sparked, I began reading all I could find about this new documentary, which was co-produced by Peter Fonda.  The Guardian (at its Environment Blog) provided this useful analysis of the movie:

The Big Fix, by Josh and Rebecca Tickell, re-opens some of the most persistent questions about last year’s oil spill.  How BP was able to exert so much control over the crisis as it unfolded?  What were the long-term health consequences of using a toxic chemical, Corexit, to break up the oil and drive it underwater?

Rebecca Tickell herself had a serious reaction to the chemical after being out on the open water – and as it turned out so did the doctor she consulted in an Alabama beach town.  She still has health problems.

Josh Tickell, who grew up in Louisiana, said the Obama administration’s decision to allow the use of Corexit, which is banned in Britain, was the biggest surprise in the making of the film.

“The most shocking thing to me was the disregard with which the people of the Gulf region were dealt,” Tickell said.

“Specifically I think that there was sort of a turn-a-blind-eye attitude towards the spraying of dispersants to clean up the spill. I don’t think anyone wanted to look too deeply at the consequences.”

Gerri Miller’s article for Forbes provided more insight on what the film revealed about the injuries sustained by people in the local shrimping communities:

Dean Blanchard, whose shrimp processing company was once the largest in the U.S., has seen his supply dwindle to “less than 1 percent of the shrimp we produced before.  We get shrimp with oil in the gills and shrimp with no eyes.  The fish are dead and there are no dolphins swimming around my house.”  He knows five people who worked on cleanup crews who have died, and he suffers from sinus and throat problems.  Former shrimper Margaret Curole‘s healthy 31-year-old son worked two months on the cleanup and became so sick from dispersant exposure that he lost 52 pounds and is now unable to walk without a cane. “Most of the seafood is dead or toxic.  I wouldn’t feed it to my cat,” said her husband Kevin Curole, a fifth-generation shrimper who, like Blanchard, had friends who died from Corexit exposure.  “I used to be a surfer but I won’t go in the water anymore,” he said.  “The last time I did my eyes and lips were burning.”

EcoWatch warned us that the movie can be emotionally upsetting:

When you watch how the the Gulf residents captured in The Big Fix have been affected by Corexit and the spill, beware, it is both heart wrenching and frightening.  When you see Gulf residents driven to tears by this environmental tragedy, you want to cry with them. Rebecca, herself, was seriously sickened by Corexit during their filming in the Gulf.

When you listen to eco-activist, Jean-Michel Cousteau, son of champion of the seas Jacques-Yves Cousteau, state so emotionally in the film, “We’re being lied to,” you realize the truth about the Gulf oil spill is being covered up.

The most informative essay about The Big Fix was written by Jerry Cope for The Huffington Post.  The “official trailer” for the film can be seen here.

Ernest Hardy of LA Weekly emphasized how the film hammered away at the mainstream media complicity in the cover-up:

Josh Tickell, a Louisiana native, had two questions he wanted answered when he set out to make his documentary:  What were we not told by the media in the days and weeks immediately following the April 2010 British Petroleum oil spill in the Gulf of Mexico, and what haven’t we been told since the story faded from the news cycle?  If The Big Fix had simply tackled those questions, the story uncovered would be maddening:  BP’s repeated flaunting of safety codes; their blatant disregard for the lives of individuals and communities devastated by the spill; collusion among the U.S. government (from local to the White House), the media, and BP to hide the damage and avoid holding anyone accountable.  The film’s scope is staggering, including its detailed outlining of BP’s origins and fingerprints across decades of unrest in Iran.  By doing smart, covert reporting that shames our news media, by interviewing uncensored journalists, by speaking with locals whose health has been destroyed, and by interviewing scientists who haven’t been bought by BP (many have, as the film illustrates), Fix stretches into a mandatory-viewing critique of widespread government corruption, with one of the film’s talking heads remarking, “I don’t have any long-term hope for us [as a country] unless we find a way to control campaign financing.”  And yes, the Koch brothers are major players in the fuckery.

The theme of regulatory capture played a role in Anthony Kaufman’s critique of The Big Fix for The Wall Street Journal’s “online magazine” – Speakeasy:

Tickell says that U.S. politicians, both in the Democratic and Republican parties, are too closely tied to the oil and gas industries to regulate them effectively.  “Even if these people come in with good intentions, and what to do good for their community, in order to achieve that level of leadership, they have to seek money from oil and gas,” he says.

While the film promises to take a crack at BP, Tickell says the company is more held up as a “universal example, in the way that resource extraction companies have a certain set of operating paradigms which have lead us to a situation where we have Gulf oil spills and tar sands.”

I felt that my conspiracy theory concerning this tragedy was validated after reading a review of the movie in AZGreen Magazine:

The Big Fix makes clear that the Deepwater Horizon disaster is far from over.  Filmmakers Josh and Rebecca Tickell (makers of groundbreaking films Fuel and Freedom) courageously shine the spotlight on serious aspects of the BP oil spill that were never addressed by mainstream media.  Central to the story is the corporate deception that guided both media coverage and political action on the environmental damage (and ongoing human health consequences) caused by long-term exposure to Corexit, the highly toxic dispersant that was spewed into the Gulf of Mexico by millions of gallons.   The Big Fix drills deeply beyond media reports to demystify the massive corporate cover-up surrounding the Gulf oil spill, and BP’s egregious disregard for human and environmental health.  The film exposes collusion of oil producers, chemical manufacturers, politicians and their campaign funders that resulted in excessive use of Corexit to mask the significance of the oil, and thereby reduce the penalties paid by BP.

Reading all of this makes me wonder what happened to the people, who were discussed in my July 2010 posting, “NOAA Uses Human Canaries to Test Gulf Fish”.

The movie received a standing ovation at the Cannes Film Festival, as it did in its initial screenings in the United States.  Once audiences have a deeper look at the venal nature of the Obama Administration, it will be interesting to watch for any impact on the President’s approval ratings.


 

Congressional Sleaze In The Spotlight

Comments Off

Last February, I wrote a piece entitled, “License To Steal”, concerning a certain legal loophole which allows members of Congress to trade stocks using “insider information”:

On January 26, 2009, Congressman Brian Baird introduced H.R.682, the “Stop Trading on Congressional Knowledge Act” (STOCK Act).  The bill was intended to resolve the situation concerning one of the more sleazy “perks” of serving in Congress.  As it presently stands, the law prohibiting “insider trading” (e.g. acting on confidential corporate information when making a transaction involving that company’s publicly-traded stock) does not apply to members of Congress.  Remember how Martha Stewart went to prison?  Well, if she had been representing Connecticut in Congress, she might have been able to interpose the defense that she was inspired to sell her ImClone stock based on information she acquired in the exercise of her official duties.  In that scenario, Ms. Stewart’s sale of the ImClone stock would have been entirely legal.  That’s because the laws which apply to you and I do not apply to those in Congress.  Needless to say, within six months of its introduction, H.R.682 was referred to the Subcommittee on the Constitution, Civil Rights, and Civil Liberties where it died of neglect.  Since that time, there have been no further efforts to propose similar legislation.

At a time when the public is finally beginning to understand how our elected officials are benefiting from a system of “legalized graft” in the form of campaign contributions, more attention is being focused on how the “real money” is made in Congress.  A new book by Peter Schweizer – Throw Them All Out – deals with this very subject.  The book’s subtitle is reminiscent of the point I tried to make in my February posting:  “How politicians and their friends get rich off insider stock tips, land deals and cronyism that would send the rest of us to prison”.

Peter J. Boyer wrote an article for Newsweek, explaining how Peter Schweizer came about writing this book.  Schweizer is the William J. Casey research fellow at the Hoover Institution and as Boyer pointed out, Schweizer is considered by liberal critics as a “right wing hit man”.  It’s nice to see someone from the right provide us with an important treatise on crony capitalism.  The book exposes insider trading by both Democrats and Republicans – hell-bent on profiteering from the laws they enact.  Boyer’s essay provided us with some examples of the sleazy trades made by Congress-cretins, as described in Throw Them All Out.  Here are a few examples:

Indeed, Schweizer reports that, during the debate over Obama’s health-care reform package, John Boehner, then the House minority leader, was investing “tens of thousands of dollars” in health-insurance-company stocks, which made sizable gains when the proposed public option in the reform deal was killed.

*   *   *

One of the more dramatic episodes in the book recounts the trading activity of Republican Rep. Spencer Bachus, of Alabama, who, as the ranking member of the House Financial Services Committee, was privy to sensitive high-level meetings during the 2008 financial crisis and proceeded to make a series of profitable stock-option trades.

Bachus was known in the House as a guy who liked to play the market, and in fact he was pretty good at it; one year, he reported a capital gain in excess of $150,000 from his trading activities. More striking is that Bachus boldly carried forth his trading in the teeth of the impending financial collapse, the nightmarish dimensions of which he had learned about first-hand in confidential briefings from Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke.  On Sept. 19, 2008, after attending two such briefings, Bachus bought options in an index fund (ProShares UltraShort QQQ) that effectively amounted to a bet that the market would fall.  That is indeed what happened, and, on Sept. 23, Bachus sold his “short” options, purchased for $7,846, for more than $13,000—nearly doubling his investment in four days.

Around the time Congress and the Bush administration worked out a TARP bailout, Bachus made another options buy and again nearly doubled his money.

*   *   *

After the first briefing from Bernanke and Paulson, brokers for Democratic Congressman Jim Moran, of Virginia, and his wife sold their shares in 90 companies, dodging the losses that others who stayed in the market would soon face. Republican Rep. Shelley Capito, of West Virginia, sold between $100,000 and $250,000 of Citigroup stock the day after the first meeting, recording capital gains on Citigroup transactions in that rocky period.

Peter Schweizer’s analysis of the bipartisan culture of corruption on Capitol Hill reinforces one of my favorite criticisms of American government:  Our Sham Two-Party System.  The Republi-Cratic Corporatist Party owes its allegiance to no population, no principle, no cause – other than pocketing as much money as possible.  Just as there have been some recent “pushback” efforts by outraged citizens, Schweizer is now advocating a “Throw Them All Out” campaign.  This could have a potentially significant impact on Congress, because the term of office in the House of Representatives lasts for only two years.  Consider Schweizer’s thought at the close of the Newsweek piece:

“I was troubled,” he says, “by the fact that the political elite gets to play by a different set of rules than the rest of us.  In the process of researching this book, I came to the conclusion that political party and political philosophy matter a lot less than we think.  Washington is a company town, and politics is a business. People wonder why we don’t get more change in Washington, and the reason is that the permanent political class is very comfortable.  Business is good.”

I concluded my February 28 posting with this point:

“Inside information” empowers the party in possession of that knowledge with something known as “information asymmetry”, allowing that person to take advantage of (or steal from) the less-informed person on the other side of the trade.  Because membership in Congress includes a license to steal, can we ever expect those same individuals to surrender those licenses?  Well, if they were honest  .   .   .

A successful “Throw Them All Out” campaign would obviate the necessity of attempting to convince this Congress to pass the “Stop Trading on Congressional Knowledge Act” (STOCK Act).  If the next Congress knows that its political survival is depending on its passage of the STOCK Act, we might see it become law.


 

Obama Backpedals To Save His Presidency

Comments Off

President Obama’s demotion of his Chief of Staff, Bill Daley, has drawn quite a bit of attention – despite efforts by the White House to downplay the significance of that event.  The demotion of Daley is significant because it indicates that Obama is now trying to back away from his original strategy of helping Wall Street at the expense of Main Street.  This move appears to be an attempt by Obama to re-cast himself as a populist, in response to the widespread success of the Occupy Wall Street movement.

In September of 2010, I wrote a piece entitled, “Where Obama Went Wrong”.  Despite the subsequent spin by right-wing pundits, to the effect that voters had been enamored with the Tea Party’s emphasis on smaller government, the true reasons for the mid-term disaster for the Democrats had become obvious:

During the past week, we’ve been bombarded with explanations from across the political spectrum, concerning how President Obama has gone from wildly-popular cult hero to radioactive force on the 2010 campaign trail.  For many Democrats facing re-election bids in November, the presence of Obama at one of their campaign rallies could be reminiscent of the appearance of William Macy’s character from the movie, The Cooler.  Wikipedia’s discussion of the film provided this definition:

In gambling parlance, a “cooler” is an unlucky individual whose presence at the tables results in a streak of bad luck for the other players.

*   *   *

The American people are hurting because their President sold them out immediately after he was elected.  When faced with the choice of bailing out the zombie banks or putting those banks through temporary receivership (the “Swedish approach” – wherein the bank shareholders and bondholders would take financial “haircuts”) Obama chose to bail out the banks at taxpayer expense.  So here we are  . . .  in a Japanese-style “lost decade”.  In case you don’t remember the debate from early 2009 – peruse this February 10, 2009 posting from the Calculated Risk website.  After reading that, try not to cry after looking at this recent piece by Barry Ritholtz of The Big Picture entitled, “We Should Have Gone Swedish  . . .”

Back in December of 2009, Bill Daley – a minion of The Dimon Dog at JPMorgan Chase – wrote an op-ed piece for The Washington Post, which resonated with Wall Street’s tool in the White House.  Daley claimed that Obama and other Democrats were elected to office in 2008 because voters had embraced some pseudo-centrist ideas, which Daley referenced in these terms:

These independents and Republicans supported Democrats based on a message indicating that the party would be a true Big Tent — that we would welcome a diversity of views even on tough issues such as abortion, gun rights and the role of government in the economy.

*   *   *

All that is required for the Democratic Party to recover its political footing is to acknowledge that the agenda of the party’s most liberal supporters has not won the support of a majority of Americans — and, based on that recognition, to steer a more moderate course on the key issues of the day, from health care to the economy to the environment to Afghanistan.

Unfortunately, Obama was pre-disposed to accept this rationale, keeping his policy decisions on a trajectory which has proven as damaging to his own political future as it has been to the future of the American middle class.

On November 8, Jonathan Chait wrote a piece for New York magazine’s Daily Intel blog, wherein he explained that the demotion of Bill Daley revealed a “course correction” by Obama, in order to a pursue a strategy “in line with the realities of public opinion”.  Jonathan Chait explained how the ideas espoused by Daley in his 2009 Washington Post editorial, had been a blueprint for failure:

Daley, pursuing his theory, heavily courted business leaders.  He made long-term deficit reduction a top priority, and spent hours with Republican leaders, meeting them three-quarters of the way in hopes of securing a deal that would demonstrate his centrism and bipartisanship.  The effort failed completely.

The effort failed because Daley’s analysis – which is also the analysis of David Brooks and Michael Bloomberg – was fatally incorrect.  Americans were not itching for Obama to make peace with corporate America.  Americans are in an angry, populist mood – distrustful of government, but even more distrustful of business.  In the most recent NBC/The Wall Street Journal poll, 60 percent of Americans strongly agreed with the following statement:

The current economic structure of the country is out of balance and favors a very small proportion of the rich over the rest of the country.  America needs to reduce the power of major banks and corporations and demand greater accountability and transparency.  The government should not provide financial aid to corporations and should not provide tax breaks to the rich.

At the website of economist Brad DeLong, a number of comments were posted in response to Jonathan Chait’s essay.  One can only hope that our President has the same, clear understanding of this situation as do the individuals who posted these comments:

Full Employment Hawk said:

.   .   .   The defeat of the Democrats was due to the fact that the Obama administration did too little, not because it did too much.

Daley’s view that it was because the moderately progressive policies of the Obama administration were too far left for the center was totally wrong.  And listening to Daley’s advice to further shift from job creation to deficit reduction was a major blunder that reinforced the blunder of the first two years of dropping the ball on making the economy grow fast enough for the unemployment rate to be coming down significantly by the time of the Fall election.

In reply to the comment posted by Full Employment Hawk, a reader, identified as “urban legend” said this:

Obama should have been making the point over and over and over and over that getting more money into the hands of more Americans — principally right now by creating jobs — is the most pro-business stance you can take.  Continuing to let the 1% dictate everything in their favor is the most anti-business thing you can do.  We are the ones who want demand to rise for the goods and services of American business.  Right-wingers don’t care much about that.  What they do care about is maintaining their theology against all the evidence of its massive failure.

At Politico, Jonathan Chait’s essay provoked the following comment from Ben Smith:

It is entirely possible that no staff shift, and no ideological shift, can save Obama from a bad economy.  You don’t get to run controlled experiments in politics.

But it does seem worth noting that this argument pre-dates Daley: It’s the substance of the 2008 debate between Hillary Clinton and Obama, with Clinton portraying Obama as naive in his dream of bipartisan unity, and the Republicans as an implacable foe.  It’s the Clinton view, the ’90s view, that has prevailed here.

Indeed, it would be nice for all of us if Obama could get a “Mulligan” for his mishandling of the economic crisis.  Unfortunately, this ain’t golf.


Transparent Dishonesty

Comments Off

Immediately after assuming office, President Obama promised to provide a greater degree of transparency from his administration:

Transparency and the rule of law will be the touchstones of this presidency.

Since that moment, an enormous list of broken campaign promises has buried those false assurances of transparency.  Pondering over the heap of Obama’s discarded “bait and switch” enticements can cause a person to wonder how this man expects to get re-elected  … until the Republican aspirants come into view.

A recent gimmick of the current administration has been the “We the People” initiative.  This project resulted in the creation of a platform on the White House website, allowing for citizens to create petitions requesting government action on certain issues:

The We the People platform on WhiteHouse.gov gives Americans a new way to create, share, and sign petitions that communicate your views about your government’s actions and policies.

A signature threshold was established, requiring 5,000 on-line “signatures” within a 30-day period.  The threshold has subsequently been increased to 25,000 signatures in a month:

If a petition meets the signature threshold, it will be reviewed by the Administration and an official response will be issued.  And we’ll make sure that the petition is sent to the appropriate policy makers in the Administration.

The White House began responding to those petitions on October 26.  On November 5, Nancy Atkinson reported for Universe Today that We the People are interested in UFOs and space aliens:

The White House has responded to two petitions asking the US government to formally acknowledge that aliens have visited Earth and to disclose to any intentional withholding of government interactions with extraterrestrial beings.  “The U.S. government has no evidence that any life exists outside our planet, or that an extraterrestrial presence has contacted or engaged any member of the human race,” said Phil Larson from the White House Office of Science & Technology Policy, on the WhiteHouse.gov website.  “In addition, there is no credible information to suggest that any evidence is being hidden from the public’s eye.”

5,387 people had signed the petition for immediately disclosing the government’s knowledge of and communications with extraterrestrial beings, and 12,078 signed the request for a formal acknowledgement from the White House that extraterrestrials have been engaging the human race.

The denials made by Phil Larson are as false now as they were many years ago, when a 15-year-old high school student named John Greenwald, Jr. began sending Freedom of Information Act requests to the Pentagon, Air Force and numerous government agencies to ascertain what our officials had learned about those Unidentified Flying Objects, which have aroused so much curiosity since the advent of the Internet.  Over the years, John Greenwald has amassed a collection of over 600,000 pages of documents, which are available for free on his website, The Black Vault.

I was amused by John Greenwald’s lecture, recounting how – as a teenager – he made fools of the bureaucrats, who were charged with the responsibility of stonewalling any inquiries concerning the UFO phenomenon.  At his website, Greenwald recounted some of the highlights of this experience:

When I started researching this phenomenon fifteen years ago, you quickly learn that the government and military alike dismiss the entire topic, deny any involvement or interest in it, and they claim they could explain the mystery after their official investigation back in 1969 – and haven’t collected anything since.  Nothing could be further from the truth.

John Greenwald hit paydirt when he came across a document entitled “Air Force Instruction 10-206” or “AFI 10-206” (a 2008 edition can be seen here).  Here is Greenwald’s explanation (in the third person) of where this lead took him:

In the regulation entitled, “Operational Reporting,” chapter 5 outlines procedures for cataloguing different types of sightings, including the third on the list, “Unidentified Flying Objects” or UFOs.  Although this reference to UFOs is not a reference to alien spacecraft, the fact remains that this publication shows that the military does have an interest in the phenomena, whatever it might be.

*   *   *

Upon further investigation, Greenewald uncovered that the reports made under this Air Force document were called CIRVIS, or Communication Instructions for Reporting Vital Intelligence Sightings, reports.  He noted that they are filed and sent to the NORAD installation –which he then found out when he filed a FOIA request for the records – that NORAD was not subject to the FOIA.  This was due to the fact that it was under control by both Canadian and U.S. forces – therefore excluding it from U.S. law.

But “in good faith” the request was processed under a special NORAD instruction allowing access to their documents, but they claim they found “no records.”

Pushing forward, a simple phone call by Greenewald to the Department of National Defence (DND) in Canada yielded more than 100 pages of UFO / CIRVIS reports. According to NORAD – there was nothing.  According to Canada – there was a pile of records.

On September 2, 2011 Lee Speigel of The Huffington Post interviewed John Greenwald about the extent of UFO information obtained for The Black Vault by way of the Freedom of Information Act.  Lee Speigel provided this account of what happened after that interview:

On Sept. 2, The Huffington Post made inquiries to the Air Force about the UFO directives.  A spokesman said he’d arrange an interview with an appropriate officer.  But before the interview was set up, the 111-page instruction manual was revised on Sept. 6, and the UFO instructions were deleted, as were other portions of the document, now shortened to 40 pages.

*   *   *

For several weeks, military officials failed to respond to HuffPost inquiries about the rewritten manual, which included changes to areas unrelated to UFOs.

Finally, on Oct. 5, after several follow-up calls, an Air Force major emailed a response, informing HuffPost that UFO reporting is not a duty of the armed forces branch.  He denied any cover-up, and instead said it was a coincidence that the document was updated after this news organization asked for an explanation.

The Huffington Post piece included the reaction from John Greenwald:

“They’ve had many opportunities to take [the UFO reference] off of this publication and now look at what happens,” said Greenewald.  “All of a sudden, when a major news outlet like Huffington Post starts asking questions about why UFOs are still on the books — to have that media outlet not get a fast response, number one; and number two, the military completely re-writes the regulation, changes it and UFOs are nowhere to be found — that’s a fascinating coincidence.”

Obama’s promised “transparency” seems to have befallen the same fate as “hope” and “change”.  President Clinton’s former Chief of Staff, John Podesta, is now a Visiting Professor of Law at the Georgetown University Law Center.  Here is a video clip of John Podesta, making the case for disclosure of data compiled by the United States government on the subject of UFOs.  In a speech before the National Press Club on November 14, 2007, Mr. Podesta said this:

“I think it’s time to open the books” (on government investigations of UFOs).    .  .  .  “We ought to do it because it’s right.  We ought to do it because the American people, quite frankly, CAN handle the truth and we ought to do it because it’s the law.”

Yes, Mr. Podesta  . . .  but it’s so much easier for our officials to just lie.  They lie about everything else.  Why should this subject be treated any differently?


Suspicious Trail Of Death

Comments Off

As I pointed out on June 16, I often enjoy a good conspiracy theory.  That’s just one of the reasons why I wrote a posting back on January 28, 2010 entitled, “The Conspiracy Against Conspiracy Theories”.

The Internet provides us with innumerable sources of conspiracy theories on a vast array of subjects.  A good number of people disregard all of them, as a result of a belief that any conspiracy theory is of dubious veracity.  Others look for revealing signs of a fictitious narrative.  One such indicator becomes obvious when a conspiracy story twists and turns until it eventually finds its way to the Protocols of the Elders of Zion.  Purveyors of those stories are responsible for the anti-Semitic stigma, which the term “conspiracy theory” frequently evokes.

The latest conspiracy theory to catch my attention arises from the Deepwater Horizon oil rig disaster.  On July 22, 2010 – three months after that tragic event – I wrote a piece concerning how BP had begun a campaign of signing-up as many potential expert witnesses as could be found, not only to testify on BP’s behalf in administrative and judicial proceedings – but, more importantly – to buy their silence.  Litigation attorneys often refer to this tactic as, “buying experts off the street”.  As you can see, I have been predisposed to assume that there are likely to be more than a few conspiracies and cover-ups resulting from the Deepwater Horizon blowout.  I concluded that essay with this remark about a gentleman named Matthew Simmons:

On July 21, Bloomberg News televised an interview with Matthew Simmons, founder of the Ocean Energy Institute.  Among the subjects included in the conversation was the topic of BP’s confidentiality agreements.  If what Mr. Simmons said is correct, BP’s legal defense efforts will become futile once the public realizes “we have now killed the Gulf of Mexico”.  At least on that one point, the cretins at BP are probably not the only individuals who are hoping that Mr. Simmons is wrong.

Within a few short weeks of that posting, Matthew Simmons was found dead in his hot tub, having suffered an apparent heart attack.  I immediately became suspicious   . . .

More recently, I came across this posting at a conspiracy-oriented website called The Intel Hub.  That item was based on the investigation conducted by a group called the Real Costal Warriors, who have been concerned about the fact that since the Deepwater Horizon event occurred, nine experts, critics and whistleblowers have died under mysterious circumstances.  The Intel Hub informed us that the suspicious death toll has now included a tenth individual:

George Thomas Wainwright, a BP ROV pilot was supposedly killed in a freak shark attack in Australia.

The avid outdoorsman and Texas A&M graduate was a marine systems engineer involved with capping the Macondo well after last year’s BP oil spill in the Gulf of Mexico.

Wainwright – whose body was recovered by the college friends he was boating with – is the third man killed by a great white in the state in two months.

The aforementioned Matthew Simmons was included in Real Costal Warriors’ list of nine individuals who are either “dead, missing or jailed”.  One of the unfortunate nine – Anthony Nicholas Tremonte – is still alive, although he was jailed after “child porn” was allegedly found on his computer.  A similar “child porn” bust was made against another member of this list – Dr. Thomas B. Manton – who was murdered in prison.  Here is the list as it appears on the Intel Hub website:

April 2, 2011 – Tucker Mendoza, gulf truth activist, still recovering, along with his niece.  Shot four times through his front door, niece hit twice.  Anyone with information regarding this shooting incident should call St. John the Baptist Parish Detectives at 985-359-8769 or Crimestoppers at 504-822-1111.

February 17, 2011 – LSU scientist Gregory Stone, 54 – Died of Unknown Illness.  Stone was an oft-quoted expert concerning the damage the leaked oil might cause to the coast.

January 26, 2011 – Anthony Nicholas Tremonte, age 31 – Mississippi Department of Marine Resources officer, from Ocean Springs arrested on child porn charge.

January 19, 2011 – Dr. Thomas B. Manton, former President and CEO of the International Oil Spill Control Corporation – imprisonment and subsequent murder while jailed.

December 31, 2010 – John P. Wheeler III, a former Pentagon official and presidential aide and a defense consultant and expert on chemical and biological weapons – was beaten to death in an assault, body was discovered in a Wilmington landfill.

November 23, 2010 – James Patrick Black, an incident commander for BP’s Gulf of Mexico oil spill response team, died Tuesday night near Destin, Florida in a small plane crash.

November 15, 2010 – Chitra Chaunhan, age 33, worked in the USF Center for Biological Defense and Global Health Infectious Disease Research – Found dead in an apparent suicide by cyanide at a Temple Terrace hotel.  She leaves behind a husband and a young child.

November, 2010 – MIA Status – Dr. Geoffrey Gardner of Lakeland, FL – Swan expert who “ran into legal trouble over an expired prescription license has closed his practice” — Was investigating unexplained bird deaths near Sarasota abruptly and immediately closed his practice, and apparently his investigation into the deaths of swans in Sarasota, suspected to have been impacted by the BP Oil Disaster.  No one has heard or spoken with him since. Watch this news report covering his investigation before his disappearance:

http://www.youtube.com/watch?v=sqbx2TnbYlc&

October 6, 2010 – Roger Grooters, age 66, was hit by a truck as he passed through Panama City, Florida.  Mr. Grooters had been knocked down and killed close to the end of a 3,200-mile trans-America charity ride to raise awareness about the Gulf Coast oil disaster. He began his cross-country bike ride in Oceanside, California, on September 10th.  Grooters’s family and friends will cycle the final stretch of the journey from the Pacific to the Atlantic in his honour, raising cash to support Gulf Coast families.

August 9, 2010 – Senator Ted Stevens of Alaska, 86, the longest-serving Republican senator in history, was among nine people on board when the 1957 DeHavilland DHC-3 Otter, crashed into a brush- and rock-covered mountainside Monday afternoon about 17 miles north of the southwest Alaska fishing town of Dillingham, federal officials said.  Stevens was the recipient of a whistleblower’s communication relative to the BP Oil Disaster blow-out preventer, and a conspiracy of secrecy to hide the facts from the public.

“You and your fellow Committee members may wish to require BP to explain what action was ultimately instituted to cease the practice of falsifying BOP tests at BP Prudhoe drilling rigs.  It was a cost saving but dangerous practice, again endangering the BP workforce, until I exposed it to Senator Ted Stevens, the EPA, and the Alaska Oil and Gas Conservation Commission.”  The cause of the crash is still an OPEN investigation by the NTSB (http://www.ntsb.gov/ntsb/GenPDF.asp?id=ANC10MA068&rpt=p)

August 13, 2010 – Matthew Simmons, age 67 – Simmons’ body was found Sunday night in his hot tub, investigators said.  An autopsy by the state medical examiner’s office concluded Monday that he died from accidental drowning with heart disease as a contributing factor – “It was painful as can be” to be only insider willing to speak out against the “officials” during the BP Oil Disaster in the Gulf of Mexico.

April 6, 2010 – Scientist Joseph Morrissey, age 46 – cell biologist and college professor, a near-native Floridian who chose to return to South Florida after studying at elite universities – was fatally shot during what police say was a home invasion robbery.

Obviously, the possibility exists that none of these incidents resulted from the involvement of these individuals in the Deepwater Horizon controversy.  In fact, there is no real connection described, which could remotely connect the death of John P. Wheeler III to Deepwater Horizon.  As for the death of George Thomas Wainwright, are we to believe that a Great White shark was trained to attack a particular individual on command?  There is an implicit suggestion that a shark attack was not the true cause of death, without any facts asserted which could bring that cause of death into question.  The number of victims is apparently being exaggerated here because, as that number increases, it seems less likely that we are looking at random coincidences.

The environmental disaster in the Gulf of Corexit presents enough suspicious circumstances and cover-ups whether or not any of these ten tragedies may have been causally connected to some aspect of the event.  Nevertheless, it’s an intriguing conspiracy theory and I’m going to keep it on my radar until it is satisfactorily debunked.