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The Fight Continues

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In my last posting, I discussed how advocates for more transparency concerning the U.S. government’s knowledge of the UFO / UAP subject were experiencing a significant amount of pushback from the Pentagon as they sought more information on this topic. 

On July 14, 2023, Senators Chuck Schumer and Mike Rounds launched a bipartisan effort to reveal  what the government has learned about UAPs by proposing what has been known as the Schumer – Rounds Amendment to the 2024 National Defense Authorization Act.

Initially, there was significant criticism of this proposed legislation, due to concern that there were too many loopholes allowing the government to delay — or completely avoid disclosure of this information. On Episode 1722 of the Fade to Black podcast with Jimmy Church, (at the 45-minute mark) attorney Danny Sheehan (who represents UAP whistleblower Lue Elizondo) criticized some provisions of the Schumer-Rounds Amendment which he found “troublesome”.

Meanwhile, in the House of Representatives, opposition to disclosure of the government’s knowledge about UAPs is being led by House Armed Services Committee Chair Mike Rogers (R-Ala.) and House Intelligence Committee Chair Mike Turner (R-Ohio). Senate Minority Leader Mitch McConnell (R Ky.) and the new House Speaker Mike Johnson are also aligned with this opposition

Ultimately, the final version of the Schumer – Rounds Amendment, as approved by the full Senate, did away with two key provisions: establishment of a 9-member Citizens’ Review Board, composed of experts and civilians, to be selected by the President and confirmed by the Senate. Also stricken was a controversial provision which would have granted the federal government a right of “eminent domain” over any technologies or “biologics” recovered from UAPs.

Many individuals who had previously been critical of the Schumer-Rounds Amendment (out of concern that it did not go far enough) became even more critical of the scaled-down version. These criticisms were discussed by Christopher Sharp of the Liberation Times in an article entitled “Operation Kill Bill”.

After the Schumer – Rounds Amendment was decimated, whistleblower David Grusch commented that: “What we’re witnessing right now is the greatest legislative failure in American history”.

Despite widespread disappointment with the current state of the Schumer – Rounds Amendment, many people are voicing enthusiasm that as recently as a few years ago, nobody would have expected that the U.S. government would be taking the UFO subject so seriously right now. In The December 14 New York Times, Senator Chuck Schumer described this Amendment as a major win for government transparency on this subject, which could provide a strong foundation for future action.

When the Other Shoe Drops

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Here at TheCenterLane, I have been following how the mainstream news media have been taking a more serious look at the UFO phenomenon since the February 4, 2016, death of Apollo 14 astronaut, Edgar Mitchell. In my March 28, 2016, piece I pointed out that:

Although many news reports announcing Mitchell’s death noted his interest in the subject of UFOs, the flow of snark was attenuated in light of the somber circumstances. Since that day in February, there has been little – if any – ridicule about Mitchell’s interest in UFOs because the entire subject has actually gained a modicum of respect. In fact, many of the memorial articles about Edgar Mitchell spoke admirably of the astronaut’s quest to expose this truth.

Almost two years later, the December 16, 2017, edition of The New York Times contained an astonishing story about the Defense Department’s Advanced Aerospace Threat Identification Program (AATIP). AATIP was headquartered on the fifth floor of the Pentagon’s C Ring and was managed by Luis Elizondo for the Defense Intelligence Agency. AATIP was tasked with studying UFOs (now referred to as UAPs – for Unidentified Aerial Phenomena). As a result, the subject of UFOs and UAPs has been taken more seriously by politicians and news outlets.

Throughout the months and years after the publication of the December, 2017 New York Times piece, UFO skeptics and debunkers have been preoccupied with “putting out fires” erupting in news outlets which have dared to report the truth about these phenomena. As time has progressed and the truth has been wandering into the daylight, those naysayers have become increasingly overwhelmed.

Lue Elizondo has been making appearances on a wide variety of newscasts, from 60 Minutes on CBS to Tucker Carlson Tonight on Fox News. Elizondo’s appearances on Web podcasts, such as Curt Jaimungal’s Theories of Everything have ignited speculation about the extent of UAP information kept secret by the Pentagon and whether this information might be subject to gradual release according to a secret timetable.

On September 13, 2021, The Hollywood Reporter disclosed that Lue Elizondo had signed a book deal with William Morrow, an imprint of HarperCollins, after a competitive bidding war for the U.S. publishing rights for Elizondo’s memoirs concerning his investigations into the UFO/UAP subject. This upcoming book is expected to bring some new revelations about UAPs (described by The Hollywood Reporter as “shocking details”). Beyond that, Elizondo can be expected to expose the measures taken by those who have attempted to maintain the high degree of secrecy concealing these phenomena. The American public and its elected officials have become increasingly outraged by the suppression of this important information.

On November 24, 2021, Christopher K. Mellon, (former Deputy Assistant Secretary of Defense for Intelligence in the administrations of President George W. Bush and President Bill Clinton) wrote an open letter to Congressional Representative Ruben Gallego, commending him for his support of Senator Kristen Gillibrand’s amendment to the National Defense Authorization Act.

The Pentagon’s initial reaction to this proposed legislation was an attempt to “front run” the effort through the suggested creation of its own Airborne Object Identification and Management Synchronization Group (AOIMSG). According to the Defense Department, the AOIMSG would limit its investigation of UAPs to situations involving incursions into Special Use Airspace (military operations areas and other restricted airspace). Worse yet, oversight of the AOIMSG would be handled by an Executive Council comprised of Defense Department and “Intelligence Community” members, as opposed to Congressional oversight and the resulting transparency that such a course would necessitate. The overwhelming pushback against the Pentagon’s AOIMSG idea served only to secure the passage of what became known as the bipartisan Rubio-Gillibrand amendment.

After the amendment was approved for inclusion in the 2012 National Defense Authorization Act, co-sponsor Senator Marco Rubio issued a press release discussing the establishment of a UAP office within the Defense Department, which would be tasked with preparing “a full spectrum of intelligence, scientific, and technical assessments related to UAPs”, including:

  • Collection & Analysis of Data into a Central Repository: The UAP office will supervise the development and execution of intelligence collection and analysis regarding UAPs in order to understand their technical and scientific characteristics. The UAP office will receive relevant data immediately from Intelligence Community agencies. 
  • Establish a Science Plan: The UAP office will be responsible for implementing a science plan to test scientific theories related to UAP characteristics and performances.
  • Build a National Priorities Intelligence Framework: The DNI will be required to consult with the Secretary of Defense to assign a level or priority within the National Intelligence Priorities Framework related to UAPs. 
  • Evaluate any links between UAPs and foreign governments or non-state actors: The UAP office will be tasked with evaluating threats that UAPs may pose to the United States. Additionally, the office will be responsible for coordinating with federal agencies, including the FAA and NASA, and international allies and partners on UAPs.
  • Report to Congress: The UAP office will be required to provide unclassified annual reports to Congress and classified semi-annual briefings on intelligence analysis, reported incidents, health-related effects, the role of foreign governments, and nuclear security. 

With the passage of the National Defense Authorization Act and the included Rubio-Gillibrand amendment, advocates for government and military transparency on the UAP subject were popping open champagne bottles and celebrating. Meanwhile, sober minds at the Liberation Times website, which has been advocating for such transparency, took a hard look at the road ahead, as the Pentagon began to undertake a responsible approach to this subject for the first time in its history.    

More Fun and Games with UFOs

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Ever since the term “centrism” became a euphemistic, “dog whistle” term for corporatism, I have been distancing myself from the ranks of so-called Centrists. These days, a left-leaning politician will claim to be “tacking to the center” while heading to K Street to pick up a fat campaign contribution. Some conservatives claim to be Centrists simply because they disavow QAnon.

However, there is one subject where I have maintained a consistently centrist, middle-of-the road stance and that is with respect to the subject of UFOs. People demonstrating any concern for this bailiwick usually fall into either of two camps: The Cult of the Credulous (those who never question any claim about a sighting or entity encounter) or the Denialists (who regularly insist that “this can’t be happening because it’s impossible”).

Whenever an unsupported, sensational claim about UFOs triggers an avalanche of clicks on websites, the Denialists benefit as mainstream media outlets beg for a perspective that might counterbalance what appears as (and sometimes is) a delusional rant.

On Jan. 31, 2017, I discussed how the December 16, 2017, edition of The New York Times contained an astonishing story about the Defense Department’s Advanced Aerospace Threat Identification Program (AATIP). AATIP was headquartered on the fifth floor of the Pentagon’s C Ring and was managed by Luis Elizondo for the Defense Intelligence Agency. Since that time, the flow of sober-minded, yet intriguing reportage on the subject continued and Lue Elizondo found himself as the star of a television program called, Unidentified on the History Channel.

Despite the increased quality of recently published information on the UFO phenomenon, the occasional oddball story worked its way into the national spotlight to restore some of the ridicule previously directed at this subject.  

More recently, a December 3, 2020, article published by Israeli newspaper, Yediot Aharonot reverberated throughout the world’s major news outlets. Most of those outlets focused attention on a few sensational revelations from Prof. Haim Eshed, the 87-year-old former head of Israel’s space security program. As The Jerusalem Post reported, Professor Eshed claimed that a “Galactic Federation” has made some formal agreements with the United States. The reference to a Galactic Federation sparked some commentary suggesting that at his advanced age, Eshed might have been confusing Star Trek episodes with his real-life experience.  

On his new website, The Debrief, Tim McMillan reported that Yediot Aharonot journalist Raanan Shaked insisted that Professor Eshed’s remarks about the Galactic Federation were taken out of context and that Eshed was discussing some popular folklore about the UFO subject, rather than any information he acquired through his position with Israel’s space security program. 

While the Cult of the Credulous continued to ponder the possible details of a “secret deal” between the United States and the Galactic Federation, a less-sensational report surfaced featuring an interview with former CIA Director John Brennan. Libertarian economist, Prof. Tyler Cowen of George Mason University published a report (and a video) of his recent interview with John Brennan, detailing their conversation concerning UFOs. The interview prompted the creation of several memes which became popular at websites dealing with the UFO phenomenon. Brennan’s comments about the UFO topic appear in the linked video at 6:42 thru 9:39.

The foregoing Brennan meme was reminiscent of the meme which resulted from Tucker Carlson’s interview with theoretical physics Professor Michio Kaku during the Sept. 20. 2019, broadcast of Carlson’s Fox News program:

                             

Dead Center

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Throughout the past ten years, Democratic politicians have increasingly relied on the term “centrism” as a euphemism for “corporatism”. As centrism has been replaced by adherence to corporatism, it has become difficult to identify any politician who advocates centrist views. Republican politicians are too afraid of offending their party’s “base”, whose opinions are shaped by the Trump/Fox News axis. By now, nearly all Democrats who identify as centrists are actually corporatists.

During the current campaign cycle, the Democratic National Committee (DNC) and most mainstream news outlets have advanced the cause of promoting a “centrist” presidential candidate as the best route for defeating Donald Trump in 2020. The chant, “Vote Blue no matter who” seems to mean “Shut up and vote for the corporatist, designated as your candidate by the DNC”.

In a recent interview, Michael Moore explained that the majority of Americans agree with the progressive Democrats who support “Medicare for all”, increased measures to limit climate change, increasing the minimum wage and reducing this nation’s absurd incarceration levels. Moore emphasized that a significant majority of the American people hold views to the left of what mainstream news outlets define as “the center”.

Moore’s point is now reverberating through news reports, which acknowledge voters’ increasing support for Bernie Sanders. On December 26, The New York Times ran a piece by Sydney Ember entitled, “Why Bernie Sanders Is Tough to Beat”. At Newsweek, an article by James Crowley offered the following perspective about the Sanders campaign from President Obama’s senior advisor, Dan Pfeiffer:

“He has a very good shot of winning Iowa, a very good shot of winning New Hampshire, and other than Joe Biden, the best shot of winning Nevada,” said Pfeiffer, noting that these early odds improved Sanders’ chances going forward. “He could build a real head of steam heading into South Carolina and Super Tuesday,” …

Although the DNC and CNN have pushed hard to promote the candidacy of Joe Biden (Hillary 2.0) Biden’s popularity waned as he began to prove himself worthy of Kim Jong-un’s now-famous label, “dotard”. At that point, former Republican Mike Bloomberg jumped into the race, offering Democratic voters a billionaire alternative to progressivists, such as Bernie Sanders and Elizabeth Warren. Mainstream news outlets began to express excitement about the candidacy of Pete Buttigieg (Hillary 2.1) who could carry the corporatist banner. However, as political commentators demanded that Buttigieg identify the corporations for whom he did work as a consultant at McKinsey & Company, Buttigieg’s polling numbers became stalled in the single digits. When the Ukrainegate scandal began to dominate the news, Biden’s popularity experienced a rebound. Nevertheless, many commenters remained doubtful that Biden could maintain his leading position long enough to secure the Democratic nomination. As a result, several news sources attempted to boost support for the charisma-deficient corporatist, Amy Klobuchar (Hillary 2.2).

At this point, it is clear that the political center – which formerly embraced a balance of liberal and conservative views – has become irrelevant to the 2020 presidential campaign. Centrism died with the rise of Trumpism and the Democrats’ insatiable quest for money from deep-pocketed corporate activists. Worse yet, a May 23, 2018, opinion piece by David Adler for The New York Times revealed that only 42 percent of people identifying as “centrists” considered Democracy as a very good political system. Adler’s analysis of polling data revealed that in the United States, fewer than half of people in the political center viewed elections as essential. Adler reached this disturbing conclusion:

“As Western democracies descend into dysfunction, no group is immune to the allure of authoritarianism — least of all centrists, who seem to prefer strong and efficient government over messy democratic politics.”   

Regardless of the accuracy of David Adler’s analysis, America’s current appetite for “centrism” is restricted to those policies most beneficial for advancing a corporatist agenda.

More Pain Ahead for UFO Skeptics

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December 16, 2017, brought some severe headaches to those who make a practice of denying that UFOs really exist. The New York Times published a shocking story about the Defense Department’s Advanced Aerospace Threat Identification Program (AATIP). AATIP was headquartered on the fifth floor of the Pentagon’s C Ring and was managed by Luis Elizondo for the Defense Intelligence Agency.

The Times article disclosed that the AATIP, which began in 2007, investigated reports of unidentified flying objects. The online edition of the Times story included gun camera videos of an encounter between a UFO and two Navy F/A-18 Super Hornets, dispatched from the U.S. aircraft carrier Nimitz. The event occurred off the coast of San Diego in 2004. During the opening moments of the first video, one of the pilots remarked that there was “a whole fleet of them” at the scene. This contrasts with the denialists’ claim that there was only one UFO observed. Of particular concern to UFO skeptics was this passage from the Times piece:

A 2009 Pentagon briefing summary of the program prepared by its director at the time asserted that “what was considered science fiction is now science fact,” and that the United States was incapable of defending itself against some of the technologies discovered.

Beyond that, the Times reported that Las Vegas-based Bigelow Aerospace had modified buildings “… for the storage of metal alloys and other materials that Mr. Elizondo and program contractors said had been recovered from unidentified aerial phenomena.”

Skeptics and UFO debunkers immediately set about attempting to put the toothpaste back into the tube. Some news outlets and blogs followed the general theme of “nothing to see here – move along”. Some supposedly scientific sources published very un-scientific reports concerning the metal alloys held by Bigelow Aerospace (BAS). None of those reports were based the source’s own examination of any such metal samples. Similarly, the sources conducted no reviews of any BAS reports concerning those metals. Other attempts at pushback focused on the false claim that the $22 million study conducted by BAS revealed nothing.

On the other hand, George Knapp of KLAS TV News in Las Vegas pointed out that Bigelow Aerospace produced 36 technical reports and 38 other reports (some of which exceeded 100 pages) based on information gleaned from this project. Knapp also notes that Luis Elizondo has 24 videos from AATIP investigations. Knapp expects that all of those videos will be released.

UFO researcher Grant Cameron emphasizes that disclosure of the aforementioned Bigelow Aerospace project is just one of six efforts underway to reveal the latest understanding about UFOs. For several years, Dr. Jacques Vallee has been leading his own project involving the examination of anomalous materials recovered in connection with UFO incidents. In an August, 2017 interview conducted by Alex Tsakaris of the Skeptico website, Dr. Vallee offered this explanation concerning what his team learned about isotope ratios for some of those metals:

So, either it should be terrestrial, which we can find out very quickly, or it could be extraterrestrial, in which case you’d expect that it would vary by a few percent from the standard ratio.

Most of those machines are mass spectrometers and they are often used by geologists, among other people, who look at meteorites. Meteorites are extraterrestrial and they don’t have the same ratio of isotopes that you do if you pick up a piece of iron on earth. So they are used to looking at ratios that are a little bit different, but what we find are ratios that are 100% off.

April of 2018 brings the release of American Cosmic, a book by Professor Diana Walsh Pasulka from the University of North Carolina at Wilmington. American Cosmic will raise immense problems for the UFO denialists because it will offer information about the involvement of Silicon Valley entrepreneurs in the reverse-engineering of UFO technology and the assimilation of that technology into products manufactured by aerospace industry giants. More important, Dr. Pasulka discusses her trip to a UFO crash site in New Mexico (not Roswell) where crash debris is still being collected for examination by scientists working within the appropriate specialties. She shares the explanation provided to her by those entrepreneurs that inspections of material from this site continue to provide the inspiration and direction for some of the newest technological innovations. Some of those products are already in use.

The recent revelations made by the team represented by Luis Elizondo are only the beginning of an evidentiary avalanche, which will overwhelm those who continue to deny the reality of UFOs. Meanwhile, the rest of us can enjoy the music.



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Geithner Gets Bashed in New Book

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Much has been written about “Turbo” Tim Geithner since he first became Treasury Secretary on January 26, 2009.  In his book, Too Big to Fail, Andrew Ross Sorkin wrote adoringly about Geithner’s athletic expertise.  On the other hand, typing “Turbo Tim Geithner” into the space on the upper-right corner of this page and clicking on the little magnifying glass will lead you to no less than 61 essays wherein I saw fit to criticize the Treasury Secretary.  I first coined the “Turbo” nickname on February 9, 2009 and on February 16 of that year I began linking “Turbo” to an explanatory article, for those who did not understand the reference.

Geithner has never lacked defenders.  The March 10, 2010 issue of The New Yorker ran an article by John Cassidy entitled, “No Credit”.  The title was meant to imply that Getithner’s efforts to save America’s financial system were working, although he was not getting any credit for this achievement.  From the very outset, the New Yorker piece was obviously an attempt to reconstruct Geithner’s controversial public image – because he had been widely criticized as a tool of Wall Street.

Edward Harrison of Credit Writedowns dismissed the New Yorker article as “an out and out puff piece” that Geithner himself could have written:

Don’t be fooled; this is a clear plant to help bolster public opinion for a bailout and transfer of wealth, which was both unnecessary and politically damaging.

Another article on Geithner, appearing in the April 2010 issue of The Atlantic, was described by Edward Harrison as “fairly even-handed” although worthy of extensive criticism.  Nevertheless, after reading the following passage from the first page of the essay, I found it difficult to avoid using the terms “fawning and sycophantic” to describe it:

In the course of many interviews about Geithner, two qualities came up again and again.  The first was his extraordinary quickness of mind and talent for elucidating whatever issue was the preoccupying concern of the moment.  Second was his athleticism.  Unprompted by me, friends and colleagues extolled his skill and grace at windsurfing, tennis, basketball, running, snowboarding, and softball (specifying his prowess at shortstop and in center field, as well as at the plate).  He inspires an adolescent awe in male colleagues.

Gawd!  Yeech!

In November of 2008, President George W. Bush appointed Neil M. Barofsky to the newly-established position, Special Inspector General for the Troubled Asset Relief Program (SIGTARP).  Barofsky was responsible for preventing fraud, waste and abuse involving TARP operations and funds.  From his first days on that job, Neil Barofsky found Timothy Geithner to be his main opponent.  On March 31 of 2009, the Senate Finance Committee held a hearing on the oversight of TARP.  The hearing included testimony by Neil Barofsky, who explained how the Treasury Department had been interfering with his efforts to ascertain what was being done with TARP funds which had been distributed to the banks.  Matthew Jaffe of ABC News described Barofsky’s frustration in attempting to get past the Treasury Department’s roadblocks.

On the eve of his retirement from the position of Special Inspector General for TARP (SIGTARP), Neil Barofsky wrote an op-ed piece for the March 30, 2011 edition of The New York Times entitled, “Where the Bailout Went Wrong”.  Barofsky devoted a good portion of the essay to a discussion of the Obama administration’s failure to make good on its promises of “financial reform”, with a particular focus on the Treasury Department:

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.

In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that.  Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises.  This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.

It should come as no surprise that in Neil Barofsky’s new book, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, the author pulls no punches in his criticism of Timothy Geithner.  Barofsky has been feeding us some morsels of what to expect from the book by way of some recent articles in Bloomberg News.  Here is some of what Barofsky wrote for Bloomberg on July 22:

More important, the financial markets continue to bet that the government will once again come to the big banks’ rescue.  Creditors still give the largest banks more favorable terms than their smaller counterparts — a direct subsidy to those that are already deemed too big to fail, and an incentive for others to try to join the club.  Similarly, the major banks are given better credit ratings based on the assumption that they will be bailed out.

*   *   *

The missteps by Treasury have produced a valuable byproduct: the widespread anger that may contain the only hope for meaningful reform. Americans should lose faith in their government.  They should deplore the captured politicians and regulators who distributed tax dollars to the banks without insisting that they be accountable.  The American people should be revolted by a financial system that rewards failure and protects those who drove it to the point of collapse and will undoubtedly do so again.

Only with this appropriate and justified rage can we hope for the type of reform that will one day break our system free from the corrupting grasp of the megabanks.

In his review of Barofsky’s new book, Darrell Delamaide of MarketWatch discussed the smackdown Geithner received from Barofsky:

Barofsky may have an axe to grind, but he grinds it well, portraying Geithner as a dissembling bureaucrat in thrall to the banks and reminding us all that President Barack Obama’s selection of Geithner as his top economic official may have been one of his biggest mistakes, and a major reason the White House incumbent has to fight so hard for re-election.

From his willingness to bail out the banks with virtually no accountability, to his failure to make holders of credit default swaps on AIG take a haircut, to his inability to mount any effective program for mortgage relief, Geithner systematically favored Wall Street over Main Street and created much of the public’s malaise in the aftermath of the crisis.

*    *    *

Barofsky, a former prosecutor, relates that he rooted for Geithner to get the Treasury appointment and was initially willing to give him the benefit of the doubt when it emerged that he had misreported his taxes while he worked at the International Monetary Fund.

But as more details on those unpaid taxes came out and Geithner’s explanations seemed increasingly disingenuous, Barofsky had his first doubts about the secretary-designate.

Barofsky, of course, was not alone in his skepticism, and Geithner’s credibility was damaged from the very beginning by the disclosures about his unpaid taxes.

*   *   *

Barofsky concludes his scathing condemnation of Geithner’s “bank-centric policies” by finding some silver lining in the cloud – that the very scale of the government’s failure will make people angry enough to demand reform.

Once Geithner steps down from his position at the end of the year, we may find that his legacy is defined by Neil Barofsky’s book, rather than any claimed rescue of the financial system.


 

Dumping On The Dimon Dog

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The Dimon Dog has been eating crow for the past few days, following a very public humiliation.  The outspoken critic of the Dodd-Frank Wall Street Reform and Consumer Protection Act found himself explaining a $2 billion loss sustained by his firm, JPMorgan Chase, as a result of involvement in the very type of activity the Act’s “Volcker Rule” was intended to prevent.  Financial industry lobbyists have been busy, frustrating regulatory attempts to implement Dodd-Frank’s provisions which call for stricter regulation of securities trading and transactions involving derivatives.  Appropriately enough, it was an irresponsible derivatives trading strategy which put Jamie Dimon on the hot seat.  The widespread criticism resulting from this episode was best described by Lizzie O’Leary (@lizzieohreally) with a single-word tweet:  Dimonfreude.

The incident in question involved a risky bet made by a London-based trader named Bruno Iksil – nicknamed “The London Whale” – who works in JP Morgan’s Chief Investment Office, or CIO.  An easy-to-understand explanation of this trade was provided by Heidi Moore, who emphasized that Iksil’s risky position was no secret before it went south:

Everyone knew.  Thousands of people.  Iksil’s bets have been well known ever since Bloomberg’s Stephanie Ruhle broke the news in early April.  A trader at rival bank, Bank of America Merrill Lynch wrote to clients back then, saying that Iksil’s huge bet was attracting attention and hedge funds believed him to be too optimistic and were betting against him, waiting for Iksil to crash.  The Wall Street Journal reported that the Merrill Lynch trader wrote, “Fast money has smelt blood.

When the media, analysts and other traders raised concerns on JP Morgan’s earnings conference call last month, JP Morgan CEO Jamie Dimon dismissed their worries as “a tempest in a teapot.”

Dimon’s smug attitude about the trade (prior to its demise) was consistent with the hubris he exhibited while maligning Dodd-Frank, thus explaining why so many commentators took delight in Dimon’s embarrassment.  On May 11, Kevin Roose of DealBook offered a preliminary round-up of the criticism resulting from this episode:

In a research note, a RBC analyst, Gerard Cassidy, called the incident a “hit to credibility” at the bank, while the Huffington Post’s Mark Gongloff said, “Funny thing:  Some of the constraints of the very Dodd-Frank financial reform act Dimon hates could have prevented it.”  Slate’s Matthew Yglesias pointed back to statements Mr. Dimon made in opposition to the Volcker Rule and other proposed regulations, and quipped, “Indeed, if only JPMorgan were allowed to run a thinner capital buffer and riskier trades.  Then we’d all feel safe.”

Janet Tavakoli pointed out that this event is simply the most recent chapter in Dimon’s history of allowing the firm to follow risky trading strategies:

At issue is corporate governance at JPMorgan and the ability of its CEO, Jamie Dimon, to manage its risk.  It’s reasonable to ask whether any CEO can manage the risks of a bank this size, but the questions surrounding Jamie Dimon’s management are more targeted than that.  The problem Jamie Dimon has is that JPMorgan lost control in multiple areas.  Each time a new problem becomes public, it is revealed that management controls weren’t adequate in the first place.

*   *   *

Jamie Dimon’s problem as Chairman and CEO–his dual role raises further questions about JPMorgan’s corporate governance—is that just two years ago derivatives trades were out of control in his commodities division.  JPMorgan’s short coal position was over sized relative to the global coal market.  JPMorgan put this position on while the U.S. is at war.  It was not a customer trade; the purpose was to make money for JPMorgan.  Although coal isn’t a strategic commodity, one should question why the bank was so reckless.

After trading hours on Thursday of this week, Jamie Dimon held a conference call about $2 billion in mark-to-market losses in credit derivatives (so far) generated by the Chief Investment Office, the bank’s “investment” book.  He admitted:

“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored.”

At The New York Times, Gretchen Morgenson focused on the karmic significance of Dimon’s making such an admission after having belittled Paul Volcker and Dallas FedHead Richard Fisher at a party in Dallas last month:

During the party, Mr. Dimon took questions from the crowd, according to an attendee who spoke on condition of anonymity for fear of alienating the bank. One guest asked about the problem of too-big-to-fail banks and the arguments made by Mr. Volcker and Mr. Fisher.

Mr. Dimon responded that he had just two words to describe them:  “infantile” and “nonfactual.”  He went on to lambaste Mr. Fisher further, according to the attendee.  Some in the room were taken aback by the comments.

*   *   *

The hypocrisy is that our nation’s big financial institutions, protected by implied taxpayer guarantees, oppose regulation on the grounds that it would increase their costs and reduce their profit.  Such rules are unfair, they contend.  But in discussing fairness, they never talk about how fair it is to require taxpayers to bail out reckless institutions when their trades imperil them.  That’s a question for another day.

AND the fact that large institutions arguing against transparency in derivatives trading won’t acknowledge that such rules could also save them from themselves is quite the paradox.

Dimon’s rant at the Dallas party was triggered by a fantastic document released by the Federal Reserve Bank of Dallas on March 21:  its 2011 Annual Report, featuring an essay entitled, “Choosing the Road to Prosperity – Why We Must End Too Big to Fail – Now”.  The essay was written by Harvey Rosenblum, the head of the Dallas Fed’s Research Department and the former president of the National Association for Business Economics.  Rosenblum’s essay provided an historical analysis of the events leading up to the 2008 financial crisis and the regulatory efforts which resulted from that catastrophe – particularly the Dodd-Frank Act.

With his own criticism of Dimon’s attitude, Robert Reich invoked the position asserted by the Dallas Fed:

And now – only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent, pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression – J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, and poorly-executed and excessively risky trades that caused the crisis in the first place.

In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.

The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?

*   *   *

But let’s also stop hoping Wall Street will mend itself.  What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.

At Salon, Andrew Leonard focused on the embarrassment this episode could bring to Mitt Romney:

Because if anyone is going to come out of this mess looking even stupider than Jamie Dimon, it’s got to be Mitt Romney – the presidential candidate actively campaigning on a pledge to repeal Dodd-Frank.

Perhaps Mr. Romney might want to consider strapping The Dimon Dog to the roof of his car for a little ride to Canada.


 

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Austeri-FAIL

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I have never accepted the idea that economic austerity could be at all useful in resolving our unending economic crisis.  I posted my rant about this subject on December 19, 2011:

The entire European economy is on its way to hell, thanks to an idiotic, widespread belief that economic austerity measures will serve as a panacea for the sovereign debt crisis.  The increasing obviousness of the harm caused by austerity has motivated its proponents to crank-up the “John Maynard Keynes was wrong” propaganda machine.  You don’t have to look very far to find examples of that stuff.  On any given day, the Real Clear Politics (or Real Clear Markets) website is likely to be listing at least one link to such a piece.  Those commentators are simply trying to take advantage of the fact that President Obama botched the 2009 economic stimulus effort.  Many of us realized – a long time ago – that Obama’s stimulus measures would prove to be inadequate.  In July of 2009, I wrote a piece entitled, “The Second Stimulus”, wherein I pointed out that another stimulus program would be necessary because the American Recovery and Reinvestment Act of 2009 was not going to accomplish its intended objective.  Beyond that, it was already becoming apparent that the stimulus program would eventually be used to support the claim that Keynesian economics doesn’t work.  Economist Stephanie Kelton anticipated that tactic in a piece she published at the New Economic Perspectives website  . . .

It has finally become apparent to most rational thinkers that economic austerity is of no use to any national economy’s attempts to recover from a severe recession.  There have been loads of great essays published on the subject this week and I would like to direct you to a few of them.

Henry Blodget of The Business Insider wrote a great piece which included this explanation:

This morning brings news that Europe may finally be beginning to soften on the “austerity” philosophy that has brought it nothing but misery over the past several years.

The “austerity” idea, you’ll remember, was that the huge debt and deficit problem had ushered in a “crisis of confidence” and that, once business-people saw that governments were serious about debt reduction, they’d get confident and start spending again.

That hasn’t worked.

Instead, spending cuts have led to cuts in GDP which has led to greater deficits and the need for more spending cuts.  And so on.

On April 23, Nicholas Kulich wrote an article for The New York Times which began with the ugly truth that austerity has turned out to be a fiasco:

With political allies weakened or ousted, Chancellor Angela Merkel’s seat at the head of the European table has become much less comfortable, as a reckoning with Germany’s insistence on lock-step austerity appears to have begun.

“The formula is not working, and everyone is now talking about whether austerity is the only solution,” said Jordi Vaquer i Fanés, a political scientist and director of the Barcelona Center for International Affairs in Spain.  “Does this mean that Merkel has lost completely?  No.  But it does mean that the very nature of the debate about the euro-zone crisis is changing.”

A German-inspired austerity regimen agreed to just last month as the long-term solution to Europe’s sovereign debt crisis has come under increasing strain from the growing pressures of slowing economies, gyrating financial markets and a series of electoral setbacks.

Joe Weisenthal of The Business Insider provided us with this handy round-up of essays proclaiming the demise of economic austerity.  Here is his own nail in the coffin:

As we wrote this morning, the bad news for Angela Merkel is that the jig is up: There’s almost nobody left who is willing to go along with the German idea that the sole solution forEurope is spending discipline and “reform,” whatever that means.

One of the best essays on this subject was written by Hale Stewart for The Big Picture.  The title of the piece was “People Are Finally Figuring Out: Austerity is Stupid”.

Those in denial about the demise of economic austerity have found it necessary to ignore the increasing refutations of the policy from conservative economists, which began appearing early this year.  The most highly-publicized of these came from Harvard economic historian Niall Ferguson.  Mike Shedlock (a/k/a Mish) criticized the policy on a number of occasions, such as his posting of January 11, 2012:

Austerity measures in Italy, Spain, Portugal, Greece and France combined with escalating trade wars ensures the recession will be long and nasty.

One would think that a consensus of reasonable people, speaking out against this ill-conceived policy, should be enough to convince The Powers That Be to pull the plug on it.  In a perfect world   .  .  .



Goldman Sachs Remains in the Spotlight

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Goldman Sachs has become a magnet for bad publicity.  Last week, I wrote a piece entitled, “Why Bad Publicity Never Hurts Goldman Sachs”.  On March 14, Greg Smith (a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa) summed-up his disgust with the firm’s devolution by writing “Why I Am Leaving Goldman Sachs” for The New York Times.  Among the most-frequently quoted reasons for Smith’s departure was this statement:

It makes me ill how callously people talk about ripping their clients off.  Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.

In the wake of Greg Smith’s very public resignation from Goldman Sachs, many commentators have begun to speculate that Goldman’s bad behavior may have passed a tipping point.  The potential consequences have become a popular subject for speculation.  The end of Lloyd Blankfein’s reign as CEO has been the most frequently-expressed prediction.  Peter Cohan of Forbes raised the possibility that Goldman’s clients might just decide to take their business elsewhere:

Until a wave of talented people leave Goldman and go work for some other bank, many clients will stick with Goldman and hope for the best.  That’s why the biggest threat to Goldman’s survival is that Smith’s departure – and the reasons he publicized so nicely in his Times op-ed – leads to a wider talent exodus.

After all, that loss of talent could erode Goldman’s ability to hold onto clients. And that could give Goldman clients a better alternative.  So when Goldman’s board replaces Blankfein, it should appoint a leader who will restore the luster to Goldman’s traditional values.

Goldman’s errant fiduciary behavior became a popular topic in July of 2009, when the Zero Hedge website focused on Goldman’s involvement in high-frequency trading, which raised suspicions that the firm was “front-running” its own customers.   It was claimed that when a Goldman customer would send out a limit order, Goldman’s proprietary trading desk would buy the stock first, then resell it to the client at the high limit of the order.  (Of course, Goldman denied front-running its clients.)  Zero Hedge brought our attention to Goldman’s “GS360” portal.  GS360 included a disclaimer which could have been exploited to support an argument that the customer consented to Goldman’s front-running of the customer’s orders.  One week later, Matt Taibbi wrote his groundbreaking, tour de force for Rolling Stone about Goldman’s involvement in the events which led to the financial crisis.  From that point onward, the “vampire squid” and its predatory business model became popular subjects for advocates of financial reform.

Despite all of the hand-wringing about Goldman’s controversial antics – especially after the April 2010 Senate Permanent Subcommittee on Investigations hearing, wherein Goldman’s “Fab Four” testified about selling their customers the Abacus CDO and that “shitty” Timberwolf deal, no effective remedial actions for cleaning-up Wall Street were on the horizon.  The Dodd-Frank financial “reform” legislation had become a worthless farce.

Exactly two years ago, publication of the report by bankruptcy examiner Anton Valukas, pinpointing causes of the Lehman Brothers collapse, created shockwaves which were limited to the blogosphere.  Unfortunately, the mainstream media were not giving that story very much traction.  On March 15 of 2010, the Columbia Journalism Review published an essay by Ryan Chittum, decrying the lack of mainstream media attention given to the Lehman scandal.  This shining example of Wall Street malefaction should have been an influential factor toward making the financial reform bill significantly more effective than the worthless sham it became.

Greg Smith’s resignation from Goldman Sachs could become the game-changing event, motivating Wall Street’s investment banks to finally change their ways.  Matt Taibbi seems to think so:

This always had to be the endgame for reforming Wall Street.  It was never going to happen by having the government sweep through and impose a wave of draconian new regulations, although a more vigorous enforcement of existing laws might have helped.  Nor could the Occupy protests or even a monster wave of civil lawsuits hope to really change the screw-your-clients, screw-everybody, grab-what-you-can culture of the modern financial services industry.

Real change was always going to have to come from within Wall Street itself, and the surest way for that to happen is for the managers of pension funds and union retirement funds and other institutional investors to see that the Goldmans of the world aren’t just arrogant sleazebags, they’re also not terribly good at managing your money.

*   *   *

These guys have lost the fear of going out of business, because they can’t go out of business.  After all, our government won’t let them.  Beyond the bailouts, they’re all subsisting daily on massive loads of free cash from the Fed.  No one can touch them, and sadly, most of the biggest institutional clients see getting clipped for a few points by Goldman or Chase as the cost of doing business.

The only way to break this cycle, since our government doesn’t seem to want to end its habit of financially supporting fraud-committing, repeat-offending, client-fleecing banks, is for these big “muppet” clients to start taking their business elsewhere.

In the mean time, the rest of us will be keeping our fingers crossed.


 

Why Bad Publicity Never Hurts Goldman Sachs

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My last posting focused on the widely-publicized research conducted by Stéphane Côté, PhD, Associate Professor of Organizational Behavior at the University of Toronto’s Rotman School of Management, who worked with a team of four psychologists from the University of California at Berkeley to conduct seven studies on a rather timely subject.  Their article, “Higher social class predicts increased unethical behavior” was published in the February 27 issue of the Proceedings of the National Academy of Sciences (PNAS).  The following excerpt from the abstract of their paper provides the general theme of what their efforts revealed:

.   .   .  investigation revealed upper-class individuals were more likely to exhibit unethical decision-making tendencies (study 3), take valued goods from others (study 4), lie in a negotiation (study 5), cheat to increase their chances of winning a prize (study 6), and endorse unethical behavior at work (study 7) than were lower-class individuals.

I began my discussion of that paper by looking back at a Washington Post opinion piece entitled, “Angry about inequality?  Don’t blame the rich”.  The essay was written last January by James Q. Wilson (who passed away on March 2).  On March 4, William K. Black took a deeper look at the legacy of James Q. Wilson, which provided a better understanding of why Wilson would champion the “Don’t blame the rich” rationale.  As Bill Black pointed out, Wilson was a political scientist, known best for his theory called “broken windows” – a metaphor based on a vacant building with a few broken windows, which quickly has all of its windows broken because petty criminals feel emboldened to damage a building so neglected by its owners.  Bill Black emphasized that Wilson was exclusively preoccupied with minor, “blue collar” crimes.  Black noted that in a book entitled, Thinking About Crime, Wilson expressed tolerance for “some forms of civic corruption” while presenting an argument that criminology “should focus overwhelmingly on low-status blue collar criminals”.  Bill Black went on to explain how Wilson’s blindness to the relevance of the “broken windows” concept, as it related to “white collar” crime, resulted in a missed opportunity to attenuate the criminogenic milieu which led to the 2008 financial crisis:

Wilson emphasized that it was the willingness of society to tolerate relatively minor blue collar crimes that led to social disintegration and epidemics of severe blue collar crimes, but he engaged in the same willingness to tolerate and excuse less severe white collar crimes.  He predicted in his work on “broken windows” that tolerating widespread smaller crimes would lead to epidemic levels of larger crimes because it undermined community and social restraints.  The epidemics of elite white collar crime that have driven our recurrent, intensifying financial crises have proven this point.  Similarly, corruption that is excused and tolerated by elites is unlikely to remain at the level of “a few deals.”  Corruption is likely to spread in incidence and severity precisely because it undermines community and the rule of law and it is likely to grow more pervasive and harmful the more we “tolera[te]” it.

*   *   *

Taking Wilson’s “broken windows” reasoning seriously in the elite white collar crime context would require us to take a series of prophylactic measures to restore integrity and strengthen peer pressures against misconduct.  Indeed, we have implicitly tested the applicability of “broken windows” reasoning in that context by adopting policies that acted directly contrary to Wilson’s reasoning.  We have adopted executive and professional compensation systems that are exceptionally criminogenic.

*   *   *

Fiduciary duties are critical means of preventing broken windows from occurring and making it likely that any broken windows in corporate governance will soon be remedied, yet we have steadily weakened fiduciary duties.  For example, Delaware now allows the elimination of the fiduciary duty of care as long as the shareholders approve.  Court decisions have increasingly weakened the fiduciary duties of loyalty and care.  The Chamber of Commerce’s most recent priorities have been to weaken Sarbanes-Oxley and the Foreign Corrupt Practices Act.  We have made it exceptionally difficult for shareholders who are victims of securities fraud to bring civil suits against the officers and entities that led or aided and abetted the securities fraud.

*   *   *

In the elite white collar crime context we have been following the opposite strategy of that recommended under “broken windows” theory.  We have been breaking windows. We have excused those who break the windows.  Indeed, we have praised them and their misconduct.  The problem with allowing broken windows is far greater in the elite white collar crime context than the blue collar crime context.

To find a “poster child” example for the type of errant fiduciary behavior which owes its existence to Wilson’s misapplication of the “broken windows” doctrine, one need look no further than Matt Taibbi’s favorite “vampire squid”:  Goldman Sachs.  One would think that after Taibbi’s groundbreaking, 2009 tour de force about Goldman’s involvement in the events which led to the financial crisis . . .  and after the April 2010 Senate Permanent Subcommittee on Investigations hearing, wherein Goldman’s “Fab Four” testified about selling their customers the Abacus CDO and that “shitty” Timberwolf deal, the firm would at least try to keep a lower profile these days.  Naaaaw!

Goldman Sachs has now found itself in the crosshairs of a man, formerly accused of carrying water for the firm – Andrew Ross Sorkin.  Sorkin’s March 5 DealBook article for The New York Times upbraided Goldman for its flagrant conflict of interest in a deal where the firm served as an adviser to an oil (and natural gas) pipeline company, El Paso, which was being sold to Houston-based Kinder Morgan for $21.1 billion.  Goldman owned a 19.1 percent stake in Kinder Morgan at the time.  Andrew Ross Sorkin quoted from the script which Goldman CEO, Lloyd Blankfein read to El Paso’s CEO, Douglas Foshee, wherein Blankfein confirmed that Foshee was aware of Goldman’s investment in Kinder Morgan.  It was refreshing to see a bit of righteous indignation in Sorkin’s discussion of the dirty details behind this transaction:

When the deal was announced, buried at the end of the news release was a list of Wall Street banks that had advised on the deal, including Goldman Sachs.  Goldman received a $20 million fee for playing matchmaker for El Paso.  The fee, of course, was not disclosed, nor was the Kinder Morgan stake owned by Goldman Sachs’s private equity arm, worth some $4 billion.  Nor did the release disclose that the Goldman banker who advised El Paso to accept Kinder Morgan’s bid owned $340,000 worth of Kinder Morgan stock.

Now, however, a court ruling in a shareholder lawsuit has laid bare the truth:  Goldman was on every conceivable side of the deal.  As a result, El Paso may have unwittingly sold itself far too cheaply.  Mr. Blankfein may have said he was “very sensitive to the appearance of conflict,” but the judge’s order ruling “reluctantly” against a motion to block the merger made it clear that Goldman’s conflicts went far beyond mere appearances.

Here’s just one example:  In an effort to help mitigate its clear conflict, Goldman Sachs recommended that El Paso hire an additional adviser so that El Paso would be able to say that it had received completely impartial advice.  Goldman did not say it would step down, and lose its fee, it simply suggested that El Paso hire one more bank – in this case, Morgan Stanley.

After explaining that Goldman included a provision in the deal that Morgan Stanley would get paid only if El Paso agreed to the sale to Kinder Morgan, Sorkin expressed this reaction:

Goldman’s brazenness in this deal is nothing short of breathtaking.

Goldman’s conflict of interest in the El Paso deal was also the subject of an article by Matthew Philips of Bloomberg BusinessWeek.  Mr. Philips reminded us of whom we have to thank for “helping Greece dupe regulators by disguising billions of dollars’ worth of sovereign debt”:

New details have also emerged about Goldman’s role in helping Greece hide its debt so it could qualify for membership in the European Union.  In a Bloomberg News story out this week, Greek officials talk about how they didn’t truly understand the complex swaps contracts they were buying from Goldman bankers from 2001 to 2005, and that each time Goldman restructured the deal, things got worse for Greece.

The story reads like a cautionary tale of a homeowner who keeps returning to the same contractor to repair the damage done by the previous fix-it job.  At one point, Goldman prohibited Greece’s debt manager, Christoforos Sardelis, from seeking outside price quotes on the complicated derivatives Goldman was selling to Greece.

*   *   *

Yet Goldman’s sullied reputation doesn’t appear to be negatively impacting its business.  In fact, Goldman is outpacing its Wall Street competition recently in key areas of business.  In 2011, Goldman was the top adviser for both global M&A and equity IPOs.  A Bloomberg survey of traders, investors, and analysts last May showed that while 54 percent of respondents had an unfavorable opinion of Goldman, 78 percent believed that allegations it duped clients and misled Congress would have no material effect on its business.

In other words:  Goldman Sachs keeps breaking windows and nobody cares.  Thanks for nothing, James Q. Wilson!


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