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Disaster capitalism bulletin, 2015

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[Dec 30, 2015] Ukrainian economy in depression: exports fall by about a third in 2015

Recession in Russia was the last nail on the coffin...
izvestia.ru

Exports of goods and services of Ukrainian production in 2015 will fall by about a third. And this is not surprising: as a result of "reforms" in the country almost died the industry lost its main Russian market, where Ukraine has supplied products with high added value. The cumulative figure of industrial production YTD is approximately -15%. The main export product of Ukraine for the first time since the pre-industrial era were products of agriculture. In the first place - corn.

[Dec 30, 2015] Ukrainian economy in depression: exports fall by about a third in 2015

Recession in Russia was the last nail on the coffin...
izvestia.ru

Exports of goods and services of Ukrainian production in 2015 will fall by about a third. And this is not surprising: as a result of "reforms" in the country almost died the industry lost its main Russian market, where Ukraine has supplied products with high added value. The cumulative figure of industrial production YTD is approximately -15%. The main export product of Ukraine for the first time since the pre-industrial era were products of agriculture. In the first place - corn.

[Dec 30, 2015] Ukrainian economy in depression: exports fall by about a third in 2015

Recession in Russia was the last nail on the coffin...
izvestia.ru

Exports of goods and services of Ukrainian production in 2015 will fall by about a third. And this is not surprising: as a result of "reforms" in the country almost died the industry lost its main Russian market, where Ukraine has supplied products with high added value. The cumulative figure of industrial production YTD is approximately -15%. The main export product of Ukraine for the first time since the pre-industrial era were products of agriculture. In the first place - corn.

[Dec 23, 2015] How America Lost the Rest of the World

Notable quotes:
"... I'm still trying to think through the implications but they are certainly disquieting. Without trying to hard I'd summarize that "the masks are coming off." ..."
"... The question then is, what happens after "the masks come off?" ..."
"... Short-sighted western pundits will still be penning deadline copy headlined "How Putin lost Ukraine" while those with real vision will be putting the finishing touches on "How America Lost the Rest of the World" ..."
marknesop.wordpress.com
Cortes, December 18, 2015 at 3:38 am
Michael Hudson on IMF manoeuvres

http://www.counterpunch.org/2015/12/18/the-imf-changes-its-rules-to-isolate-china-and-russia/

Tim Owen, December 18, 2015 at 6:24 am
Hard to overstate the importance of this article. Thanks for spotting it.

There's a lot here but this passage is kind of free-standing in its value by simply condensing how the IMF has contorted itself:

"The IMF thus is breaking four rules:

  1. Not lending to a country that has no visible means to pay back the loan breaks the "No More Argentinas" rule adopted after the IMF's disastrous 2001 loan.
  2. Not lending to countries that refuse in good faith to negotiate with their official creditors goes against the IMF's role as the major tool of the global creditors' cartel.
  3. And the IMF is now lending to a borrower at war, indeed one that is destroying its export capacity and hence its balance-of-payments ability to pay back the loan.
  4. Finally, the IMF is lending to a country that has little likelihood of refuse carrying out the IMF's notorious austerity "conditionalities" on its population – without putting down democratic opposition in a totalitarian manner. Instead of being treated as an outcast from the international financial system, Ukraine is being welcomed and financed."

I'm still trying to think through the implications but they are certainly disquieting. Without trying to hard I'd summarize that "the masks are coming off."

The question then is, what happens after "the masks come off?"

… war.

(Sometimes it's best just to blurt out what's worrying you.)

marknesop, December 18, 2015 at 10:36 am
Short-sighted western pundits will still be penning deadline copy headlined "How Putin lost Ukraine" while those with real vision will be putting the finishing touches on "How America Lost the Rest of the World".

[Dec 22, 2015] Destruction of the financial system of Ukraine is complete

Essentially it got "below junk" rating...
Notable quotes:
"... How could Ukraine's government deficit only be 4.1% when its currency has crashed, it has lost most of its sources of income and it has just defaulted on its debt? What the fuck are they talking about? ..."
"... First, there is no way on God's green earth that there is a negative difference of only 4.1% between Ukraine's annual revenues and its annual expenditures, especially since it has almost no revenues except from taxation. ..."
marknesop.wordpress.com

marknesop, December 19, 2015 at 6:43 pm

According to Madame Jaresko, their decision not to pay the $3 Billion bond to Russia has set Ukraine free, free as a bird, and allowed it to now be in full compliance with the financing requirements of the IMF program.

Start shovelin' in the money, IMF, because Ukraine has the magic formula – just refuse to pay what you owe, call it a 'temporary suspension of payments' instead of 'a default', and reap the reward for your display of responsibility.

I foresee the mileage Russia is going to get out of this will far exceed the value of the $3 Billion.

marknesop, December 19, 2015 at 8:47 pm

How could Ukraine's government deficit only be 4.1% when its currency has crashed, it has lost most of its sources of income and it has just defaulted on its debt? What the fuck are they talking about?

"The proposed budget would work to reduce the government's deficit from 4.1% to 3.7%, with measures including an increase in revenue by widening the tax base."

First, there is no way on God's green earth that there is a negative difference of only 4.1% between Ukraine's annual revenues and its annual expenditures, especially since it has almost no revenues except from taxation.

And now the IMF expects to realize more revenue from widening the tax base – yes, I can imagine what a popular initiative that is. Now you know how Yushchenko felt, Yatsie, when the IMF denied him a second big loan because he refused to eliminate the gas subsidies to residents.

Now the IMF has finally realized that triumph through a different leader, and it wants to see even more tax revenue. You are about to be as popular as a turd in the punch bowl; have fun with that.

kirill, December 20, 2015 at 12:58 pm

I would not trust any GDP numbers from the Kiev regime either. They lost 25% of the economy in the Donbas alone not counting Crimea. This has knock on effects to the rest of Banderastan. Yet they are yapping about some 12% contraction in 2015 after a 7% contraction in 2014. I see no clear indication that they are counting the GDP only for regime controlled Banderastan.

As for the budget, according to regime officials, Banderastan lost 30% of its hard currency revenues with the loss of the Donbass. I estimate the tax loss to Kiev to be about 30% as well.

The Donbass was the industrialized part of the country while western Banderastan is primarily agrarian. So talk about 4% shortfalls in revenue is utter rubbish. In most countries the money making parts of the economy subsidize the rest and sure as hell it was not western Banderastan that was subsidizing the Donbass. That was just virulent blood libel such as the claim that Russians settled eastern Ukraine only after the Holodomor.

marknesop, December 20, 2015 at 1:13 pm

Europe deserves Ukraine. Let them have it, the quicker the better. It's fine when Yats is selling that stinking mess to his simple-minded constituents, but European policymakers will see through it right away. Unfortunately, Brussels knows better than to bring Ukraine any closer into the fold, because if they get a visa-free regime, the place will empty out in a week as Ukrainians flee throughout Europe (which is already, everyone must know, full of refugees) looking for jobs.

[Dec 19, 2015] The Washington Post's Non-Political Fed Looks a Lot Like Wall Street's Fed

Notable quotes:
"... Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. ..."
Dec 19, 2015 | Beat the Press

... ... ...

But what is even more striking is the Post's ability to treat the Fed a neutral party when the evidence is so overwhelming in the opposite direction. The majority of the Fed's 12 district bank presidents have long been pushing for a rate hike. While there are some doves among this group, most notably Charles Evans, the Chicago bank president, and Narayana Kocherlakota, the departing president of the Minneapolis bank, most of this group has publicly pushed for higher rate hikes for some time. By contrast, the governors who are appointed through the democratic process, have been far more cautious about raising rates.

It should raise serious concerns that the bank presidents, who are appointed through a process dominated by the banking industry, has such a different perspective on the best path forward for monetary policy. With only five of the seven governor slots currently filled, there are as many presidents with voting seats on the Fed's Open Market Committee as governors. In total, the governors are outnumbered at meetings by a ratio of twelve to five.

Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. Furthermore, it seems determined to use that influence to push the Fed on a path that slows growth and reduces the rate of job creation. The Post somehow missed this story or at least would prefer that the rest of us not take notice.

* https://www.washingtonpost.com/opinions/the-federal-reserve-makes-a-good-judgment-call-in-raising-interest-rates/2015/12/18/7954e1c6-a4f8-11e5-ad3f-991ce3374e23_story.html

-- Dean Baker

[Dec 18, 2015] The Upward Redistribution of Income: Are Rents the Story?

Looks like growth of financial sector represents direct threat to the society
Notable quotes:
"... Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low. ..."
"... Growth of the non-financial-sector == growth in productivity ..."
"... In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers. ..."
December 18, 2015 | cepr.netDean Baker:
Working Paper: : In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period.

This paper argues that the bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.

Flash | PDF

RC AKA Darryl, Ron said in reply to Fair Economist, December 18, 2015 at 11:34 AM

"...the growth of finance capitalism was what would kill capitalism off..."

"Financialization" is a short-cut terminology that in full is term either "financialization of non-financial firms" or "financialization of the means of production." In either case it leads to consolidation of firms, outsourcing, downsizing, and offshoring to reduce work force and wages and increase rents.

Consolidation, the alpha and omega of financialization can only be executed with very liquid financial markets, big investment banks to back necessary leverage to make the proffers, and an acute capital gains tax preference relative to dividends and interest earnings, the grease to liquidity.

It takes big finance to do "financialization" and it takes "financialization" to extract big rents while maintaining low wages.

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:42 AM
[THANKS to djb just down thread who supplied this link:]

http://www.democraticunderground.com/10021305040

Finance sector as percent of US GDP, 1860-present: the growth of the rentier economy

[graph]

Financialization is a term sometimes used in discussions of financial capitalism which developed over recent decades, in which financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics.

Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument... Financialization also makes economic rents possible...financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics...

Companies are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt.

Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.

In the United States, probably more money has been made through the appreciation of real estate than in any other way. What are the long-term consequences if an increasing percentage of savings and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate and stocks - instead of to create new production and innovation?

http://en.wikipedia.org/wiki/Financialization

pgl said in reply to RC AKA Darryl, Ron, December 18, 2015 at 03:25 PM
Your graph shows something I've been meaning to suggest for a while. Take a look at the last time that the financial sector share of GDP rose. The late 1920's. Which was followed by the Great Depression which has similar causes as our Great Recession. Here is my observation.

Give that Wall Street clowns a huge increase in our national income and we don't get more services from them. What we get is screwed on the grandest of scales.

BTW - there is a simple causal relationship that explains both the rise in the share of financial sector income/GDP and the massive collapses of the economy (1929 and 2007). It is called stupid financial deregulation. First we see the megabanks and Wall Street milking the system for all its worth and when their unhanded and often secretive risk taking falls apart - the rest of bear the brunt of the damage.

Which is why this election is crucial. Elect a Republican and we repeat this mistake again. Elect a real progressive and we can put in place the types of financial reforms FDR was known for.

Peter K. said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:50 AM

" and it takes "financialization" to extract big rents while maintaining low wages."

It takes governmental macro policy to maintain loose labor markets and low wages. Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low.

djb said...

http://www.democraticunderground.com/10021305040

I don't know about the last couple years but this chart indicates a large growth in financials as a share of gdp over the years since the 40's

RC AKA Darryl, Ron said in reply to djb, December 18, 2015 at 12:03 PM
[Anne gave you FIRE sector profits as a share of GDP while this gives FIRE sector profits as a share of total corporate profits.]

*

[Smoking gun excerpt:]

"...The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent...

[Ouch!]

[Now the whole enchilada:]

http://www.washingtonmonthly.com/magazine/novemberdecember_2014/features/frenzied_financialization052714.php?page=all

If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector-the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities-relative to the rest of the economy.

The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders.

The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent. This isn't just the decline of profits in other industries, either. Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen times over. While financial and nonfinancial profits grew at roughly the same rate before 1980, between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen times.

This trend has continued even after the financial crisis of 2008 and subsequent financial reforms, including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial profits in 2012 were 24 percent of total profits, while the financial sector's share of GDP was 6.8 percent. These numbers are lower than the high points of the mid-2000s; but, compared to the years before 1980, they are remarkably high.

This explosion of finance has generated greater inequality. To begin with, the share of the total workforce employed in the financial sector has barely budged, much less grown at a rate equivalent to the size and profitability of the sector as a whole. That means that these swollen profits are flowing to a small sliver of the population: those employed in finance. And financiers, in turn, have become substantially more prominent among the top 1 percent. Recent work by the economists Jon Bakija, Adam Cole, and Bradley T. Heim found that the percentage of those in the top 1 percent of income working in finance nearly doubled between 1979 and 2005, from 7.7 percent to 13.9 percent.

If the economy had become far more productive as a result of these changes, they could have been worthwhile. But the evidence shows it did not. Economist Thomas Philippon found that financial services themselves have become less, not more, efficient over this time period. The unit cost of financial services, or the percentage of assets it costs to produce all financial issuances, was relatively high at the dawn of the twentieth century, but declined to below 2 percent between 1901 and 1960. However, it has increased since the 1960s, and is back to levels seen at the early twentieth century. Whatever finance is doing, it isn't doing it more cheaply.

In fact, the second damaging trend is that financial institutions began to concentrate more and more on activities that are worrisome at best and destructive at worst. Harvard Business School professors Robin Greenwood and David Scharfstein argue that between 1980 and 2007 the growth in financial-industry revenues came from two things: asset management and loan origination. Fees associated either with asset management or with household credit in particular were responsible for 74 percent of the growth in financial-sector output over that period.

The asset management portion reflects the explosion of mutual funds, which increased from $134 billion in assets in 1980 to $12 trillion in 2007. Much of it also comes from "alternative investment vehicles" like hedge funds and private equity. Over this time, the fee rate for mutual funds fell, but fees associated with alternative investment vehicles exploded. This is, in essence, money for nothing-there is little evidence that hedge funds actually perform better than the market over time. And, unlike mutual funds, alternative investment funds do not fully disclose their practices and fees publicly.

Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated shadow banking sector that took over the financial sector, banks are less and less in the business of holding loans and more and more concerned with packaging them and selling them off. Instead of holding loans on their books, banks originate loans to sell off and distribute into this new type of banking sector.

Again, if this "originate-to-distribute" model created value for society, it could be a worthwhile practice. But, in fact, this model introduced huge opportunities for fraud throughout the lending process. Loans-such as "securitized mortgages" made up of pledges of the income stream from subprime mortgage loans-were passed along a chain of buyers until someone far away held the ultimate risk. Bankers who originated the mortgages received significant commissions, with virtually no accountability or oversight. The incentive, in fact, was perverse: find the worst loans with the biggest fees instead of properly screening for whether the loans would be any good for investors.

The same model made it difficult, if not impossible, to renegotiate bad mortgages when the system collapsed. Those tasked with tackling bad mortgages on behalf of investors had their own conflicts of interests, and found themselves profiting while loans struggled. This process created bad debts that could never be paid, and blocked attempts to try and rework them after the fact. The resulting pool of bad debt has been a drag on the economy ever since, giving us the fall in median wages of the Great Recession and the sluggish recovery we still live with.

And of course it's been an epic disaster for the borrowers themselves. Many of them, we now know, were moderate- and lower-income families who were in no financial position to borrow as much as they did, especially under such predatory terms and with such high fees. Collapsing home prices and the inability to renegotiate their underwater mortgages stripped these folks of whatever savings they had and left them in deep debt, widening even further the gulf of inequality in this country.

Moreover, financialization isn't just confined to the financial sector itself. It's also ultimately about who controls, guides, and benefits from our economy as a whole. And here's the last big change: the "shareholder revolution," started in the 1980s and continuing to this very day, has fundamentally transformed the way our economy functions in favor of wealth owners.

To understand this change, compare two eras at General Electric. This is how business professor Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: "[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer." Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch, Davis says, believed in "the shareholder as king-the residual claimant, entitled to the [whole] pot of earnings."

This change had dramatic consequences. Economist J. W. Mason found that, before the 1980s, firms tended to borrow funds in order to fuel investment. Since 1980, that link has been broken. Now when firms borrow, they tend to use the money to fund dividends or buy back stocks. Indeed, even during the height of the housing boom, Mason notes, "corporations were paying out more than 100 percent of their cash flow to shareholders."

This lack of investment is obviously holding back our recovery. Productive investment remains low, and even extraordinary action by the Federal Reserve to make investments more profitable by keeping interest rates low has not been able to counteract the general corporate presumption that this money should go to shareholders. There is thus less innovation, less risk taking, and ultimately less growth. One of the reasons this revolution was engineered in the 1980s was to put a check on what kinds of investments CEOs could make, and one of those investments was wage growth. Finance has now won the battle against wage earners: corporations today are reluctant to raise wages even as the economy slowly starts to recover. This keeps the economy perpetually sluggish by retarding consumer demand, while also increasing inequality.

How can these changes be challenged? The first thing we must understand is the scope of the change. As Mason writes, the changes have been intellectual, legal, and institutional. At the intellectual level, academic research and conventional wisdom among economists and policymakers coalesced around the ideas that maximizing returns to shareholders is the only goal of a corporation, and that the financial markets were always right. At the legal level, laws regulating finance at the state level were overturned by the Supreme Court or preempted by federal regulators, and antitrust regulations were gutted by the Reagan administration and not taken up again.

At the institutional level, deregulation over several administrations led to a massive concentration of the financial sector into fewer, richer firms. As financial expertise became more prestigious than industry-specific knowledge, CEOs no longer came from within the firms they represented but instead from other firms or from Wall Street; their pay was aligned through stock options, which naturally turned their focus toward maximizing stock prices. The intellectual and institutional transformation was part of an overwhelming ideological change: the health and strength of the economy became identified solely with the profitability of the financial markets.

This was a bold revolution, and any program that seeks to change it has to be just as bold intellectually. Such a program will also require legal and institutional changes, ones that go beyond making sure that financial firms can fail without destroying the economy. Dodd-Frank can be thought of as a reaction against the worst excesses of the financial sector at the height of the housing bubble, and as a line of defense against future financial panics. Many parts of it are doing yeoman's work in curtailing the financial sector's abuses, especially in terms of protecting consumers from fraud and bringing some transparency to the Wild West of the derivatives markets. But the scope of the law is too limited to roll back these larger changes.

One provision of Dodd-Frank, however, suggests a way forward. At the urging of the AFL-CIO, Dodd-Frank empowered the Securities and Exchange Commission to examine the activities of private equity firms on behalf of their investors. At around $3.5 trillion, private equity is a massive market with serious consequences for the economy as a whole. On its first pass, the SEC found extensive abuses. Andrew Bowden, the director of the SEC's examinations office, stated that the agency found "what we believe are violations of law or material weaknesses in controls over 50 percent of the time."

Lawmakers could require private equity and hedge funds to standardize their disclosures of fees and holdings, as is currently the case for mutual funds. The decline in fees for mutual funds noted above didn't just happen by itself; it happened because the law structured the market for actual transparency and price competition. This will need to happen again for the broader financial sector.

But the most important change will be intellectual: we must come to understand our economy not as simply a vehicle for capital owners, but rather as the creation of all of us, a common endeavor that creates space for innovation, risk taking, and a stronger workforce. This change will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth and companies can't just be strip-mined for a small sliver of capital holders; we'll need to bring the corporation back to the public realm. But without it, we will remain trapped inside an economy that only works for a select few.

[Whew!]

Puerto Barato said in reply to RC AKA Darryl, Ron,
"3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5"
~~RC AKA Darryl, Ron ~

Growth of the non-financial-sector == growth in productivity

Growth of the financial-sector == growth in upward transfer of wealth

Ostensibly financial-sector is there to protect your money from being eaten up by inflation. Closer inspection shows that the prevention of *eaten up* is by the method of rent collection.

Accountants handle this analysis poorly, but you can see what is happening. Boiling it down to the bottom line you can easily see that wiping out the financial sector is the remedy to the Piketty.

Hell! Financial sector wiped itself out in 008. Problem was that the GSE and administration brought the zombie back to life then put the vampire back at our throats. What was the precipitating factor that snagged the financial sector without warning?

Unexpected
deflation
!

Gimme some
of that

pgl said in reply to djb...

People like Brad DeLong have noted this for a while. Twice as many people making twice as much money per person. And their true value to us - not a bit more than it was back in the 1940's.

Rock O Sock O Choco said in reply to djb... December 18, 2015 at 06:26 PM

JEC - MeanSquaredErrors said...

Wait, what?

Piketty looks at centuries of data from all over the world and concludes that capitalism has a long-run bias towards income concentration. Baker looks at 35 years of data in one country and concludes that Piketty is wrong. Um...?

A little more generously, what Baker actually writes is:

"The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to **this** rapid rise in inequality, as for example argued by Thomas Piketty." (emphasis added)

But Piketty has always been very explicit that the recent rise in US income inequality is anomalous -- driven primarily by rising inequality in the distribution of labor income, and only secondarily by any shift from labor to capital income.

So perhaps Baker is "correctly" refuting Straw Thomas Piketty. Which I suppose is better than just being obviously wrong. Maybe.

tew said...

Some simple math shows that this assertion is false "As a result of this upward redistribution, most workers have seen little improvement in living standards" unless you think an apprx. 60% in per-capita real income (expressed as GDP) among the 99% is "little improvement".

Real GDP 2015 / Real GDP 1980 = 2.57 (Source: FRED)
If the income share of the 1% shifted from 10% to 20% then The 1%' real GDP component went up 410% while that of The 99% went up 130%. Accounting for a population increase of about 41% brings those numbers to a 265% increase and a 62% increase.

Certainly a very unequal distribution of the productivity gains but hard to call "little".

I believe the truth of the statement is revealed when you look at the Top 5% vs. the other 95%.

cm said in reply to tew...

For most "working people", their raises are quickly eaten up by increases in housing/rental, food, local services, and other nondiscretionary costs. Sure, you can buy more and better imported consumer electronics per dollar, but you have to pay the rent/mortgage every months, how often do you buy a new flat screen TV? In a high-cost metro, a big ass TV will easily cost less than a single monthly rent (and probably less than your annual cable bill that you need to actually watch TV).

pgl said in reply to tew...

Are you trying to be the champion of the 1%? Sorry dude but Greg Mankiw beat you to this.

anne said...

In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period....

-- Dean Baker

anne said in reply to anne...

http://www.census.gov/hhes/www/income/data/historical/household/

September 16, 2015

Real Median Household Income, 1980 & 2014


1980 ( 48,462)

2014 ( 53,657)


53,657 - 48,462 = 5,195

5,195 / 48,462 = 10.7%


Between 1980 and 2014 real median household income increased by a mere 10.7%.

anne said in reply to don...

I would be curious to know what has happened to the number of members per household....

http://www.census.gov/hhes/www/income/data/historical/household/

September 16, 2015

Household Size

2014 ( 2.54)
1980 ( 2.73)

[ The difference in household size to real median household incomes is not statistically significant. ]

anne said in reply to anne...

http://www.census.gov/hhes/www/income/data/historical/families/index.html

September 16, 2015

Real Median Family Income, 1948-1980-2014


1948 ( 27,369)

1980 ( 57,528)

2014 ( 66,632)


57,528 - 27,369 = 30,159

30,159 / 27,369 = 110.2%


66,632 - 57,528 = 9,104

9,104 / 57,528 = 15.8%


Between 1948 and 1980, real median family income increased by 110.2%, while between 1980 and 2014 real median family income increased by a mere 15.8%.

cm said...

"protectionist measures that have boosted the pay of doctors and other highly educated professionals"

Protectionist measures (largely of the variety that foreign credentials are not recognized) apply to doctors and similar accredited occupations considered to be of some importance, but certainly much less so to "highly educated professionals" in tech, where the protectionism is limited to annual quotas for some categories of new workers imported into the country and requiring companies to pay above a certain wage rate for work visa holders in jobs claimed to have high skills requirements.

A little mentioned but significant factor for growing wages in "highly skilled" jobs is that the level of foundational and generic domain skills is a necessity, but is not all the value the individual brings to the company. In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers.

This applies less so e.g. in medicine. There are of course many heavily specialized disciplines, but a top flight brain or internal organ surgeon can essentially work on any person. The variation in the subject matter is large and complex, but much more static than in technology.

That's not to knock down the skill of medical staff in any way (or anybody else who does a job that is not trivial, and that's true for many jobs). But specialization vs. genericity follow a different pattern than in tech.

Another example, the legal profession. There are similar principles that carry across, with a lot of the specialization happening along different legislation, case law, etc., specific to the jurisdiction and/or domain being litigated.

[Dec 13, 2015] Deregulation of exotic financial instruments like derivatives and credit-default swaps and corruption of Congress and government

Notable quotes:
"... Can you list all of the pro- or anti- Wall Street reforms and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspans record? ..."
"... Its actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question What is a realistic alternative? Thats where differences and policy debate starts. ..."
"... Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over objection by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). ..."
"... It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I dont have time to hunt them up now. Besides, no one would read them anyway. ..."
"... GS was one of several actions taken by the New Deal. That it wasnt sufficient by itself doesnt equate to it wasnt beneficial. ..."
"... "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy." ..."
"... The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail ..."
"... Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. ..."
"... It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats. ..."
"... We had a financial dereg craze back in the late 1970s and early 1980s which led to the S L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse. ..."
"... This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling. ..."
"... According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. ..."
"... The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry. ..."
"... Great to see Bakers acknowledgement that an updated Glass-Steagall is just one component of the progressive wings plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types dont think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much. ..."
"... Yes thats a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. ..."
"... Slippery slope. Ya gotta find me a business of any type that does not protest any kind of regulation on their business. ..."
"... Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clintons plan? Ive heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/ ..."
"... Hillary Clinton unveiled her big plan to curb the worst of Wall Streets excesses on Thursday. The reaction from the banking community was a shrug, if not relief. ..."
"... Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". ..."
economistsview.typepad.com

RGC said...

Hillary Clinton Is Whitewashing the Financial Catastrophe

She has a plan that she claims will reform Wall Street-but she's deflecting responsibility from old friends and donors in the industry.

By William Greider
Yesterday 3:11 pm

Hillary Clinton's recent op-ed in The New York Times, "How I'd Rein In Wall Street," was intended to reassure nervous Democrats who fear she is still in thrall to those mega-bankers of New York who crashed the American economy. Clinton's brisk recital of plausible reform ideas might convince wishful thinkers who are not familiar with the complexities of banking. But informed skeptics, myself included, see a disturbing message in her argument that ought to alarm innocent supporters.

Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out of the story. He was the president who legislated the predicate for Wall Street's meltdown. Hillary Clinton's redefinition of the reform problem deflects the blame from Wall Street's most powerful institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and donors in the financial sector that, if she becomes president, she will not come after them.

The seminal event that sowed financial disaster was the repeal of the New Deal's Glass-Steagall Act of 1933, which had separated banking into different realms: investment banks, which organize capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers and lenders. That law's repeal, a great victory for Wall Street, was delivered by Bill Clinton in 1999, assisted by the Federal Reserve and the financial sector's armies of lobbyists. The "universal banking model" was saluted as a modernizing reform that liberated traditional banks to participate directly and indirectly in long-prohibited and vastly more profitable risk-taking.

Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale. The banks invented "guarantees" against loss and sold them to both companies and market players. The fast-expanding financial sector claimed a larger and larger share of the economy (and still does) at the expense of the real economy of producers and consumers. The interconnectedness across market sectors created the illusion of safety. When illusions failed, these connected guarantees became the dragnet that drove panic in every direction. Ultimately, the federal government had to rescue everyone, foreign and domestic, to stop the bleeding.

Yet Hillary Clinton asserts in her Times op-ed that repeal of Glass-Steagall had nothing to do with it. She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks. Her argument amounts to facile evasion that ignores the interconnected exposures. The Federal Reserve spent $180 billion bailing out AIG so AIG could pay back Goldman Sachs and other banks. If the Fed hadn't acted and had allowed AIG to fail, the banks would have gone down too.

These sound like esoteric questions of bank regulation (and they are), but the consequences of pretending they do not matter are enormous. The federal government and Federal Reserve would remain on the hook for rescuing losers in a future crisis. The largest and most adventurous banks would remain free to experiment, inventing fictitious guarantees and selling them to eager suckers. If things go wrong, Uncle Sam cleans up the mess.

Senator Elizabeth Warren and other reformers are pushing a simpler remedy-restore the Glass-Steagall principles and give citizens a safe, government-insured place to store their money. "Banking should be boring," Warren explains (her co-sponsor is GOP Senator John McCain).
That's a hard sell in politics, given the banking sector's bear hug of Congress and the White House, its callous manipulation of both political parties. Of course, it is more complicated than that. But recreating a safe, stable banking system-a place where ordinary people can keep their money-ought to be the first benchmark for Democrats who claim to be reformers.

Actually, the most compelling witnesses for Senator Warren's argument are the two bankers who introduced this adventure in "universal banking" back in the 1990s. They used their political savvy and relentless muscle to seduce Bill Clinton and his so-called New Democrats. John Reed was CEO of Citicorp and led the charge. He has since apologized to the nation. Sandy Weill was chairman of the board and a brilliant financier who envisioned the possibilities of a single, all-purpose financial house, freed of government's narrow-minded regulations. They won politically, but at staggering cost to the country.

Weill confessed error back in 2012: "What we should probably do is go and split up investment banking from banking. Have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail."

John Reed's confession explained explicitly why their modernizing crusade failed for two fundamental business reasons. "One was the belief that combining all types of finance into one institution would drive costs down-and the larger institution the more efficient it would be," Reed wrote in the Financial Times in November. Reed said, "We now know that there are very few cost efficiencies that come from the merger of functions-indeed, there may be none at all. It is possible that combining so much in a single bank makes services more expensive than if they were instead offered by smaller, specialised players."

The second grave error, Reed said, was trying to mix the two conflicting cultures in banking-bankers who are pulling in opposite directions. That tension helps explain the competitive greed displayed by the modernized banking system. This disorder speaks to the current political crisis in ways that neither Dems nor Republicans wish to confront. It would require the politicians to critique the bankers (often their funders) in terms of human failure.

"Mixing incompatible cultures is a problem all by itself," Reed wrote. "It makes the entire finance industry more fragile…. As is now clear, traditional banking attracts one kind of talent, which is entirely different from the kinds drawn towards investment banking and trading. Traditional bankers tend to be extroverts, sociable people who are focused on longer term relationships. They are, in many important respects, risk averse. Investment bankers and their traders are more short termist. They are comfortable with, and many even seek out, risk and are more focused on immediate reward."

Reed concludes, "As I have reflected about the years since 1999, I think the lessons of Glass-Steagall and its repeal suggest that the universal banking model is inherently unstable and unworkable. No amount of restructuring, management change or regulation is ever likely to change that."

This might sound hopelessly naive, but the Democratic Party might do better in politics if it told more of the truth more often: what they tried do and why it failed, and what they think they may have gotten wrong. People already know they haven't gotten a straight story from politicians. They might be favorably impressed by a little more candor in the plain-spoken manner of John Reed.

Of course it's unfair to pick on the Dems. Republicans have been lying about their big stuff for so long and so relentlessly that their voters are now staging a wrathful rebellion. Who knows, maybe a little honest talk might lead to honest debate. Think about it. Do the people want to hear the truth about our national condition? Could they stand it?

http://www.thenation.com/article/hillary-clinton-is-whitewashing-the-financial-catastrophe/

EMichael -> RGC...
"She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks."

Of course this claim is absolutely true. Just like GS would not have affected the other investment banks, whatever their name was. And just like we would have had to bail out those other banks whatever their name was.

Peter K. -> EMichael...
Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspan's record?

Yes Hillary isn't Bill but she hasn't criticized her husband specifically about his record and seems to want to have her cake and eat it too.

Of course Hillary is much better than the Republicans, pace Rustbucket and the Green Lantern Lefty club. Still, critics have a point.

I won't be surprised if she doesn't do much to rein in Wall Street besides some window dressing.

sanjait -> Peter K....
"Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed..."

That, right there, is what's wrong with Bernie and his fans. They measure everything by whether it is "pro- or anti- Wall Street". Glass Steagall is anti-Wall Street. A financial transactions tax is anti-Wall Street. But neither has any hope of controlling systemic financial risk in this country. None.

You guys want to punish Wall Street but not even bother trying to think of how to achieve useful policy goals. Some people, like Paine here, are actually open about this vacuity, as if the only thing that were important were winning a power struggle.

Hillary's plan is flat out better. It's more comprehensive and more effective at reining in the financial system to limit systemic risk. Period.

You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it.

likbez -> sanjait...

"You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it."

You are misrepresenting the positions. It's actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question "What is a realistic alternative?" That's where differences and policy debate starts.

RGC -> EMichael...
"Her argument amounts to facile evasion"

Fred C. Dobbs -> RGC...

'The majority favors policies to the left of Hillary.'

Nah. I don't think so.

No, Liberals Don't Control the Democratic Party http://www.theatlantic.com/politics/archive/2014/02/no-liberals-dont-control-the-democratic-party/283653/
The Atlantic - Feb 7, 2014

... The Democrats' liberal faction has been greatly overestimated by pundits who mistake noisiness for clout or assume that the left functions like the right. In fact, liberals hold nowhere near the power in the Democratic Party that conservatives hold in the Republican Party. And while they may well be gaining, they're still far from being in charge. ...

Paine -> RGC...

What's not confronted ? Suggest what a System like the pre repeal system would have done in the 00's. My guess we'd have ended in a crisis anyway. Yes we can segregate the depository system. But credit is elastic enough to build bubbles without the depository system involved

EMichael -> Paine ...

Exactly.

Most people think of lending like the Bailey Brothers Savings and Loan still exists.

RC AKA Darryl, Ron -> EMichael...

Don't be such a whistle dick. Just because you cannot figure out why GLBA made such an impact that in no way means that people that do understand are stupid. See my posted comment to RGC on GLBA just down thread for an more detailed explanation including a linked web article. No, GS alone would not have prevented the mortgage bubble, but it would have lessened TBTF and GS stood as icon, a symbol of financial regulation. Hell, if we don't need GS then why don't we just allow unregulated derivatives trading? Who cares, right? Senators Byron Dorgan, Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders all voted against GLBA to repeal GS for some strange reason and Dorgan made a really big deal out of it at the time. I doubt everyone on that list of Senators was just stupid because they did not see it your way.

RC AKA Darryl, Ron -> EMichael...
I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over "objection" by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). We have had a Republican majority in the House since the 2010 election and now they have the Senate as well. If you are that sure that voters just choose divided government, then aren't we better off to have a Republican POTUS and Democratic Congress?

sanjait -> RC AKA Darryl, Ron...

"I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. "

I know you think this is a really meaningful string that evidences causation, but it just looks like you are reaching, reaching, reaching ...

RC AKA Darryl, Ron -> sanjait...

Maybe. No way to say for sure. It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I don't have time to hunt them up now. Besides, no one would read them anyway.

I am voting for whoever wins the Democratic nomination for POTUS. Bernie without a like-minded Congress would not do much good. But when we shoot each other down here at EV without offering any agreement or consideration that we might not be 100% correct, then that goes against Doc Thoma's idea of an open forum. Granted, with my great big pair then I am willing to state my opinion with no consideration for validation or acceptance, but not everyone has that degree of a comfort zone. Besides, I am so old an cynical that shooting down the overdogs that go after the underdogs is one of the few things that I still care about.

RGC -> Paine ...

GS was one of several actions taken by the New Deal. That it wasn't sufficient by itself doesn't equate to it wasn't beneficial.

RC AKA Darryl, Ron -> RGC...

[Lock and load.]

http://www.occasionalplanet.org/2015/05/13/glass-steagall-one-democratic-senator-who-got-it-right/

Glass-Steagall: Warren and Sanders bring it back into focus

Madonna Gauding / May 13, 2015

Senators Bernie Sanders and Elizabeth Warren are putting a new focus on the Glass-Steagall Act, which was, unfortunately, repealed in 1999 and led directly to the financial crises we have faced ever since. Here's a bit of history of this legislative debacle from an older post on Occasional Planet published several years ago :

On November 4, 1999, Senator Byron Dorgan (D-ND) took to the floor of the senate to make an impassioned speech against the repeal of the Glass-Steagall Act, (alternately known as Gramm Leach Biley, or the "Financial Modernization Act") Repeal of Glass-Steagall would allow banks to merge with insurance companies and investments houses. He said "I want to sound a warning call today about this legislation, I think this legislation is just fundamentally terrible."

According to Sam Stein, writing in 2009 in the Huffington Post, only eight senators voted against the repeal. Senior staff in the Clinton administration and many now in the Obama administration praised the repeal as the "most important breakthrough in the world of finance and politics in decades"

According to Stein, Dorgan warned that banks would become "too big to fail" and claimed that Congress would "look back in a decade and say we should not have done this." The repeal of Glass Steagall, of course, was one of several bad policies that helped lead to the current economic crisis we are in now.

Dorgan wasn't entirely alone. Sens. Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders also cast nay votes. The late Sen. Paul Wellstone opposed the bill, and warned at the time that Congress was "about to repeal the economic stabilizer without putting any comparable safeguard in its place."

Democratic Senators had sufficient knowledge about the dangers of the repeal of Glass Steagall, but chose to ignore it. Plenty of experts warned that it would be impossible to "discipline" banks once the legislation was passed, and that they would get too big and complex to regulate. Editorials against repeal appeared in the New York Times and other mainstream venues, suggesting that if the new megabanks were to falter, they could take down the entire global economy, which is exactly what happened. Stein quotes Ralph Nader who said at the time, "We will look back at this and wonder how the country was so asleep. It's just a nightmare."

According to Stein:

"The Senate voted to pass Gramm-Leach-Bliley by a vote of 90-8 and reversed what was, for more than six decades, a framework that had governed the functions and reach of the nation's largest banks. No longer limited by laws and regulations commercial and investment banks could now merge. Many had already begun the process, including, among others, J.P. Morgan and Citicorp. The new law allowed it to be permanent. The updated ground rules were low on oversight and heavy on risky ventures. Historically in the business of mortgages and credit cards, banks now would sell insurance and stock.

Nevertheless, the bill did not lack champions, many of whom declared that the original legislation - forged during the Great Depression - was both antiquated and cumbersome for the banking industry. Congress had tried 11 times to repeal Glass-Steagall. The twelfth was the charm.

"Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy."

"I welcome this day as a day of success and triumph," said Sen. Christopher Dodd, (D-Conn.).

"The concerns that we will have a meltdown like 1929 are dramatically overblown," said Sen. Bob Kerrey, (D-Neb.).

"If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world," said Sen. Chuck Schumer, D-N.Y. "There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive."

Unfortunately, the statement by Chuck Schumer sounds very much like it was prepared by a lobbyist. This vote underscores the way in which our elected officials are so heavily swayed by corporate and banking money that our voices and needs become irrelevant. It is why we need publicly funded elections. Democratic senators, the so-called representatives of the people, fell over themselves to please their Wall Street donors knowing full well there were dangers for the country at large, for ordinary Americans, in repealing Glass-Steagall.

It is important to hold Democratic senators (along with current members of the Obama administration) accountable for the significant role they have played in the current economic crisis that has caused so much suffering for ordinary Americans. In case you were wondering, the current Democratic Senators who voted yes to repeal the Glass-Steagall act are the following:

Daniel Akaka – Max Baucus – Evan Bayh – Jeff Bingaman – Kent Conrad – Chris Dodd – Dick Durbin – Dianne Feinstein – Daniel Inouye – Tim Johnson – John Kerry – Herb Kohl – Mary Landrieu – Frank Lautenberg – Patrick Leahy – Carl Levin – Joseph Lieberman – Blanche Lincoln – Patty Murray – Jack Reed – Harry Reid – Jay Rockefeller – Chuck Schumer – Ron Wyden

Former House members who voted for repeal who are current Senators.

Mark Udall [as of 2010] – Debbie Stabenow – Bob Menendez – Tom Udall -Sherrod Brown

No longer in the Senate, or passed away, but who voted for repeal:

Joe Biden -Ted Kennedy -Robert Byrd

These Democratic senators would like to forget or make excuses for their enthusiastic vote on the repeal of Glass Steagall, but it is important to hold them accountable for helping their bank donors realize obscene profits while their constituents lost jobs, savings and homes. And it is important to demand that they serve the interests of the American people.

*

[The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail.]

pgl -> RC AKA Darryl, Ron...

Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. I think that is what Hillary Clinton is saying.

RC AKA Darryl, Ron -> pgl...

It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats.

pgl -> RC AKA Darryl, Ron...

We had a financial dereg craze back in the late 1970's and early 1980's which led to the S&L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse.

I don't care whether Hillary says 1999 was a mistake or not. I do care what the regulations of financial institutions will be like going forward.

RC AKA Darryl, Ron -> pgl...

I cannot disagree with any of that.

sanjait -> RC AKA Darryl, Ron...

"Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus"

Yeah, it is kind of bizarre to blame one bill for a crisis that occurred largely because another bill was passed, based on some some vague assertion about how the first bill made everyone think crazy.

RC AKA Darryl, Ron -> sanjait...
Democrats did not vote for GLBA until after reconciliation between the House and Senate bills. Democrats were tossed a bone in the Community Reinvestment Act financing provisions and given that Bill Clinton was going to sign anyway and that Republicans were able to pass the bill without a single vote from Democrats then all but a few Democrats bought in. They could not stop it, so they just bought into it. I thought there was supposed to be an understanding of behaviorism devoted to understanding the political economy. For that matter Republicans did not need Democrats to vote for the CFMA either, but they did. That gave Republicans political cover for whatever went wrong later on. No one with a clue believed things would go well from the passage of either of these bills. It was pure Wall Street driven kleptocracy.
likbez -> sanjait...
It was not one bill or another. It was a government policy to get traders what they want.

See

Bruce E. Woych | August 6, 2013 at 5:45 pm |

http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry-summers-the-truth-about-unlimited-risk-potential/

The Untold Story: Brooksley Born, Larry Summers & the Truth …
http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry...
Oct 5, 2012 … Larry Summers is attempting to re-write history at the expense of … and they might just find one critical point revealed in Mr. Cohan's article.
[PERTINENT EXCERPT]: Oct 5, 2012

"As the western world wakes to the fact it is in the middle of a debt crisis spiral, intelligent voices are wondering how this manifested itself? As we speak, those close to the situation could be engaging in historical revisionism to obfuscate their role in the design of faulty leverage structures that were identified in the derivatives markets in 1998 and 2008. These same design flaws, first identified in 1998, are persistent today and could become graphically evident in the very near future under the weight of a European debt crisis.

Author and Bloomberg columnist William Cohan chronicles the fascinating start of this historic leverage implosion in his recent article Rethinking Robert Rubin. Readers may recall it was Mr. Cohan who, in 2004, noted leverage issues that ultimately imploded in 2007-08.

At some point, market watchers will realize the debt crisis story will literally change the world. They will look to the root cause of the problem, and they might just find one critical point revealed in Mr. Cohan's article.

This point occurs in 1998 when then Commodity Futures Trading Commission (CFTC) ChairwomanBrooksley Born identified what now might be recognized as core design flaws in leverage structure used in Over the Counter (OTC) transactions. Ms. Born brought her concerns public, by first asking just to study the issue, as appropriate action was not being taken. She issued a concept release paper that simply asked for more information. "The Commission is not entering into this process with preconceived results in mind," the document reads.

Ms. Born later noted in, the PBS Frontline documentary on the topic speculation at the CFTC was the unregulated OTC derivatives were opaque, the risk to the global economy could not be determined and the risk was potentially catastrophic. As a result of this inquiry, Ms. Born was ultimately forced from office.

This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling.

According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. "

RC AKA Darryl, Ron -> Paine ...

TBTF on steroids, might as well CFMA - why not?

Bubbles with less TBTF and a lot less credit default swaps would have been a lot less messy going in. Without TARP, then Congress might have still had the guts for making a lesser New Deal.

EMichael -> RC AKA Darryl, Ron...

TARP was window dressing. The curtain that covered up the FED's actions.

pgl -> RGC...

Where have I heard about William Greider? Oh yea - this critique of something stupid he wrote about a Supreme Court decision:

www.washingtonpost.com/news/volokh-conspiracy/wp/2014/06/06/how-many-errors-can-william-greider-make-in-two-sentences-describing-lochner-v-new-york/

pgl -> RGC...

"Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale."

These would have flourished even if Glass-Steagall remained on the books. Leave it to RGC to find some critic of HRC who knows nothing about financial markets.

RGC -> pgl...

Derivatives flourished because of the other deregulation under Clinton, the CFMA. The repeal of GS helped commercial banks participate.

RGC -> pgl...

The repeal of GS helped commercial banks participate.

Fred C. Dobbs -> pgl...

Warren Buffet used to rail about how risky derivative investing is, until he realized they are *extremely* important in the re-insurance biz, which is a
big part of Berkshire Hathaway.

Peter K. said...

http://cepr.net/blogs/beat-the-press/hillary-clinton-bernie-sanders-and-cracking-down-on-wall-street

Hillary Clinton, Bernie Sanders, and Cracking Down on Wall Street
by Dean Baker

Published: 12 December 2015

The New Yorker ran a rather confused piece on Gary Sernovitz, a managing director at the investment firm Lime Rock Partners, on whether Bernie Sanders or Hillary Clinton would be more effective in reining in Wall Street. The piece assures us that Secretary Clinton has a better understanding of Wall Street and that her plan would be more effective in cracking down on the industry. The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry.

The piece assures us that too big to fail banks are no longer a problem, noting their drop in profitability from bubble peaks and telling readers:

"not only are Sanders's bogeybanks just one part of Wall Street but they are getting less powerful and less problematic by the year."

This argument is strange for a couple of reasons. First, the peak of the subprime bubble frenzy is hardly a good base of comparison. The real question is should we anticipate declining profits going forward. That hardly seems clear. For example, Citigroup recently reported surging profits, while Wells Fargo's third quarter profits were up 8 percent from 2014 levels.

If Sernovitz is predicting that the big banks are about to shrivel up to nothingness, the market does not agree with him. Citigroup has a market capitalization of $152 billion, JPMorgan has a market cap of $236 billion, and Bank of America has a market cap of $174 billion. Clearly investors agree with Sanders in thinking that these huge banks will have sizable profits for some time to come.

The real question on too big to fail is whether the government would sit by and let a Goldman Sachs or Citigroup go bankrupt. Perhaps some people think that it is now the case, but I've never met anyone in that group.

Sernovitz is also dismissive on Sanders call for bringing back the Glass-Steagall separation between commercial banking and investment banking. He makes the comparison to the battle over the Keystone XL pipeline, which is actually quite appropriate. The Keystone battle did take on exaggerated importance in the climate debate. There was never a zero/one proposition in which no tar sands oil would be pumped without the pipeline, while all of it would be pumped if the pipeline was constructed. Nonetheless, if the Obama administration was committed to restricting greenhouse gas emissions, it is difficult to see why it would support the building of a pipeline that would facilitate bringing some of the world's dirtiest oil to market.

In the same vein, Sernovitz is right that it is difficult to see how anything about the growth of the housing bubble and its subsequent collapse would have been very different if Glass-Steagall were still in place. And, it is possible in principle to regulate bank's risky practices without Glass-Steagall, as the Volcker rule is doing. However, enforcement tends to weaken over time under industry pressure, which is a reason why the clear lines of Glass-Steagall can be beneficial. Furthermore, as with Keystone, if we want to restrict banks' power, what is the advantage of letting them get bigger and more complex?

The repeal of Glass-Steagall was sold in large part by boasting of the potential synergies from combining investment and commercial banking under one roof. But if the operations are kept completely separate, as is supposed to be the case, where are the synergies?

But the strangest part of Sernovitz's story is that he leaves out Sanders' financial transactions tax (FTT) altogether. This is bizarre, because the FTT is essentially a hatchet blow to the waste and exorbitant salaries in the industry.

Most research shows that trading volume is very responsive to the cost of trading, with most estimates putting the elasticity close to one. This means that if trading costs rise by 50 percent, then trading volume declines by 50 percent. (In its recent analysis of FTTs, the Tax Policy Center assumed that the elasticity was 1.5, meaning that trading volume decline by 150 percent of the increase in trading costs.) The implication of this finding is that the financial industry would pay the full cost of a financial transactions tax in the form of reduced trading revenue.

The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry.

It is incredible that Sernovitz would ignore a policy with such enormous consequences for the financial sector in his assessment of which candidate would be tougher on Wall Street. Sanders FTT would almost certainly do more to change behavior on Wall Street then everything that Clinton has proposed taken together by a rather large margin. It's sort of like evaluating the New England Patriots' Super Bowl prospects without discussing their quarterback.

Syaloch -> Peter K....

Great to see Baker's acknowledgement that an updated Glass-Steagall is just one component of the progressive wing's plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much.

Peter K. -> Syaloch...

Yes that's a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. If they want it done, it's probably not a good idea.

EMichael -> Syaloch...

Slippery slope. Ya' gotta find me a business of any type that does not protest any kind of regulation on their business.

Syaloch -> EMichael...

Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clinton's plan? I've heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/

"Hillary Clinton unveiled her big plan to curb the worst of Wall Street's excesses on Thursday. The reaction from the banking community was a shrug, if not relief."

pgl -> Syaloch...

Two excellent points!!!

sanjait -> Syaloch...

"Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much."

It has an effect of shrinking the size of a few firms, and that has a detrimental effect on the top managers of those firms, who get paid more money if they have larger firms to manage. But it has little to no meaningful effect on systemic risk.

So if your main policy goal is to shrink the compensation for a small number of powerful Wall Street managers, G-S is great. But if you actually want to accomplish something useful to the American people, like limiting systemic risk in the financial sector, then a plan like Hillary's is much much better. She explained this fairly well in her recent NYT piece.

Paine -> Peter K....

There is absolutely NO question Bernie is for real. Wall Street does not want Bernie. So they'll let Hillary talk as big as she needs to . Why should we believe her when an honest guy like Barry caved once in power

Paine -> Paine ...

Bernie has been anti Wall Street his whole career . He's on a crusade. Hillary is pulling a sham bola

Paine -> Paine ...

Perhaps too often we look at Wall Street as monolithic whether consciously or not. Obviously we know it's no monolithic: there are serious differences

When the street is riding high especially. Right now the street is probably not united but too cautious to display profound differences in public. They're sitting on their hands waiting to see how high the anti Wall Street tide runs this election cycle. Trump gives them cover and I really fear secretly Hillary gives them comfort

This all coiled change if Bernie surges. How that happens depends crucially on New Hampshire. Not Iowa

EMichael -> Paine ...

If Bernie surges and wins the nomination, we will all get to watch the death of the Progressive movement for a decade or two. Congress will become more GOP dominated, and we will have a President in office who will make Hoover look like a Socialist.

Syaloch -> EMichael...

Of course. In politics, as they say in the service, one must always choose the lesser of two evils. https://www.youtube.com/watch?v=e4PzpxOj5Cc

pgl -> EMichael...

You should like the moderate Democrats after George McGovern ran in 1972. I'm hoping we have another 1964 with Bernie leading a united Democratic Congress.

EMichael -> pgl...

Not a chance in the world. And I like Sanders much more than anyone else. It just simply cannot, and will not, happen. He is a communist. Not to me, not to you, but to the vast majority of American voters.

pgl -> EMichael...

He is not a communist. But I agree - Hillary is winning the Democratic nomination. I have only one vote and in New York, I'm badly outnumbered.

ilsm -> Paine ...

I believe Hillary will be to liberal causes after she is elected as LBJ was to peace in Vietnam. Like Bill and Obomber.

pgl -> ilsm...

By 1968, LBJ finally realized it was time to end that stupid war. But it seems certain members in the State Department undermined his efforts in a cynical ploy to get Nixon to be President. The Republican Party has had more slime than substance of most of my life time.

pgl -> Peter K....

Gary Sernovitz, a managing director at the investment firm Lime Rock Partners? Why are we listening to this guy too. It's like letting the fox guard the hen house.

sanjait -> Peter K....

"The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry."

This is just wrong. Is financial system risk in any way correlated with the frequency of transactions? Except for market volatility from HFT ... no. The financial crisis wasn't caused by a high volume of trades. It was caused by bad investments into highly illiquid assets. Again, great example of wanting to punish Wall Street but not bothering to think about what actually works.

Peter K. said...

Robert Reich to the Fed: this is not the time to raise rates.

https://www.facebook.com/video.php?v=1116088268403768

RGC said...

Iceland's Radical Money Plan

Iceland, too, is looking at a radical transformation of its money system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted its largest banks in 2008. According to a March 2015 article in the UK Telegraph:

Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland".

"The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy," Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

Under this "Sovereign Money" proposal, the country's central bank would become the only creator of money. Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders. The proposal is a variant of the Chicago Plan promoted by Kumhof and Benes of the IMF and the Positive Money group in the UK.

Public Banking Initiatives in Iceland, Ireland and the UK

A major concern with stripping private banks of the power to create money as deposits when they make loans is that it will seriously reduce the availability of credit in an already sluggish economy. One solution is to make the banks, or some of them, public institutions. They would still be creating money when they made loans, but it would be as agents of the government; and the profits would be available for public use, on the model of the US Bank of North Dakota and the German Sparkassen (public savings banks).

In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) - are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.

December 11, 2015
Reinventing Banking: From Russia to Iceland to Ecuador

by Ellen Brown

http://www.counterpunch.org/2015/12/11/reinventing-banking-from-russia-to-iceland-to-ecuador/

pgl -> RGC...

"Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders."

OK but that means they issue bank accounts which of course we call deposits. So is this just semantics? People want checking accounts. People want savings accounts. Otherwise they would not exist. Iceland plans to do what to stop the private sector from getting what it wants?

I like the idea of public banks. Let's nationalize JPMorganChase so we don't have to listen to Jamie Dimon anymore!

sanjait -> pgl...

I don't know for sure (not bothering to search and read the referenced proposals), but I assumed the described proposal was for an end to fractional reserve banking. Banks would have to have full reserves to make loans. Or something. I could be wrong about that.

Syaloch said...

Sorry, but Your Favorite Company Can't Be Your Friend

http://www.nytimes.com/2015/12/13/upshot/sorry-but-your-favorite-company-cant-be-your-friend.html?partner=rss&emc=rss&_r=0

To think that an artificial person, whether corporeal or corporate, can ever be your friend requires a remarkable level of self-delusion.

A commenter on the Times site aptly quotes Marx in response:

"The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left remaining no other nexus between man and man than naked self-interest, than callous "cash payment". It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom - Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.

"The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers."

https://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch01.htm

[Dec 11, 2015] Why Its Tricky for Fed Officials to Talk Politically

"There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not." Economic and politics are like Siamese twins (which actually . If somebody trying to separate them it is a clear sign that the guy is either neoliberal propagandists or outright crook.
Notable quotes:
"... I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of purely economic (like many other things are camouflaged under neoliberalism.) ..."
"... I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times. ..."
"... This kind of debate seems to be a by-product of the contemporary obsession with having an independent central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy. ..."
"... A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it. ..."
"... The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries. ..."
"... Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack. ..."
"... As to why risk a political backlash in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all. ..."
Dec 11, 2015 | Economist's View
anne said...
Fine column, with which I agree. Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate.

As for the use of the word "hack" in referring to Janet Yellen, that needlessly insulting use was by a Washington Post editor and not by columnist Michael Strain.

anne -> RW (the other)...

As Brad notes, many Fed Chairs before Yellen have opined on matters outside monetary policy so why is Yellen subject to a different standard?

[ Fine, I have reconsidered and agree. No matter how the headline was written, the headline was meant to be intimidating and was willfully mean and that could and should have been made clear immediately by the writer of the column. ]

likbez -> anne...

"Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate."

Anne,

I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

That's why Greenspan got it, while being despised by his Wall-Street colleagues...

He got it because he was perfect for promoting deregulation political agenda from the position of FED chair.

pgl -> likbez...

Greenspan was despised on Wall Street? Wow as he tried so hard to serve their interests. I guess the Wall Street crowd is never happy no matter how much income we feed these blow hards.

anne -> likbez...

So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

[ I understand, and am convinced. ]

Peter K. said...

I respectfully disagree. Republicans are always working the refs and despite what the writer from AEI said, they're okay with conservative Fed chairs talking politics. They have double standards.

Greenspan testified to Congress on behalf of Bush's tax cuts for the rich. Something about how since Clinton balanced the budget, the financial markets had too little safe debt to work with. (maybe that's why they dove into mortgaged-backed securities). But tax cuts versus more government spending? He and Rubin advised Clinton to drop his middle class spending bill and trade deficit reduction for lower interest rates. That's economics which have political outcomes.

So if the rightwing is going to work the the refs, so should the left. We shouldn't unilaterally disarm over fears Congress will gun for the Fed. There should be more groups like Fed Up protesting.

The good thing about Yellen's speech is that it's a signal to progressives that inequality is problem for her even as she is raising rates in a political dance with hawks and Congress.

The Fed is constantly accused of increasing inequality so it's good Yellen is saying she thinks it's a bad thing and not American.

Bernie Sanders is right that for change to happen we'll need more political involvement from regular citizens. We'll need a popular movement with many leaders.

The Fed should be square in the sights of a progressive movement. A high-pressured economy with full employment should be a top priority.

Instead I saw Nancy Pelosi being interviewed by Al Hunt on Charlie Rose the other night. Hunt asked her about Yellen raising rates.

Pelosi said no comment as she wasn't looking at the data Yellen was and didn't want to interfere. The Fed should be independent, etc. Perhaps like Thoma she has the best of motives and doesn't want to motivate the Republicans to go after the Fed and oppose what she wants.

Still I felt the Democratic leadership should be committed to a high-pressure economy. Her staff should know what Krugman, Summers etc are saying. What the IMF and World Bank are sayings.

She should have said "they shouldn't raise rates until they see the whites of inflation's eyes" as Krugman memorably put it. She should have said that emphatically.

We need a Democratic Party like that.

Instead Peter Diamond is blocked from becoming a Fed governor by Republicans and Pelosi is afraid to comment on monetary policy.

Peter K. -> Peter K....

A longer reply from DeLong:

http://www.bradford-delong.com/2015/12/must-read-i-would-beg-the-highly-esteemed-mark-thoma-to-draw-a-distinction-here-between-inappropriate-and-unwise-in-m.html

Must-Read: I would beg the highly-esteemed Mark Thoma to draw a distinction here between "inappropriate" and unwise. In my view, it is not at all inappropriate for Fed Chair Janet Yellen to express her concern about excessive inequality. Previous Fed Chairs, after all, have expressed their liking for inequality as an essential engine of economic growth over and over again over the past half century--with exactly zero critical snarking from the American Enterprise Institute for trespassing beyond the boundaries of their role.

But that it is not inappropriate for Janet Yellen to do so does not mean that it is wise. Mark's argument is, I think, that given the current political situation it is unwise for Janet to further incite the ire of the nutboys in the way that even the mildest expression of concern about rising inequality will do.

That may or may not be true. I think it is not.

But I do not think that bears on my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous, inattentive to precedent, shoddy, expired, expired, gone to meet their maker, bereft of life, resting in peace, pushing up the daisies, kicked the bucket, shuffled off their mortal coil, run down the curtain, and joined the bleeding choir invisible:

Mark Thoma: Why It's Tricky for Fed Officials to Talk Politically: "I think I disagree with Brad DeLong...

pgl -> Peter K....

"my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous..."

DeLong is exactly right here. Strain's argument has its own share of partisan lies whereas Yellen is telling the truth. Brad will not be intimidated by this AEI weasel.

sanjait said...

Why would Yellen not talk about inequality? It's an important macroeconomic topic and one that is relevant for her job. It's both an input and an output variable that is related to monetary policy.

And, arguably I think, median wage growth should be regarded as a policy goal for the Fed, related to its explicit mandate of "maximum employment."

But even if you think inequality is unrelated to the Fed's policy goals, that doesn't stop them from talking about other topics. Do people accuse the Fed of playing politics when they talk about desiring reduced financial market volatility? That has little to do with growth, employment and general price stability.

likbez -> sanjait...

I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times.

Sandwichman said...

I think I disagree with Mark Thoma's disagreement with Brad DeLong. Actually, ALL economic discourse is political and efforts to restrain the politics are inevitably efforts to keep the politics one-sided

Dan Kervick said...

This kind of debate seems to be a by-product of the contemporary obsession with having an "independent" central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy.

But there really isn't. Different kinds of social, economic and political values and policy agendas are going to call for different kinds monetary and credit policies. It might be better for our political health if the Fed were administratively re-located as an executive branch agency that is in turn part of a broader Department of Money and Banking - no different from the Departments of Agriculture, Labor, Education, etc. In that case everybody would then view Fed governors as ordinary executive branch appointees who report to the President, and whose policies are naturally an extension of the administration's broader agenda. Then if people don't like the monetary policies that are carried out, that would be one factor in their decision about whom to vote for.

There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not. Decisions in that latter area should be no more politics-free than decisions about taxing and spending. If we fold the central bank more completely into the regular processes of representative government, then if a candidate wants to run on a platform of keeping interest rates low, small business credit easy, bank profits small, etc., they could do so without all of the doubletalk about the protecting the independence of the sacrosanct bankers' temple.

We could also then avoid unproductive wheel-spinning about that impossibly vague and hedged Fed mandate that can be stretched to mean almost anything people want it to mean. The Fed's mandate under the political solution would just be whatever monetary policy the President ran on.

likbez -> Dan Kervick...

"The Fed's mandate under the political solution would just be whatever monetary policy the President ran on"

Perfect !

Actually sanjait in his post made a good point why this illusive goal is desirable (providing "electoral advantage") although Greenspan probably violated this rule. A couple of hikes of interest rates from now till election probably will doom Democrats.

Also the idea of FEB independence went into overdrive since 80th not accidentally. It has its value in enhancing the level of deregulation.

Among other things it helps to protect large financial institutions from outright nationalization in cases like 2008.

Does somebody in this forum really think that Bernanke has an option of putting a couple of Wall-Street most violent and destructive behemoths into receivership (in other words nationalize them) in 2008 without Congress approval ?

Dan Kervick -> Sanjait ...

Sanjait, with due respect, you are not really responding to the reform proposal, but only affirming the differences between that proposal and the current system.

Yes, of course fiscal policy is "constrained" by Congress. Indeed, it is not just constrained by Congress but actually made by Congress, subject only to an overridable executive branch veto. The executive branch is responsible primarily for carrying out the legislature's fiscal directives. That's the point. In a democratic system decisions about all forms of taxation and government spending are supposed to be made by the elected legislative branch, and then executed by agencies of the executive branch. My proposal is that monetary policy should be handled in the same way: by the elected political branches of the government.

You point out that under current arrangements, central banks can, if they choose, effect large monetary offsets to fiscal policy (or at least to some of the aggregate macroeconomic effects of those policies). I don't understand why any non-elected and politically unaccountable branch of our government should have the power to offset the policies of the elected branches in this way. Fiscal and monetary policy need to be yoked together to achieve policy ends effectively. Those policy ends should be the ones people vote for, not the ones a handful of men and women happen to think are appropriate.

JF -> Dan Kervick...

"In a democratic system" is what you wrote.

It is more proper to refer to it as republicanism. The separation of powers doctrine, underlying the US constitution, is a reflection of James Madison's characterization in the 51st The Federalist Paper, and it is a US-defined republicanism that is almost unique:

"the republican form, wherein the legislative authority necessarily predominates."

- or something like that is the quote.

In the US framers' view, at least those who constructed the re-write in 1787 and were the leaders - I'd say the most important word in Madison's explanation is the word "necessarily" - this philosophy has all law and policy stemming from the public, it presumes that you can't have stability and dynamic change of benefit to society without this.

Arguably, aristocracies, fascists, totalitarians, and all the other isms, just don't see it that way, they see things as top-down ordering of society.

The mythology of the monetary theorizing and the notions about a central bank being independently delphic has some of this top-down ordering view to it (austerianism, comes to mind). Well, I don't believe in a religious sense that this is how it should be, nor do you it seems.

It will be an interesting Congress in 2017 when new legislative authorities are enacted to establish clearer framing of the ministerial duties now held by the FRB.

Are FED officials scared that this will happen, and as a result they circle the wagons with their associates in the financial community now to fend off the public????

I hope this is not true. They can allay their own fears by leading not back toward 1907, in my opinion.

Of course, I could say where I'd like economic policies to go, and do here often, but this thread is about Yellin and other FED officials.

I recognize that FRB officials can say things too, and should, as leaders of this nation (with a whole lot of research power and evidence available to them their commentary on political economics should have merit and be influential).

Thanks for continuing to remind people that we govern ourselves in the US in a US-defined republican-form. But I think the people still respect and listen to leadership - so speak out FED officials.

JF -> Dan Kervick...

But Dan K, then you'd de-mythologize an entire wing of macroeconomics in a wing referred to as monetary theory based on a separate Central Bank, or some non-political theory of money.

Don't mind the theory as it is an analytic framework that questions and sometimes informs - but it is good to step back and realize some of the religious-like framing.

It is political-economy.

Peter K. -> pgl...

Yellen really lays it out in her speech.

"The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.2 It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity."

And even links to Piketty in footnote 42.

"Along with other economic advantages, it is likely that large inheritances play a role in the fairly limited intergenerational mobility that I described earlier.42"

42. This topic is discussed extensively in Thomas Piketty (2014), Capital in the 21st Century, trans. Arthur Goldhammer (Cambridge, Mass.: Belknap Press). Return to text

Sanjait said...

A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it.

The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries.

Do I believe this theory? Increasingly, yes I do. And seeing the Fed right now decide to raise rates, citing accelerating wage growth as one of the main reasons, has reinforced my belief.

A Boy Named Sue said...

Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack.

A Boy Named Sue -> A Boy Named Sue...

I do admit, Delong is my favorite conservative economist. He is witty and educational, unlike most RW hacks.

Jeff said...

As to "why risk a political backlash" in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all.

[Dec 10, 2015] Special Report Buybacks enrich the bosses even when business sags

Notable quotes:
"... Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price. ..."
"... But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers. ..."
"... Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking." ..."
"... As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending. ..."
"... "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets. ..."
"... The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar. ..."
"... At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit. ..."
finance.yahoo.com

NEW YORK(Reuters) - When health insurer Humana Inc reported worse-than-expected quarterly earnings in late 2014 – including a 21 percent drop in net income – it softened the blow by immediately telling investors it would make a $500 million share repurchase.

In addition to soothing shareholders, the surprise buyback benefited the company's senior executives. It added around two cents to the company's annual earnings per share, allowing Humana to surpass its $7.50 EPS target by a single cent and unlocking higher pay for top managers under terms of the company's compensation agreement.

Thanks to Humana hitting that target, Chief Executive Officer Bruce Broussard earned a $1.68 million bonus for 2014.

Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price.

But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers.

As corporate America engages in an unprecedented buyback binge, soaring CEO pay tied to short-term performance measures like EPS is prompting criticism that executives are using stock repurchases to enrich themselves at the expense of long-term corporate health, capital investment and employment.

"We've accepted a definition of performance that is narrow and quite possibly inappropriate," said Rosanna Landis Weaver, program manager of the executive compensation initiative at As You Sow, a Washington, D.C., nonprofit that promotes corporate responsibility. Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking."

A Reuters analysis of the companies in the Standard & Poor's 500 Index found that 255 of those companies reward executives in part by using EPS, while another 28 use other per-share metrics that can be influenced by share buybacks.

In addition, 303 also use total shareholder return, essentially a company's share price appreciation plus dividends, and 169 companies use both EPS and total shareholder return to help determine pay.

STANDARD PRACTICE

EPS and share-price metrics underpin much of the compensation of some of the highest-paid CEOs, including those at Walt Disney Co, Viacom Inc, 21st Century Fox Inc, Target Corp and Cisco Systems Inc.

... ... ...

As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending.

Companies buy back their shares for various reasons. They do it when they believe their shares are undervalued, or to make use of cash or cheap debt financing when business conditions don't justify capital or R&D spending. They also do it to meet the expectations of increasingly demanding investors.

Lately, the sheer volume of buybacks has prompted complaints among academics, politicians and investors that massive stock repurchases are stifling innovation and hurting U.S. competitiveness - and contributing to widening income inequality by rewarding executives with ever higher pay, often divorced from a company's underlying performance.

"There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets.

The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S&P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar.

At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit.

SALARY AND A LOT MORE

Today, the bulk of CEO compensation comes from cash and stock awards, much of it tied to performance metrics. Last year, base salary accounted for just 8 percent of CEO pay for S&P 500 companies, while cash and stock incentives made up more than 45 percent, according to proxy advisory firm Institutional Shareholder Services.

...In 1992, Congress changed the tax code to curb rising executive pay and encourage performance-based compensation. It didn't work. Instead, the shift is widely blamed for soaring executive pay and a heavier emphasis on short-term results.

Companies started tying performance pay to "short-term metrics, and suddenly all the things we don't want to happen start happening," said Lynn Stout, a professor of corporate and business law at Cornell Law School in Ithaca, New York. "Despite 20 years of trying, we have still failed to come up with an objective performance metric that can't be gamed."

Shareholder expectations have changed, too. The individuals and other smaller, mostly passive investors who dominated equity markets during the postwar decades have given way to large institutional investors. These institutions tend to want higher returns, sooner, than their predecessors. Consider that the average time investors held a particular share has fallen from around eight years in 1960 to a year and a half now, according to New York Stock Exchange data.

"TOO EASY TO MANIPULATE"

Companies like to use EPS as a performance metric because it is the primary focus of financial analysts when assessing the value of a stock and of investors when evaluating their return on investment.

But "it is not an appropriate target, it's too easy to manipulate," said Almeida, the University of Illinois finance professor.

...By providing a lift to a stock's price, buybacks can increase total shareholder return to target levels, resulting in more stock awards for executives. And of course, the higher stock price lifts the value of company stock they already own.

"It can goose the price at time when the high price means they earn performance shares … even if the stock price later goes back down, they got their shares," said Michael Dorff, a law professor at the Southwestern Law School in Los Angeles.

Exxon Corp, the largest repurchaser of shares over the past decade, has rejected shareholder proposals that it add three-year targets based on shareholder return to its compensation program. In its most recent proxy, the energy company said doing so could increase risk-taking and encourage underinvestment to achieve short-term results.

The energy giant makes half of its annual executive bonus payments contingent on meeting longer-term EPS thresholds. Since 2005, the company has spent more than $200 billion on buybacks.

ADDITIONAL TWEAKS

While performance targets are specific, they aren't necessarily fixed. Corporate boards often adjust them or how they are calculated in ways that lift executive pay.

[Dec 08, 2015] Nepotism and corruption on high levels of US government

Notable quotes:
"... As Vice President Joseph R. Biden Jr. aims to curb corruption in Ukraine, his son, Hunter, sits on the board of a Ukrainian company that the American ambassador has accused of having illicit assets. ..."
"... What is he, sort of a wayward, neer-do-well playboy type? Not really. Hes a graduate of Yale Law School and a former senior vice-president at MBNA America Bank. Good for him. During the Clinton administration he worked in the US Department of Commerce. Hes presently a partner in an investment firm. And counsel for a national law firm. And an adjunct professor at Georgetown University. I get it: he likes to keep busy. He has even found the time to join the board of a gas company called Burisma Holdings Ltd. Never heard of it. Perhaps thats because its a Ukrainian gas company; Ukraines largest private gas producer, in fact. Hes taking charge of the companys legal unit. Isnt that a bit fishy? Why do you say that? Because hes the vice-presidents son! Thats a coincidence. This is totally based on merit, said Burismas chairman, Alan Apter. ..."
"... Who? Devon Archer, who works with Hunter Biden at Rosemont Seneca partners, which is half owned by Rosemont Capital, a private equity firm founded by Archer and Christopher Heinz. ..."
"... Who? Christopher Heinz … John Kerrys stepson. ..."
"... I think Putins propaganda people can take a long weekend; their work is being done for them. ..."
economistsview.typepad.com
anne said... Tuesday, December 08, 2015 at 10:30 AM
http://www.nytimes.com/2015/12/09/world/europe/corruption-ukraine-joe-biden-son-hunter-biden-ties.html

December 8, 2015

Biden, His Son and the Case Against a Ukrainian Oligarch
By JAMES RISEN

As Vice President Joseph R. Biden Jr. aims to curb corruption in Ukraine, his son, Hunter, sits on the board of a Ukrainian company that the American ambassador has accused of having "illicit assets."

anne said in reply to anne...
http://www.theguardian.com/business/shortcuts/2014/may/14/hunter-biden-job-board-ukraine-biggest-gas-producer-burisma

May 14, 2014

Why shouldn't Hunter Biden join the board of a gas company in Ukraine?
The son of the US vice-president has been chosen to take charge of energy firm Burisma's legal unit – a decision based purely on merit, of course.

Name: Hunter Biden.

Age: 44.

Appearance: Chip off the old block.

His names rings a bell. Is he related to someone famous? He's the son of Joe Biden, the US vice president.

What is he, sort of a wayward, ne'er-do-well playboy type? Not really. He's a graduate of Yale Law School and a former senior vice-president at MBNA America Bank. Good for him. During the Clinton administration he worked in the US Department of Commerce. He's presently a partner in an investment firm. And counsel for a national law firm. And an adjunct professor at Georgetown University. I get it: he likes to keep busy. He has even found the time to join the board of a gas company called Burisma Holdings Ltd. Never heard of it. Perhaps that's because it's a Ukrainian gas company; Ukraine's largest private gas producer, in fact. He's taking charge of the company's legal unit. Isn't that a bit fishy? Why do you say that? Because he's the vice-president's son! That's a coincidence. "This is totally based on merit," said Burisma's chairman, Alan Apter.

He doesn't sound very Ukrainian. He's American, as is the other new board member, Devon Archer.

Who? Devon Archer, who works with Hunter Biden at Rosemont Seneca partners, which is half owned by Rosemont Capital, a private equity firm founded by Archer and Christopher Heinz.

Who? Christopher Heinz … John Kerry's stepson.

I think Putin's propaganda people can take a long weekend; their work is being done for them. What do you mean?

Hasn't Joe Biden pledged to help Ukraine become more energy independent in the wake of its troubles with Russia? Well, yes.

And isn't Burisma, as a domestic producer, well positioned to profit from rising gas prices caused by the conflict? Possibly, but Hunter Biden is a salaried board member, not an investor. According to anonymous sources in the Wall Street Journal, neither Rosemont Seneca nor Rosemont Capital has made any financial investment in Burisma.

So it's not fishy at all? No one's saying that.

Do say: "Somebody needs to get involved in Ukraine's corporate governance, and it might as well be a clutch of rich, well-connected American dudes with weird first names."

Don't say: "Thanks, Dad."

-- Guardian

[Dec 07, 2015] The key prerequisite of casino capitalism is corruption of regulators

Economist's View

likbez said...

When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.

The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

GeorgeK said...

I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

[Dec 07, 2015] Hillary Clinton How I'd Rein In Wall Street

Economist's View

likbez said...

When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.

The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

GeorgeK said...

I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

[Dec 04, 2015] German Financialization and the Eurozone Crisis

Notable quotes:
"... Bundenstalt für Finanzdienstleistungsaufsicht ..."
naked capitalism
Many studies of the Eurozone crisis focus on peripheral European states' current account deficits, or German neo-mercantilist policies that promoted export surpluses. However, German financialization and input on the eurozone's financial architecture promoted deficits, increased systemic risk, and facilitated the onset of Europe's subsequent crises.

Increasing German financial sector competition encouraged German banks' increasing securitization and participation in global capital markets. Regional liberalization created new marketplaces for German finance and increased crisis risk as current accounts diverged between Europe's core and periphery. After the global financial crisis of 2008, German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis. Rethinking how financial liberalization facilitated German and European financial crises may prevent the eurozone from repeating these performances in the future.

After the 1970s, German banks' trading activity came to surpass lending as the largest share of assets, while German firms increasingly borrowed in international capital markets rather than from domestic banks. Private banks alleged that political subsidies and higher credit ratings for Landesbanks, public banks that insured household, small enterprise, and local banks' access to capital, were unfair, and, in response, German lawmakers eliminated state guarantees for public banks. Landesbanks, despite their historic role as stable, non-profit, providers of credit, consequently had to compete with Germany's largest private banks for business. Changes in competition restructured the German financial system. Mergers and takeovers occurred, especially in commercial banks and Landesbanks. German financial intermediation ratios-total financial assets of financial corporations divided by the total financial assets of the economy-increased. Greater securitization and shadow banking relative to long-term lending increased German propensity for financial crisis, as securities, shares, and securitized debt constituted increasing percentages of German banks' assets and liabilities.

Throughout this period, Germany lacked a centralized financial regulatory apparatus. Only in 2002 did the country's central bank, the Bundesbank, establish the Bundenstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, known as BaFin), which consolidated the responsibilities of three agencies to oversee the whole financial sector. However, neither institution could keep pace with new sources of financial and economic instability. German banking changes continued apace and destabilizing trends in banking grew.

German desire for financial liberalization at the European level, meanwhile, helped increase potential systemic risk of European finance. Despite some European opposition to removing barriers to capital and trade flows, Germany prevailed in setting these preconditions for membership in the European economic union. Germany's negotiating power stemmed from its strong currency, as well as French, Italian, and smaller European economies' desire for currency stability. Germany demanded an independent central bank for the union, removal of capital controls, and an expansion of the tasks banks could perform within the Economic and Monetary Union (EMU). The Second Banking Coordination Directive (SBCD) mandated that banks perform commercial and investment intermediation to be certified within the EMU; the Single Market Passport (SMP) required free trade and capital flows throughout the EMU. The SMP and SBCD increased the scope of activity that financial institutions throughout the union were expected to provide, and opened banks up to markets, instruments, and activities they could neither monitor nor regulate, and hence to destabilizing shocks.

Intra-EMU lending and borrowing subsequently increased, and total lending and borrowing grew relative to European countries' GDP from the early 1990s onward. Asymmetries emerged in capital flows between Europe's core, particularly the UK, Germany, and the Netherlands, to Europe's newly liberalized periphery. German banks lent increasing volumes to EMU member states, especially peripheral states. Though this lending on a country-by-country basis was a small percentage of Germany's GDP, it constituted larger percentages of borrowers' GDPs. In 2007, Germany lent 1.23% of its GDP to Portugal; this represented 17.68% of Portugal's GDP; in 2008, Germany lent 6% of its GDP to Ireland; this was 84% of Irish GDP. Germany, the largest European economy, lent larger percentages of its GDP to peripheral EMU nations relative to its lending to richer European economies. These flows, more potentially disruptive for borrowers than for the lender, reflected lack of oversight in asset management. German lending helped destabilize European financial systems more vulnerable to rapid capital inflows, and created conditions for large-scale capital flight in a crisis.

Financial competition increased in Europe over this period. Financial merger activity first accelerated within national borders, and later grew at supra-national levels. These movements increased eurozone access to capital, but increased pressure for banks to widen the scope of the services and lending that they provided. Rising European securitization in this period increased systemic risk for the EMU financial system. European holdings of U.S.-originated asset-backed securities increased by billions of dollars from the early 2000s until shortly before 2008. German banks were among the EMU's top issuers and acquirers of such assets. As banks' holdings of these assets increased, European systemic risk increased as well.

European total debt as a percentage of GDP rose in this period. Financial debt relative to GDP grew particularly sharply in core economies; Ireland was the only peripheral EMU economy with comparable levels of financial debt. Though government debt relative to GDP fell or held constant for most EMU nations, cross-border acquisition of sovereign debt increased until 2007. German banks acquired substantially larger portfolios of sovereign debt issued by other European states, which would not decrease until 2010. Only in 2009 did government debt relative to GDP increase throughout the eurozone, as governments guaranteed their financial systems to minimize the costs of the ensuing financial crisis.

The newly liberalized financial architecture of the eurozone increased both the market for German financial services and overall systemic risk of the European financial system; these dynamics helped destabilize the German financial system and economy at large. Rising German exports of goods, services, and capital to the rest of Europe grew the German economy, but divergence of current account balances within the EMU exposed it to sovereign debt risk in peripheral states. Potential systemic risk changed into systemic risk after the subprime mortgage crisis began. EMU economies would not have subsequently experienced such pressure to backstop national financial systems or to repay sovereign loans had German banks not lent so much or purchased so many sovereign bonds within the union. Narratives that fail to acknowledge Germany's role in promoting the circumstances that underlay the eurozone crisis ignore the destabilizing power of financial liberalization, even for a global financial center like Germany.

susan the other, December 3, 2015 at 1:06 pm

This is very interesting. It describes just how the EU mess unfolded beginning in 1970 with deregulation of the financial industry in the core. Big fish eat little fish. It is as if for 4 decades the banks in Germany compensated their losses to the bigger international lenders by taking on the riskier borrowers and were able to do so because of German mercantilism and financial deregulation. Like the German domestic banks loaned the periphery money with abandon, and effectively borrowed their own profits by speculating on bad customers. As German corporations did business with big international banksters, who lent at lower rates, other German banks resorted to buying the sovereign bonds of the periphery and selling CDOs, etc. The German banks were as over-extended looking for profit as consumers living on their credit cards. Deregulation enriched only the biggest international banks. We could call this behavior a form of digging your own grave. In 2009 the periphery saw their borrowing costs threatened and guaranteed their own financial institutions creating the "sovereign debt" that the core then refused to touch. Hypocrisy ruled. Generosity was in short supply. The whole thing fell apart. Deregulation was just another form of looting.

washunate, December 3, 2015 at 1:28 pm

German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis.

I agree with the general conclusion at the end that German financialization is part of the overall narrative of EMU, but I don't follow this specific link in the chain of events as described. The eurozone has a sovereign debt crisis because those sovereign governments privatized the profits and socialized the losses of a global system of fraud. And if we're assigning national blame, it's a system run out of DC, NY, and London a lot more than Berlin, Frankfurt, and Brussels.

Current and capital account imbalances cancel each other out in the overall balance of payments. As bank lending decreases (capital account surplus shrinks) then the current account deficit shrinks as well (the 'trade deficit'). The problem is when governments step in and haphazardly backstop some of the losses – at least, when they do so without imposing taxes on the wealthy to a sufficient degree to pay for these bailouts.

[Dec 04, 2015] Congressional Aid to Multinationals Avoiding Taxes

EconoSpeak

The OECD's Base Erosion and Profit Shifting (BEPS) initiative is an effort by the G20 to curb the abuse of transfer pricing by multinationals. Senator Hatch is not a fan:

Throughout this process we have heard concerns from large sectors of the business community that the BEPS project could be used to further undermine our nation's competitiveness and to unfairly subject U.S. companies to greater tax liabilities abroad. Companies have also been concerned about various reporting requirements that could impose significant compliance costs on American businesses and force them to share highly sensitive proprietary information with foreign governments. I expect that we'll hear about these concerns from the business community and others during today's hearing.
Indeed we heard from some lawyer representing The Software Coalition who was there to mansplain to us how BEPS is evil. I learned two startling things. First – Bermuda must be part of the US tax base. Secondly, if Google is expected to pay taxes in the UK, it will take all those 53,600 jobs which are mainly in California and move them to Bermuda:
in particular how the changes to the international tax rules as developed under BEPS will significantly reduce the U.S. tax base and create disincentives for U.S. multinational corporations (MNCs) to create R&D jobs in the United States
Yes – I find his testimony absurd at so many levels. Let's take Google as an example. When they say foreign subsidiaries – think Bermuda. Over the past three year, Google's income has average $15.876 billion per year but its income taxes have only average $2.933 billion for an effective tax rate of only 18.5%. How did that happen? Well – 55% of its income is sourced to these foreign subsidiaries and the average tax rate on this income is only 6.5%. Nice deal! Google's tax model is not only easy to explain but is also a very common one for those in the Software Coalition. While all of the R&D is done in the U.S. and 45% of its sales are in the U.S. – U.S. source income is only 45% of worldwide income. Very little of the foreign sourced income ends up in places like the UK even 11% of Google's sales are to UK customers. Only problem is that income ends up on Ireland's books with the UK getting a very modest amount of the profits. Now you might be wondering how Google got to the foreign taxes to be only 6.5% of foreign sourced income since Ireland's tax rate is 12.5%. But think Double Irish Dutch Sandwich and you'll get how the profits ended up in Bermuda as well as perhaps a good lunch! But what about that repatriation tax you ask. Google's most recent 10-K proudly notes:
"We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries".
In other words, they are not paying that repatriation tax. Besides the Republicans want to eliminate. Let's be honest – Congress has hamstringed the IRS efforts to enforce transfer pricing. The BEPS initiative arose out of this failure. And now the Republicans in Congress are objecting to even these efforts. And if Europe has the temerity of expecting its fair share of taxes, U.S. multinationals will leave California and relocate in Bermuda? Who is this lawyer kidding? Myrtle Blackwood
The development model in nation after nation is dependent upon global corporations. What is happening is simply a byproduct of this.
Jack
Would the problem of transfer mythical corporate location and the resulting lost taxes be resolved if taxes were based on point of revenue? Tax gross income where it is earned instead of taxing profits where they are not earned.

[Dec 04, 2015] China vows to drive smart aleck lecturers from its universities

Notable quotes:
"... Corruption happen everywhere, just look at US. They merely make it legal to bribe the politician, it is call lobbying. Look at all those who cheated their clients by selling them CDOs and betting against them. It became a financial worst crisis for the world, yet none of them was jailed and they all get to keep the billions. ..."
The Guardian

KarlBC g_reader_1, 4 Dec 2015 09:43

Corruption happen everywhere, just look at US. They merely make it legal to bribe the politician, it is call lobbying. Look at all those who cheated their clients by selling them CDOs and betting against them. It became a financial worst crisis for the world, yet none of them was jailed and they all get to keep the billions.

Estimate the cost to win 2016 president election = USD 1bn. Even Bush, not a front runner, had already spend USD30millions. Contribution of fund in return for IOU favors, look like corruption to me too.

NigelJ, 4 Dec 2015 10:53

some of this anti-corruption campaign would certainly not go amiss in the UK.

TheHighRoad isabey, 4 Dec 2015 09:29

Perhaps the difference is that many academics in the UK are contracted to do a certain number of hours teaching and must support the university's reputation with research but are also permitted - contractually - to work in industry and with NGOs to supplement their income and to expand their knowledge of current practice to make their teaching and research more relevant. It isn't illegal or even unusual or suspect and if you are envious of it I suggest you spend 8 years working your way through an ordinary degree, a master's and a doctorate so that you too can participate in it - though don't get your hopes up for "raking it in".

Oh, and they don't work in a system where corruption investigations are used as a pretext to weed out "unreliable elements" who talk about dangerous things that might lead impressionable young people to ask difficult questions about the government in a one-party state.

[Dec 02, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

All this neoliberal talk about "maximizing shareholder value" is designed to hide a redistribution mechanism of wealth up. Which is the essence of neoliberalism. It's all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Stock buybacks is a form of asset-stripping, similar to one practiced by buyout sharks, but practiced by internal management team. Who cares if the company will be destroyed if you have a golden parachute ?
Notable quotes:
"... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street . ..."
"... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
"... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
"... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
"... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
"... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
"... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
"... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
"... Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse? ..."
"... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
"... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
"... buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities. ..."
"... Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad. ..."
"... One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock? ..."
"... Dumping money into R D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R D cash is hidden inside M A. M A is up 2-3 years in a row. ..."
November 21, 2015 | naked capitalism

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

Magic trick turns into toxic mix.

Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

And there's a reason.

IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

"Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

"None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

"Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned:

Mbuna, November 21, 2015 at 7:31 am

Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

ng, November 21, 2015 at 8:58 am

probably, in some or most cases, but the effect on the stock is the same.

Alejandro, November 21, 2015 at 9:19 am

Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).

On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

Jim, November 21, 2015 at 10:42 am

More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

"Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

NeqNeq, November 21, 2015 at 11:44 am

One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r&d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock?

Dumping cash into plants only makes sense in the places where the market is growing. For many years that has meant Asia (China). For example, Apple gets 66% (iirc) of revenue from Asia, and that is where they have continued investing in growth. If demand is slowing and costs are rising, and it looks like both are true, why would you put even more money in?

Dumping money into R&D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R&D cash is hidden inside M&A. M&A is up 2-3 years in a row.

[Nov 30, 2015] Secular stagnation and the financial sector

Notable quotes:
"... Surely the answer is "risk transfer" ..."
"... Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree. ..."
"... the FIRE sector in particular, are parasitic on the economy. ..."
"... Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth? ..."
"... As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts." ..."
"... Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)? ..."
"... The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary. ..."
"... "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision." ..."
"... My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it. ..."
November 29, 2015 | Crooked Timber

In my last post on private infrastructure finance and secular stagnation, I suggested a bigger argument that

The financialization of the global economy has produced a hugely costly financial sector, extracting returns that must, in the end, be taken out of the returns to investment of all kinds. The costs were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential investors. So, even massively expansionary monetary policy doesn't produce much in the way of new private investment.
This isn't an original idea. The Bank of International Settlements put out a paper earlier this year arguing that financial sector growth crowds out real growth. But how does this work and what can be done about it? I'm still organizing my thoughts on this, so what I have are some ideas rather than a fully formed argument.

First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?

There are a few possible explanations

(a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

(b) Tax evasion: the global financial sector allows corporations to greatly reduce their tax liabilities. Most of the savings in tax is captured in the financial sector itself, but the amount flowing to corporations is sufficient to offset the high costs of the modern financial sector, relative to (for example) old-style bank finance and simple corporate structures financed by debt and equity

(c) Volatility: the financialization of the economy has produced greatly increased volatility (in exchange rates, asset prices and so on). The financial sector amplifies and profits from this volatility, partly through regulatory arbitrage, and partly through entrenched and systematic fraud as in the LIBOR and Forex scandals.

(d) Political capture: The financial sector controls political outcomes in both traditional ways (political donations, highly revolving door jobs for future and former politicians) and through the ideology of market liberalism, which is perfectly designed to support policies supporting the financial sector, while discrediting policies traditionally sought by other parts of the corporate sector, such as protection for manufacturing industry. The shift to private finance for infrastructure, discussed in the previous post is part of this. The construction part of the infrastructure sector (which was always private) has suffered from the reduced flow of projects, but the finance part (previously managed through government bonds) has benefited massively.

The result of all this is that the financial sector benefits from an evolutionary strategy similar to that of an Australian eucalypt forest. Eucalypts are both highly flammable (they generate lots of combustible oil) and highly fire resistant. So eucalypt forests are subject to frequent fires which kill competing species, and allow the eucalypts to extend their range.

dsquared 11.29.15 at 1:24 pm

Surely the answer is "risk transfer". The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision. Their role is to provide insurance to the rest of society and this is what they did – in fact, they provided too much of it, with too little capital which is why they went bust, and why their bankruptcy was so disastrous (there's nothing worse than an insurer bankruptcy, because it hits you with a big loss at exactly the worst time). I think c) above is particularly unconvincing, as the biggest stylised feature of the period of financialisation was the Great Moderation – in fact, the financial sector stored up volatility that would otherwise have been experienced by other people, including the intermediation of some genuinely historically massive imbalances associated with the industrialisation of China, and stored it up until it couldn't hold any more and exploded.

I also don't think LIBOR and FX fit into that pattern at all very well either. Financial systems have two kinds of problem, which is why they often have two kinds of regulators. They have prudential problems and conduct problems. Both LIBOR and FX were old-fashioned profiteering and cartel arrangements, which could happen in any industry (hey let's talk about drug pricing and indeed university tuition some time). In actual fact, as I wrote a while ago, it's only LIBOR that can really be considered a scandal – FX was very much more a case of customers who wanted the benefits of tight regulation but didn't want to pay for them, and were lucky enough to find a political moment in which the time was right for an otherwise very unpromising case.

In other words, the answer to all your questions is "leverage". That's why financial systems grew so fast, that's why they're associated with poor economic performance, and that's why they tend to show up in periods of secular stagnation – a secular stagnation is almost defined as a period during which people try to maintain their standard of living by borrowing. Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment.

[1] I am never going to shut up about this. The real estate bubble was a policy-created bubble. It was blown up in real time and intentionally, by a Federal Reserve which wanted to cushion the blow of the tech bust. If the financial sector had refused to finance it, the financial sector would have been trying to run a monetary policy directly opposed to that of the central bank.

John Quiggin 11.29.15 at 1:55 pm 2

I agree that risk transfer is a big deal. On the other hand, it's not obvious that the financial sector did a lot to insure households against most of the additional risk, or that the Great Moderation corresponded to a reduction in the volatility faced by households. On the first point, despite massive financial innovation since 1980, the set of financial instruments easily available to households hasn't changed all that much. Most obviously, there's no insurance against bad employment and wage outcomes and home equity insurance hasn't really happened either.

Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree.

The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

Eggplant 11.29.15 at 2:04 pm, 3

(e) Principle-agent problem.
(f) Implicit government backing allowing the underpricing of risk.

dsquared 11.29.15 at 2:32 pm. 4

Yeah, that's my point – the massive extension of credit to households was the financial sector's role in the big policy shift. At the end of the day, although we might with the benefit of hindsight agree that "subprime mortgages with no income verification at teaser rates" were a pretty stupid product that should never have been offered, they were a brand new financial product that had never been offered to households before! Even the example you mention – "insurance against bad employment and wage outcomes" – was sort of sold, albeit that what I'm referring to here is Payment Protection Insurance in the UK, which sort of underlines that it wasn't done well or responsibly.

I guess my argument here is that it's the combination of deregulation and stagnation that was necessary to create the 2000s policy disaster. But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector. Because the high debt levels were a policy goal (or at least, were the inevitable and forseeable consequence of trying to do demand management without fiscal policy), and as I keep saying in different contexts, you can't get to a stupid debt ratio by only doing sensible things.

The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

Isn't the answer to this just the definition of a Keynesian recession? Investment hasn't responded to monetary policy because there's no interest rate at which it makes sense to produce goods that can't be sold.

DrDick 11.29.15 at 2:32 pm 5

Capital generally, and the FIRE sector in particular, are parasitic on the economy. They provide some minimal benefits if kept strongly in check, but quickly become destructive if allowed to grow unchecked, as they have now.

Eggplant 11.29.15 at 2:37 pm 6

(g) Rising inequality leading to an ever increasing savings glut, providing the financial industry with a target-rich environment.

yastreblyansky 11.29.15 at 3:22 pm, 7

Dumb outsider thought, turning Eggplant @6 upside down: What about r > g? Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth?

T 11.29.15 at 3:31 pm, 8

"But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector."

A more sophisticated version of the widely debunked theory that Fannie and Freddie blew up the housing sector by giving loans to poor people. Rule 1: It's never ever the bankers' fault. Rule 2: see Rule 1. At least d-squared has been consistent…

Or maybe there has been a systematic continuous effort to use political influence to garner rents by gutting both the regulatory and judicial constraints on their behavior. http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

yastreblyansky 11.29.15 at 3:35 pm, 9

Or rather through which rent-claimers concentrate wealth (@t) bringing long-term low growth.

bjk 11.29.15 at 3:43 pm, 10

Which direction is financialization heading? It looks to be decreasing. The mutual fund industry is in terminal decline, losing market share to ETFs. There are fewer financial advisors today than in 2008, yet the number of millionaires has increased. Stock trading has broken a 40 year trend of increasing volumes. Electronic and exchange trading of bonds and derivatives is increasing, driving down margins. Bots have driven human traders out of jobs (Dark Pools has a good account of this). Banks are earnings low single digit returns in their trading divisions, which suggests they will be shut down if things don't improve. It looks like finance is doing a good job of shrinking itself, with a little help from Elizabeth Warren.

T 11.29.15 at 4:50 pm, 16

There were several issues and arguments posed in the OP. I'm addressing this:

"First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?
There are a few possible explanations

(a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts."

D-squared response is of course it's the risk transfer. That flat out contradicts JQ, but d-squared is a master of the straight face. And then he proceeds - "there has been a decision to desocilaize"; "the financial sector was obviously the conduit for this policy decision"; and "the real estate bubble was a policy-created bubble."

So JQ, here's your answer of FIRE's ascendancy from an insider: You know me and my friends were standing around just doing nothin' and then these policy guys come around. Next thing ya know, we've doubled our share of GDP and put our bosses in the top 0.01%. Who woulda known? Crazy shit, huh? Hey and if anyone asks, tell 'um "risk transfer." And if they press, tell 'um "secular stagnation." In fact, tell 'um frickin' anything. It just wasn't our fault.

Rakesh Bhandari 11.29.15 at 4:51 pm, 17

I know that I shall have to read John Kay's Other People's Money at some point. I am wondering what people make of the old the then Marxist Hilferding's concept of promoters' profit as a way to understand some financial sector activity. I posted this here a few years back.

Here's his example, and I am trying to figure out to the extent that it throws light on the recent activity of Wall Street.

Start with an industrial firm with a capital of 1,000,000 marks that makes a profit of 150,000 marks with the average profit of 15 percent.

With an interest rate of 5% straight capitalization of income of 150,000 marks will have an estimated price of 3,000,000 marks (150,000/.05=3,000,000 marks)

A deduction of 20,000 marks for the various administration costs and directors fees would make the actual payment to shareholders 130,000 rather 150,000 marks

A risk premium of, say, 2% would be added to a fixed safe rate of interest of 5% in estimating the actual stock price

So what, then, is the stock price (130,000/.07)? 1,857,143 or roughly 1,900.000 marks

This 900,000 is free after deducting the initial investment of 1,000,000 marks

The balance of 900, 000 marks appears as promoters' profit which arises from the conversion of profit-bearing capital into interest bearing capital.

In 1910, Hilferding called this promoters profit, an economic category sui generis; it is earned by the promoter by selling of stocks or the securitizing of income on the capital market.

For Hilferding the investment bank, which promotes the conversion of profit-bearing to interest-bearing capital, claims the promoters profit.

The analysis seems pertinent to the securitization process today, and I would love to hear Henwood's and others' thoughts about this.

As Roubini and Mihm have pointed out, we have seen the securitization of mortgages, consumer loans, student loans, auto loans, airplane leases, revenues from forests and mines, delinquent tax liens, radio tower loans, boat loans, state revenues, the royalties of rock bands!

We have seen, in their words, an explosion in the selling of future income of dependable projected revenue streams such as rents or interest payments on mortgage payments as securities.

That securitization been driven by investors' quest for yield lift given the low rate of interest, itself the result of the global savings glut and Fed policy.

And it seems that Wall Street, with the connivance of the credit agencies, was able to appropriate value from the purchasers of securities by understating the risk premia.

The risk premium and promoters' profit are inversely correlated so there is a strong incentive to understate the former. This is what Hilferding did not say, but seems worth emphasizing today.

Aaron Brown 11.29.15 at 5:43 pm. 18
I sincerely do not understand your point here. I'm not arguing, just asking for clarification:

(a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

For one thing, I don't see that the two bubbles and one bust of 1996 – 2015 are self-evidently worse than the more numerous bubbles and busts of 1976 – 1995. You might say the 2008 brush with Great Depression outweighs the hyperinflation and multiple deep recessions of the earlier era, but certainly the Internet and housing bubbles were more productive and less threatening than the commodity, Japan, emerging debt and other bubbles. Anyway, it's a close enough comparison that someone could certainly keep a straight face while saying that in the last 20 years financial volatility inflicted less real economic damage than in the preceding 20 years.

But the bigger issue is no one claims the financial system encourages steady growth. Creative (bubble) destruction (bust) is the rule. It is command economies that outlaw bubbles and busts–and inflation and unemployment–at the cost of unproductive employment, empty shelves, stifled innovation, loss of freedom and other consequences.

If you want to argue that the financial system did not earn its profits in the last 20 years, it seems to me you have to argue that economic growth was slow, or that more people in the world are in poverty today, or that there was not enough innovation; not that the ride was too volatile. Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)?

It is certainly possible to argue that we could have had more growth and innovation and poverty reduction; and less volatility; with some third way that's better than both our current financial system and the alternatives practiced in the world today. But that point is not so obvious that any defender of the global financial system must be joking.

Why do you think the booms and busts of the last 20 years are such a clear and damning indictment of the financial system that the point needs no further elaboration?

Bruce Wilder 11.29.15 at 6:11 pm, 19

The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary.

There are really complicated ways of doing this: derivatives, for example, which blow up (and as an added bonus, undermine the informational efficiency of financial markets).

I keep thinking of Piketty's r > g: the ever-accumulating pile of money rising like a slow, but unstoppable tide. It has to be invested or "invested" - that is, it can buy the assembly of resources into productive capital assets that represent financial claims on the additional income generated by business innovation and expansion . . . OR . . . it can be used to finance the parasitic and predatory manipulations of an emergent neo-feudalism.

Where the secular stagnation thesis is not pure apologetic fraud, I would interpret it as saying, there are currently few opportunities to invest in additional productive "real" capital stock. For technological reasons, the new systems require much less capital than the old systems, so when an old telephone company replaces its expensive copper wire with fiber optics and cellphone towers, it may be able to fund a large part of the transition out of current cash-flow, even while maintaining the value of the bonds that once represented investment in a mountain of copper, but are now just rentier claims on an obsolete world.

In the brave new world, a handful of companies, who have lucked into commercial positions with high rents, throw off a lot of cash. So, the Apples and Intels do not need to be allocated new capital, but their distribution of cash to people who don't need it, is generating a lot of demand for "financial product". The rest of the business world is just trying to manage a slow decline, able to throw off modest amounts of cash, desperate to find sources of political power that might yield reliable rents, but without opportunities to innovate that would actually require net investment in excess of current cashflows from operations.

So, the financial system is just responding to this enlarged demand for non-productive investment in financial products that generate return from parasitic extraction.

In the interest of parasitic extraction, the financial system pursues the politics of neoliberal privatization as a means of generating financial products to satisfy demand.

Does that sound like a plausible narrative?

Dipper 11.29.15 at 6:30 pm, 20

re volatility, the thing you really want to worry about is liquidity. Pre-crash banks could warehouse risk and so provide liquidity. One consequence was volatility was recorded because liquid markets allowed prices to be observed.

Regulators have observed the conflict of interest caused by banks providing a financial service but also participating in the markets with their own money, and have acted to restrict banks from holding risk for proprietary trading (the Volcker rule). This is fine, but there has been a noticeable decrease in liquidity in what were once deep markets. The EURCHF un-pegging in Jan this year is a good example of reduced liquidity resulting in a massive move. There may well be more of this to come.

Sebastian H 11.29.15 at 6:34 pm, 21
"The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision."

I can't tell if you are arguing with John or agreeing with him. Is this agreement with his d) [the political capture explanation]? I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns. Is it possible that the financial sector was the obvious conduit because they were among the important authors of the ideas?

MisterMr 11.29.15 at 6:50 pm, 22

Previously commented here as Random Lurker.

In my opinion, finance had a passive role in the build up of the crisis.
Others have said similar things uptread, however this is my opinion:

1) the wage share of GDP depends largely on political choices; since the late seventies there has been a trend of a falling wage share more or less everywhere, as countries with a lower wage share are more competitive on the world market.
2) a falling wage share means a rising profit share, and "capitalists" tend to reinvest part of their profits, so a falling wage share caused a worldwide saving glut.
3) this worldwide saving glut caused an increased financialisation and a bubbling up of the price of some assets, particularly those assets whose supply is inelastic (for example, the value of distribution chains or of famous consumer brands).
4) this in turn causes an increased volatility of financial markets, and worse financial crises.

This situation is what we perceive as a secular stagnation, and IMHO depends mostly on a low worldwide wage share.
Unfortunately, I have no idea of how to reach an higher wage share, and I don't think "the market" has any mechanism to push up said wage share.

Rakesh Bhandari 11.29.15 at 7:08 pm, 23

Bruce,
What you are saying makes sense to me. Steven Pressman has also raised the question of how r is to be maintained with "an abundance of capital and its need for high rates of return." (Understanding Piketty's Capital in the Twenty First Century).

It's almost as if Piketty in his criticism of the rentier has a rentier's disregard for how the returns are actually to be made. To the extent that he considers production it is through marginal productivity theory. Piketty claims that marginal rate of substitution of capital for labor will remain above unity (and too bad Piketty dismissed the Cambridge Capital critique because Ian Steedman has used Sraffian theory to show the possibilities of high profits in even a fully automated economy).

Of course as Pressman implies, this "technical" view may blind us to the higher exploitation that may be necessary for returns to continue to remain high as capital becomes more abundant. Pressman also implies that Piketty also does not consider how finance can make higher rates of return by making higher-interest loans to weaker parties while having them absorb most of the risk (this would be your second kind of investment).

Search for the several paragraphs on the rentier in this section. It is remarkable that no one has yet compared Piketty's criticism of the rentier to this.
https://www.marxists.org/archive/bukharin/works/1927/leisure-economics/introduction.htm

felwith 11.29.15 at 8:31 pm, 24

" I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns."

Of course not, but there are actors here other than "the public" and "the banks". In this case, I'm pretty sure Daniel is referring to the destruction of unionized middle class jobs with pensions and cheap-to-the-worker health insurance, which was carried out by their employers. While I doubt I could pick a bank owner out of a lineup filled out with captains of industry, they aren't actually interchangeable.

Peter K. 11.29.15 at 9:43 pm, 25

@1 Dsquared:

"Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment."

Secular stagnation to me just means not enough macro (monetary/fiscal) policy to keep up aggregate demand for full employment and target inflation.

Monetary and fiscal policy is being blocked by politics partly because filthy rich financiers are buying their way into politics:

http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html

The question about Dsquare's alternate history I would have is: what is the response of fiscal and monetary policy to the "domestication" of the financial sector via higher capital requirements and leverage regulations, etc.?

If fiscal and monetary policy keeps the economy at a high-pressure level with full employment and rising wages, I don't see why secular stagnation is a problem.

But politics is blocking fiscal and monetary policy. Professor Quiggin talks of "massive" monetary policy, but it wasn't massive given the need. (It was massive compared to past recoveries.) It was big enough to avoid deflation despite unprecedented fiscal austerity. It wasn't big enough to hit their inflation target in a timely matter.

Ze K 11.29.15 at 9:53 pm, 27

My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it.

[Nov 28, 2015] Remaking the Middle East: How the US Grew Tired and Less Relevant

Notable quotes:
"... In reality, this perception is misleading; not that Kerry is a warmonger on the level of George W. Bush's top staff, such as Vice-President Dick Cheney and Secretary of Defense, Donald Rumsfeld. The two were the very antithesis of any rational foreign policy such that even the elder George H. W. Bush described them with demeaning terminology , according to his biographer, quoted in the New York Times . Cheney was an "Iron-ass", who "had his own empire … and marched to his own drummer," H.W. Bush said, while calling Rumsfeld "an arrogant fellow" who lacked empathy. Yet, considering that the elder Bush was rarely a peacemaker himself, one is left to ponder if the US foreign policy ailment is centered on failure to elect proper representatives and to enlist anyone other than psychopaths? ..."
"... comparing the conduct of the last three administrations, that of Bill Clinton, George W. Bush and Barack Obama, one would find that striking similarities are abundant. In principle, all three administrations' foreign policy agendas were predicated on strong militaries and military interventions, although they applied soft power differently. ..."
"... In essence, Obama carried on with much of what W. Bush had started in the Middle East, although he supplanted his country's less active role in Iraq with new interventions in Libya and Syria. In fact, his Iraq policies were guided by Bush's final act in that shattered country, where he ordered a surge in troops to pacify the resistance, thus paving the way for an eventual withdrawal. Of course, none of that plotting worked in their favor, with the rise of ISIS among others, but that is for another discussion. ..."
"... In other words, US foreign policy continues unabated, often guided by the preponderant norm that "might makes right", and by ill-advised personal ambitions and ideological illusions like those championed by neo-conservatives during W. Bush's era. ..."
"... The folly of W. Bush, Cheney and company is that they assumed that the Pentagon's over $1.5 billion-a-day budget was enough to acquire the US the needed leverage to control every aspect of global affairs, including a burgeoning share of world economy. ..."
"... The Russian military campaign in Syria, which was halfheartedly welcomed by the US. has signaled a historic shift in the Middle East. Even if Russia fails to turn its war into a major shift of political and economic clout, the mere fact that other contenders are now throwing their proverbial hats into the Middle East ring, is simply unprecedented since the British-French-Israeli Tripartite Aggression on Egypt in 1956. ..."
"... It will take years before a new power paradigm fully emerges, during which time US clients are likely to seek the protection of more dependable powers. In fact, the shopping for a new power is already under way, which also means that new alliances will be formed while others fold. ..."
November 14, 2015 | original.antiwar.com
US Secretary of State, John Kerry, is often perceived as one of the "good ones" – the less hawkish of top American officials, who does not simply promote and defend his country's military adventurism but reaches out to others, beyond polarizing rhetoric.

His unremitting efforts culminated partly in the Iran nuclear framework agreement in April, followed by a final deal, a few months later. Now, he is reportedly hard at work again to find some sort of consensus on a way out of the Syria war, a multi-party conflict that has killed over 300,000 people. His admirers see him as the diplomatic executor of a malleable and friendly US foreign policy agenda under President Obama.

In reality, this perception is misleading; not that Kerry is a warmonger on the level of George W. Bush's top staff, such as Vice-President Dick Cheney and Secretary of Defense, Donald Rumsfeld. The two were the very antithesis of any rational foreign policy such that even the elder George H. W. Bush described them with demeaning terminology, according to his biographer, quoted in the New York Times. Cheney was an "Iron-ass", who "had his own empire … and marched to his own drummer," H.W. Bush said, while calling Rumsfeld "an arrogant fellow" who lacked empathy. Yet, considering that the elder Bush was rarely a peacemaker himself, one is left to ponder if the US foreign policy ailment is centered on failure to elect proper representatives and to enlist anyone other than psychopaths?

If one is to fairly examine US foreign policies in the Middle East, for example, comparing the conduct of the last three administrations, that of Bill Clinton, George W. Bush and Barack Obama, one would find that striking similarities are abundant. In principle, all three administrations' foreign policy agendas were predicated on strong militaries and military interventions, although they applied soft power differently.

In essence, Obama carried on with much of what W. Bush had started in the Middle East, although he supplanted his country's less active role in Iraq with new interventions in Libya and Syria. In fact, his Iraq policies were guided by Bush's final act in that shattered country, where he ordered a surge in troops to pacify the resistance, thus paving the way for an eventual withdrawal. Of course, none of that plotting worked in their favor, with the rise of ISIS among others, but that is for another discussion.

Obama has even gone a step further when he recently decided to keep thousands of US troops in Afghanistan well into 2017, thus breaking US commitment to withdraw next year. 2017 is Obama's last year in office, and the decision is partly motivated by his administration's concern that future turmoil in that country could cost his Democratic Party heavily in the upcoming presidential elections.

In other words, US foreign policy continues unabated, often guided by the preponderant norm that "might makes right", and by ill-advised personal ambitions and ideological illusions like those championed by neo-conservatives during W. Bush's era.

Nevertheless, much has changed as well, simply because American ambitions to police the world, politics and the excess of $600 billion a year US defense budget are not the only variables that control events in the Middle East and everywhere else. There are other undercurrents that cannot be wished away, and they too can dictate US foreign policy outlooks and behavior.

Indeed, an American decline has been noted for many years, and Middle Eastern nations have been more aware of this decline than others. One could even argue that the W. Bush administration's rush for war in Iraq in 2003 in an attempt at controlling the region's resources, was a belated effort at staving off that unmistakable decay – whether in US ability to regulate rising global contenders or in its overall share of global economy.

The folly of W. Bush, Cheney and company is that they assumed that the Pentagon's over $1.5 billion-a-day budget was enough to acquire the US the needed leverage to control every aspect of global affairs, including a burgeoning share of world economy. That misconception carries on to this day, where military spending is already accounting for about 54 percent of all federal discretionary spending, itself nearly a third of the country's overall budget.

However, those who are blaming Obama for failing to leverage US military strength for political currency refuse to accept that Obama's behavior hardly reflects a lack of appetite for war, but a pragmatic response to a situation that has largely spun out of US control.

The so-called "Arab Spring", for example, was a major defining factor in the changes of US fortunes. And it all came at a particularly interesting time.

First, the Iraq war has destroyed whatever little credibility the US had in the region, a sentiment that also reverberated around the world.

Second, it was becoming clear that the US foreign policy in Central and South America – an obstinate continuation of the Monroe Doctrine of 1823, which laid the groundwork for US domination of that region – has also been challenged by more assertive leaders, armed with democratic initiatives, not military coups.

Third, China's more forceful politics, at least around its immediate regional surroundings, signaled that the US traditional hegemony over most of East and South East Asia are also facing fierce competition.

Not only many Asian and other countries have flocked to China, lured by its constantly growing and seemingly more solid economic performance, if compared to the US, but others are also flocking to Russia, which is filling a political and, as of late, military vacuum left open.

The Russian military campaign in Syria, which was halfheartedly welcomed by the US. has signaled a historic shift in the Middle East. Even if Russia fails to turn its war into a major shift of political and economic clout, the mere fact that other contenders are now throwing their proverbial hats into the Middle East ring, is simply unprecedented since the British-French-Israeli Tripartite Aggression on Egypt in 1956.

The region's historians must fully understand the repercussions of all of these factors, and that simply analyzing the US decline based on the performance of individuals – Condoleezza Rice's hawkishness vs. John Kerry's supposed sane diplomacy – is a trivial approach to understanding current shifts in global powers.

It will take years before a new power paradigm fully emerges, during which time US clients are likely to seek the protection of more dependable powers. In fact, the shopping for a new power is already under way, which also means that new alliances will be formed while others fold.

For now, the Middle East will continue to pass through this incredibly difficult and violent transition, for which the US is partly responsible.

Ramzy Baroud (www.ramzybaroud.net) is a media consultant, an internationally-syndicated columnist and the editor of PalestineChronicle.com. His latest book is My Father was A Freedom Fighter: Gaza's Untold Story (Pluto Press).

[Nov 26, 2015] Incorporating the Rentier Sectors into a Financial Model

Notable quotes:
"... Finance is not The economy ..."
"... In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. ..."
"... Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. ..."
"... even government tax revenue is diverted to pay debt service ..."
"... Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy. ..."
economistsview.typepad.com

RGC said in reply to JF... November 25, 2015 at 08:34 AM

Incorporating the Rentier Sectors into a Financial Model

Wednesday, September 12, 2012

by Dirk Bezemer and Michael Hudson

As published in the World Economic Association's World Economic Review Vol #1.

.......

2. Finance is not The economy

In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. Banks lend to buyers of real estate, corporate raiders, ambitious financial empire-builders, and to management for debt-leveraged buyouts. A first approximation of this trend is to chart the share of bank lending that goes to the 'Fire, Insurance and Real Estate' sector, aka the nonbank financial sector. Graph 1 shows that its ratio to GDP has quadrupled since the 1950s. The contrast is with lending to the real sector, which has remained about constant relative to GDP. This is how our debt burden has grown.

Graph 1: Private debt growth is due to lending to the FIRE sector: the US, 1952-2007

Source: Bezemer (2012) based on US flow of fund data, BEA 'Z' tables.

What is true for America is true for many other countries: mortgage lending and other household debt have been 'the final stage in an artificially extended Ponzi Bubble' as Keen (2009) shows for Australia. Extending credit to purchase assets already in place bids up their price. Prospective homebuyers need to take on larger mortgages to obtain a home. The effect is to turn property rents into a flow of mortgage interest. These payments divert the revenue of consumers and businesses from being spent on consumption or new capital investment. The effect is deflationary for the economy's product markets, and hence consumer prices and employment, and therefore wages. This is why we had a long period of low cpi inflation but skyrocketing asset price inflation. The two trends are linked.

Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. As creditors recycle their receipts of interest and amortization (and capital gains) into new lending to buyers of real estate, stocks and bonds, a rising share of employee income, real estate rent, business revenue and even government tax revenue is diverted to pay debt service. By leaving less to spend on goods and services, the effect is to reduce new investment and employment.

Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy.

It is especially the case since 1991 in the post-Soviet economies, where neoliberal (that is, pro-financial) policy makers have had a free hand to shape tax and financial policy in favor of banks (mainly foreign bank branches). Latvia is cited as a neoliberal success story, but it would be hard to find an example where rentier income and prices have diverged more sharply from wages and the "real" production economy.

The more credit creation takes the form of inflating asset prices – rather than financing purchases of goods and services or direct investment employing labor – the more deflationary its effects are on the "real" economy of production and consumption. Housing and other asset prices crash, causing negative equity. Yet homeowners and businesses still have to pay off their debts. The national income accounts classify this pay-down as "saving," although the revenue is not available to the debtors doing the "saving" by "deleveraging."

The moral is that using homes as what Alan Greenspan referred to as "piggy banks", to take out home-equity loans, was not really like drawing down a bank account at all. When a bank account is drawn down there is less money available, but no residual obligation to pay. New income can be spent at the discretion of its recipient. But borrowing against a home implies an obligation to set aside future income to pay the banker – and hence a loss of future discretionary spending.

3. Towards a model of financialized economies

Creating a more realistic model of today's financialized economies to trace this phenomenon requires a breakdown of the national income and product accounts (NIPA) to see the economy as a set of distinct sectors interacting with each other. These accounts juxtapose the private and public sectors as far as current spending, saving and taxation is concerned. But the implication is that government budget deficits inflate the private-sector economy as a whole.

http://michael-hudson.com/2012/09/incorporating-the-rentier-sectors-into-a-financial-model-3/

pgl said in reply to anne...

Peter Dorman's excellent rebuttal of John Harwood:

http://econospeak.blogspot.com/2015/11/tax-policy-and-magic-investment-channel.html

[Nov 26, 2015] Argentine Election a Setback, But Not Likely to Reverse Latin America's 21st Century Trend

Neoliberalism counterattacked and scored a victory in Argentina. the trick is to use economic difficulties caused by neoliberalism to bring to power a neoliberal candidate (or more liberal candidate, if the current was already neoliberal buy stayed Washington consensus). That trick was used previously in Ukraine.
Notable quotes:
"... Washington has maintained a policy of "rollback" and "containment" against almost all of the left governments that have won elections in the 21st century. So there is quite a bit of excitement here among the business and foreign policy elite ..."
"... Argentina and the region have changed too much over the past 15 years to return to the neoliberal, neocolonial past. The Washington foreign policy establishment may not understand this, but Macri's handlers did. That's why they took the trouble to package him as something very different from what he is. ..."
"... State Corruption is ever and always a pre text for reassertion of plutocratic hegemony ..."
cepr.net

The election of right-wing candidate Mauricio Macri as Argentina's president on Sunday, which just a few months ago was unexpected, is a setback for Argentina and for the region.

... ... ...

Washington has maintained a policy of "rollback" and "containment" against almost all of the left governments that have won elections in the 21st century. So there is quite a bit of excitement here among the business and foreign policy elite, with Brazil's President Dilma Rousseff facing a recession and political crisis, and Venezuela's Chavismo confronting an economic crisis and possible loss of its first national election in 17 years. So naturally they are happy about this unprecedented right-wing electoral victory in Argentina. Articles are already sprouting up, welcoming the long-awaited demise of the Latin American left.

But reports of this demise, to paraphrase Mark Twain, are somewhat exaggerated. A more likely outcome is like that of Chile, where a lackluster candidate was unable to take advantage of Socialist Party President Michelle Bachelet's 80 percent approval rating, and lost to a right-wing billionaire in 2010. He lasted four years, and then the country went back to Bachelet.

Argentina and the region have changed too much over the past 15 years to return to the neoliberal, neocolonial past. The Washington foreign policy establishment may not understand this, but Macri's handlers did. That's why they took the trouble to package him as something very different from what he is.

anne -> anne...

https://research.stlouisfed.org/fred2/graph/?g=1AK7

August 4, 2014

Real per capita Gross Domestic Product for Brazil, Argentina, Chile, Colombia and Mexico, 2000-2014

(Percent change)


https://research.stlouisfed.org/fred2/graph/?g=1AK8

August 4, 2014

Real per capita Gross Domestic Product for Brazil, Argentina, Chile, Colombia and Mexico, 2000-2014

(Indexed to 2000)

anne:

http://www.cepr.net/publications/op-eds-columns/argentine-election-a-setback-but-not-likely-to-reverse-latin-america-s-21st-century-trend

November 24, 2015

Argentine Election a Setback, But Not Likely to Reverse Latin America's 21st Century Trend
By Mark Weisbrot

The election of right-wing candidate Mauricio Macri as Argentina's president on Sunday, which just a few months ago was unexpected, is a setback for Argentina and for the region. In the last 13 years, Argentina had made enormous economic and social progress. Under the Kirchners (first Néstor and then Cristina Fernández de Kirchner), poverty fell by about 70 percent, and extreme poverty by 80 percent. (This is for 2003 to mid-2013, the last year for which independent estimates are available; they are also based on independent estimates of inflation.) Unemployment fell from more than 17.2 percent to 6.9 percent , according to the IMF.

But Daniel Scioli, the candidate of the Peronist "Front for Victory", who represented the governing coalition including President Fernández, did not do a good job defending these achievements. He also didn't seem to make clear what he would do to fix the country's current economic problems. In the past four years, growth has been slow (averaging about 1.1 percent annually), inflation has been high (with private estimates in the 20s), and a black market for the dollar has developed. This gave Macri (and his "Cambiemos" or "Let's Change" coalition) an opening to present himself as the candidate of a better future.

With skilled marketing help from an Ecuadorean public relations firm, he also succeeded in defining himself as something far more moderate than he is likely to be, thus winning over voters who might otherwise be afraid of a return to the pre-Kirchner depression years.

Some of the things he has indicated he would do could have a positive impact, if done correctly. He will likely cut a deal with vulture funds who have been holding more than 90 percent of Argentina's creditors hostage since New York judge Thomas Griesa ruled in 2014 that the government is not allowed to pay them. If the cost is not too high, it could be a net positive by re-opening a path for Argentina to return to international borrowing - something that Scioli would likely have also done.

A liberalization of the exchange rate that got rid of the black market could be a big step forward. But much depends on how it is done: If it causes inflation to spike and the government does nothing to protect poor and working people, they could lose a lot.

Macri may also take measures to bring down inflation, which is something that needs to be done. But here especially there are great dangers, because he is likely to do so by shrinking the economy. He wants to reduce the central government budget deficit, which will grow as a percent of GDP with austerity. Given his ideology and politics, there is serious risk of a downward spiral of austerity and recession, as the country suffered from 1998-2001. If there is inflation from the devaluation, and they are eager to get rid of that too, this could make matters worse.

His campaign statements and positions indicate that he is against a government role in promoting industry, so the country's development is likely to suffer as a result. He has proposed tax cuts for upper- income groups, and so budget cuts are likely since he has pledged to reduce the government budget deficit. If you add it all up, the majority of Argentines are likely to suffer from any economic transition that he can engineer.

But he will not have a working majority in Congress, so it remains to be seen how much he can do. Internationally, he has moved immediately to demonstrate his overwhelming loyalty to the United States government, which had been previously demonstrated in confidential U.S. embassy cables published by WikiLeaks. One of his very first statements after being elected was to denounce Venezuela and threaten to have them suspended from Mercosur. Since this is not an issue that was pressing to Argentine voters, it is clear that it is part of the U.S.-led international campaign leading up to Venezuela's December 6 elections, which seeks to delegitimize the government and the elections.

Macri's willingness to join this campaign is something that no other South American president would do. On the contrary, in the past decade South American presidents have repeatedly joined together to defend democracy in the region when it was under attack, with Washington on the other side - not only in Venezuela, in 2014, 2013, and 2002; but in but in Bolivia (2008); Honduras (2009); Ecuador (2010); and Paraguay (2012). If Macri continues down this road, he will not only bring shame to Argentina, but he will damage hemispheric relations.

Washington has maintained a policy of "rollback" and "containment" against almost all of the left governments that have won elections in the 21st century. So there is quite a bit of excitement here among the business and foreign policy elite, with Brazil's President Dilma Rousseff facing a recession and political crisis, and Venezuela's Chavismo confronting an economic crisis and possible loss of its first national election in 17 years. So naturally they are happy about this unprecedented right-wing electoral victory in Argentina. Articles are already sprouting up, welcoming the long-awaited demise of the Latin American left.

But reports of this demise, to paraphrase Mark Twain, are somewhat exaggerated. A more likely outcome is like that of Chile, where a lackluster candidate was unable to take advantage of Socialist Party President Michelle Bachelet's 80 percent approval rating, and lost to a right-wing billionaire in 2010. He lasted four years, and then the country went back to Bachelet.

Argentina and the region have changed too much over the past 15 years to return to the neoliberal, neocolonial past. The Washington foreign policy establishment may not understand this, but Macri's handlers did. That's why they took the trouble to package him as something very different from what he is.

Narwhal -> anne:

too much here to comment on.

Weisbrot couches his analysis in right vs left wing politics which played only a minor part.

The election was about the incompetence of the Kirchners. Argentinians have had enough and finally kicked the incompetents out.

"with Brazil's President Dilma Rousseff facing a recession and political crisis" THAT HER INCOMPETENCE AND TOTAL CORRUPTION CAUSED....the vast majority has had enough.

Has this guy actually visited Argentina and Brazil...

anne -> Narwhal:

Do set down a focused argument and references when possible.

When "incompetence" and "total corruption" assertions are made, and even capitalized, they should be referenced. As for the "vast majority" in Argentina who had had enough, would that be the 51.4% who voted for President Macri?

Narwhal -> anne:

Sorry, Anne, I am not going to post a university research paper with references and footnotes (been there and done that).

Argentine politics are so convoluted that I do not pretend to understand them. Suffice to say that the are far more nuanced than simple liberal vs conservative. Only that those of us here in Brazil breathed huge sigh of relief when the election results were announced.

OTOH his indirect references to Brazil showed even less knowledge of the region. I have made a very small attempt to give readers a tiny view of the Brazilian politics and corruption in my other comment.

anne -> Narwhal:

On the other hand [Mark Weisbrot's] indirect references to Brazil showed even less knowledge of the region.

[ I set down the direct references to Brazil by Mark Weisbrot, Franklin Serrano and Ricardo Summa. Possibly the work they have done on Brazil reflects little knowledge as supposedly the work done by Weisbrot on Argentina does, but I find the work carefully done and persuasive. ]

PPaine -> anne:

He has none. He's reacting like the usual middle brow bourgeois. Whatever he or she really is

Nuance here is just enough muddle to confuse the outsider. So long as that outsider salivates with every reference to corruption and incompetence

PPaine -> Narwhal:

No don't hide the hand grenade here. This is class struggle. Nuances are nonsense. State Corruption is ever and always a pre text for reassertion of plutocratic hegemony

The point will be clear once this agent of the haute bourgeoise. Starts rectifying more then a decade of improved welfare systematics

anne -> PPaine :

State Corruption is ever and always a pre text for reassertion of plutocratic hegemony

The point will be clear once this agent of the haute bourgeoise

Starts rectifying more then a decade of improved welfare systematics

[ Interesting and all too reasonable historically for Latin America. ]

Reply Wednesday, November 25, 2015 at 04:44 PM
anne -> anne:

https://research.stlouisfed.org/fred2/graph/?g=1AK7

August 4, 2014

Real per capita Gross Domestic Product for Brazil, Argentina, Chile, Colombia and Mexico, 2000-2014

(Percent change)
https://research.stlouisfed.org/fred2/graph/?g=1AK8

August 4, 2014

Real per capita Gross Domestic Product for Brazil, Argentina, Chile, Colombia and Mexico, 2000-2014

(Indexed to 2000)

Reply Wednesday, November 25, 2015 at 05:52 AM
anne -> anne:

https://research.stlouisfed.org/fred2/graph/?g=1AK9

November 1, 2014

Total Factor Productivity at Constant National Prices for Brazil, Argentina, Chile, Colombia and Mexico, 2000-2011


https://research.stlouisfed.org/fred2/graph/?g=1AKc

November 1, 2014

Total Factor Productivity at Constant National Prices for Brazil, Argentina, Chile, Colombia and Mexico, 2000-2011

(Indexed to 2000)

Reply Wednesday, November 25, 2015 at 05:54 AM
Narwhal -> anne:

This economist article gives a more complete review of Brazil's economic situation.

http://www.economist.com/blogs/graphicdetail/2015/10/economic-backgrounder

-- the real has devalued from about 2.1/US$ to 3.6/US$ today.

--bribes and kickbacks from Petrobras amounting to uncounted HUNDREDS of billions of reais had their origin when President Dilma was Chairwoman of the Board of Directors.

--Ex President Lula's closest aid is serving a jail term for corruption. The government's leader in the Senate was arrested today... the list goes on.

--The government took no steps to prevent the ecological disaster of two dam collapses this month. Many are dead and will never be found or even counted. Thousands are homeless. 60 million tons of toxic mud have completely destroyed 400 km of the Rio Doce. The mud reached the sea Sunday and is now killing the ocean habitat.

--Pres Dilma signed a decree declarion the disaster an act of god, thereby absolving the mining companies and the government of all legal responsibility.

PPaine -> anne:

The economist -- Now there's a source we can rely on --

anne -> anne:

http://www.cepr.net/publications/op-eds-columns/brazil-needs-new-economic-program-to-jump-start-growth-and-employment

September 4, 2015

Brazil Needs New Economic Program to Jump-Start Growth and Employment
By Mark Weisbrot

Finance Minister Joaquim Levy says that unemployment is going to increase in Brazil and that Brazilians should "face some realities." No country should have a finance minister with this attitude towards one of its population's most important needs – employment. And even worse, someone who is acting on these twisted beliefs in order to make them reality. His own job should be the first to go.

The vast majority of Brazilians are still hugely better off than they were before the Workers Party assumed the presidency in January of 2003. Poverty was reduced by 55 percent and extreme poverty by 65 percent from 2003-2012 and real (inflation-adjusted) wages grew by 35 percent – including a doubling of the real minimum wage. From 2004-2010, the economy grew twice as fast as it had over the previous 23 years, and the gains from growth were much more equally distributed.

But these gains are being eroded, as the economy sinks into recession and unemployment rises. Why has this happened? A new report * by Brazilian economists Franklin Serrano and Ricardo Summa shows that it is not primarily due to external factors – for example, the slowdown of global economic growth and trade. Rather it is mainly a result of government policies that have reduced aggregate demand since the end of 2010: tighter budgets, cuts in public investment, higher interest rates, and tighter credit.

Austerity is not working in Brazil -- any more than it has been working in Europe. These policies are not only creating unnecessary unemployment and poverty in the present, they are also sacrificing Brazil's future. Brazil needs public investment in transportation and other infrastructure, but this is the spending that is first to be sacrificed.

The Central Bank has raised short-term interest rates from 7.5 percent in April 2013 to 14.25 percent today. As a result of having exorbitant interest rates for many years, the government pays more than 6 percent of GDP – about 20 percent of federal spending – in net interest. This is among the world's highest government interest burdens.

Lowering interest rates could free up money in the budget for public investment. It is clear that the government needs to increase spending in order to jump-start the economy. This is what it did, successfully, when the global financial crisis and recession hit in 2009.

Brazil does not yet have to worry about external financial constraints, as it currently has $369 billion in reserves. Its net public debt is only about 34 percent of GDP (This is low by any comparison; the problem is the exorbitant interest rates, averaging 11 percent on outstanding government bonds). The economy has plenty of reason to grow, but it is clear that the private sector is not going to lead this growth.

Dilma won re-election in 2014 by promising to stand up to the oligarchy, and continue the successful policies that brought considerable economic and social progress to Brazil for the first time in decades. Levy and his friends in Brazil's powerful financial sector may prefer higher unemployment and lower wages, but that is not what Brazilians voted for. There is no reason for the government to commit political suicide by continuing to implement the failed economic program of its opposition.

* http://www.cepr.net/documents/publications/Brazil-2015-08.pdf

anne -> anne:

http://www.cepr.net/documents/publications/Brazil-2015-08.pdf

August, 2015

Aggregate Demand and the Slowdown of Brazilian Economic Growth from 2011-2014
By Franklin Serrano and Ricardo Summa

Executive Summary

This paper looks in detail at the sharp slowdown in the Brazilian economy for the years 2011-2014, in which economic growth averaged only 2.1 percent annually, as compared with 4.4 percent in the 2004-2010 period. The latter level of growth was also more than double Brazil's average annual growth rate over the prior 23 years (although it was much lower than the pre-1980 period). It is important to understand why the higher rate of growth experienced from 2004 to 2010 was not sustained over the past few years.

The authors argue that the slowdown is overwhelmingly the result of a sharp decline in domestic demand, rather than a fall in exports and even less any change in external financial conditions. The sharp fall in domestic demand, in turn, is shown to be a result of deliberate policy decisions made by the government. This decision to slow the economy was not necessary, i.e., it was not made in response to some external constraint such as a balance-of-payments problem.

Brazil's exports, and the change in their quantity between the two periods, was too small to account for most of the large slowdown in GDP growth. From 2011-2014, exports amounted to 11.3 percent of GDP, as compared with 11.9 percent for 2004-2010.

The idea that a deterioration in external financial conditions could have driven the slowdown is also contradicted by the data. For example, the total foreign debt-to-exports ratio dropped from 4.7 in 1999 to 1.27 by the end of 2010, and was 1.54 in 2014. The ratio of total external debt to foreign reserves was reduced from 6.5 in 2000 to 0.89 in 2010 (and was 0.93 in 2014). Also, the percent of Brazilian foreign liabilities that are denominated in dollars fell from around 75 percent in 2003 to a minimum of 35 percent in 2010, and was about 40 percent in 2014.

All of this indicates that the economy had room to expand after 2010. But the government decided to reduce aggregate demand through changes in monetary, fiscal, and macroprudential policies. For example, the Central Bank began a cycle of interest rate increases after February 2010 that lasted until August 2011, raising the basic nominal interest rate from 8.75 percent to 12.5 percent. The nominal interest rate increases and the macroprudential measures – which reduced the growth of credit -- helped to a certain extent to end the consumption boom (especially of durable goods). Private consumption growth decelerated sharply until mid-2012, partially as a result of these measures.

At the end of 2010, the government also decided to promote a strong fiscal adjustment in order to increase the primary surplus and to meet the full target of 3.1 percent of GDP in 2011. Another sign of this contractionary commitment of the new government was the decision, after years of high increases, not to raise the real minimum wage at all in 2011, something that had not occurred in Brazil since 1994. And despite the global economic slowdown in early 2011, the signs of which were evident from the first quarter, fiscal adjustment was maintained throughout 2011 and the full target for the primary surplus was achieved.

This rapid increase in the primary surplus was only possible thanks to a strong reduction in the growth of public spending. In 2011, public investment, both of the central government and the state-owned companies, fell dramatically, by 17.9 percent and 7.8 percent in real terms, respectively. The government's contractionary policies led to a pronounced decline in private investment as well, so that total investment (public and private) fell sharply. After growing at an average annual rate of 8.0 percent between 2004 and 2010, peaking at 18 percent in 2010, gross fixed capital formation over 2011-2014 grew by just 1.8 percent annually.

Thus it was the strong reduction in investment growth-not a process of "deindustrialization" related to the real exchange rate, as some have maintained-that explains the slowdown in industrial production since 2011. Manufacturing industry grew in the years 2007-2008 and in 2010, when the exchange rate was already appreciated. It is also worth noting that during the 2004-2010 period of higher growth, the appreciated real exchange rate was very important for controlling inflation and thus also for increasing real wages and the growth rate of household consumption.

This paper also shows that the analysis put forth to justify the government's post-2010 strategy was wrong. Even though the economy was already slowing in 2010, the argument was made that fiscal tightening was necessary in order to have a large reduction in interest rates. The lower interest rates, combined with tax cuts and other incentives for businesses, were expected to then allow the private sector to lead growth by stimulating private investment and also export-led growth as the real exchange rate depreciated due to the lower interest rates. However, as the pro-cyclical policies shrank aggregate demand, private investment plummeted; and for reasons explained below, export-led growth did not occur either. And the supposed link between public debt and sovereign risk also turned out to be an unfounded assumption.

The result is that the government's efforts to encourage the private sector to lead economic growth, through contractionary macro-economic policies, tax-cuts, and public-private partnerships, had the opposite result. To return growth and employment creation to the levels of the 2004-2010 period, the government will have to change course and return to some of the policies and strategy of those years, in which the government took responsibility for ensuring the growth of investment, consumption, formal sector employment, and necessary infrastructure.

Reply Wednesday, November 25, 2015 at 07:17 AM
pgl -> anne:

These authors are not buying this conventional wisdom:

"This paper also shows that the analysis put forth to justify the government's post-2010 strategy was wrong. Even though the economy was already slowing in 2010, the argument was made that fiscal tightening was necessary in order to have a large reduction in interest rates. The lower interest rates, combined with tax cuts and other incentives for businesses, were expected to then allow the private sector to lead growth by stimulating private investment and also export-led growth as the real exchange rate depreciated due to the lower interest rates."

Neither am I but maybe for different reasons. While I'm not expert on Brazil, its macroeconomic data paints a picture of nominal rates being high more because inflation is high not high real interest rates. Its currency is devaluing in nominal terms for similar reasons. Why a nation with a depressed economy has this high inflation is a mystery.

The conventional wisdom seems to be that Brazil should do a 1993 Clinton-Greenspan macroeconomic mix with fiscal austerity. This is akin to what Volcker tried to get the clueless Reagan White House to do in 1983. But it strikes me that Brazil's issues are different and that the fiscal austerity did not have the effects from this conventional wisdom.

Narwhal -> pgl:

Inflation is as much result of devaluation as a cause of devaluation. The major driver is the flow of funds; 1) The slow down and reversal of corporate investment from abroad; 2)Repatriation of accumulated corporate profits to sustain home country weaknesses and avoid probable devaluation before it occurred. 3)Outflow of 'hot money',speculative, portfolio investments. 4)The fall in value of commodity exports (oil). 4) Increased cost of servicing and rolling over foreign debt.

Other factor include: downgrading of Brazilian sovereign debt, the HUGE cost of the Petrobras and other scandals, total loss of confidence both internally and externally in the ability of the government to understand or much less deal with the political/economic situation.

Reply Wednesday, November 25, 2015 at 09:40 AM
PPaine -> anne:

This analysis leads to one conclusion

Intervene to lower the borrowing rate; that should also lower the forex rate

Brazil needs to attack inflation directly with controls on price increases

See the Abba club
Site now under construction for ultimate solutions
But for now price freezes ala Nixon

This won't happen
Because worker party compromises with the haute bourgeoise prevent this

Recall if dilma goes off he reservation
the coup birds still exist in brazil

Reply Wednesday, November 25, 2015 at 10:50 AM
PPaine -> PPaine :

The melodrama here was built right into the limits on worker party actions

Take the cut to state deficits

Totally toxic

But like here austerity is viewed as prudence by the respectable class

Reply Wednesday, November 25, 2015 at 10:53 AM
ilsm -> PPaine :

losers is losers

if "they" cannot win at austerity

losers is losers

Anonymous:

"Most of What You Learned in Econ 101 Is Wrong"

To this crowd, it should be - Most of what we taught you in Econ 101 is Wrong.

[Nov 23, 2015] Christmas festivities a charade with world at war

news.yahoo.com

http://news.yahoo.com/christmas-festivities-charade-world-war-pope-183159295.html

Vatican City (AFP) - Christmas festivities will seem empty in a world which has chosen "war and hate", Pope Francis said Thursday.

"Christmas is approaching: there will be lights, parties, Christmas trees and nativity scenes ... it's all a charade. The world continues to go to war. The world has not chosen a peaceful path," he said in a sermon.

"There are wars today everywhere, and hate," he said after the worst terror attack in French history, the bombing of a Russian airliner, a double suicide bombing in Lebanon, and a series of other deadly strikes.

"We should ask for the grace to weep for this world, which does not recognise the path to peace. To weep for those who live for war and have the cynicism to deny it," the Argentine pontiff said, adding: "God weeps, Jesus weeps". ...

[Nov 21, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

All this neoliberal talk about "maximizing shareholder value" and hidden redistribution mechanism of wealth up. It;s all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Who cares if the company will be destroyed if you have a golden parachute ?
Notable quotes:
"... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
"... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
"... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
"... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
"... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
"... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
"... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
"... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
"... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
"... "Results of all this financial engineering? Revenues of the S P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis." ..."
November 21, 2015 | naked capitalism

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

Magic trick turns into toxic mix.

Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

And there's a reason.

IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

"Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

"None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

"Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned...

... ... ...

Selected Skeptical Comments

Mbuna, November 21, 2015 at 7:31 am

Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

ng, November 21, 2015 at 8:58 am

probably, in some or most cases, but the effect on the stock is the same.

Alejandro, November 21, 2015 at 9:19 am

Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).

On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

Jim, November 21, 2015 at 10:42 am

More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

"Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

[Nov 21, 2015] On the Lack of Courage in Regulators

Notable quotes:
"... Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along. ..."
"... It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment. ..."
Nov 21, 2015 | naked capitalism
I'm embedding the text of a short but must-read speech by Robert Jenkins, a former banker, hedge fund manager, and regulator (Bank of England) who is now a Senior Fellow at Better Markets. If nothing else, be sure to look at the partial list of bank misconduct and activities currently under investigation.

Jenkins points out that regulatory reform has fallen short on multiple fronts, and perhaps the most important is courage. Readers may understandably object to him giving lip service to the idea that Bernanke acted courageously during the crisis (serving the needs of banks via unconventional means is not tantamount to courage), but he is a Serious Person, and making a case against Bernanke would detract from his bigger message about the lack of guts post-crisis.

Now there have been exceptions, like Benjamin Lawsky, Sheila Bair, Gary Gensler, Kara Stein, and in a more insider capacity, Danny Tarullo. Contrast their examples with the typical cronyism and lame rationalizations for inaction, particularly by the Department of Justice and the SEC. It's not obvious how to reverse the corrosion of our collective values. But it is important to remember than norms can shift much faster than most people think possible, with, for instance, the 1950s followed by the radicalism and shifts in social values of the 1960s, which conservative elements are still fighting to roll back.

Michael G

A link to a text version of the speech for those with uncooperative computers
http://www.ianfraser.org/why-well-all-end-up-paying-for-the-feeble-response-to-the-banking-crisis/
Worth reading

James Levy

We do not live in an economy or a polity that breeds or rewards the kind of public-mindedness and civic virtue that gives you courage. The author thinks the system needs courageous people, but posits no conception of where they would come from and how they would thrive in the current system (news flash: they won't). So this is a classic "I see the problem clearly but can't see that the solution is impossible under the current system" piece.

TMock

Agreed.

For those who desire real solutions, try this…

The Universal Principles of Sustainable Development

http://www.triplepundit.com/2011/02/universal-principles-sustainable-development/

Norb

In Tavis Smiley's book, My Journey with Maya Angelou, he recounts an ongoing discussion the two of them entertained throughout the years concerning which trait, Love or Courage, was more important in realizing a full life. Angelou argued that acting courageously was the most important. Smiley saw love as the moving force. While important and moving, the discussion has the dead-end quality of not being able to move past the current system of injustice. I say this because in the end, both support incremental change to the existing system as the means to bring about social justice. The powerful elite have perfected the manipulation of incremental change to render it powerless.

When trying to change a social system, courage is needed. Courage to form a vision of the future that is based on public-mindedness and civic virtues that bring justice into the world. Our current leaders are delivering the exact opposite of civic justice. Its time to call them out on their duplicity, and ignore their vision of the future.

The courage that is needed today is not the courage to stand up to the criminals running things and somehow make them change. It is the courage to make them irrelevant. Change will come from the bottom up, one person at a time.

cnchal

And when one shows up, look what happens.

The disturbing fact is that laws have been broken but law breaking has not touched senior management.

If they knew, then they were complicit. If they did not, then they were incompetent. Alternatively, if the deserving dozens have indeed been banned from the field let the list be known – that we might see some of that "professional ostracism" of which Governor Carney speaks. One person who did lose his position and quite publicly at that was Martin Wheatley, the UK's courageous conduct enforcer.

Meanwhile the chairman of Europe's largest bank, Douglas Flint at HSBC, remains in situ – despite having been on the board since 1995; despite having signed off on the acquisition of Household Finance; and despite having had oversight of tax entangled subsidiaries in Switzerland and money laundering units in Mexico. Oh, and you'll love this: the recently retired CEO of Standard Chartered is reportedly an advisor to Her Majesty's Government. Standard Chartered was among the first to be investigated for violations of rogue regime sanctions. The bank was fined heavily and may be so again.

Courageous people get fired, which leads to no courageous people left.

GlassHammer

Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along.

susan the other

By extreme necessity (created by total dysfunction) we will probably wind up with planned and coordinated economies that do not rely on speculation & credit to come up with the next great idea. Those ideas will be forced to come from the top down. And the problems of unregulated capitalism frantically chumming for inspiration and extreme profits will shrink back down from a world-eating monster to just a fox or two.

Oliver Budde

It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment.

Malcolm MacLeod, MD

Oliver: I believe that you hit the nail on the head, and
I wholeheartedly agree.

[Nov 21, 2015] Ilargi The Great Fall Of China Started At Least 4 Years Ago

Notable quotes:
"... The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today. ..."
"... "When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything." ..."
"... This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure. ..."
"... The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold. ..."
"... In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom! ..."
"... China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign. ..."
"... They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China. ..."
"... Except that China ain't Iowa, they can create a middle class as big as Europe and US combined. ..."
"... It's just anathema for the ruling class to give the little guys a break. ..."
"... The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like. ..."
"... We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it. ..."
"... It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market. ..."
"... Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman? ..."
Nov 20, 2015 | naked capitalism
Keith, November 20, 2015 at 7:41 am

We shouldn't be too surprised at falling commodity prices.

Using raw materials to make real things is all very 20th Century, financial engineering is the stuff of the 21st Century.

When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything.

Central Bank inflated asset bubbles will provide for all.

The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today.

We are nearly there.

fresno dan, November 20, 2015 at 10:59 am

"When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything."

+1000
Ah, that glorious day when we're all rich, rich, RICHer than Midas from interest, dividends, and rents!!!
Just to amuse myself, I intend to be a dog poop scooper – and pick up some pocket change of 1 million dollars a poop…

MyLessThanPrimeBeef, November 20, 2015 at 12:37 pm

Money making money.

Be careful.

It's like 'light seeking light doth light of light beguile.'

Money seeking money and money will be of money beguiled.

skippy, November 20, 2015 at 8:29 am

Who cares about Brent when transport is going poof….

financial matters, November 20, 2015 at 8:45 am

This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure.

I liked how Wray and Mazzucato linked the two in their Mack the Turtle analogy.

"Underlying all of this financialization was the homeowner's income-something like Dr. Seuss's King Yertle the Turtle-with layer upon layer of financial instruments, all of which were supported by Mack the turtle's mortgage payments. The system collapsed because Mack fell delinquent on payments he could not possibly have met: the house was overpriced (and the mortgage could have been for more than 100% of the price!), the mortgage terms were too unfavorable, the fees collected by all the links in the home mortgage finance food chain were too large, Mack had to take a cut of pay and hours as the economy slowed, and the late fees piled up (fraudulently, in many cases as mortgage servicers "lost" payments).

The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold."

Mission Oriented Finance

Carlos, November 20, 2015 at 9:34 am

Interesting, the supposition here is that China is heading for a depression similar to the Great Depression.

In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom!

China could well be headed down that road, there isn't enough money getting into the pockets of ordinary Chinese that's for sure. Elites everywhere just can't bring themselves to give a break for those at the bottom.

China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign.

Then again they may just realize in time, someone needs to be paid to buy all the junk.

James Levy, November 20, 2015 at 12:51 pm

They were counting on us and the Europeans, but we've let them down. The race to the bottom erased the global middle class that could buy Chinese consumer products.

They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China.

Carlos, November 21, 2015 at 1:54 am

So the corn growers need to eat more corn, that's my logic.

Except that China ain't Iowa, they can create a middle class as big as Europe and US combined.

It's just anathema for the ruling class to give the little guys a break.

James Levy, November 20, 2015 at 12:56 pm

The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like.

susan the other, November 20, 2015 at 2:22 pm

Where were you in 2011? I was here reading NC. One of the Links posted was a graph of the abrupt shutdown of China's economy – It was a cliffscape.

Very long vertical drop off. So dramatic I could hardly believe it and I said I was having trouble catching my breath. Another commenter said it looked like a tsunami. Of exported deflation as it turns out.

Things have been extreme since 2007 when the banksters began to fall; 2008 when Lehman crashed (just after the Beijing Olympics, how convenient for China…) and credit shut down. China was doin' just fine until then. In spite of the irrational mess in global capitalist eonomix.

The only way to remedy it was to shut it down I guess. That's really not very fine-tuned for a system the whole world relies on, is it?

ewmayer, November 20, 2015 at 6:09 pm

Related, this Pollyanna-ish laff-riot op-ed from Ross Gittins, the economics editor of the Sydney Morning Herald:

Don't buy the China doom and gloom stories just yet

Proceeds from the laughable assumption that official China economic numbers 'may not be as reliable as we'd like' rather than being 'persistently and hugely faked,' (especially during slowdowns) and ignores that the housing-market slowdown and huge unsold-RE-overhang will also necessarily be accompanied by a price crash, hence a huge amount of toxic debt being exposed – really basic boom/bust dynamics.

And no demographic boom coming to the rescue, either. (But he does repeatedly invoke the magic 'service economy boom' mantra mentioned by Ilargi.) Thankfully most of the commenters rightly take the author to task.

MyLessThanPrimeBeef, November 20, 2015 at 6:32 pm

Not too long ago, some here were still not buying the doom and gloom stories.

I don't have if they have been persuaded otherwise since.

RBHoughton, November 20, 2015 at 7:50 pm

Couple of thoughts:

Firstly, its only China's buying that stops oil falling even further Sr Ilargi.

Secondly its a Peoples' Republic – employment must be maintained.

We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it.

Don't worry, be happy. It will be OK.

ewmayer, November 21, 2015 at 2:29 am

Tangential Friday night funny: What's in a name?

Received a small airmail parcel today containing some replacement attachments for my Dremel moto-tool … package was addressed from Shenzen, specifically the "Fuming Manufacturing Park".

Wade Riddick, November 21, 2015 at 4:57 am

It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market.

Ggg, November 21, 2015 at 6:53 am

Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman?

[Nov 18, 2015] Can Anything Stop Companies From Loading Up on Debt UBS Says No.

Notable quotes:
"... When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower, they wrote. ..."
"... That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. ..."
"... Might the rating agencies spoil the party? they asked. In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call). ..."
"... With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor] ..."
finance.yahoo.com

It's no secret that companies have been taking advantage of years of low interest rates to sell cheap debt to eager investors, locking in lower funding costs that have allowed them to go on a spree of share buybacks and mergers and acquisitions.

With fresh evidence that investors are becoming more discerning when it comes to corporate credit as they approach the first interest rate rise in the U.S. in almost a decade, it's worth asking whether anything might stop the trend of companies assuming more and more debt on their balance sheets.

... ... ...

For a start, they note that higher funding costs are unlikely to dissuade companies from continuing to tap the debt market since, even after a rate hike, financing costs will remain near historic lows. "The predominant reason is the Fed[eral Reserve] is anchoring low interest rates," the analysts wrote.

When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. "We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower," they wrote. "Several management teams have been on the road indicating higher funding costs of up to 100 to 200 basis points would not impede attractive M&A deals, in their view."

Higher market volatility has often been cited as one factor that could knock the corporate credit market off its seat...

That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. Here, Mish and Caprio offered some stunningly blunt words. "Might the rating agencies spoil the party?" they asked. "In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call)."

With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor]

"Bottom line, we struggle to envision an end to the releveraging phenomenon-absent a substantial correction in corporate earnings and/or broader risk assets," concluded the UBS analysts.

[Nov 15, 2015] Election 2016 Democratic debate transcript Clinton, Sanders, OMalley in Iowa

Hillary tried to play the gender card and the 9/11 card in an attempt to escape to accusation (actually a provable fact) that she is a Wall Street sheel. "Why has Wall Street been the major campaign contributor to Hillary Clinton?" Sanders asked loudly, concluding that big contributors only give because "They expect to get something. Everybody knows it."
...Clinton asserted that under her bank-regulation plan, if Wall Street institutions don't play by the rules "I will break them up."
Sanders minced her defense into peaces: "Wall Street play by the rules? Who are we kidding?! The business model for Wall Street is fraud," Sanders fired back.
A short time later, the moderators got a tweet calling her out for "invoking 9/11" to justify taking donations from Wall Street. One tweeter said they'd never seen a candidate "invoke 9/11 to champion Wall Street. What does that have to do with taking big donations," Clinton was asked.
Sanders said that there's no getting around the fact that Wall Street has become a dominant political power and its "business model is greed and fraud, and for the sake of our economy major banks must be broken up."
Bernie compared himself to Ike, scoring one of the few real laugh lines of the night. CBS News moderator Nancy Cordes asked Sanders how he's going to pay for expensive programs such as his tuition-free college plan. By taxing the wealthy and big corporations, he says. Asked how much of a tax hike he's planning to stick them with, he responded, "We haven't come up with an exact number yet … But it will not be as high as the number under Dwight D. Eisenhower which was 90%," Sanders said of the Republican president.
"I'm not that much of a socialist compared to Eisenhower," Sanders concluded, to guffaws from the crowd.
CBS News

JOHN DICKERSON:

Senator Sanders, let me just follow this line of thinking. You've criticized then Senator Clinton's vote. Do you have anything to criticize in the way she performed as secretary of state?

BERNIE SANDERS:

I think we have a disagreement. And-- the disagreement is that not only did I vote against the war in Iraq, if you look at history, John, you will find that regime change-- whether it was in the early '50s in Iran, whether it was toppling Salvador Allende in Chile or whether it was overthrowing the government Guatemala way back when-- these invasions, these-- these toppling of governments, regime changes have unintended consequences. I would say that on this issue I'm a little bit more conservative than the secretary.

JOHN DICKERSON:

Here, let me go--

MARTIN O'MALLEY:

John, may I-- may I interject here? Secretary Clinton also said that we left the h-- it was not just the invasion of Iraq which Secretary Clinton voted for and has since said was a big mistake, and indeed it was. But it was also the cascading effects that followed that.

It was also the disbanding of-- many elements of the Iraqi army that are now showing up as part of ISIS. It was-- country after country without making the investment in human intelligence to understand who the new leaders were and the new forces were that are coming up. We need to be much more far f-- thinking in this new 21st century era of-- of nation state failures and conflict. It's not just about getting rid of a single dictator. It is about understanding the secondary and third consequences that fall next.

JOHN DICKERSON:

Governor O'Malley, I wanna ask you a question and you can add whatever you'd like to. But let me ask you, is the world too dangerous a place for a governor who has no foreign policy experience?

MARTIN O'MALLEY:

John, the world is a very dangerous place. But the world is not too dangerous of a place for the United States of America provided we act according to our principles, provided we act intelligently. I mean, let's talk about this arc of-- of instability that Secretary Clinton talked about.

Libya is now a mess. Syria is a mess. Iraq is a mess. Afghanistan is a mess. As Americans we have shown ourselves-- to have the greatest military on the face of the planet. But we are not so very good at anticipating threats and appreciating just how difficult it is to build up stable democracies and make the investments in sustainable development that we must as the nation if we are to attack the root causes of-- of the source of-- of instability.

And I wanted to add one other thing, John, and I think it's important for all of us on this stage. I was in Burlington, Iowa and a mom of a service member of ours who served two duties in Iraq said, "Governor O'Malley, please, when you're with your other candidates and colleagues on-- on stage, please don't use the term boots on Iraq-- on the ground. Please don't use the term boots on the ground. My son is not a pair of boots on the ground."

These are American soldiers and we fail them when we fail to take into account what happens the day after a dictator falls. And when we fall to act with a whole of government approach with sustainable development, diplomacy and our economic power in-- alignment with our principles.

BERNIE SANDERS:

But when you talk about the long-term consequences of war let's talk about the men and women who came home from war. The 500,000 who came home with P.T.S.D. and traumatic brain injury. And I would hope that in the midst of all of this discussion this country makes certain that we do not turn our backs on the men and women who put their lives on the line to defend us. And that we stand with them as they have stood with us.

JOHN DICKERSON:

Senator Sanders, you've-- you've said that the donations to Secretary Clinton are compromising. So what did you think of her answer?

BERNIE SANDERS:

Not good enough. (LAUGH) Here's the story. I mean, you know, let's not be naive about it. Why do-- why over her political career has Wall Street a major-- the major-- campaign contributor to Hillary Clinton? You know, maybe they're dumb and they don't know what they're gonna get. But I don't think so.

Here is the major issue when we talk about Wall Street, it ain't complicated. You got six financial institutions today that have assets of 56 per-- equivalent to 50-- six percent of the GDP in America. They issue two thirds of the credit cards and one third of the mortgages. If Teddy Roosevelt, the good republican, were alive today you know what he'd say? "Break them up. Reestablish (APPLAUSE) (UNINTEL) like Teddy Roosevelt (UNINTEL) that is leadership. So I am the only candidate up here that doesn't have a super PAC. I'm not asking Wall Street or the billionaires for money. I will break up these banks, support community banks and credit unions-- credit unions. That's the future of banking in America.

JOHN DICKERSON:

Quick follow-up because you-- you-- (APPLAUSE) Secretary Clinton, you'll get a chance to respond. You said they know what they're going to get. What are they gonna get?

BERNIE SANDERS:

I have never heard a candidate, never, who's received huge amounts of money from oil, from coal, from Wall Street, from the military industrial complex, not one candidate, go, "OH, these-- these campaign contributions will not influence me. I'm gonna be independent." Now, why do they make millions of dollars of campaign contributions? They expect to get something. Everybody knows that. Once again, I am running a campaign differently than any other candidate. We are relying on small campaign donors, $750,000 and $30 apiece. That's who I'm indebted to.

BERNIE SANDERS:

Here's-- she touches on two broad issues. It's not just Wall Street. It's campaigns, a corrupt campaign finance system. And it is easy to talk the talk about ending-- Citizens United. But what I think we need to do is show by example that we are prepared to not rely on large corporations and Wall Street for campaign contributions.

And that's what I'm doing. In terms of Wall Street I respectfully disagree with you, Madame Secretary in the sense that the issue is when you have such incredible power and such incredible wealth, when you have Wall Street spending five billion dollars over a ten year period to get re-- to get deregulated the only answer that I know is break them up, reestablish Glass Steagall.

JOHN DICKERSON:

Senator, we have to get Senator O'Malley in. But no-- along with your answer how many Wall Street-- veterans would you have in your administration?

MARTIN O'MALLEY:

Well, I'll tell you what, I've said this before, I-- I don't-- I believe that we actually need some new economic thinking in the White House. And I would not have Robert Rubin or Larry Summers with all due respect, Secretary Clinton, to you and to them, back on my council of economic advisors.

HILLARY CLINTON:

Anyone (UNINTEL PHRASE).

MARTIN O'MALLEY:

If they were architects, sure, we'll-- we'll have-- we'll have an inclusive group. But I won't be taking my orders from Wall Street. And-- look, let me say this-- I put out a proposal-- I was on the front line when people lost their homes, when people lost their jobs.

I was on the front lines as the governor-- fighting against-- fighting that battle. Our economy was wrecked by the big banks of Wall Street. And Secretary Clinton-- when you put out your proposal (LAUGH) on Wall Street it was greeted by many as quote/ unquote weak tea. It is weak tea. It is not what the people expect of our country. We expect that our president will protect the main street economy from excesses on Wall Street. And that's why Bernie's right. We need to reinstate a modern version of Glass Steagall and we should have done it already. (APPLAUSE)

KATHIE OBRADOVICH:

And I will also go after executives who are responsible for the decisions that have such bad consequences for our country. (APPLAUSE)

BERNIE SANDERS:

Look, I don't know-- with all due respect to the secretary, Wall Street played by the rules. Who are we kidding? The business model of Wall Street is fraud. That's what it is. And we-- we have-- (APPLAUSE) and let me make this promise, one of the problems we have had I think all-- all Americans understand it is whether it's republican administration or democratic administration we have seen Wall Street and Goldman Sachs dominate administrations. Here's my promise Wall Street representatives will not be in my cabinet. (APPLAUSE)

BERNIE SANDERS:

But let's-- let me hear it-- if there's any difference between the secretary and myself. I have voted time and again to-- for-- for the background checks. And I wanna see it improved and expanded. I wanna see them do away with the gun show loophole. In 1988 I lost an election because I said we should not have assault weapons on the streets of America.

We have to do away with the strong man proposal. We need radical changes in mental health in America. So somebody who's suicidal or homicidal can get the emergency care they need. But we have-- I don't know that there's any disagreement here.

MARTIN O'MALLEY:

John, this is another one of those examples. Look, we have-- we have a lot of work to do. And we're the only nation on the planet that buries as many of our people from gun violence as we do in my own state after they-- the children in that Connecticut classroom were gunned down, we passed comprehensive-- gun safety legislation, background checks, ban on assault weapons.

And senator, I think we do need to repeal that immunity that you granted to the gun industry. But Secretary Clinton, you've been on three sides of this. When you ran in 2000 you said that we needed federal robust regulations. Then in 2008 you were portraying yourself as Annie Oakley and saying that we don't need those regulation on the federal level. And now you're coming back around here. So John, there's a big difference between leading by polls and leading with principle. We got it done in my state by leading with principle. And that's what we need to do as a party, comprehensive gun--

MARTIN O'MALLEY:

John, there is not-- a serious economist who would disagree that the six big banks of Wall Street have taken on so much power and that all of us are still on the hook to bail them out on their bad debts. That's not capitalism, Secretary Clinton-- Clinton, that's crummy capitalism.

That's a wonderful business model if you place that bet-- the taxpayers bail you out. But if you place good ones you pocket it. Look, I don't believe that the model-- there's lots of good people that work in finance, Secretary Sanders. But Secretary Clinton, we need to step up. And we need to protect main street from Wall Street. And you can't do that by-- by campaigning as the candidate of Wall Street. I am not the candidate of Wall Street. And I encourage--

BERNIE SANDERS:

No, it's not throwing-- it is an extraordinary investment for this country. In Germany, many other countries do it already. In fact, if you remember, 50, 60 years ago, University of California, City University of New York were virtually tuition-free. Here it's a new (?) story.

It's not just that college graduates should be $50,000 or $100,000 in debt. More importantly, I want kids in Burlington, Vermont, or Baltimore, Maryland, who are in the six grade or the eighth grade who don't have a lot of money, whose parents that-- like my parents, may never have gone to college. You know what I want, Kevin? I want those kids to know that if they study hard, they do their homework, regardless of the income of their families, they will in fact be able to great a college education. Because we're gonna make public colleges and universities tuition-free. This is revolutionary for education in America. It will give hope for millions of young people.

BERNIE SANDERS:

It's not gonna happen tomorrow. And it's probably not gonna happen until you have real campaign finance reform and get rid of all these super PACs and the power of the insurance companies and the drug companies. But at the end of the day, Nancy, here is a question. In this great country of ours, with so much intelligence, with so much capabilities, why do we remain the only (UNINTEL) country on earth that does not guarantee healthcare to all people as a right?

Why do we continue to get ripped off by the drug companies who can charge us any prices they want? Why is it that we are spending per capita far, far more than Canada, which is a hundred miles away from my door, that guarantees healthcare to all people? It will not happen tomorrow. But when millions of people stand up and are prepared to take on the insurance companies and the drug companies, it will happen and I will lead that effort. Medicare for all, single-payer system is the way we should go. (APPLAUSE)

BERNIE SANDERS:

Well-- I had the honor of being chairman of the U.S. Senate Committee on Veteran Affairs for two years. And in that capacity, I met with just an extraordinary group of people from World War II, from Korea, Vietnam, all of the wars. People who came back from Iraq and Afghanistan without legs, without arms. And I've been determined to do everything that I could to make VA healthcare the best in the world, to expand benefits to the men and women who put their lives on the line to defend (UNINTEL).

And we brought together legislation, supported by the American Legion, the VFW, the DAV, Vietnam Vets, all of the veterans' organizations, which was comprehensive, clearly the best (UNINTEL) for veterans' legislation brought forth in decades. I could only get two Republican votes on that. And after 56 votes, we didn't get 60. So what I have to do then is go back and start working on a bill that wasn't the bill that I wanted.

To (UNINTEL) people like John McCain, to (UNINTEL) people like Jeff Miller, the Republican chairman of the House, and work on a bill. It wasn't the bill that I wanted. But yet, it turns out to be one of the most significant pieces of veterans' legislation passed in recent history. You know, the crisis was, I lost what I wanted. But I have to stand up and come back and get the best that we could.

JOHN DICKERSON:

All right, Senator Sanders. We end-- (APPLAUSE) we've ended the evening on crisis, which underscores and reminds us again of what happened last night. Now let's move to closing statements, Governor O'Malley?

MARTIN O'MALLEY:

John, thank you. And to all of the people of Iowa, for the role that you've performed in this presidential selection process, if you believe that our country's problems and the threats that we face in this world can only be met with new thinking, new and fresh approaches, then I ask you to join my campaign. Go onto MartinOMalley.com. No hour is too short, no dollar too small.

If you-- we will not solve our nation's problems by resorting to the divisive ideologies of our past or by returning to polarizing figures from our past. We are at the threshold of a new era of American progress. That it's going to require that we act as Americans, based on our principles. Here at home, making an economy that works for all of us.

And also, acting according to our principles and constructing a new foreign policy of engagement and collaboration and doing a much better job of identifying threats before they back us into military corners. There is new-- no challenge too great for the United States to confront, provided we have the ability and the courage to put forward new leadership that can move us to those better and safer and more prosperous (UNINTEL). I need your help. Thank you very, very much. (APPLAUSE)

BERNIE SANDERS:

This country today has more income and wealth inequality than any major country on earth. We have a corrupt campaign finance system, dominated by super PACs. We're the only major country on earth that doesn't guarantee healthcare to all people. We have the highest rate of childhood poverty. And we're the only in the world, (UNINTEL) the only country that doesn't guarantee paid family and medical leave. That's not the America that I think we should be.

But in order to bring about the changes that we need, we need a political revolution. Millions of people are gonna have to stand up, turn off the TVs, get involved in the political process, and tell the big monied interests that we are taking back our country. Please go to BernieSanders.com, please become part of the political revolution. Thank you. (CHEERING) (APPLAUSE)

[Nov 12, 2015] Oil Industry Needs Half a Trillion Dollars to Endure Price Slump

Notable quotes:
"... I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken. ..."
"... One thing to be careful with the fracklog, is that not all of these will be good wells. ..."
"... I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040. ..."
"... "Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."
"... U.S. drillers account for 20 percent of the debt due in 2015, ..."
peakoilbarrel.com

ChiefEngineer , 11/09/2015 at 2:46 pm

Saudi Arabia will not stop pumping to boost oil prices

http://www.cnbc.com/2015/11/09/

"Mr Falih, who is also health minister, forecast the market would come into balance in the new year, and then demand would start to suck up inventories and storage on oil tankers. "Hopefully, however, there will be enough investment to meet the needs beyond 2017."

Other officials also estimated that it would probably take one to two years for the market to clear up the oil market glut, allowing prices to recover towards $70-$80 a barrel."

Greenbub, 11/09/2015 at 2:54 pm

Chief, that link went dead, this might be right:
http://www.cnbc.com/2015/11/09/reuters-america-update-1-saudi-arabia-sees-robust-oil-fundamentals-as-rival-output-falls.html

Ron Patterson, 11/09/2015 at 4:40 pm

From your link, bold mine:

"Non-OPEC supply is expected to fall in 2016, only one year after the deep cuts in investment," he said.

"Beyond 2016, the fall in non-OPEC supply is likely to accelerate, as the cancellation and postponement of projects will start feeding into future supplies, and the impact of previous record investments on oil output starts to fade away."

I thought just about everyone was expecting a rebound in production by 2017?

AlexS, 11/09/2015 at 7:50 pm
Ron, Dennis

The EIA. IEA. OPEC and most others expect non-OPEC production, excluding the U.S. and Canada to decline in 2016 and the next few years due to the decline in investments and postponement / canceling of new projects. Production in Canada is still projected to continue to grow, but at a much slower rate than previously expected.

Finally, U.S. C+C production is expected to rebound in the second half of 2016 due to slightly higher oil prices ($55-57/bbl WTI). Also, U.S. NGL production proved much more resilient, than C+C, despite very low NGL prices.

Non-OPEC ex U.S. and Canada total liquids supply (mb/d)
Source: EIA STEO October 2015

Dennis Coyne, 11/10/2015 at 9:10 am

Hi AlexS,

Thanks. I don't think oil prices at $56/b is enough to increase the drilling in the LTO plays to the extent that output will increase, it may stop the decline and result in a plateau, it's hard to know.

On the "liquids" forecast, the NGL is not adjusted for energy content as it should be, each barrel of NGL has only 70% of the energy content of an average C+C barrel and the every 10 barrels of NGL should be counted as 7 barrels so that the liquids are reported in barrels of oil equivalent (or better yet report the output in gigajoules (1E9) or exajoules(1E18)). The same conversion should be done for ethanol as well.

AlexS, 11/10/2015 at 9:54 am

Dennis,

Note that not only the EIA, but also the IEA, OPEC, energy consultancies and investment banks are projecting a recovery in US oil production in the later part of next year.

That said, I agree with you that $56 WTI projected by the EIA may not be sufficient to trigger a fast rebound in drilling activity. However there is also a backlog of drilled but uncompleted wells that could be completed and put into operation with slightly higher oil prices.

Most shale companies have announced further cuts in investment budgets in 2016, so I think it is difficult to expect significant growth in the U.S. onshore oil production in 2H16.

If and when oil prices reach $65-70/bbl, I think LTO may start to recover (probably in 2017 ?). I think that annual growth rates will never reach 1mb/d+ seen in 2012-14, but 0.5 mb/d annual average growth is quite possible for several years with oil prices exceeding $70.

Dennis Coyne, 11/10/2015 at 1:33 pm

Hi AlexS,

I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken.

I have no idea what the frack log looks like for the Eagle Ford. If its similar to the Bakken and they complete 130 new wells per month, with about 61 oil rigs currently turning in the EF they can drill 80 wells per month, so they would need 50 wells each month from the frack log. If there are 800 DUCs, then that would last for 16 months.

The economics are better in the Eagle Ford because the wells are cheaper and transport costs are lower, but the EUR of the wells is also lower (230 kb vs 336 kb), the well profile has a thinner tail than the Bakken wells. I am not too confident about the EIA's DPR predictions for the Eagle Ford, output will decrease, but perhaps they(EIA) assume the frack log is zero and that only 75 new wells will be added to the Eagle Ford each month. If my guess of 150 new wells per month on average from Sept to Dec 2015 is correct, then decline from August to Dec 204 will only be about 100 kb/d and 255 kb/d from March to Dec 2015 (155 kb/d from March to August 2015).

Toolpush, 11/11/2015 at 12:45 pm

Dennis,

One thing to be careful with the fracklog, is that not all of these will be good wells. It is fair enough that companies like EOG will have some good DUCs, (should there be a "k" in that?) in their fracklogs. But as the fracklog is worked through, I am sure there will be a some very ugly DUCklings, that nobody wants to admit to.
How many fall into this category, will be anybodies guess, but not all DUC, will turn out to be beautiful swans?

Dennis Coyne, 11/10/2015 at 1:57 pm

Hi AlexS,

On the predictions of the EIA and IEA, they also expect total oil supply to be quite high in 2040. For example the EIA in their International Energy Outlook reference case they have C+C output at 99 Mb/d in 2040.

Their short term forecasts are probably better than that, but my expectation for 2040 C+C output is 62 Mb/d (which many believe is seriously optimistic, though you have never expressed an opinion as far as I remember).

So I take many of these forecasts with a grain of salt, they are often more optimistic than me, others are far more pessimistic, the middle ground is sometimes more realistic.

AlexS, 11/10/2015 at 9:08 pm
Dennis,

You said above that estimated URR of all global C+C (ex oil sands in Canada and Venezuela) is 2500 Gb. And about 1250 Gb of C+C had been produced at the end of 2014. So the remaining resources are 1250 Gb.

BP estimates total global proved oil reserves as of 2014 at 1700 Gb, or 1313 excluding Canadian oil sands and Venezuela's extra heavy oil. Their estimate in 2000 was 1301 Gb and 1126 Gb. Hence, despite cumulative production of 419 Gb in 2001-2014, proved reserves increased by 187 Gb, or 400 Gb including oil sands and Venezuela's Orinoco oil. Note that BP's estimate is for proved (not P+P) reserves, but it includes C+C+NGLs. My very rough guess is that NGLs account for between 5% and 10% of the total.

You may be skeptical about BP's estimates, but the fact is that proved reserves or 2P resources are not a constant number; they are increasing due to new discoveries and technological advances.

BTW, the EIA's estimate of global C+C production increasing from 79 mb/d in 2014 to 99 mb/d in 2040 implies a cumulative output of 836 Gb, about 2/3 of your estimate of remaining 2P resources of C+C or BP's estimate of the current proved reserves. Given future discoveries and improvements in technology, I think that further growth of global oil production to about 100 mb/d by 2040 should not be constrained by resource scarcity.

What can really make the EIA's and IEA's estimates too optimistic is not the depleting resource base, but the high cost of future supply, political factors and/or lower than expected demand.

Dennis Coyne, 11/11/2015 at 11:05 am
Hi AlexS,

Thanks.

You are quite optimistic. Note that I add 300 Gb to the 2500 Gb Hubbert Linearization estimate to account for reserve growth and discoveries.

The oil reserves reported in the BP Statistical review are 1312 Gb. Jean Laherrere estimates that about 300 Gb of OPEC reserves are "political" to keep quotas at appropriate levels with respect to "true" reserve levels. So the actual 2P reserves are likely to be 1010 Gb. Some of the cumulative C+C output is extra heavy oil so the cumulative C+C-XH output is 1240 Gb so we have a total cumulative discovery (cumulative output plus 2P reserves) of 2250 Gb through 2014.

My medium scenario with a URR of 2800 Gb of C+C-XH plus 600 Gb of XH oil (3400 Gb total C+C) assumes 550 Gb of discoveries plus reserve growth.

What do you expect for a URR for C+C?

Keep in mind that at some point oil prices rise to a level that substitutes for much of present oil use will become competitive, so oil prices above $175/b (in 2015$) are unlikely to be sustained in my view.

In a wider format below I will present a scenario with what extraction rates would be needed for my medium scenario to reach 99 Mb/d in 2040.

Dennis Coyne, 11/11/2015 at 4:20 pm
Hi Alex S,

I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040.

Depleting resources will raise production cost to more than these prices and demand will be reduced due to high oil prices. There will be an interaction between depletion and the economics of supply and demand. It will be depletion that raises costs, which will raise prices and reduce demand.

AlexS, 11/11/2015 at 4:41 pm
It will be depletion of low-cost reserves that raises marginal costs and prices. High-cost reserves may be abundant, but prices will rise.
AlexS, 11/09/2015 at 7:55 pm
corrected chart:

TechGuy, 11/10/2015 at 10:19 am
Oil Industry Needs Half a Trillion Dollars to Endure Price Slump
http://www.bloomberg.com/news/articles/2015-08-26/oil-industry-needs-to-find-half-a-trillion-dollars-to-survive

"Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years.

U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent."

[These are just the bonds that have yields higher than 10%]

[Its very unlikely that prices will recover in time to save many of the drillers, and even if prices recover, even $75 oil will not help since they need $90 to break even to service the debt. Also not sure who is going to buy maturing debt so it can be rolled over. Even if prices slowly recover, there is likely to be fewer people willing to loan money drillers.]

Watcher, 11/10/2015 at 5:18 pm
Don't bet on it. Probably be even better if the price declines more. Apocalypse will not be permitted.

[Nov 11, 2015] Four US Firms With $4.8 Billion In Debt Warned This Week They May Default Any Minute

Zero Hedge

agent default

It's not just the oil. The oil is convenient to point at because the US can pretend that they got SA to cause the drop in order to stick it to Russia. Makes the US look really smug. Meanwhile the truth is, copper down, zinc down, iron ore down, you name it down.

Baltic Dry almost crashing, soft commodities gone to hell. I guess SA can also influence these markets as well.

[Nov 11, 2015] Questions for Monetary Policy

Notable quotes:
"... Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next. ..."
"... The drop in hours worked data in the productivity report is very confusing. ..."
"... I think lower oil prices has lead to a stronger consumption boost than initially thought. ..."
economistsview.typepad.com
James Bullard, president of the St. Louis Fed, says there are five questions for monetary policy:

The five questions

  • What are the chances of a hard landing in China?
  • Have U.S. financial market stress indicators worsened substantially?
  • Has the U.S. labor market returned to normal?
  • What will the headline inflation rate be once the effects of the oil price shock dissipate?
  • Will the U.S. dollar continue to gain value against rival currencies?

I would add:

Anything else?

sanjait said in reply to Anonymous...

Markets move based on expectations of both economic fundamentals and the Fed's reaction function. So both can create surprises.

In this case, a relatively stronger than expected US economy could push the dollar up quite a bit. The central bank would be expected to dampen but not eliminate this effect, even without changing their perceived reaction function.

DeDude said in reply to Anonymous... , November 10, 2015 at 02:35 PM

Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next.

What we can say is that the strengthening of the US$ that has happened recently will hurt the economy - whether it will hurt enough to slow the Fed is anybodies guess. Whether those guesses have already been baked into the exchange rates is impossible to predict.

Bert Schlitz said...

On Angry Bear, there is a post about 3rd quarter hours and Spencer's remark:

"The drop in hours worked data in the productivity report is very confusing.

The employment shows several measures of hours worked and they increased in the third quarter from 0.5% to 1,08 for aggregate weekly payrolls.

Something is really change.

The productivity report also had unit labor cost rising more than prices,
This implies falling profits, what the S&P 500 shows."

Basically wages accelerated rapidly in the 3rd quarter. The BLS didn't start catching up to it until October. My guess the hours drop and employment picks up trying to hold down costs. However, this will probably only level off things off for a few quarters, which would be good enough to profits catch back up until the labor market becomes so tight, they simply have no choice but to raise prices and hours worked surge again. Classic mid-cycle behavior (which Lambert should have noticed).

This is what triggered the 3rd quarter selloff and inventory correction. That foreign stuff was for show. I think lower oil prices has lead to a stronger consumption boost than initially thought.

am said...

Clicked on this link for the answers but it is 34 blank pages, so i'll go for:
1. No, they'll just devalue when need be to soften the landing. I think they will do another one before the end of the year.
2. No idea.
3. Near it if you believe the Atlanta Fed. They have a detailed analysis on their blog.
4. 2.2 if you believe the St Louis Fed, end of December for the oil price decline washout from the system. So inflation will creep up by the end of the year.
5. Yes and more so if they raise the rate.
6. No. because it will just be oil led not wages (see 4).
Anything else: the weather with apologies to PeterK.

anne said...

I am really having increasing trouble understanding, how is it that having a Democratic President means making sure appointments from the State or Defense Department to the Federal Reserve are highly conservative and even Republican. Republicans will not even need to elect a President to have conservatives strewn about the government:

http://www.latimes.com/business/la-fi-neel-kashkari-federal-reserve-minneapolis-20151110-story.html

November 10, 2015

After failed GOP bid to be California's governor, Neel Kashkari will head Minneapolis Fed
By Jim Puzzanghera - Los Angeles Times

anne said in reply to anne...

Neel Kashkari is another Goldman Sachs kid, what would you expect?

anne said in reply to anne...

http://www.nytimes.com/2015/11/11/business/ex-treasury-official-kashkari-named-minneapolis-fed-president.html

November 10, 2015

Neel Kashkari, Ex-Treasury Official, Named Minneapolis Fed President
By BINYAMIN APPELBAUM

Neel Kashkari is the third new president of a regional reserve bank named this year, and all three previously worked at Goldman Sachs.

[ Really, well, creepy comes to mind. ]

[Nov 11, 2015] Valentin Katasonov - Banks Rule the World, but Who Rules the Banks (II)

Notable quotes:
"... do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system. ..."
Strategic Culture Foundation
Financial holding companies like the Vanguard Group, State Street Corporation, FMR (Fidelity), BlackRock, Northern Trust, Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., АХА, Capital Group Companies, Pacific Investment Management Co. (PIMCO) and several others do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system.

Some analysts believe that just four financial companies make up the main body of shareholders of Wall Street banks. The other shareholder companies either do not fall into the key shareholder category, or they are controlled by the same 'big four' either directly or through a chain of intermediaries. Table 4 provides a summary of the main shareholders of the leading US banks.

Table 4.

Leading institutional shareholders of the main US banks

Name of shareholder company Controlled assets, valuation (trillions of dollars; date of evaluation in brackets) Number of employees
Vanguard Group 3 (autumn 2014) 12,000
State Street Corporation 2.35 (mid-2013) 29,500
FMR (Fidelity) 4.9 (April 2014) 41,000
Black Rock 4.57 (end of 2013) 11,400

Evaluations of the amount of assets under the control of financial companies that are shareholders of the main US banks are rather arbitrary and are revised periodically. In some cases, the evaluations only include the companies' main assets, while in others they also include assets that have been transferred over to the companies' control. In any event, the size of their controlled assets is impressive. In the autumn of 2013, the Industrial and Commercial Bank of China (ICBC) was at the top of the list of the world's banks ranked by asset size with assets totaling $3.1 trillion. At that point in time, the Bank of America had the most assets in the US banking system ($2.1 trillion). Just behind were US banks like Citigroup ($1.9 trillion) and Wells Fargo ($1.5 trillion).

[Nov 09, 2015] Supervising Culture and Behavior at Financial Institutions

Notable quotes:
"... Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so. ..."
"... One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?" ..."
Nov 09, 2015 | naked capitalism

John Zelnicker, November 7, 2015 at 9:49 am

Fascinating research. Thanks for posting this, Yves.

Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so.

Unfortunately, I don't see any of these executive psychopaths putting themselves through the self-assessment that is one of the necessary steps mentioned in the study. At least, not voluntarily.

Sluggeaux, November 7, 2015 at 11:39 am

Important.

One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?"

[Nov 06, 2015] The C word is a Hidden Tax on Growth

Corruption == inequality: "Corruption is a tax on growth just as inequality is a tax on growth. Money that could be spent on improving conditions overall winds up in the hands of a small wealthy oligarchy. The only real difference is legalistic. Technically corruption involves some type of illegality, but the end results are the same."
Notable quotes:
"... Deregulation, of course. A semantic trick so typical of the IMF. Openness is fair and to manage openness you may need a clear regulatory framework that provides rules and clarity with strong institutions that can ensure compliance. Pushing all the time for deregulation is ideological bias. ..."
"... I like the idea of economist studying the economic effects of corruption. One of the benefits, of course, is that it will bring more to light these rationalizations like the one Ignacio brings up. So if only we didnt have laws against shoplifting then the shoplifter would not have to hide what he was doing or be guilty of a crime ..."
"... Corruption is a tax on growth just as inequality is a tax on growth. Money that could be spent on improving conditions overall winds up in the hands of a small wealthy oligarchy. The only real difference is legalistic. Technically corruption involves some type of illegality, but the end results are the same. ..."
"... This may sound a bit strong, but if you do the math, corruption and relentless upward distribution are the same thing in terms of national accounting. Do the math and youll see. ..."
"... When talking about corruption, everybody focuses on illicit flows of payments, which is of course a primary factor, but I would say the greasing of hands is not the most damaging part, rather it is the associated dereliction of duty and shaping policy and decision making, and initiation, selection, or prioritization of projects not to serve the public benefit (or that of the organizations involved) but to arrange private advantages. ..."
"... the largest problem is not the driving up of the cost though thats bad enough, but the corruption of the very decision making which inevitably leads to not delivering what was needed or requested, but something counterproductive (and not rarely in a way that conveniently enables the next round of graft). ..."
"... In the days of the notoriously corrupt Tammany Hall they used to talk about honest corruption and dishonest corruption. The idea is that honest corruption got the thing built or done, even if the cost was incredibly bloated. Tammany Hall made a point of distributing the loot up and down the line. The big guys would get millions, but every worker on the job got bonus pay, fake overtime and spare parts . ..."
Nov 05, 2015 | Economist's View

From IMF-direct:

The "C word": A Hidden Tax on Growth, by Vitor Gaspar and Sean Hagan: In recent years, citizens' concerns about allegations of corruption in the public sector have become more visible and widespread. From São Paulo to Johannesburg, citizens have taken to the streets against graft. In countries like Chile, Guatemala, India, Iraq, Malaysia and Ukraine, they are sending a clear and loud message to their leaders: Address corruption!
Policymakers are paying attention too. Discussing the "C word" has long been a sensitive topic at inter-governmental organizations like the International Monetary Fund. But earlier this month at its Annual Meetings in Lima, Peru, the IMF hosted a refreshingly frank discussion on the subject. The panel session provided a stimulating debate on definitions of corruption, its direct and indirect consequences, and strategies for addressing it, including the role that individuals and institutions such as the IMF can play. This blog gives a flavor of the discussion. ...

Ignacio said...

Here goes the IMF:

"Openness of the economy through deregulation and liberalization will also help since overly-regulated economies create strong incentives to maintain corrupt practices."

Deregulation, of course. A semantic trick so typical of the IMF. Openness is fair and to manage openness you may need a clear regulatory framework that provides rules and clarity with strong institutions that can ensure compliance. Pushing all the time for deregulation is ideological bias.

djb -> anne...

I like the idea of economist studying the economic effects of corruption. One of the benefits, of course, is that it will bring more to light these rationalizations like the one Ignacio brings up. So if only we didn't have laws against shoplifting then the shoplifter would not have to hide what he was doing or be guilty of a crime

am

Professor Stephenson of Harvard has a very good blog on corruption well worth a look. http://globalanticorruptionblog.com/

kaleberg said...

Corruption is a tax on growth just as inequality is a tax on growth. Money that could be spent on improving conditions overall winds up in the hands of a small wealthy oligarchy. The only real difference is legalistic. Technically corruption involves some type of illegality, but the end results are the same.

This may sound a bit strong, but if you do the math, corruption and relentless upward distribution are the same thing in terms of national accounting. Do the math and you'll see.

cm -> kaleberg...

When talking about corruption, everybody focuses on illicit flows of payments, which is of course a primary factor, but I would say the greasing of hands is not the most damaging part, rather it is the associated dereliction of duty and shaping policy and decision making, and initiation, selection, or prioritization of projects not to serve the public benefit (or that of the organizations involved) but to arrange private advantages.

If it were only about the money, it would be more like being slightly overcharged on the bill, but still getting what you ordered or needed.

cm -> cm...

Of course not to forget the lining of pockets. But my main point still stands - the largest problem is not the driving up of the cost though that's bad enough, but the corruption of the very decision making which inevitably leads to not delivering what was needed or requested, but something counterproductive (and not rarely in a way that "conveniently" enables the next round of graft).

kaleberg -> cm...

In the days of the notoriously corrupt Tammany Hall they used to talk about honest corruption and dishonest corruption. The idea is that honest corruption got the thing built or done, even if the cost was incredibly bloated. Tammany Hall made a point of distributing the loot up and down the line. The big guys would get millions, but every worker on the job got bonus pay, fake overtime and "spare parts".

likbez said...

IMF neoliberal perspective on governance failed to highlight the major source of corruption -- neoliberalism as a social system.

Over recent years, IMF and World Bank have been promoting an artificially constructed discourse on corruption that separates it from its historic narrative -- the neoliberal political system under which it now flourish. They use pretty elaborate smoke screen designed to hide the key issues under the set of fuzzy terms such as "transparency", "accountability", "governance", "anticorruption initiatives". Ignoring the socio-political role of corruption as the key mechanism of the neoliberal debt enslavement of peripheral nations (see Confessions of an Economic Hit Man - Wikipedia )

Privatization might well be the most widespread type of corruption which occurs when an office-holder or other governmental employee acts in an official capacity to sell government property for pennies on the dollar to local oligarchs of international companies. With delayed payment via the "revolving door" mechanism.

If we assume that corruption is 'illegitimate use of public power to benefit a private interest" then neoliberalism is the most corrupt social system imaginable.
But in neoliberal ideology only the state is responsible for corruption. The private sector under neoliberalism is immune of any responsibility. In reality it is completely opposite and state represents a barrier to private companies especially international sharks to get unfair advantage. And they can use the USA embassy as a source of pressure instead of bribing government officials. Neoliberals argues without any proof that if the market is let to function through its own mechanisms, and the role of state diminished to a minimum regulatory role, "good governance" could be realized and corruption be diminished. As US subprime crisis has shown this is untrue and destroys the stability of the economy.

Actually the term "governance" serves as the magical universal opener in neoliberal ideology. It is ideologically grounded up the narrative of previous mismanagement of economy ("blame the predecessor" trick).

This assumes the ideal economic sphere, in which players somehow get an equal opportunities automatically without regulatory role of the state and in case of peripheral nations without being strong armed by more powerful states. Under neoliberalism ethical responsibilities on players are reduced to the loyalty to contract.

Moreover antisocial behavior under liberalism is explicitly promoted (" greed is good") and the West serves as a "treasure vault" for stolen money and provides "safe heaven" for corrupt officials that face prosecution. At least this is true for Russian oligarchs when each crook automatically became "fighter for freedom" after landing in London airport and stolen money are indirectly appropriated by British state and never returned to Russia.

The USA is very similar. It likes to condemn corruption but seldom returns that money stolen -- for example it never returned to Ukraine money stolen by Ukrainian Prime minister under President Kuchma Pavlo Lazarenko (https://en.wikipedia.org/wiki/Pavlo_Lazarenko) .

gunste said...

Applied Republican ideology is operating and legislating in favor of money donors and their businesses. It is America's legalized corruption and bribery.

[Nov 04, 2015] Fifty Shades of Tax Dodging: How EU Helps Support Unjust Global Tax Systems

www.nakedcapitalism.com

Yves here. Tax is a major way to create incentives. New York City increased taxes dramatically on cigarettes, and has tough sanctions for trying to smuggle meaningful amounts of lower-taxed smokes in. Rates of smoking did indeed fall as intended.

Thus the debate about whether corporations should pay more taxes is not "naive" as the plutocrats would have you believe; in fact, they wouldn't be making such a big deal over it if it were. In the 1950s, a much larger percentage of total tax collections fell on corporations than individuals. And the political message was clear: the capitalist classes needed to bear a fair share of the total tax burden. Similarly, what has been the result of the preservation of a loophole that allows the labor of hedge fund and private equity fund employees to be taxed at preferential capital gains rates? A flood of "talent" into those professions at the expense of productive enterprise.

And the result of having lower taxes on companies has been a record-high corporate profit share of GDP, with none of the supposed benefits of giving businesses a break. Contrary to their PR, large companies have been net saving, which means liquidating, since the early 2000s. The trend has become more obvious in recent years as companies have borrowed money to buy back their own stock.

Originally published at the Tax Justice Network

In the past year, scandal after scandal has exposed companies using loopholes in the tax system to avoid taxation. Now more than ever, it is becoming clear that citizens around the world are paying a high price for the crisis in the global tax system, and the discussion about multinational corporations and their tax tricks remains at the top of the agenda. There is also a growing awareness that the world's poorest countries are even harder impacted than the richest countries. In effect, the poorest countries are paying the price for a global tax system they did not create.

A large number of the scandals that emerged over the past year have strong links to the EU and its Member States. Many eyes have therefore turned to the EU leaders, who claim that the problem is being solved and the public need not worry. But what is really going on? What is the role of the EU in the unjust global tax system, and are EU leaders really solving the problem?

This report – the third in a series of reports – scrutinises the role of the EU in the global tax crisis, analyses developments and suggests concrete solutions. It is written by civil society organisations (CSOs) in 14 countries across the EU. Experts in each CSO have examined their national governments' commitments and actions in terms of combating tax dodging and ensuring transparency.

Each country is directly compared with its fellow EU Member States on four critical issues: the fairness of their tax treaties with developing countries; their willingness to put an end to anonymous shell companies and trusts; their support for increasing the transparency of economic activities and tax payments of multinational corporations; and their attitude towards letting the poorest countries have a seat at the table when global tax standards are negotiated. For the first time, this report not only rates the performance of EU Member States, but also turns the spotlight on the European Commission and Parliament too.

This report covers national policies and governments' positions on existing and upcoming EU level laws, as well as global reform proposals.

Overall, the report finds that:

• Although tweaks have been made and some loopholes have been closed, the complex and dysfunctional EU system of corporate tax rulings, treaties, letterbox companies and special corporate tax regimes still remains in place. On some matters, such as the controversial patent boxes, the damaging policies seem to be spreading in Europe. Defence mechanisms against 'harmful tax practices' that have been introduced by governments, only seem partially effective and are not available to most developing countries. They are also undermined by a strong political commitment to continue so-called 'tax competition' between governments trying to attract multinational corporations with lucrative tax reduction opportunities – also known as the 'race to the bottom on corporate taxation'. The result is an EU tax system that still allows a wide range of options for tax dodging by multinational corporations.

• On the question of what multinational corporations pay in taxes and where they do business, EU citizens, parliamentarians and journalists are still left in the dark, as are developing countries. The political promises to introduce 'transparency' turned out to mean that tax administrations in developed countries, through cumbersome and highly secretive processes, will exchange information about multinational corporations that the public is not allowed to see. On a more positive note, some light is now being shed on the question of who actually owns the companies operating in our societies, as more and more countries introduce public or partially public registers of beneficial owners. Unfortunately, this positive development is being somewhat challenged by the emergence of new types of mechanisms to conceal ownership, such as new types of trusts.

• Leaked information has become the key source of public information about tax dodging by multinational corporations. But it comes at a high price for the people involved, as whistleblowers and even a journalist who revealed tax dodging by multinational corporations are now being prosecuted and could face years in prison. The stories of these 'Tax Justice Heroes' are a harsh illustration of the wider social cost of the secretive and opaque corporate tax system that currently prevails.

• More than 100 developing countries still remain excluded from decision-making processes when global tax standards and rules are being decided. In 2015, developing countries made the fight for global tax democracy their key battle during the Financing for Development conference (FfD) in Addis Ababa. But the EU took a hard line against this demand and played a key role in blocking the proposal for a truly global tax body.

Not one single EU Member State challenged this approach and, as a result, decision-making on global tax standards and rules remains within a closed 'club of rich countries'.

A direct comparison of the 15 EU countries covered in this report finds that:

To read a summary of the report, please click here.

A summary of the report is here.

The full report is here or here.

Stephen Rhodes, November 3, 2015 at 11:00 am

Or try this, kids:

Class Actions vs. Individual Prosecutions
Jed S. Rakoff NOVEMBER 19, 2015 NYRB
Entrepreneurial Litigation: Its Rise, Fall, and Future
by John C. Coffee Jr.
Harvard University Press, 307 pp., $45.00

http://www.nybooks.com/articles/archives/2015/nov/19/cure-corporate-wrongdoing-class-actions/

[Nov 02, 2015] Foreign Banks Such as Deutsche Using Variant of Lehman Repo 105 Balance-Sheet Tarting Up Strategy

Notable quotes:
"... Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales ..."
"... "It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…." ..."
"... Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly. ..."
"... The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105." ..."
"... Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that. ..."
"... In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was. ..."
"... Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense ..."
"... Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media. ..."
"... Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105 ..."
Nov 02, 2015 | naked capitalism
Deep Thought

Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales

Thank you for writing this bit. All the explanations I've read of Repo 105 seemed to be missing the step where liabilities were actually reduced – because what's the difference between an asset and an obligation/contract to buy said asset in X hours time?

So I'm glad a more financially astute mind than mind wrote down what I'd suspected, that real liabilities weren't actually reduced by Repo 105 and it's just window dressing to fool the regulators. I'd hazard that it actually makes the situation worse, because it's pretty expensive window dressing and that's real cash that has to head out the door once a quarter.

tawal

Turning all the brokerages into bank holding companies, where now they all have a calendar year end and can't temporarily hide their trash on each other's books, but can all hide it on the Fed's unaudited balance sheet.

Why isn't Deutsche Bank doing this too, and are UBS, Barclays and HSBC the next to fail?

fresno dan

"It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…."

Upon finding this out, tire squeal, sirens wail, lights flash, and grim faced men rush to take into custody little Timmy Geithner and serve warrants a the New York FED….

LOL – of course not. Most government officials, of BOTH parties, would say Timmy Geithner and his ilk performed fantastically….
After all, he worked hard to prop it up…. If you remove the corruption, the double and self dealing, price fixing, fraud, ad infinitum, and how could the system continue as constituted? And the people at the top of the system thinks it works very well indeed.

Chauncey Gardiner

This issue is unsurprising to me. Many signs over the past couple years of deeply troubling matters at this TBTF: CEO resignations, NY Fed criticisms of systems and financial reporting (as Yves pointed out), participation in market manipulations, billions in writedowns, suicide death of bank's regulatory lawyer, massive derivatives exposures, central bank calls for increased capital, etc.

Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly.

Recalling Ernest Hemingway in "The Sun Also Rises":
"How did you go bankrupt?" Bill asked.
"Two ways," Mike said. "Gradually and then suddenly."

JustAnObserver

  • Deutche Bank = Germany's RBS (Royal Bank of Scotland) ?
  • All the Eurozone's nightmares since 2010 have been down to a desperate attempt to postpone DB's "Minsky Moment" ?

I did see a report that DB is withdrawing from a number of countries but Wall Street wasn't on that list. Interestingly the list includes all the Scandinavian countries as well as the usual suspects – Mexico, Turkey, Saudi, etc.

Oliver Budde

The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst & Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105."

Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that.

The few banks who did dare to help out Lehman of course charged higher than market rates for those loans, even though they held an extra 3% in collateral, which was always made up of high quality Treasury bonds and the like. Those lenders charged more anyway, because they knew what Lehman was up to and knew they could wring out some extra cash in exchange for 'aiding' Lehman in its needs. Lehman gladly paid the higher interest.

In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was.

The scam began in 2001 or so and while it may not have been what blew up Lehman in 2008, it did importantly mislead a lot of people in 2007 and 2008, when its use was ramped up dramatically. And it put extra bonus money into the Lehman executives' pockets, year in and year out. No wonder others seek to emulate it.

Tom

Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense

RBHoughton

Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media.

Thank Heavens for NC – one of the most important of a handful of sites that fearlessly report. Fingers crossed we can build a new media industry around this nexus of quality.

Pearl

Yves,

Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105:

http://www.bloomberg.com/news/videos/2014-12-11/banks-are-taking-cybersecurity-seriously-lawsky-says-video

I know it may not be likely that Deutsche's U.S. banking license would get pulled, but it is possible, isn't it?

(btw, here is what Lawsky is doing now:)

http://nypost.com/2015/05/20/ny-financial-watchdog-ben-lawsky-leaving-to-start-firm/

If enough folks became vocal (enough) about the issue–couldn't we make a difference this time? ("We," as in ordinary housewives from Roswell, GA and humble bloggers such as the illustrious Yves Smith?".) ;-)

I think you are waaaay more famous than you think you are, Yves. Indeed, you are universally one of the most well-respected and straight-shooting authors/academics/authorities on such subjects. And I think Mr. Lawsky would take your call or reply to an email if written by you.

I spoke with his staff (yes, me–a housewife from Roswell, GA) when he was at DFS during my "Ocwiteration Perseveration" days of yore, and his staff was unusually generous with their time and they seemed genuinely appreciative to get info and feedback from just regular folks.

I think Mr. Lawsky himself would be thrilled to hear from someone like you. And I think the two of you would be an extremely formidable team.

I just don't want to give up on this. It's too important. At the very least, I will forward to him this post of yours.

Thanks again for everything you do, Yves.

[Nov 02, 2015] Dilemmas of Domination The Unmaking of the American Empire

Notable quotes:
"... Dilemmas of Domination contends that the US has entered into a period of decline as the world's hegemon. ..."
"... Because the US dominates international financial institutions like the IMF, World Bank and most of the regional development banks, their imposition of neo-liberal structural adjustments programs has led to a revolt against their destructive policies as witnessed by the left ferment especially in Latin America but also in the rest of the global South. ..."
"... I've read lots of books about globalization and free trade but none exposes the uneven playing field of free trade as good as Walden Bello. He shows that not only the evenness of playing field but also how the way U.S. is imprudently trying to dominate the world by adapting short sighted policies. These kind of policies have become the distinctive mark of recent American ideology domestically and foreign. ..."
American Empire Project

Tom Mertes - See all my reviews

Dilemmas indeed, April 28, 2005

The problems of the US mount daily from a ballooning deficit to heightened opposition from multiplying points on the globe. Walden Bello's Dilemmas of Domination is a tour de force dissection of the causes of these mounting problems.

He argues from an objective and non-partisan position in the global South. Because he primarily works outside of the US and because his method relies heavily on history, his account is compelling.

Dilemmas of Domination contends that the US has entered into a period of decline as the world's hegemon. Three crises characterize the loss of power and prestige.

  • The first crisis is the problem of manufacturing and raw materials overproduction that leads to a decline in profits, and as wages are squeezed to stabilize profits demand falls further. Added to these problems is the fact that the US, the consumer of last resort, cannot continue to borrow and buy forever. The IOUs to the rest of the world will eventually have to be repaid.
  • A second critical problem is military overextension. According to Bello, the wars on Afghanistan and Iraq demonstrate the US is not invincible. If it were, how could guerillas continue to move about these occupied nations so freely and make nation-building into such a farce? The US military is so strained that it has to hire mercenaries from companies like Blackwater to protect its corporate interests abroad because a draft would undermine all of its imperial adventures.
  • The third crisis, perhaps the most enduring, is legitimacy. Ideologically, the US has lost its currency to lead the world. Because the US dominates international financial institutions like the IMF, World Bank and most of the regional development banks, their imposition of neo-liberal structural adjustments programs has led to a revolt against their destructive policies as witnessed by the left ferment especially in Latin America but also in the rest of the global South. Furthermore, the US bullying and sometimes insulting treatment of the UN has further sullied the US's reputation. Added to this international delegitimation is the quagmire of domestic politics from the surrender of civil liberties to the patently obvious corporate control of both major parties. For readers looking for a rich and clear formulation of why the US government is detested and feared by much of the earth's population this is the best primer.

Khalid S. Al Khateron October 26, 2005

Free trade as a tool for domination

I've read lots of books about globalization and free trade but none exposes the uneven playing field of free trade as good as Walden Bello. He shows that not only the evenness of playing field but also how the way U.S. is imprudently trying to dominate the world by adapting short sighted policies. These kind of policies have become the distinctive mark of recent American ideology domestically and foreign.

Luc REYNAERT, November 4, 2005

The weak must hang together, otherwise they hang separately

In this stringent view from the South, Walden Bello discerns three different crisis levels beleaguering the US world domination: a military, a judicial and an economical level.

On the military front, the Iraq war shows clearly the limits of interventions: 'today the entire US military is either in Iraq, returning from Iraq or getting ready to go.' The lesson for the South is that the US military supremacy can be brought to a halt with guerrilla warfare. A sledgehammer is useless in swatting flies.

On the judicial front, the US is loosing its legitimacy. In Western societies, enhancement of individual freedom and democratic representation are the ideological cornerstones of the regime. Nationally, recognized human rights (no access to personal information, privacy) are jeopardized in the US by the Patriot Act in the name of the war against terrorism. For Walden Bello, the US government is becoming authoritarian, because it is in the hands of the military-industrial complex, which functions on a risk-free, cost-plus basis and grabs one half of the US budget. He quotes judiciously William Pfaff: 'The military is already the most powerful institution in the US government, largely unaccountable to the executive branch.'

Internationally, consensus and multilateralism are needed through international institutions. However, the US behaves unilaterally. Dealings with the South are subordinated to strategic considerations (R. Zoellick: 'countries that seek free trade agreements with the US must cooperate on its foreign policy goals.') Walden Bello's analysis of the WTO agreements is devastating. He calls them a free trade monopoly in the hands of corporate interests. WTO's agreement on Agriculture is not less than 'Socialism for the Rich'. The result is that the US democratic messianism is seen as sheer hypocrisy by the rest of the world.

Economically, some of Walden Bello's arguments are a little of the mark. Finite natural resources and ecological space are demographic problems. The conflict between a minority in command of assets and the majority of the population is a trade union and an election problem. But some of his arguments are to the point. There is a widening inequality gap in the US: the richest 1% of the population pocketed more than half the benefit of the latest tax reduction. The actual US budget and trade deficits are unsustainable in the long run and certainly if the inflow of foreign capital comes to a halt.

Finally, there is a new hegemon at the horizon: China with its state-assisted capitalism. The author summarizes brilliantly China's behavior: 'nations have no permanent friends, only permanent interests.'

But what should the South do in the meantime: regional economic blocks, G-20, South-South cooperation, because 'the weak must hang together, otherwise they will hang separately'.

Walden Bello's hard hitting analysis of current events should be a vademecum for all politiciams and laymen. A must read. In this context, I also recommend the works of Nafeez Mosaddeq Ahmed and Noreena Hertz.

[Oct 31, 2015] No Real Chance of Another Financial Crisis - Silly

Notable quotes:
"... The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it. ..."
"... But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective. ..."
"... Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be philosopher kings. ..."
"... The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be fragile. In this thinking Nassim Taleb is far ahead of the common economic thought as a real systems thinker. The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within. ..."
"... So Mr. Baker, rather than looking for the bubble, lets say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a new bubble as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way? ..."
"... A new crisis does not have to happen. This is the vain comfort in these sorts of black swan events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain, ..."
"... neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously. ..."
"... If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story... ..."
jessescrossroadscafe.blogspot.com

I like Dean Baker quite well, and often link to his columns. On most things we are pretty much on the same page.

And to his credit he was one of the few 'mainstream' economists to actually see the housing bubble developing, and call it out. Some may claim to have done so, and can even cite a sentence or two where they may have mentioned it, like Paul Krugman for example. But very few spoke about doing something about it while it was in progress. The Fed was aware according to their own minutes, and ignored it.

The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it.

Am I such a person? Do I actually see a fragile financial system that is still corrupt and highly levered, grossly mispricing risks? Or am I just seeing things the way in which I wish to see them?

That difficulty arises because economics is no science. It involves judgment and principles, and weighs the facts far too heavily based upon 'reputation' and 'status.' And of course I have none of those and wish none.

But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective.

Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be 'philosopher kings.'

The housing bubble was no 'cause' of the latest financial crisis. More properly it was the tinder and the trigger event. The S&L crisis was just as great, if not greater. Why then did it not bring the global financial system to its knees?

The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be 'fragile.' In this thinking Nassim Taleb is far ahead of the common economic thought as a real 'systems thinker.' The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within.

I see the same fragility which existed from 1999 to 2008 still in the system, only grown larger, global, and more profoundly influencing the political processes.

The only question is what 'trigger event' might set it spinning, and how great of a magnitude will it have to be in order to do so. The more fragile the system, the less that is required to knock it off its underpinnings.

And a crisis is not a binary event. There is the 'trigger' and the dawning perception of risks, and the initial responses of the political, social, and regulatory powers.

There is no point in debating this, because the regulators and powerful groups like the Fed are caught in a credibility trap, which prevents them from seeing things as they are, and saying so.

So Mr. Baker, rather than looking for the bubble, let's say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a 'new bubble' as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way?

I think if one exercises clear and open judgement, they can see that we have stirred up the same pot of witches brew that has made the system fragile and vulnerable to an exogenous shock, and has kept it so.

A new crisis does not have to happen. This is the vain comfort in these sorts of 'black swan' events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain,

The problem is not a 'bubble.' The problem is pervasive corruption, fraud, and lack of meaningful reform. The 'candidate' is the financial system itself, with its outsized hedge funds and the TBTF Banks with their serial crime sprees and accommodative regulators in particular.

And if one cannot see that in this rotten system with its brazenly narrow rewarding of a select few with the bulk of new income, then there is little more that can be said.

Neil Irwin, a writer for the NYT Upshot section, had an interesting debate with himself about the likely future course of the economy. He got the picture mostly right in my view, with a few important qualifications.

"First, his negative scenario is another recession and possibly a financial crisis. I know a lot of folks are saying this stuff, but it's frankly a little silly. The basis of the last financial crisis was a massive amount of debt issued against a hugely over-valued asset (housing). A financial crisis that actually rocks the economy needs this sort of basis.

If a lot of people are speculating in the stock of Uber or other wonder companies, and reality wipes them out, this is just a story of some speculators being wiped out. It is not going to shake the economy as a whole. (San Francisco's economy could take a serious hit.)

Anyhow, financial crises don't just happen, there has to be a real basis for them. To me the housing bubble was pretty obvious given the unprecedented and unexplained run-up in prices in the largest market in the world. Perhaps there is another bubble out there like this, but neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously.

If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story...

Anyhow, a story of slow job growth and ongoing wage stagnation would look like a pretty bad story to most of the country. It may not be as dramatic as a financial crisis that brings the world banking system to its knees, but it is far more likely and therefore something that we should be very worried about."

Dean Baker, Debating the Economy with Neil Irwin, 31 October 2015

[Oct 31, 2015] All Knew That This Interest Was Somehow The Cause of the War

Notable quotes:
"... encouraging ..."
"... Wage slavery is VERY different from chattel slavery. The danger of ignoring that difference is that it obscures the intimate connection between the two, which is the legal institution of private property. ..."
"... The Roman law of property derived by analogy from conditions of slave ownership. Owning land is an analog of owning slaves. ..."
"... Born in debt. Live in debt. Die in debt. The one thing they got right: human slavery is so distasteful we can't do it openly anymore. But wage slavery is just fine, especially debt peonage. No one can complain if you get yourself into debt, just if someone else puts you there. ..."
"... I hate my job. I am de facto a day laborer, delivering items as and when my boss tells me to. As a former university professor, this is a hard blow. But to say I and 99.9% of the population are coffled is pure nonsense. My situation is lousy. But comparing what the black slaves went through with what I am going through is like saying the internment camps which held the Japanese-Americans were the same as the death camps in Nazi Germany. One was bad, the other indescribably worse. Not all evils are identical or commensurate. ..."
"... Any adequate reading of the history of the Civil War will show that the 11 Confederate States destroyed themselves out of lust to extend slavery to the northwestern states. They had through "compromises" extended slavery to the states south of Missouri already. The threat of urbanization and immigration creating enough free voters to outvote their 1.6 people gerrymanders terrified the Southern powers-that-be to the point of pre-emptive war. Read the Secession declarations of each state; believe them for what they say, not the subsequent reunion-period histories. ..."
"... The economic benefits of the internal slave breeding industry were matched by the political benefits; they could try to outbreed the Northern increase through immigration and make profits off sales to western states. ..."
"... David Graeber's book (Debt: The first 5000 years) convincingly relates debt directly to slavery, real slavery. Creditors ("masters") rigged the game, took all their debtors assets, and when there was nothing left for them to take, they took them, as slaves. Or their wives, daughters, sons. I know, ancient slavery was different in some respects; slaves could earn their way out or be "redeemed" by a family member or other creditor. (And there was the Jubilee year – I have to read Michael Hudson on that someday.) I can accept that American chattel slavery was distinct and diabolical, but it was an intense form of something that seems to have been with us, humanity, for a long time. ..."
"... The westward expansion after the War of 1812 and the closure of the overseas slave trade in 1808 created the conditions for the internal slave breeding industry with its generation of roving coffles and slave traders, it major slave markets, a good many of which have been preserved, and its new forms of finance and legal entities. ..."
"... Yes, Graeber's book is excellent on this point: "Slavery is the ultimate form of being ripped from one's context, and thus from all social relationships that make one a human being. Another way to put this is that the slave is, in a very real sense, dead." ..."
"... The important point. The United States of America (Lincoln) did not want to fight. The abolitionists were a minority. The Southern media (newspaper editors) freaked out like to media shock jocks did over the election of Barack Obama. Unlike this time around, at least so far, the Southern states were stampeded by their elites into seceding; the state legislatures and governors were part of those elites. In the midst of the tension Edmund Ruffin, a pro-secessionist rabble-rouser from Virginia went to Charleston SC, and with the help of military school Citadel and Arsenal cadets, and SC militia, conducted a coast artillery attack on the closest military installation – Fort Sumter. And reactions escalated, very much like the diplomatic environment after the the 1914 assassination of Archduke Franz Ferdinand. And they escalated because the Southern hotheads wanted war. ..."
"... Regarding the coffle, it seems this is early capitalism's answer to the "Trail of Tears" and the famous "Bataan Death March". Then again, maybe it's not "early" capitalism at all….I'm thinking of Malaysia and the TPP. ..."
"... Many years ago I visited a small slavery museum out in the cotton fields somewhere around Memphis - I forget which side of the river it was on. It was in an old house that might be found anywhere, but more likely in a suburb than far out in the cotton fields, with no other house in view. Even the nearest line of trees was hundreds of yards away. In the largest room they had a lot of chains with large, heavy links, bigger than you would think would be necessary to hold even a very active human being. ..."
"... Slavery in the US was rather tame and short lived in comparison to the slavery practiced by the Muslims and Africans themselves. ..."
"... It was not until 1960 that slavery was outlawed in Saudi Arabia although it may well continue to this day. To really understand large scale slavery we need to go back to the origins of the Muslim movement. ..."
"... Hi Lambert, the book that first put the scope of the slave trading and breeding industries into context for me was The World That Made New Orleans by Ned Sublette. It's a fascinating and terrible account and if I recall correctly, describes some of the slave breeding operations carried out by Thomas Jefferson. ..."
naked capitalism

… About a quarter of those trafficked southward were children between eight and fifteen, purchased away from their families. The majority of coffle prisoners were male: boys who would never again see their mothers, men who would never again see wives and children. … The only age bracket in which females outnumbered males in the trade was twelve to fifteen, when they were as able as the boys to do field labor, and could also bear children. Charles Bell, forcibly taken from Maryland to South Carolina in 1805, recalled that

The women were merely tied together with a rope, about the size of a bed cord, which was tied like a halter round the neck of each; but the men…. were very differently caparisoned. A strong iron collar was closely fitted by means of a padlock around each of our necks. A chain of iron, about a hundred feet in length, was passed through the hasp of each padlock, except at the two ends, where the hasps of the padlock passed through a link in the chain. In addition to this, we were handcuffed in pairs, with iron staples and chains, with a short chain, uniting the handcuffs and their wearers in pairs.

As they tramped along, coffles were typically watched over by whip- and gun-wielding men on horseback and a few dogs, with supply wagons bringing up the rear… The captives were not generally allowed to talk among themselves as they tramped along, but sometimes, in the midst of their suffering, they were made to sing. The English geologist G. W. Featherstonehaugh, who in 1834 happened upon the huge annual Natchez-bound chain gang led by trader John Armfield, noted that "the slave drivers… endeavour to mitigate their discontent by feeding them well on the march, and by encouraging them" - encouraging them? - "to sing 'Old Virginia never tire,' to the banjo. Thomas William Humes, who saw coffles of Virginia-born people passing through Tennessee in shackles on the way to market, wrote; "It was pathetic to see them march, and to hear their melodious voices in plaintive singing as they went."…

From the first American coffles on rough wilderness treks along trails established by the indigenous people, they were the cheapest and most common way to transport captives from one region to another.

The Federally built National (or Cumberland) Road, which by 1818 reached the Ohio River port of Wheeling, Virginia (subsequently West Virginia), was ideal for coffles. It was the nation's first paved highway, with bridges across every creek. Laying out approximately the route of the future US 40, its broken-stone surface provided a westward overland transportation link that began at the Potomac River port of Cumberland, Maryland. From Wheeling, the captives could be shipped by riverboat down to the Mississippi and on to the Deep South's second-largest slave market at Natchez, or further on to the nation's largest slave market, New Orleans.

I'll stop at the demonstration of how Federal infrastructure improve the slave trade's supply chain.

From my vantage point (starting with my family history and where I live), the coffle seems like a work of fiction, a dystopian nightmare written by a demeted sadist. Imagine a hundred or so slaves chained together and being driven down the main street of my small town by dogs and men with whips. And now imagine this scene was normal, and kids coming home from school walked right past it. When do I wake up? (Sure, Rome. But that was thousands of years ago!)

And yet this is not science fiction stuff, or fantasy. It's history. Here's a list of the Presidents who owned slaves:

... ... ...

Conclusion

I focused on the long passage from the Sublette's book because it seemed to me to be an objective correlative for living in the midst of a slave power, and that experience is an important - a critical - part of American history, and I believe that getting the history right is important.

And although I've written I prefer human gift to human rental (wage labor), and human rental to human sale (slavery), I don't have any grand policy pronouncements to make. I do think we need to be leery of using slavery as a metaphor; "wage slavery" is not slavery; where's the coffle? Ditto "debt slavery." (That's not to say that wages and debt are not power relations, because of course they are, but the human reality of the power relations is different.)

So all I can do is ask you to get the image of the coffle firmly in your mind, and children watching one go by. The coffle was a thing. That was what was going on. The whole thing makes me want to take a bath. And we're still living with the complicated and painful consequences of slavery today.

NOTE

Title quotation from Lincoln's Second Inaugural Address.

NOTES


Eric Patton, October 28, 2015 at 11:33 am

And wage slavery isn't all that different from chattel slavery. The propaganda is much better, though.

Plantation owners: capitalists; overseers: coordinators; slaves: workers.


Sandwichman, October 28, 2015 at 1:46 pm

Wage slavery is VERY different from chattel slavery. The danger of ignoring that difference is that it obscures the intimate connection between the two, which is the legal institution of private property.

The Roman law of property derived by analogy from conditions of slave ownership. Owning land is an analog of owning slaves.

David Wayne, October 28, 2015 at 3:06 pm

The thing that stands out to me in this article is the reference that all this is a function of capitalism. All that we are and all that we know is dictated by the needs of capitalism. We don't run capitalism, it runs us. So much so that it is impossible to conceive past that little box you're in to imagine – is this the only way we can live. Born in debt. Live in debt. Die in debt. The one thing they got right: human slavery is so distasteful we can't do it openly anymore. But wage slavery is just fine, especially debt peonage. No one can complain if you get yourself into debt, just if someone else puts you there.

Synoia, October 28, 2015 at 12:27 pm

he had felt it was his patriotic duty as a Virginian

His patriotism was founded on his state, not his country?

a soldier fights for his country-right or wrong-he is not responsible for the political merits of the course he fights in" and that

Was repudiated at Nuremberg, and enshrined on the concept of "War Crimes." However, the attitude it suits many in Washington, DC today.

James Levy, October 28, 2015 at 4:04 pm

I hate my job. I am de facto a day laborer, delivering items as and when my boss tells me to. As a former university professor, this is a hard blow. But to say I and 99.9% of the population are coffled is pure nonsense. My situation is lousy.

But comparing what the black slaves went through with what I am going through is like saying the internment camps which held the Japanese-Americans were the same as the death camps in Nazi Germany. One was bad, the other indescribably worse. Not all evils are identical or commensurate.

Working for a wage is tough, but the number of workers flogged to death, publically whipped, or who had their thumbs legally broken in thumbscrews last year was pretty low. And the number of American workers last year who got raises or left one job for a better one was pretty high in comparison with your average black slave.

So cut the crap about how your job today is "just as bad" as being a slave in pre-1865 America. I can't tell if you sound more like crybabies or idiots.

Jef, October 28, 2015 at 12:31 pm

Cheap almost free oil effectively gives every american 100 to 1000 slaves. Giving up oil will be as or more difficult than giving up the slaves back then.

TarheelDem, October 28, 2015 at 4:15 pm

Any adequate reading of the history of the Civil War will show that the 11 Confederate States destroyed themselves out of lust to extend slavery to the northwestern states. They had through "compromises" extended slavery to the states south of Missouri already. The threat of urbanization and immigration creating enough free voters to outvote their 1.6 people gerrymanders terrified the Southern powers-that-be to the point of pre-emptive war. Read the Secession declarations of each state; believe them for what they say, not the subsequent reunion-period histories.

The economic benefits of the internal slave breeding industry were matched by the political benefits; they could try to outbreed the Northern increase through immigration and make profits off sales to western states.

The financial system relative to international monetary relations was so different in the ante-bellum period that the creation of Confederate money offered little incentive to punishment. Negotiation with foreign financial centers disputing the credibility of the money, yes. Would you take currency from a putative new country that was engaged in a war of secession? But as a causus belli, not likely.

The attempt to frame the United States with the responsibility for the war was primarily a post-bellum propaganda effort in support of restoring white supremacy.

Generalfeldmarschall von Hindenburg, October 28, 2015 at 5:47 pm

Yeah- the southern gentlemen were fully aware that even with the stupid 3/5 compromise, they were going to be on the losing end of a demographic shift if they couldn't expand the slave states. Hence the weird plots to annex Cuba and take over Mexico.

Oguk, October 28, 2015 at 2:43 pm

I don't know if I posted about this or not, but David Graeber's book (Debt: The first 5000 years) convincingly relates debt directly to slavery, real slavery. Creditors ("masters") rigged the game, took all their debtors assets, and when there was nothing left for them to take, they took them, as slaves. Or their wives, daughters, sons. I know, ancient slavery was different in some respects; slaves could earn their way out or be "redeemed" by a family member or other creditor. (And there was the Jubilee year – I have to read Michael Hudson on that someday.) I can accept that American chattel slavery was distinct and diabolical, but it was an intense form of something that seems to have been with us, humanity, for a long time.

2nd comment is that slave narratives, like Solomon Northrup's or Frederick Douglass's, really drive the point of this post home. It is a chilling history.

TarheelDem, October 28, 2015 at 7:43 pm

Graeber's book is excellent on the relationship between debt and slavery, a relationship useful to exploring post-bellum country-store and private debt selling and the debt slavery or working off debt for third parties. Part of this examination of debt slavery should pay attention to the way that debt was accounted for and who did the accounting. Company stores in isolated rural areas were notorious in mining, manufacturing. logging, and agriculture for false books in order to keep people in debt bondage.

But chattel slavery in America has origin in war raids, not indebtedness, war raids that were encouraged by the slave traders and in North America involved aboriginal peoples raiding other aboriginal peoples to provide Amerindian slave for transport from North America to the West Indies even into the 1700s. That arose aside and independent of English traders trading European goods on credit for deerskins (in Virginia and Carolina) and slaves. [Alan Gallay, The Indian Slave Trade: The Rise of the English Empire in the American South, 1670-1717]

The political triangulation of the sweeping frontier balance this slavery, white indentured servitude, and African chattel slavery as balances of forces to preserve the local aristocracy. So three forms of servitude co-existed until 1717, two persisted until African chattel slavery was dramatically profitable in the Tidewater tobacco plantations and Carolina rice and indigo plantations and internal increase of the plantations caught up with labor demand. And the growth of the political confederations of the "Five Civilized Tribes" in the mid-1700s shut down the Indian slave trade. The westward expansion after the War of 1812 and the closure of the overseas slave trade in 1808 created the conditions for the internal slave breeding industry with its generation of roving coffles and slave traders, it major slave markets, a good many of which have been preserved, and its new forms of finance and legal entities. This industry is even visible in census records. Recording the occupations in the 1850 or 1860 census of slave areas in the Carolinas or Virginia, one comes upon a patter in the vicinity of major plantation slaveowners. There are scattered settlements that comprise an overseer, a number of blacksmiths, a waggonmaker, and a wheelwright in close propinquity in a ratio of about one settlement for ever 150 slaves listed as property of the slaveowner. The blacksmiths made and maintained the coffles. The wagon technicians made and repaired the planters fleet for hauling bales or hogsheads. The census lists free men, who rarely are identified as black or mulatto in these areas, generally not in sensitive occupations, such as blacksmith.

Slave traders are generally listed as "merchant". You have to look from specific ads for slaves to figure out how extensive their trading business was.

Justicia, October 28, 2015 at 9:44 pm

Yes, Graeber's book is excellent on this point: "Slavery is the ultimate form of being ripped from one's context, and thus from all social relationships that make one a human being. Another way to put this is that the slave is, in a very real sense, dead."

Dead, perhaps, to the slave-owner and the laws that protected his property but very much alive and human to their companions in suffering and to those not blinded by greed, prejudice, propaganda and social convention.

TarheelDem, October 29, 2015 at 9:16 am

The notion of being dead as far as the law is concerned about his person and his property puts a very interesting twist on knowing one's "place". And greed, prejudice, propaganda, and social convention are not as much a primary issue as is the power to plunder and abuse regardless of the particular motive. It is the institutions that defend the behaviors that hold in being the attitudes. Rush Limbaugh, the shock jocks, Sheriff Clarke of Milwaukee County, and their like defend the behaviors of abusive police; that is to let black people know that the law is dead to them and to "stay in their place". Focusing on the attitude reduces the issue to an individualist one of "personal responsibility" and the action of one or a few cops instead of a pervasive network of abusive institutions held in place by a seamless nationwide network of racist propaganda, material support for abusers, and legal defenses.

Darthbobber, October 28, 2015 at 11:42 pm

Another take on Graeber's book, from the Brit libertarian (no not those libertarians) Marxists who publish Aufheben. I only agree with a portion of their critique, but its worth a read.
http://libcom.org/library/5000-years-or-debt

nobody

About those textbooks… not those in the state of Texas, but those in use in the other states, Morris Berman's got some interesting insights:

When you think about it, nearly everything in modern American history turns on the Civil War, because the ideology I have been describing (which can be more accurately described as a mythology, or grand narrative) requires us to 'fix' traditional societies and eliminate obstacles to progress. With the Civil War these two goals converged, making it the paradigm case of how we carry out, or attempt to carry out, these two projects. What the North did to the South is really the model of what America in general did and does to 'backward' (i.e., traditional) societies, if it can. You wipe out almost the entire indigenous population of North America; you steal half of Mexico; you bomb Vietnam 'back to the Stone Age' (in the immortal words of Curtis LeMay); you 'shock and awe' Iraqi civilians, and so on. In what follows, then, I want to look at the War Between the States in a completely different way than the one found in the typical American history textbook. This, in fact, is what generated the energy that led to a four-year battle and the death of 625,000 individuals. What follows is an elaboration of this argument.

Let's start with the view of the South as seen from the North. The popular image of the antebellum South, as it was presented in American history textbooks and classes when I went to high school in the North, was pretty much the same then as it is now. That is to say, we were taught that the South, as the home of slavery, was a backward and immoral place, and its refusal to abandon that institution was the cause of the Civil War. Under the leadership of Abraham Lincoln (pretty much depicted as a saint), the virtuous Union armies defeated the evil Confederate ones, and the slaves were finally set free. Mutatis mutandis, this remains the politically correct version, as well as the liberal academic version, of the war down to the present time.

[However…]

All the evidence suggests that the North's 'nobility' in fighting slavery was a long-after-the-fact justification, an attempt to portray the conflict as a victory of morality and equality over depravity. It's a thesis that gets people all worked up, but it finally doesn't wash.

[…]

In reality, the treatment of the South by the North was the template for the way the United States would come to treat any nation it regarded as an enemy: not merely a scorched earth policy, but also a 'scorched soul' policy (the destruction of the Native American population was, of course, a preview of this). From Japan to Iraq, the pattern is the same, to the extant that we have been able to impose it: first destroy the place physically (in particular, murder huge numbers of civilians, as the North did to the South during the Civil War-fifty thousand of them by 1865), and then 'Americanize' it. Humiliation, the destruction of the identity of the defeated party, has always been an important part of the equation.

[…]

Sure, the war was about slavery; it was hardly a minor issue. But it was part of a much larger one about two very different and incompatible civilizations, and a fixation on the moral question of slavery can blind us to the larger (world) context of the Civil War, which was really the American version of the global modernization process. No, I have no wish to live in a slave society; I regard it as an abomination. But the South saw a different type of abomination on the horizon, one that is now with us; and quite frankly, I have no wish to live in that one either.

Bits of chapter 4 from: Why America Filed: The Roots of Imperial Decline

TarheelDem, October 28, 2015 at 7:57 pm

The important point. The United States of America (Lincoln) did not want to fight. The abolitionists were a minority. The Southern media (newspaper editors) freaked out like to media shock jocks did over the election of Barack Obama. Unlike this time around, at least so far, the Southern states were stampeded by their elites into seceding; the state legislatures and governors were part of those elites. In the midst of the tension Edmund Ruffin, a pro-secessionist rabble-rouser from Virginia went to Charleston SC, and with the help of military school Citadel and Arsenal cadets, and SC militia, conducted a coast artillery attack on the closest military installation – Fort Sumter. And reactions escalated, very much like the diplomatic environment after the the 1914 assassination of Archduke Franz Ferdinand. And they escalated because the Southern hotheads wanted war.

The area between the two capitals Washington and Richmond was the cockpit of the war. The first movement was offensive, towards Washington. The Southern planters wanted Lincoln out of there.

JohnnyGL, October 28, 2015 at 3:34 pm

Regarding the coffle, it seems this is early capitalism's answer to the "Trail of Tears" and the famous "Bataan Death March". Then again, maybe it's not "early" capitalism at all….I'm thinking of Malaysia and the TPP.


Anarcissie, October 28, 2015 at 4:24 pm

Many years ago I visited a small slavery museum out in the cotton fields somewhere around Memphis - I forget which side of the river it was on. It was in an old house that might be found anywhere, but more likely in a suburb than far out in the cotton fields, with no other house in view. Even the nearest line of trees was hundreds of yards away. In the largest room they had a lot of chains with large, heavy links, bigger than you would think would be necessary to hold even a very active human being.

The largest chain had been arranged in a spiral on the floor with the collars around it, and there was a picture on the wall showing a coffle, the use to which such chains would have been put. The links of the big chain had a rough, pitted surface, and were a sort of rusty reddish-black. The elderly White woman in charge told me it had been taken from a long-gone barn or shed not far away exactly as it was, where it had probably rested since slavery days. In other words, unless the wind and the rain had washed them off, you could still find the blood and sweat of slaves on the links. There was some other agricultural gear about, like the hand tools the slaves would have used.

There was not a lot of signage and no glossy brochures. Pictures on the walls depicted a plantation house and outbuildings none of which remained, with the exception of the one the museum was in. I wondered who had put the museum together. When I asked how it had come to be, the woman only said, 'It's our history. We think people should know about it.'

Felix47, October 28, 2015 at 9:27 pm

Slavery in the US was rather tame and short lived in comparison to the slavery practiced by the Muslims and Africans themselves. The Somalians enslaved the Bantus etc. etc. The Arabs enslaved everyone and I recall seeing slaves even in 1991 in Saudi Arabia…..doing the labor since descendents of Mohammed avoid physical labor if they can since they see it as demeaning. The big difference was that the Arabs did not seem to see breeding slaves as a business…..they had them castrated in Africa often before they were imported. It was not until 1960 that slavery was outlawed in Saudi Arabia although it may well continue to this day. To really understand large scale slavery we need to go back to the origins of the Muslim movement.

Liz, October 29, 2015 at 6:33 pm

Hi Lambert, the book that first put the scope of the slave trading and breeding industries into context for me was The World That Made New Orleans by Ned Sublette. It's a fascinating and terrible account and if I recall correctly, describes some of the slave breeding operations carried out by Thomas Jefferson.

Thanks for sharing your thoughts on these titles.

[Oct 28, 2015] IT IS 3 MINUTES TO MIDNIGHT

Notable quotes:
"... Meanwhile, the United States and Russia have embarked on massive programs to modernize their nuclear triads - thereby undermining existing nuclear weapons treaties. "The clock ticks now at just three minutes to midnight because international leaders are failing to perform their most important duty-ensuring and preserving the health and vitality of human civilization." ..."
Bulletin of the Atomic Scientists

"Unchecked climate change, global nuclear weapons modernizations, and outsized nuclear weapons arsenals pose extraordinary and undeniable threats to the continued existence of humanity, and world leaders have failed to act with the speed or on the scale required to protect citizens from potential catastrophe. These failures of political leadership endanger every person on Earth." Despite some modestly positive developments in the climate change arena, current efforts are entirely insufficient to prevent a catastrophic warming of Earth.

Meanwhile, the United States and Russia have embarked on massive programs to modernize their nuclear triads - thereby undermining existing nuclear weapons treaties. "The clock ticks now at just three minutes to midnight because international leaders are failing to perform their most important duty-ensuring and preserving the health and vitality of human civilization."

[Oct 28, 2015] How the U.S. Wrecked the Middle East

Notable quotes:
"... Whatever world order the U.S. may be fighting for in the Middle East, it seems at least an empire or two out of date. Washington refuses to admit to itself that [as a preverse reaction on neoliberalism] the ideas of Islamic fundamentalism resonate with vast numbers of people. ..."
"... No one is predicting a world war or a nuclear war from the mess in Syria. However, like those final days before the Great War, one finds a lot of pieces in play inside a tinderbox. ..."
"... Peter Van Buren blew the whistle on State Department waste and mismanagement during the Iraqi reconstruction in ..."
"... regular he writes about current events at ..."
"... We Meant Well ..."
"... . His latest book is ..."
"... . His next work will be a novel, ..."
October 22, 2015 | The American Conservative

A once stable region descends into chaos thanks to continuing repercussions from the 2003 Iraq invasion. (via TomDispatch)

Whatever world order the U.S. may be fighting for in the Middle East, it seems at least an empire or two out of date. Washington refuses to admit to itself that [as a preverse reaction on neoliberalism] the ideas of Islamic fundamentalism resonate with vast numbers of people. At this point, even as U.S. TOW missiles are becoming as ubiquitous as iPads in the region, American military power can only delay changes, not stop them. Unless a rebalancing of power that would likely favor some version of Islamic fundamentalism takes hold and creates some measure of stability in the Middle East, count on one thing: the U.S. will be fighting the sons of ISIS years from now.

... No one is predicting a world war or a nuclear war from the mess in Syria. However, like those final days before the Great War, one finds a lot of pieces in play inside a tinderbox.

Now, all together: What could possibly go wrong?

Peter Van Buren blew the whistle on State Department waste and mismanagement during the Iraqi reconstruction in We Meant Well: How I Helped Lose the Battle for the Hearts and Minds of the Iraqi People. A TomDispatch regular he writes about current events at We Meant Well. His latest book is Ghosts of Tom Joad: A Story of the #99Percent. His next work will be a novel, Hooper's War.

[Oct 27, 2015] OECD Chief Economist: Its Time To Temper The Frothiness In Markets

www.zerohedge.com
"... if you look at what is supporting equity prices - how much of that support is coming from real economic activity versus from using stock buybacks, using cash on balance sheet for stock buybacks, or mergers and acquisitions, to reduced competition in the marketplace.

These are the sort of stories that if there were a small increase in interest rates, you would temper some of that frothiness.

Eliminating the incentive to engage in that kind of activity seems to me to be a good idea... There would be a proportion of the population that would have less capital gains - but they've been enjoying very big capital gains, and it is a narrow segment of the population."

[Oct 18, 2015] Irrational Unrequited Love of Ukrainians for the West

This is how neocolonialism works: "global village' wants to move to "global town", while global town mercilessly exploits it.
Notable quotes:
"... There is also an important factor: several million Ukrainians work in Russia and in Europe. Comparing, they see that life in the European Union is more comfortable. And this also affects their geopolitical preferences . Finally, most of the residents of Ukraine, especially in the center and the west of the country perceived the reunion of the Crimea with the Russian Federation as an occupation of part of their country. And in relation to the events in Donbass the propaganda has convinced many people that it was not a rebellion against the new regime in Kiev, but Russia's aggression. Unfortunately, revanchist sentiments towards our country in Ukraine can last for a long time. I would even say that it is impossible to exclude the possibility of war between Russia and Ukraine. At least today it is bigger than zero. And even 2 years ago this assumption might seem an absurd fantasy. ..."
"... Yes, there are still strong illusions of average Ukrainians in relation to Europe. Many people think that joining the EU and NATO would quickly help Ukraine improve the living standards of the population, to solve social problems and so on. Others, more realistically minded Ukrainians, think like this: yes, we know that Europe will not solve our problems, but we have no other choice. Now, Russia, if not an enemy, is at least an unfriendly state. And they do not believe in the economic prospects of the alliance with us. ..."
"... public consciousness in Ukraine is largely irrational. Ive already talked about the persisting illusions of Ukrainian men from the street. It seems to him that only the West is able to protect Ukraine from the Russian aggression . This explains such a persistent and irrational focus on Europe. ..."
"... it seems to me that the real percentage of Ukrainians who are in favor of strengthening cooperation with Russia on the territories controlled by Kiev is not much higher than what was revealed by the survey. ..."
Oct 15, 2015 | Fort Russ
Most citizens of "independent" Ukraine are disappointed with Maidan, but they still believe in Europe

The public consciousness in Ukraine continues to amaze with its irrationality. This is confirmed by the poll conducted by the International Foundation for Electoral Systems (IFES).

Despite the fact that the majority of Ukrainians acknowledge that Euromaidan did not meet their expectations, a dominant sentiment in Ukraine is in favor of the pro-Western geopolitical course.

49% of respondents are of the opinion that Ukraine should better strive to deepen relations with Europe, while the percentage of those who prefer a closer relationship with Russia is only 8%.

At the same time 56% of Ukrainians believe that the country is moving in the wrong direction, and only 20% hold the opposite opinion. The notion that the country is moving in the wrong direction is spread across the country and is shared by the majority of citizens in each region.

The survey was conducted on the territory of Ukraine, controlled by the Kiev government, without regard to the views of some four million people living in the LPR and the DPR.

It would seem that in the last eighteen months Europe has demonstrated that it is in no hurry to recognize Ukraine as its "own". Western aid is given precisely in those volumes that prevent the final collapse of Ukraine's statehood. At the same time, due to the influx of Western goods and severance of economic ties with Russia hundreds of Ukrainian enterprises are closed. The latest news in this regard: in Ukraine it has become unprofitable to produce even sugar leading to the closing of 15 sugar mills.

The situation in the post-Maidan economy of Ukraine is much worse, however it has not affected the unrequited love of Ukrainians to the West. Why is this the case and what will be the outcome?

- We must understand that the process of Ukraine's reorientation to the West began long before the Maidan, - says the Head of the Center for Political Research of the Institute of Economics, Head of the Department of International Relations of the Diplomatic Academy of the Russian Federation Boris Shmelev. - For a quarter century that has passed since the collapse of the Soviet Union, more than one generation of Ukrainians has grown who are convinced that it is necessary not to be friends with Russia, but with Europe. That only this friendship with the West will ensure the prosperity of Ukraine.

There is also an important factor: several million Ukrainians work in Russia and in Europe. Comparing, they see that life in the European Union is more comfortable. And this also affects their "geopolitical preferences". Finally, most of the residents of Ukraine, especially in the center and the west of the country perceived the reunion of the Crimea with the Russian Federation as an occupation of part of their country. And in relation to the events in Donbass the propaganda has convinced many people that it was not a rebellion against the new regime in Kiev, but Russia's aggression. Unfortunately, revanchist sentiments towards our country in Ukraine can last for a long time. I would even say that it is impossible to exclude the possibility of war between Russia and Ukraine. At least today it is bigger than zero. And even 2 years ago this assumption might seem an absurd fantasy.

"SP": - Why a year and a half since the "February coup" have not convinced Ukrainians that the EU is not going to make Ukraine a member state and that the West is helping Kiev only to the extent that the pro-Western regime does not collapse?

- Yes, there are still strong illusions of average Ukrainians in relation to Europe. Many people think that joining the EU and NATO would quickly help Ukraine improve the living standards of the population, to solve social problems and so on. Others, more realistically minded Ukrainians, think like this: yes, we know that Europe will not solve our problems, but we have no other choice. Now, Russia, if not an enemy, is at least an unfriendly state. And they do not believe in the economic prospects of the alliance with us.

"SP": - But it is impossible to escape the logic: as long as Ukraine maintained relatively good relations with Russia, the situation in the Ukrainian economy was more or less tolerable. And as soon as Kiev finally turned towards the West, the economy began to crumble ...

- All this is true. But public consciousness in Ukraine is largely irrational. I've already talked about the persisting illusions of Ukrainian men from the street. It seems to him that only the West is able to protect Ukraine from the "Russian aggression". This explains such a persistent and irrational focus on Europe.

"SP": - And can we explain such a low percentage of Russian sympathizers by the fact that some respondents, especially in the South-East of Ukraine are afraid to openly express their opinions?

- Yes, it is possible. Although, it seems to me that the real percentage of Ukrainians who are in favor of strengthening cooperation with Russia on the territories controlled by Kiev is not much higher than what was revealed by the survey.

[Oct 16, 2015] Wolf Richter Debt Fueled Stock Buybacks Now Eating into Earnings

"... This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar , which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser , what we've accomplished in the last year , and our second target , funding for travel to conferences and in connection with original reporting. ..."
"... These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. ..."
"... last thing ..."
"... As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased. ..."
"... "Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy. ..."
"... But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering ..."
"... It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living. ..."
"... "trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering" ..."
"... I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill ..."
"... Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar. ..."
"... 35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip. ..."
"... Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win. ..."
"... Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit? ..."
Oct 16, 2015 | naked capitalism
This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar, which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser, what we've accomplished in the last year, and our second target, funding for travel to conferences and in connection with original reporting.

Yves here. As anyone who has been in finance know, leverage amplifies gains and losses. Big company execs, apparently embracing the "IBG/YBG" ("I'll Be Gone, You'll Be Gone") school of management, apparently believed they could beat the day of reckoning that would come of relying on stock buybacks to keep EPS rising, regardless of the underlying health of the enterprise. But even in an era of super-cheap credit, investors expect higher interest rates for more levered businesses, which is what you get when you keep borrowing to prop up per-share earnings. As Richter explains, the chickens are starting to come home to roost.

Companies with investment-grade credit ratings – the cream-of-the-crop "high-grade" corporate borrowers – have gorged on borrowed money at super-low interest rates over the past few years, as monetary policies put investors into trance. And interest on that mountain of debt, which grew another 4% in the second quarter, is now eating their earnings like never before.

These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. With impeccable timing: for S&P 500 companies, revenues have been in a recession all year, and the last thing companies need now is higher expenses.

Risks are piling up too: according to Bloomberg, companies' ability pay these interest expenses, as measured by the interest coverage ratio, dropped to the lowest level since 2009.

Companies also have to refinance that debt when it comes due. If they can't, they'll end up going through what their beaten-down brethren in the energy and mining sectors are undergoing right now: reshuffling assets and debts, some of it in bankruptcy court.

But high-grade borrowers can always borrow – as long as they remain "high-grade." And for years, they were on the gravy train riding toward ever lower interest rates: they could replace old higher-interest debt with new lower-interest debt. But now the bonanza is ending. Bloomberg:

As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased.

And the benefits of refinancing at lower rates are dwindling further:

Companies saved a mere 0.21 percentage point in the second quarter on refinancings as investors demanded average yields of 3.12 percent to own high-grade corporate debt – about half a percentage point more than the post-crisis low in May 2013.

That was in the second quarter. Since then, conditions have worsened. Moody's Aaa Corporate Bond Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of refinancing at ever lower yields are disappearing fast.

What's left is a record amount of debt, generating a record amount of interest expense, even at these still very low yields.

"Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy.

But these are the cream of the credit crop. At the other end of the spectrum – which the JPMorgan analysts (probably holding their nose) did not address – are the junk-rated masses of over-indebted corporate America. For deep-junk CCC-rated borrowers, replacing old debt with new debt has suddenly gotten to be much more expensive or even impossible, as yields have shot up from the low last June of around 8% to around 14% these days:

US-junk-bonds-CCC-2014_2015-10-15

Yields have risen not because of the Fed's policies – ZIRP is still in place – but because investors are coming out of their trance and are opening their eyes and are finally demanding higher returns to take on these risks. Even high-grade borrowers are feeling the long-dormant urge by investors to be once again compensated for risk, at least a tiny bit.

If the global economy slows down further and if revenues and earnings get dragged down with it, all of which are now part of the scenario, these highly leveraged balance sheets will further pressure already iffy earnings, and investors will get even colder feet, in a hail of credit down-grades, and demand even more compensation for taking on these risks. It starts a vicious circle, even in high-grade debt.

Alas, much of the debt wasn't invested in productive assets that would generate income and make it easier to service the debt. Instead, companies plowed this money into dizzying amounts of share repurchases designed to prop up the company's stock and nothing else, and they plowed it into grandiose mergers and acquisitions, and into other worthy financial engineering projects.

Now the money is gone. The debt remains. And the interest has to be paid. It's the hangover after a long party. And even Wall Street is starting to fret, according to Bloomberg:

The borrowing has gotten so aggressive that for the first time in about five years, equity fund managers who said they'd prefer companies use cash flow to improve their balance sheets outnumbered those who said they'd rather have it returned to shareholders, according to a survey by Bank of America Merrill Lynch.

But it's still not sinking in. Companies are still announcing share buybacks with breath-taking amounts, even as revenues and earnings are stuck in a quagmire. They want to prop up their shares in one last desperate effort. In the past, this sort of financial engineering worked. Every year since 2007, companies that bought back their own shares aggressively saw their shares outperform the S&P 500 index.

But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S&P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering

Wolf Richter is a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.


TomDority, October 16, 2015 at 8:01 am

One wonders where all that "investment" goes…pretty much into the CEO's pockets and investors pockets because banks do not create money by investing in real legitimate capital formation or producing anything tangible…..i

It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living.

These trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering….at the expense of a habitable peaceful planet. Soon, I hope, this dislocation will be corrected. As I have said before, a good start would be to tax that which is harmful (unearned income and rent seeking) and de-tax that which is helpful – real capital formation, infrastructure and maintenance of a habitable planet and the absolutely necessary biodiversity that sustains us.


david, October 16, 2015 at 8:57 am

"trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering"

I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill

this is not "useless" from the standpoint of those who direct this game.

Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar.

the money is used for dividends and buybacks all that money is accumulated by the LBO firms and management to maneuver the situation / process to the point of the bust up – this time they are all going simultaneously for the exit even the most high end S&P firm – the HY prices are deteriorating quickly beyond energy related as % LTV goes higher – before 82′ the LTV of Fortune Cos. was way below 20% – 35% was considered max –

the same characters / groups will be formed to get to 51% to buy and control the bonds at 20-30% on the dollar in BK and take the assets.

35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip.

USA, USA, USA !

cnchal, October 16, 2015 at 9:38 am

. . .Now the money is gone. The debt remains. And the interest has to be paid,. . .

Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win.

Just Ice, October 16, 2015 at 10:53 am

"Companies with investment-grade credit ratings …"

With government-subsidized private credit creation, the whole concept of "creditworthiness" is suspect. Example, is Smith-Wesson "credit-worthy" to many Progressives? Yet, it's their credit, as part of the public, that would be extended should S&W take out a bank loan.

Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit?

Disaster capitalism swoops over Libya by Pepe Escobar

"...Think of the new Libya as the latest spectacular chapter in the Disaster Capitalism series. Instead of weapons of mass destruction, we had R2P, short for "responsibility to protect". Instead of neo-conservatives, we had humanitarian imperialists."
"...To make matters worse (for them), only three days before the Pentagon's Africom launched its first 150-plus Tomahawks over Libya, Colonel Gaddafi gave an interview to German TV stressing that if the country were attacked, all energy contracts would be transferred to Russian, Indian and Chinese companies."

"...Turkey's Foreign Minister Ahmet Davutoglu - of the famed "zero problems with our neighbors" policy - has also been gushing praise on the former "rebels" turned powers-that-be. Eyeing the post-Gaddafi business bonanza as well, Ankara - as NATO's eastern flank - ended up helping to impose a naval blockade on the Gaddafi regime, carefully cultivated the TNC, and in July formally recognized it as the government of Libya. Business "rewards" loom."

Voltaire Network

Think of the new Libya as the latest spectacular chapter in the Disaster Capitalism series. Instead of weapons of mass destruction, we had R2P, short for "responsibility to protect". Instead of neo-conservatives, we had humanitarian imperialists.

Voltaire Network | Sâo Paulo (Brazil)

But the target is the same: regime change. And the project is the same: to completely dismantle and privatize a nation that was not integrated into turbo-capitalism; to open another (profitable) land of opportunity for turbocharged neo-liberalism. The whole thing is especially handy because it is smack in the middle of a nearly global recession.

It will take some time; Libyan oil won't totally return to the market within 18 months. But there's the reconstruction of everything the North Atlantic Treaty Organization (NATO) bombed (well, not much of what the Pentagon bombed in 2003 was reconstructed in Iraq ...).

Anyway - from oil to rebuilding - in thesis juicy business opportunities loom. France's neo-Napoleonic Nicolas Sarkozy and Britain's David of Arabia Cameron believe they will be especially well positioned to profit from NATO's victory. Yet there's no guarantee the new Libyan bonanza will be enough to lift both former colonial powers (neo-colonials?) out of recession.

President Sarkozy in particular will milk the business opportunities for French companies for all they're worth - part of his ambitious agenda of "strategic redeployment" of France in the Arab world. A compliant French media are gloating that this was "his" war - spinning that he decided to arm the rebels on the ground with French weaponry, in close cooperation with Qatar, including a key rebel commando unit that went by sea from Misrata to Tripoli last Saturday, at the start of "Operation Siren".

Well, he certainly saw the opening when Muammar Gaddafi's chief of protocol defected to Paris in October 2010. That's when the whole regime change drama started to be incubated.

Bombs for oil

As previously noted (see "Welcome to Libya's 'democracy'", Asia Times Online, August 24) the vultures are already circling Tripoli to grab (and monopolize) the spoils. And yes - most of the action has to do with oil deals, as in this stark assertion by Abdeljalil Mayouf, information manager at the "rebel" Arabian Gulf Oil Company: "We don't have a problem with Western countries like the Italians, French and UK companies. But we may have some political issues with Russia, China and Brazil."

These three happen to be crucial members of the BRICS group of emerging economies (Brazil, Russia, India, China and South Africa), which are actually growing while the Atlanticist, NATO-bombing economies are either stuck in stagnation or recession. The top four BRICs also happen to have abstained from approving UN Security Council resolution 1973, the no-fly zone scam that metamorphosed into NATO bringing regime change from above. They saw right through it from the beginning.

To make matters worse (for them), only three days before the Pentagon's Africom launched its first 150-plus Tomahawks over Libya, Colonel Gaddafi gave an interview to German TV stressing that if the country were attacked, all energy contracts would be transferred to Russian, Indian and Chinese companies.

So the winners in the oil bonanza are already designated: NATO members plus Arab monarchies. Among the companies involved, British Petroleum (BP), France's Total and the Qatar national oil company. For Qatar - which dispatched jet fighters and recruiters to the front lines, trained "rebels" in exhaustive combat techniques, and is already managing oil sales in eastern Libya - the war will reveal itself to be a very wise investment decision.

Prior to the months-long crisis that is in its end game now with the rebels in the capital, Tripoli, Libya was producing 1.6 million barrels per day. Once resumed, this could reap Tripoli's new rulers some US$50 billion annually. Most estimates place oil reserves at 46.4 billion barrels.

The "rebels" of new Libya better not mess with China. Five months ago, China's official policy was all ready to call for a ceasefire; if that had happened, Gaddafi would still control more than half of Libya. Yet Beijing - never a fan of violent regime change - for the moment is exercising extreme restraint.

JPEG - 79.1 kb
After a Libyan "rebel" official warned that Chinese oil companies could lose out after the ousting of Muammar Gaddafi, China urged Libya to protect its investments and said their oil trade benefited both countries.

Wen Zhongliang, the deputy head of the Ministry of Trade, willfully observed, "Libya will continue to protect the interests and rights of Chinese investors and we hope to continue investment and economic cooperation." Official statements are piling up emphasizing "mutual economic cooperation".

Last week, Abdel Hafiz Ghoga, vice president of the dodgy Transitional National Council (TNC), told Xinhua that all deals and contracts agreed with the Gaddafi regime would be honored - but Beijing is taking no chances.

Libya supplied no more than 3% of China's oil imports in 2010. Angola is a much more crucial supplier. But China is still Libya's top oil customer in Asia. Moreover, China could be very helpful in the infrastructure rebuilding front, or in the technology export - no less than 75 Chinese companies with 36,000 employees were already on the ground before the outbreak of the tribal/civil war, swiftly evacuated in less than three days.

The Russians - from Gazprom to Tafnet - had billions of dollars invested in Libyan projects; Brazilian oil giant Petrobras and the construction company Odebrecht also had intrests there. It's still unclear what will happen to them. The director general of the Russia-Libya Business Council, Aram Shegunts, is extremely worried: "Our companies will lose everything because NATO will prevent them from doing business in Libya."

Italy seems to have passed the "rebel" version of "you're either with us or without us". Energy giant ENI apparently won't be affected, as Premier Silvio "Bunga Bunga" Berlusconi pragmatically dumped his previous very close pal Gaddafi at the start of the Africom/NATO bombing spree.

ENI's directors are confident Libya's oil and gas flows to southern Italy will resume before winter. And the Libyan ambassador in Italy, Hafed Gaddur, reassured Rome that all Gaddafi-era contracts will be honored. Just in case, Berlusconi will meet the TNC's prime minister, Mahmoud Jibril, this Thursday in Milan.

Bin Laden to the rescue

Turkey's Foreign Minister Ahmet Davutoglu - of the famed "zero problems with our neighbors" policy - has also been gushing praise on the former "rebels" turned powers-that-be. Eyeing the post-Gaddafi business bonanza as well, Ankara - as NATO's eastern flank - ended up helping to impose a naval blockade on the Gaddafi regime, carefully cultivated the TNC, and in July formally recognized it as the government of Libya. Business "rewards" loom.

Then there's the crucial plot; how the House of Saud is going to profit from having been instrumental in setting up a friendly regime in Libya, possibly peppered with Salafi notables; one of the key reasons for the Saudi onslaught - which included a fabricated vote at the Arab League - was the extreme bad blood between Gaddafi and King Abdullah since the run-up towards the war on Iraq in 2002.

It's never enough to stress the cosmic hypocrisy of an ultra-regressive absolute monarchy/medieval theocracy - which invaded Bahrain and repressed its native Shi'ites - saluting what could be construed as a pro-democracy movement in Northern Africa.

Anyway, it's time to party. Expect the Saudi Bin Laden Group to reconstruct like mad all over Libya - eventually turning the (looted) Bab al-Aziziyah into a monster, luxury Mall of Tripolitania.

Disaster capitalism swoops over Libya by Pepe Escobar

"...Think of the new Libya as the latest spectacular chapter in the Disaster Capitalism series. Instead of weapons of mass destruction, we had R2P, short for "responsibility to protect". Instead of neo-conservatives, we had humanitarian imperialists."
"...To make matters worse (for them), only three days before the Pentagon's Africom launched its first 150-plus Tomahawks over Libya, Colonel Gaddafi gave an interview to German TV stressing that if the country were attacked, all energy contracts would be transferred to Russian, Indian and Chinese companies."

"...Turkey's Foreign Minister Ahmet Davutoglu - of the famed "zero problems with our neighbors" policy - has also been gushing praise on the former "rebels" turned powers-that-be. Eyeing the post-Gaddafi business bonanza as well, Ankara - as NATO's eastern flank - ended up helping to impose a naval blockade on the Gaddafi regime, carefully cultivated the TNC, and in July formally recognized it as the government of Libya. Business "rewards" loom."

Voltaire Network

Think of the new Libya as the latest spectacular chapter in the Disaster Capitalism series. Instead of weapons of mass destruction, we had R2P, short for "responsibility to protect". Instead of neo-conservatives, we had humanitarian imperialists.

Voltaire Network | Sâo Paulo (Brazil)

But the target is the same: regime change. And the project is the same: to completely dismantle and privatize a nation that was not integrated into turbo-capitalism; to open another (profitable) land of opportunity for turbocharged neo-liberalism. The whole thing is especially handy because it is smack in the middle of a nearly global recession.

It will take some time; Libyan oil won't totally return to the market within 18 months. But there's the reconstruction of everything the North Atlantic Treaty Organization (NATO) bombed (well, not much of what the Pentagon bombed in 2003 was reconstructed in Iraq ...).

Anyway - from oil to rebuilding - in thesis juicy business opportunities loom. France's neo-Napoleonic Nicolas Sarkozy and Britain's David of Arabia Cameron believe they will be especially well positioned to profit from NATO's victory. Yet there's no guarantee the new Libyan bonanza will be enough to lift both former colonial powers (neo-colonials?) out of recession.

President Sarkozy in particular will milk the business opportunities for French companies for all they're worth - part of his ambitious agenda of "strategic redeployment" of France in the Arab world. A compliant French media are gloating that this was "his" war - spinning that he decided to arm the rebels on the ground with French weaponry, in close cooperation with Qatar, including a key rebel commando unit that went by sea from Misrata to Tripoli last Saturday, at the start of "Operation Siren".

Well, he certainly saw the opening when Muammar Gaddafi's chief of protocol defected to Paris in October 2010. That's when the whole regime change drama started to be incubated.

Bombs for oil

As previously noted (see "Welcome to Libya's 'democracy'", Asia Times Online, August 24) the vultures are already circling Tripoli to grab (and monopolize) the spoils. And yes - most of the action has to do with oil deals, as in this stark assertion by Abdeljalil Mayouf, information manager at the "rebel" Arabian Gulf Oil Company: "We don't have a problem with Western countries like the Italians, French and UK companies. But we may have some political issues with Russia, China and Brazil."

These three happen to be crucial members of the BRICS group of emerging economies (Brazil, Russia, India, China and South Africa), which are actually growing while the Atlanticist, NATO-bombing economies are either stuck in stagnation or recession. The top four BRICs also happen to have abstained from approving UN Security Council resolution 1973, the no-fly zone scam that metamorphosed into NATO bringing regime change from above. They saw right through it from the beginning.

To make matters worse (for them), only three days before the Pentagon's Africom launched its first 150-plus Tomahawks over Libya, Colonel Gaddafi gave an interview to German TV stressing that if the country were attacked, all energy contracts would be transferred to Russian, Indian and Chinese companies.

So the winners in the oil bonanza are already designated: NATO members plus Arab monarchies. Among the companies involved, British Petroleum (BP), France's Total and the Qatar national oil company. For Qatar - which dispatched jet fighters and recruiters to the front lines, trained "rebels" in exhaustive combat techniques, and is already managing oil sales in eastern Libya - the war will reveal itself to be a very wise investment decision.

Prior to the months-long crisis that is in its end game now with the rebels in the capital, Tripoli, Libya was producing 1.6 million barrels per day. Once resumed, this could reap Tripoli's new rulers some US$50 billion annually. Most estimates place oil reserves at 46.4 billion barrels.

The "rebels" of new Libya better not mess with China. Five months ago, China's official policy was all ready to call for a ceasefire; if that had happened, Gaddafi would still control more than half of Libya. Yet Beijing - never a fan of violent regime change - for the moment is exercising extreme restraint.

JPEG - 79.1 kb
After a Libyan "rebel" official warned that Chinese oil companies could lose out after the ousting of Muammar Gaddafi, China urged Libya to protect its investments and said their oil trade benefited both countries.

Wen Zhongliang, the deputy head of the Ministry of Trade, willfully observed, "Libya will continue to protect the interests and rights of Chinese investors and we hope to continue investment and economic cooperation." Official statements are piling up emphasizing "mutual economic cooperation".

Last week, Abdel Hafiz Ghoga, vice president of the dodgy Transitional National Council (TNC), told Xinhua that all deals and contracts agreed with the Gaddafi regime would be honored - but Beijing is taking no chances.

Libya supplied no more than 3% of China's oil imports in 2010. Angola is a much more crucial supplier. But China is still Libya's top oil customer in Asia. Moreover, China could be very helpful in the infrastructure rebuilding front, or in the technology export - no less than 75 Chinese companies with 36,000 employees were already on the ground before the outbreak of the tribal/civil war, swiftly evacuated in less than three days.

The Russians - from Gazprom to Tafnet - had billions of dollars invested in Libyan projects; Brazilian oil giant Petrobras and the construction company Odebrecht also had intrests there. It's still unclear what will happen to them. The director general of the Russia-Libya Business Council, Aram Shegunts, is extremely worried: "Our companies will lose everything because NATO will prevent them from doing business in Libya."

Italy seems to have passed the "rebel" version of "you're either with us or without us". Energy giant ENI apparently won't be affected, as Premier Silvio "Bunga Bunga" Berlusconi pragmatically dumped his previous very close pal Gaddafi at the start of the Africom/NATO bombing spree.

ENI's directors are confident Libya's oil and gas flows to southern Italy will resume before winter. And the Libyan ambassador in Italy, Hafed Gaddur, reassured Rome that all Gaddafi-era contracts will be honored. Just in case, Berlusconi will meet the TNC's prime minister, Mahmoud Jibril, this Thursday in Milan.

Bin Laden to the rescue

Turkey's Foreign Minister Ahmet Davutoglu - of the famed "zero problems with our neighbors" policy - has also been gushing praise on the former "rebels" turned powers-that-be. Eyeing the post-Gaddafi business bonanza as well, Ankara - as NATO's eastern flank - ended up helping to impose a naval blockade on the Gaddafi regime, carefully cultivated the TNC, and in July formally recognized it as the government of Libya. Business "rewards" loom.

Then there's the crucial plot; how the House of Saud is going to profit from having been instrumental in setting up a friendly regime in Libya, possibly peppered with Salafi notables; one of the key reasons for the Saudi onslaught - which included a fabricated vote at the Arab League - was the extreme bad blood between Gaddafi and King Abdullah since the run-up towards the war on Iraq in 2002.

It's never enough to stress the cosmic hypocrisy of an ultra-regressive absolute monarchy/medieval theocracy - which invaded Bahrain and repressed its native Shi'ites - saluting what could be construed as a pro-democracy movement in Northern Africa.

Anyway, it's time to party. Expect the Saudi Bin Laden Group to reconstruct like mad all over Libya - eventually turning the (looted) Bab al-Aziziyah into a monster, luxury Mall of Tripolitania.

[Oct 14, 2015] The Financial Sector is Too Big

October 9, 2015 | naked capitalism

By Philip Arestis Professor and Director of Research at the Cambridge Centre for Economic & Public Policy and Senior Fellow in the Department of Land Economy at the University of Cambridge, UK, and Professor of Economics at the University of the Basque Country and Malcolm Sawyer, Professor of Economics, University of Leeds. Originally published at Triple Crisis

Has the financial sector become too large, absorbing too many resources, and enhancing instabilities? A look at the recent evidence on the relationship between the size of the financial sector and growth.

There has been a long history of the idea that a developing financial sector (emphasis on banks and stock markets) fosters economic growth. Going back to the work of authors such as Schumpeter, Robinson, and more recently, McKinnon, etc., there have been debates on financial liberalisation and the related issue of whether what was relevant to financial liberalisation, namely financial development, "caused" economic development, or whether economic development led to a greater demand for financial services and thereby financial development.

The general thrust of the empirical evidence collected over a number of decades suggested that there was indeed a positive relationship between the size and scale of the financial sector (often measured by the size of the banking system as reflected in ratio of bank deposits to GDP, and the size of the stock market capitalisation) and the pace of economic growth. Indeed, there have been discussion on whether the banking sector or the stock market capitalisation is a more influential factor on economic growth. The empirical evidence drew on time series, cross section, and panel econometric investigations. To even briefly summarise the empirical evidence on all these aspects is not possible here. In addition, the question of the direction of causation still remains an unresolved issue.

The processes of financialisation over the past few decades have involved the growing economic, political and social importance of the financial sector. In size terms, the financial sector has generally grown rapidly in most countries, whether viewed in terms of the size of bank deposits, stock market valuations, or more significantly in the growth of financial products, securitisation, and derivatives as well as trading volume in them. This growth of the financial sector uses resources, often of highly trained personnel, and inevitably raises the question of whether those resources are being put to good use. This is well summarised by Vanguard Group founder John Bogle, who suggests, "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It's a waste of resources" (MarketWatch, Aug. 1 2015).

Financial liberalisation and de-regulation were promoted as ways of releasing the power of the financial sector, promoting development of financial markets and financial deepening. The claims were often made by the mainstream that financial liberalisation had removed "financial repression" and stimulated growth. Yet, financial liberalisation in a country often led to banking and financial crises, many times with devastating effects on employment and living standards. Financial crises have become much more frequent since the 1970s in comparison with the "golden age" of the 1950s and 1960s. The international financial crisis of 2007/2008 and the subsequent Great Recession were the recent and spectacular crises (though the scale of previous crises such as the East Asian ones of 1997 should not be overlooked). The larger scale of the financial sector in the industrialised countries has been accompanied (even before 2007) with somewhat lower growth than hitherto. As the quote above suggests there has not been an upsurge of savings and investment, and indeed many would suggest that the processes of financialisation dampen the pressures to invest, particularly in research and development. Has the financial sector become too large, absorbing too many resources, and enhancing instabilities?

An interesting recent development has been a spate of research papers coming from international organisations and many others, which have pointed in the direction that indeed the financial sector in industrialised countries have become too big-at least when viewed in terms of its impact on economic growth. (See Sawyer, "Financialisation, financial structures, economic performance and employment," FESSUD Working Paper Series No. 93, for a broad survey on finance and economic performance.) These studies rely on econometric (time series) estimation and hence cover the past few decades-which suggests that their findings are not in any way generated by the financial crisis of 2007/2008 and the Great Recession that followed.

A Bank of International Settlements study concluded that "the complex real effects of financial development and come to two important conclusions. First, financial sector size has an inverted U-shaped effect on productivity growth. That is, there comes a point where further enlargement of the financial system can reduce real growth. Second, financial sector growth is found to be a drag on productivity growth." Cournède, Denk,and Hoeller (2015) state that "finance is a vital ingredient for economic growth, but there can also be too much of it." Sahay, et al. (2015) find a positive relationship between financial development (as measured by their "comprehensive index") and growth, but "the marginal returns to growth from further financial development diminish at high levels of financial development―that is, there is a significant, bell-shaped, relationship between financial development and growth. A similar non-linear relationship arises for economic stability. The effects of financial development on growth and stability show that there are tradeoffs, since at some point the costs outweigh the benefits."

There are many reasons for thinking that the financial sector has become too large. Its growth in recent decades has not been associated with facilitating savings and encouraging investment. It has absorbed valuable resources which are largely engaged in the trading in casino-like activities. The lax systems of regulation have made financial crises more likely. Indeed, and following the international financial crisis of 2007/2008 and the great recession a number of proposals have been put forward to avoid similar crises. To this day, nonetheless, the implementation of these proposals is very slow indeed (see, also, Arestis, "Main and Contributory Causes of the Recent Financial Crisis and Economic Policy Implications," for more details).

See original post for references

MartyH, October 9, 2015 at 10:28 am

Now that Michael Hudson's Killing the Host has been available for a while, one suspects a Picketty-like effect with folks "discovering" that Taibbi's Giant Vampire Squid characterization of Goldman-Sachs (one of many) wasn't funny.

blert, October 9, 2015 at 5:24 pm

It's a squid that squirts RED INK - onto everyone else.

susan the other, October 9, 2015 at 11:03 am

This is a great and readable essay. Sure sounds like Minsky. And even Larry Summers when he advocates for more bubbles. And Wolfgang Schaeuble said repeatedly that "we are overbanked." We just don't know how to do it any other way. When everything crashes it's too late to regulate. Unless Larry knows a clever way to regulate bubbles.

JTMcPhee, October 10, 2015 at 8:40 am

The Banksters' refrain:

"Don't regulate you,
Don't regulate me!
Regulate that guy over behind that tree…"

MY scam is systemically important!

Just Ice, October 10, 2015 at 3:34 pm

"We just don't know how to do it any other way. " STO

Yet there is another way, an equitable way :) Dr. Michael Hudson himself says that industry should be financed with equity, not debt.

Leonard, October 10, 2015 at 3:53 pm

Susan
There is way to manage bubbles before they get out of control. This article explains how. Go to wp.me/WQA-1E

ben, October 9, 2015 at 11:17 am

Wasted resources are way higher than the Vanguard example. They misdirect resources especially into land and issue new money as debt.

RepubAnon, October 10, 2015 at 11:29 pm

They think that they make their living by "ripping the eyes out of the muppets" – so they're opposed to regulations which would protect the muppets' eyes.

I look at the financial industry as sort of like sugar for the economy – the right amount is good for you, but too much will kill you.

Just Ice, October 9, 2015 at 12:35 pm

"The lax systems of regulation have made financial crises more likely."

Actually, it's the near unlimited ability of the banks to create deposits ("loans create deposits" but also debts) that causes large scale financial crises. And what is the source of this absurd ability of the banks? ans: government privileges including deposit insurance instead of a Postal Savings Service or equivalent and a fiat (the publics' money) lender of last resort.

Besides, regulations typically do not address the fundamental injustice of government subsidized banks – extending the publics' credit to private interests.

Synoia October 9, 2015 at 12:53 pm

There is something very wrong about money creation from loans. I'm not arguing that this is incorrect, I'm looking at money creation being a burden on the citizenry. I cannot see how this will end well, because of the asymmetric nature, money creation only benefits the banks, of the burden of money creation.

Just Ice October 9, 2015 at 1:40 pm

"There is something very wrong about money creation from loans."

More precisely, there is something very wrong about being driven into debt by government-subsidized private credit creation. Source of the rat race? Look no further.

zapster October 10, 2015 at 9:32 am

It's the bank-money vs. government money situation. The hysteria over "The Deficit (gasp)" insures that none of us have cash and must borrow to live. The bankers won.

Just Ice October 10, 2015 at 1:56 pm

"It's the bank-money vs. government money situation." zapster

More precisely, who gets to create the government's money since it is taxation* that drives the value of fiat. But it's an absurd situation since obviously the government ALONE should create fiat, not a central bank for the benefit of banks and other private interests, especially the wealthy.

As for the private sector, let it create its own money solutions and my bet is that we'll have a much more equitable (pun intended) society as a result.

The problem then is taxation. How does one tax someone's income in Bitcoins, for example? How does one preclude tax evasion? Unavoidable taxes such as land taxes (except for a homestead exemption) are one possibility.

*As well as the need to pay the interest on the debt the government subsidized banking cartel drives us into.

Yves Smith Post author October 10, 2015 at 5:17 pm

*Sigh*. The government alone does control the money supply in a fiat currency issuer. The government hasn't bothered to do so actively because the only time it DID try doing that (under Reagan and Thatcher) they found out, contra Friedman, that money supply growth bore no relationship to any macroeconomic variable. Monetarism was a failed experiment.

readerOfTeaLeaves October 9, 2015 at 10:58 pm

I happened upon a great link - about the probable origins of interest. Here's the link: http://viking.som.yale.edu/will/finciv/chapter1.htm

Scroll down to "The Idea of Interest". This author posits that back in the (ancient, herding) day, people lent cattle. I lend you my cow, your bull impregnates her, and I get a part of the calf.

What the author probably didn't understand, but is known to those of us interested in the history of metallurgy, is that there was a belief that metals 'grew' - after all, plants grew from the ground, vines grew from the ground, trees and bushes also grew from the ground. It was not a great stretch to suppose that metals also grew within the ground, and back in those ancient days they expected the same kind of 'growth' from metals that happened with agricultural products.

Perhaps if I ever get to retire, I can read Hudson's entire work, and possibly he covers this topic. But I do think that it is time for the rest of us to rethink the nature of money - particularly in an emerging digital era.

cnchal October 10, 2015 at 10:42 am

Thanks for that link. Here is a little nugget that relates to today.

The legal limit on interest rates for loans of silver was 20% over much of Dumuzi-gamil's life, but Marc Van De Mieroop demonstrates how Dumuzi-gamil and other lenders got around such strictures - they simply charged the legal limit for shorter and shorter term loans! Curiously, while mathematics during this era was extraordinarily advanced, the government failed to understand, or at least effectively regulate the close link between time and money.

Sound familiar. It's more like the banksters regulate government.

As for compound interest, it seems to be the most diabolical human invention yet, as it infers exponential growth without limits.

Here is Keynes discussing compound interest in his speech "Economic Possibilities for our Grandchildren" (1930)

From the earliest times of which we have record – back say to two thousand years before Christ – down to the beginning of the eighteenth century, there was no very great change in the standard of life of the average man living in the civilized centres of the earth. Ups and downs certainly. Visitations of plague, famine, and war. Golden intervals. But no progressive, violent change. Some periods perhaps 50 per cent better than others – at the utmost 100 per cent better – in the four thousand years which ended (say) in A.D. 1700.

This slow rate of progress, or lack of progress, was due to two reasons – to the remarkable absence of important technical improvements and to the failure of capital to accumulate.

The absence of important technical inventions between the prehistoric age and comparatively modern times is truly remarkable. Almost everything which really matters and which the world possessed at the commencement of the modern age was already known to man at the dawn of history. Language, fire, the same domestic animals which we have today, wheat, barley, the vine and the olive, the plough, the wheel, the oar, the sail, leather, linen and cloth, bricks and pots, gold and silver, copper, tin, and lead – and iron was added to the list before 1000 B.C. – banking, statecraft, mathematics, astronomy, and religion. There is no record of when we first possessed these things.

At some epoch before the dawn of history – perhaps even in one of the comfortable intervals before the last ice age – there must have been an era of progress and invention comparable to that in which we live today. But through the greater part of recorded history there was nothing of the kind.
The modern age opened, I think, with the accumulation of capital which began in the sixteenth century. I believe – for reasons with which I must not encumber the present argument – that this was initially due to the rise of prices, and the profits to which that led, which resulted from the treasure of gold and silver which Spain brought from the New World into the Old. From that time until today the power of accumulation by compound interest, which seems to have been sleeping for many generations, was reborn and renewed its strength. And the power of compound interest over two hundred years is such as to stagger the imagination.

Let me give in illustration of this a sum which I have worked out. The value of Great Britain's foreign investments today is estimated at about £4,000 million. This yields us an income at the rate of about 6 1/2 per cent. Half of this we bring home and enjoy; the other half, namely, 3 1/2 per cent, we leave to accumulate abroad at compound interest. Something of this sort has now been going on for about 250 years.

For I trace the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition. Out of her share she paid off the whole of England's foreign debt, balanced her budget, and found herself with about £40,000 in hand. This she invested in the Levant Company – which prospered. Out of the profits of the Levant Company, the East India Company was founded; and the profits of this great enterprise were the foundation of England's subsequent foreign investment. Now it happens that £40,000 accumulating at 3 1/2 per cent compound interest approximately corresponds to the actual volume of England's foreign investments at various dates, and would actually amount today to the total of £4,000 million which I have already quoted as being what our foreign investments now are. Thus, every £1 which Drake brought home in 1580 has now become £100,000. Such is the power of compound interest !

From the sixteenth century, with a cumulative crescendo after the eighteenth, the great age of science and technical inventions began, which since the beginning of the nineteenth century has been in full flood – coal, steam, electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production, wireless, printing, Newton, Darwin, and Einstein, and thousands of other things and men too famous and familiar to catalogue.

What is the result? In spite of an enormous growth in the population of the world, which it has been necessary to equip with houses and machines, the average standard of life in Europe and the United States has been raised, I think, about fourfold. The growth of capital has been on a scale which is far beyond a hundred-fold of what any previous age had known. And from now on we need not expect so great an increase of population.

This reminds me of the huge fortunes growing at compound interest today.

Take the Gates Foundation as an example.

From Wikipedia: It had an endowment of US$42.3 billion as of 24 November 2014.

If this were to grow at a compound interest rate of 7.2% annually, it would double every ten years, and in one hundred years would be $43 trillion dollars and in two hundred years $44,354 trillion or $44.354 quadrillion. It's as if Bill and Warren are playing a practical joke on the world, as their compound interest monster swallows every available dollar.

I wonder what a loaf of bread will cost in two hundred years?

nigelk October 9, 2015 at 3:20 pm

Fractional-reserve banking is anathema to human dignity itself. What was it Gandhi said about "wealth without work"…?

griffen October 9, 2015 at 12:56 pm

Top heavy might be the marginally better angle to take here. Although I recently left the state (N Texas, Dallas), Texas banks are being merged or acquired left and right. On some occasions it is necessary if very small institutions are unable to compete, unable to meet a decent ROE bogey (6.0% ROE is sorta low), or just unable to fend off progress.

Other occasions the larger regional and national banks can just win on scale.

Noni Mausa October 9, 2015 at 1:10 pm

I have long thought about the banking system as a beating heart. Of course it needs fuel, like the rest of the body, but when a heart gets larger and larger, and contains more and more blood, and uses more and more fuel, the rest of the body never fares well.

"Surging bank profits" is never a headline that makes me happy.

Carla October 9, 2015 at 11:43 pm

Yes, congestive heart failure kills the host - this is a great analogy - Thanks!

anders October 9, 2015 at 2:01 pm

The real question is: why was it that the "creation of wealth" had to turn to the financial sector. IMHO it's because the productive sector is lesser and lesser able to produce surplus value. So that free capital istn't attracted to it. Of course in the financial sector there isn't any value created at all.

Just Ice October 9, 2015 at 3:33 pm

" IMHO it's because the productive sector is lesser and lesser able to produce surplus value. "

Yes, because of unjust wealth distribution; the host has finally been exhausted. With meta-materials, nano-technology, genetic engineering, better catalysts, etc. and with practical nuclear fusion on the horizon (because of new superconducting materials) mankind has probably never been on the verge of creating so much value as now but can't because of lack of effective demand, not for junk but for such things as proper medical and dental care while the wealthy have more than they know what to do with.

blert October 9, 2015 at 5:22 pm

Is the sky blue ?

Decades of 'political – solvency' insurance has permitted 'the blob' to overwhelm all.

&&&

If all of society played Poker … would anything be produced ? THAT'S the aspect that has metastasized. It's not proper to term it the 'financial sector' - gambling// speculation emporium… now you're talking. When the government chronically intervenes to bail out highly sophisticated fools…. Jon Corzine is the result. - And he's not even the target of law enforcement !!!!

equote October 10, 2015 at 7:40 am

"A business that makes nothing but money is a poor business." -- Henry Ford

sd October 10, 2015 at 4:18 pm

Financial liberalisation and de-regulation were promoted as ways of releasing the power of the financial sector, promoting development of financial markets and financial deepening.

Release the Kraken comes to mind.

A Critique of Crisis Theory

Germany and the U.S. Empire (Pt. 1)

The Volkswagen scandal

... ... ...

Above all, it is quite in accordance with the nature of competition between capitalist nation-states. An important function of a capitalist nation-state is to put its own capitalists in the best possible position relative to rivals headquartered in rival nation-states. A little less than 70 years ago-within the lifetime of many people still living-the efforts of the U.S. to curb Germany's competitive threat to U.S. industry took the form of open shooting warfare that ended with the U.S. invasion and occupation of Germany. That occupation has never really ended.

... ... ...

This is confirmed in an article by Associated Press writer Michael Biesecker on Sept. 29, who reveals that Volkswagen's crime is actually a rather common practice in the automobile industry: "Almost since the passage of the Clean Air Act in 1970, major manufacturers of cars, trucks and heavy equipment have been busted for using what regulators call 'defeat devices'-typically programing a vehicle's on-board computer to boost horsepower or fuel mileage by belching out dirtier exhaust than allowed."

Biesecker reports further, "Complying with clean air regulations can add thousands of dollars to a vehicle's sticker price while diminishing the driving performance that customers demand." He quotes Donald Stedman, a University of Denver chemistry professor who specializes in testing the real-world emissions of cars and trucks: "Every car company has an incentive to do this. Some of them get caught."

In the light of these facts, as well as the continuing stubborn "secular stagnation" afflicting the world economy and Germany's remarkable growth in exports, there is more than a little reason to suspect that the EPA's exposure of Volkswagen emissions cheating and the accompanying press campaign is motivated by something other than concern about the environment. At the very least, we should demand that the source code of the software of all automobile manufacturers be made public immediately!

How Germany is exporting depression conditions to its competitors

In his blog dated July 17, 2015, our fellow economic blogger-and former chairman of the Board of Governors of the Federal Reserve System-Ben Bernanke complained that Germany has been in effect exporting mass unemployment and depression. Now, the chairperson of the Board of Governors is one of the most powerful positions in the world. Nobody who is not closely connected to and enjoys the confidence of the most powerful U.S. capitalists is seriously considered for the job. So we can assume that Bernanke's blog posts reflect the views of a considerable section of the U.S. capitalist class.

In a piece entitled "Europe and Greece: Is Europe holding up its end of the bargain?" Bernanke takes note of the "unevenness in economic outcomes among countries within the euro zone." (2) "What is a problem, however," Bernanke explains, is not simply the unevenness of economic outcomes but that "Germany has effectively chosen to rely on foreign rather than domestic demand to ensure full employment at home, as shown in its extraordinarily large and persistent trade surplus, currently almost 7.5 percent of the country's GDP."

Translating from the language of the professional economist, Germany is exporting itself out of the depression that surrounds it. Instead of generating demand at home, Bernanke complains, Germany is taking markets away from the capitalists of other countries. "Within a fixed-exchange-rate system like the euro currency area," Bernanke writes, "such persistent imbalances are unhealthy, reducing demand and growth in trading partners and generating potentially destabilizing financial flows."

In fact, this is true whether exchange rates are fixed or floating, or as in this case trade is within a common currency area where there are no exchange rates at all. As we saw last month, global demand is at any given point in time fixed, which means that the larger the share of the world market of one capitalist nation the smaller the share of other nations. Only if the market is so robust that all countries can sell their entire potential product at least at the price of production will this not be the case.(3) Under the capitalist mode of production, this rarely happens and it is certainly not the case today.

In addition, for relations between them to be non-antagonistic, participants in the world market would have to be guaranteed to grow in step with the rising productive capacities of the nations engaged in capitalist production so they could continue to sell their rising output at their production prices. Though professional economists, relying on such theories as Say's law, the quantity theory of money and the so-called law of comparative advantage, claim this to be true, as I have explained throughout this blog this is not and cannot be the case under the capitalist mode of production.

According to Bernanke-if you leave Germany out-the unemployment rate in Europe taken as a whole exceeds 13 percent, based on the usual methods of capitalist governments, which greatly understate the problem. Therefore, Europe as a whole, excluding Germany, remains bogged down in a chronic depression and accompanying mass unemployment crisis that shows no signs of ending.

In Germany, however, the official rate of unemployment is below 5 percent. That is even lower than the "low" unemployment rate reported for the U.S. economy. The point is not that there is really "full employment" in Germany, but that unemployment is considerably lower there than in most of the rest of Europe. This is confirmed by the current refugee crisis caused by a combination of U.S.-incited wars and grim economic conditions throughout North Africa and the Middle East, now further aggravated by the low price of oil.

... ... ...

Bernanke's complaint against the German industrial capitalists is an old one for Germany's competitors. In the late 19th and early 20th centuries, Germany was doing exactly the same thing. Pre-World War I recessions were relatively brief and mild in Germany because Germany was able to export itself out of them at the expense of its capitalist competitors. Indeed, from the 1880s until the coming of the "Great War" in August 1914, Germany experienced no major economic crises.

The rapid growth of German industry fueled the growth of the classic German Social Democracy and made possible the financing of Germany's pioneering "welfare state." This convinced many of the German Social Democratic and trade union leaders that prosperity, at least for Germany, was permanent. Therefore, they reasoned, German capitalism would gradually evolve into something that could be called a socialist society without any major disruptions, not to speak of revolutions. What they didn't reckon with was the fact that Germany's competitors, which were coming up second best in the economic competition, were not going to stand idly by while the German capitalists stripped them of more and more of their markets.

Britain, which had been the strongest industrial power since the industrial revolution of the late 18th century, was particularly alarmed by Germany's growing industrial power. It responded by forming alliances with France and czarist Russia in an attempt to contain Germany. The result was the Great War and the horrors that flowed directly from it, which included the Great Depression of the 1930s and the rise to power of fascism in Germany. Now it seems that history is beginning to repeat itself, at least on the economic plane.

"Nobody," Bernanke writes, "is suggesting that the well-known efficiency and quality of German production are anything other than good things, or that German firms should not strive to compete in export markets." But you can almost hear Bernanke mumble, but why do the Germans have to be so much better at producing such high-quality products more cheaply than anybody else, and who won the last two world wars anyway.

... ... ...

­Zetsche's remarks tell us a lot about the relationship of forces in today's imperialist-dominated world. First, it shows that despite the tremendous progress China has made since the victory of its great people's revolution of 1949, it remains very much an exploited nation. Foxconn is owned by Chinese capitalists based not on the mainland ruled by the People's Republic of China-though they carry out their production there-but rather in Taiwan, a part of China still effectively controlled by the United States. (4)

This shows that even in the political sense the liberation of China from imperialist dismemberment is incomplete and won't be complete until Taiwan, and Hong Kong as well, are fully integrated into the People's Republic of China. The nature of the political social, and economic institutions of the future fully united China is the business of the Chinese people themselves and not of the imperialists, or for that matter well-meaning Western leftists who believe they "know" what is best for the Chinese people. Zetsche's observations should also put to rest claims that today's China is the new imperialist superpower ready to impose its rule over our planet.

The main theme of this blog is crisis theory, but a secondary theme has been the rise and development of the U.S. world empire, whose realm-or "reich" in German-has spread throughout the world. This is the real reich we have to deal with today and not an imaginary reich where Germany won World War II and the swastika flag flies over the White House. (5)

As we have explained in earlier posts, the American empire has an inner and outer core. The realm-or reich-of the dollar is the globe. No country, not even Cuba or North Korea, can escape the dollar's reich. When the Open Market Committee of the U.S. Federal Reserve System meets, all countries hold their breath. There is also the smaller empire of NATO and its allied institutions such as the U.S.-Japan Security Agreement and the "special relationship" with Israel.

The U.S. empire is increasingly moving to merge these auxiliary alliances into the structure of NATO. When I say NATO, I mean unless otherwise noted NATO plus these auxiliary alliances. All NATO countries, as defined here, are under the effective military control of the United States. While the governments of these countries are more than puppet governments, they are unable to take major decisions involving peace and war without the approval of the government of the United States.

A recent example is the decision of the U.S. government to gradually lift the economic blockade of Iran in exchange for Iran reaffirming its decision not to produce nuclear weapons, accepting restrictions on its civilian nuclear energy program, and agreeing to inspections. Despite Israel's strong objections to this agreement, and Netanyahu's direct appeal to the U.S. Congress, the agreement is going ahead.

Another example is the decision of the U.S. to impose sanctions on Russia over the Ukrainian crisis. Though it is obvious the governments of most of the West European countries, especially the German government, are not enthusiastic about these sanctions, which hurt their own capitalists, they cannot override Washington's decision. Within "the NATO reich," these subordinate countries have what amounts to consultative votes while Washington alone has a decisive vote.

The civilian governments of the NATO countries-again broadly defined-lack full control over their armed forces and face ouster if they defy the will of the Empire in any matter that the U.S. government considers vital. This situation has long been the case with many Latin American countries, even before the rise of the modern NATO. Latin American countries have a long history of military coups that have ousted many a government that has defied the will of Washington. In more recent years, Washington has used the coup weapon more sparingly in the face of growing mass resistance to U.S. domination, but many a Latin American government knows very well that a pro-U.S. military is looking over their shoulders. This fact limits how far these governments can go in following policies that Washington does not approve of.

This situation, largely limited to Latin American counties before World War II, now includes all the NATO countries of both Western and Eastern Europe, Japan, some former Soviet republics, and not least Germany. The former Soviet Republic of Georgia-Stalin's homeland-and now the Ukraine are de facto members, though not formally members of NATO. However, NATO does not include Russia, the largest of the former Soviet Republics, nor does it include the government of the former Soviet republic of Belarus.

... ... ...

For now, however, the U.S. keeps tight control over the military forces of the other NATO countries, especially those of Japan and Germany. It is no accident that the main opponents of the U.S. in World War II are thoroughly networked with U.S. military bases. In addition, thanks to the bravery of Edward Snowden, we know that Germany is under intense NSA surveillance, including the mobile phone of German Chancellor Angela Merkel.

Despite their alleged "friendship" and alliance, there is no trust and no true friendship and there never can be between rival imperialist robber states. However, as long as the military spending of Germany and other European countries, as well as Japan, remains low relative to U.S. spending, their capitalists can convert more of their profits into new productive capital than the U.S capitalists can. This puts the U.S. industrial capitalists at a disadvantage in the struggle for the scarce consumer dollar.

The U.S., therefore, wants the other imperialist countries-especially Germany and Japan-to convert some their profits instead into means of destruction. To the extent this happens, the capitalist development of such dangerous economic competitors as Germany and Japan is slowed down allowing U.S. corporations to convert more of their profits into means of production, thus improving their competitive position relative to the Germans and Japanese while the U.S. remains in overall control of the Empire's military forces. It has the further advantage for the U.S. government that it faces less domestic opposition to colonial wars to the extent German and Japanese solders do more of the fighting.

The government of Japan has just agreed to revise its U.S.-imposed "peace constitution" to enable the Japanese government not to fight wars in its own interest against the U.S. but rather fight wars beside the United States, much like German forces fought under the command of the U.S.-dominated reich against Yugoslavia in the 1990s and more recently in Afghanistan.

This is a very dangerous development, especially in light of moves by the U.S. to encircle China, which are all too reminiscent of Britain's attempts to encircle Germany before 1914. We all know how that turned out.

After World War II, the United States was determined to bring all the imperialist countries under its military control-first the defeated Axis powers of Germany, Japan and Italy and then increasingly its "victorious allies," Britain and France, through the NATO alliance.

NATO proper increasingly includes not only the imperialist countries but oppressed countries. The first such country to be granted formal membership was Turkey, which has special importance because of its control of the Dardanelles, linking the Black Sea with the Mediterranean Sea. The Empire's control of the Mediterranean would be seriously undermined if Turkey were to escape clutches of NATO.

Israel, today's "white colony" of the U.S. and an unofficial NATO member also plays an important role in the Empire's control of the Mediterranean.

At the end of the Cold War, the newly capitalist oppressed countries of Eastern Europe were signed up as formal NATO members, violating the meaningless assurances that George H.W. Bush gave to Gorbachev that NATO would not expand eastward. In fact, NATO has been expanding ever deeper into what was the Soviet Union. NATO's most recent addition, though so far unofficially, is the grain and natural gas-rich Ukraine-minus Crimea and so far the Peoples Republics of largely Russian-speaking Donetsk and Lugansk. This fact is important because Washington and its NATO satellites are not obliged by treaty obligations to automatically defend the Kiev junta under the doctrine that an attack on one NATO member is an attack on all NATO members.

If, however, Ukraine becomes an official NATO member, this would not be the case. Fortunately, there is still time to fight the Kiev's junta's attempt to become an official member of NATO. If Kiev does achieve this goal, the chances of a shooting war at some point between the United States and its NATO satellites (including Germany) and Russia would rise considerably.

How NATO works

NATO formally came into existence in 1949, but its real origins can be traced back to the D-Day of the invasion by the United States and Britain of Nazi Germany-dominated Europe on June 6, 1944. As the U.S.-British forces advanced eastward across France and into Germany, all of Europe west of the advancing Soviet army fell under the domination of proto-NATO. However, the growing proto-NATO empire came to a halt on a line drawn by the Soviet army, which was advancing on Berlin from the east.

As NATO was formalized after World War II, its members were given a voice in its decision-making, but it is the U.S. government that ultimately decides. An example of this came in 1990 as the wave of counterrevolutions swept Eastern Europe and what was soon to be the former Soviet Union. The Socialist Unity Party (SED) government that had ruled the German Democratic Republic-East Germany-had been overthrown with the direct assistance of the Gorbachev regime. No realistic observer at the time had any doubt that the overthrow of the SED would mean the restoration of capitalism in the GDR. But the question remained, would the German Democratic Republic continue to exist as a third German state alongside the Federal Republic of Germany-West Germany-and Austria, or would it be merged with the Federal Republic of Germany in a united Germany-excluding Austria?

France was opposed to the merger of the GDR and the Federal Republic of Germany. It wanted to keep Germany as weak as possible, both as an economic competitor and a potential military enemy. But the final decision was Washington's. It decided to give the green light to the merger of the GDR with the Federal Republic of Germany.

But the U.S. insisted that the new united Germany would have to be a member of NATO. The Warsaw Pact, the answer of the European socialist countries to NATO, was to be dissolved as NATO was extended. France had no alternative but to agree-unless it wanted to go to war with Germany and the United States and with the other NATO countries. And that, of course, was out of the question.

When Washington agreed to the Federal Republic swallowing the German Democratic Republic, Washington insisted that the Federal Republic in exchange had to drop its demands for the return of its lost eastern territories, mostly in Poland, that had been part of Germany before World War II.

Indeed, if you look at the map of present-day Germany, you find that its capital, Berlin, is not more or less in the center of the country like it was before 1914 but in the far east of Germany almost tucked up against the Polish border. But Poland, just like Germany and France, is now part of NATO. As long as NATO lasts, this means that if Germany wants to get back the territories it lost to Poland, it would have to either get Washington's permission or go to war not only with Poland but with NATO as a whole, including the United States. This, at least, given the current balance of forces is not feasible. Washington as the master of NATO therefore emerges as Poland's protector from an economically resurgent but NATO-constrained Germany.

Farther east, a similar situation is emerging. In 1939, as part of the short-lived non-aggression pact between Nazi Germany and the Soviet Union, the non-Polish territories that Poland had taken from the Ukraine and Belorussians as a result of the Versailles Treaty and the Soviet-Polish war of 1920 were to become part of the Ukrainian and Belorussian republics, then part of the Soviet Union. Today, Warsaw is looking eastward, and we can assume some in Poland would like to get back Poland's lost territories in Ukraine and Belarus. But as Ukraine is now being integrated into NATO, Poland will not be able to get these territories unless Washington agrees or Poland is prepared to go to war with the U.S. and NATO. Just like Poland enjoys Washington's protection from its fellow NATO member Germany, the Ukraine as a de facto member of NATO in turn "enjoys" Washington's protection from NATO member Poland

... ... ...

The countries that remain outside of NATO's grasp, including the Russian Federation and the People's Republic of China, are forced to participate in such Washington-controlled organizations as the World Trade Organization and the International Monetary Fund. Recently, the non-NATO countries led by the BRICS (Brazil, Russia, India, China and South Africa) have created parallel organizations to the International Monetary Fund and the World Bank. However, so far there are no moves to create parallels to the the U.S. dollar, and above all, there is no move to create a parallel military alliance that could stand up to NATO. As a result, the BRICS countries are obliged to remain members of the WTO.

All WTO members have to give up key elements of their sovereignty such as what tariff policy they can follow and, very importantly, their control over patents and copyrights, including software copyrights. This allows U.S. corporations to sue companies in other countries on the ground that they are violating intellectual property rights. For example, Apple recently sued the South Korean-based Samsung, claiming that Samsung smart-phones violated Apple's patents. Not surprisingly, the U.S. federal jury found in favor of Apple's claims.

When such lawsuits are filed, a U.S. jury-an organ of the state-decides whether or not a foreign company can or cannot produce a given commodity and how much money the foreign company is obliged to pay the U.S. company if it is found to be in violation of the U.S. company's "intellectual property."

... ... ...

Countries outside of NATO and its unofficial extensions have considerably more room to resist the control of their industrial production by the U.S. state. For example, South Korea is very much a U.S. neo-colony notwithstanding its considerable degree of industrialization. It is in no position to seriously resist U.S. government control of their production in the profit interests of U.S. corporations. They are largely forced to defend their interests in U.S. courts, where they are at a considerable disadvantage.

The People's Republic of China, in contrast, stands outside of NATO. The U.S. press periodically runs articles complaining that Chinese companies are "counterfeiting" Apple's iPhones and other iThings. As we know, Apple's "legal products" are also assembled in China, but it seems that this does not give Chinese capitalists the right to compete with Apple in the spirit of free competition.

These reporters have apparently forgotten their Adam Smith. The great classical Scottish economist explained that all that keeps the individual capitalist honest and prices anywhere near their "natural price"-price of production-is the ability of other competing capitalists to manufacture and sell competing products. This is why Smith advised the government to stay out of the business of telling individual capitalists what commodities they are not allowed to produce and sell.

What would the old Scottish economist have thought of the concept of "counterfeit products"? He no doubt would have explained that there is quite a difference between the economic effects of counterfeiting currency and freely producing commodities of a given use value! If a commodity is "counterfeited" as a result of free competition, he would have explained, its "value in use" is in no way impaired. Instead, the profit rates of the capitalists engaged in producing it are reduced to more or less the average rate. He further explained that this was a very good thing. If paper currency, in contrast, is freely counterfeited, its "value in use"-to represent money in circulation-is destroyed. That, of course, is a very bad thing.

Adam Smith's principles are far more respected in the People's Republic China these days than in the U.S. This shows that capitalism is not yet as outlived in China as it is in the U.S. The U.S. and the U.S. media take for granted not only the fact that the government can tell the capitalists what they are and are not allowed to produce and sell but that the U.S. state-and its organs like U.S. juries-can tell the capitalists of any other country in the world what they are allowed and not allowed to produce.

In this way, the principle of the national sovereignty of other countries is violated as well as the basic principles of "perfect liberty," as Adam Smith called free competition. However, even China as far I know would not allow any of its industrial capitalists to produce and sell a Hackintosh, not even for domestic consumption on the home market and certainly not for export. The U.S. government-dominated WTO will not allow Adam Smith-style free enterprise to be fully practiced in the People's Republic of China-or anywhere else. Free enterprise is the American Way, but super-profits are what the game is all about.

The unique evils of the Third Reich

More than 70 years have passed since Adolf Hitler committed suicide in a Berlin bunker to avoid capture by the Soviet forces fighting their way into central Berlin, or what was left of it. Two generations of imperialist propaganda have mystified the reality of the Third Reich. Nowadays, the policy of Hitler's government of killing every Jewish man, women and child has been emphasized at the expense of all the other features of the Third Reich. Worse, it is done in a way to justify the establishment of apartheid Israel.

As a result, younger people who are finding out that the imperialists lie about practically everything may suspect that they are lying about Nazi Germany to justify Israel's crimes against the Palestinian people. There is, however, no doubt whatsoever that Hitler's policy of killing every Jewish man, women, child, and baby is a crime unique in history-"Jewish" defined in terms of race and not religious belief. Atheist and Christian "Jews" were defined as "racial" Jews by the laws of the Third Reich. This crime must never be forgotten or trivialized by making false analogies.

The U.S. government and media are guilty of constantly trivializing the crimes of the Third Reich-which included not only those against Jewish people-whenever U.S. imperialism attacks an independent country and its leader is equated to Hitler. Young people who are taught relatively little about European history and are learning to distrust with good reason the history they are taught are encouraged to draw the conclusion that perhaps Adolf Hitler was not really that bad. Perhaps, they think, Hitler's only real crime was that he opposed the drive to world domination by the United States in the interest of his country, much like was the case with Yugoslav President Slobodan Milošević, Iraqi President Saddam Hussein, Libyan leader Colonel Muammar Gaddafi, or Syrian President Bashar al-Assad today.

Particularly outrageous is the growing tendency of Anglo-American professors of history to group Hitler with China's Mao Zedong as examples of the most evil dictators in world history. (9) These professors, "historians," and journalists should be called to order by all who care about the truth of what really happened in the 20th century. Such comparisons are, of course, deeply offensive to the people of China. You would think the leaders of Jewish organizations would feel the same way. But unfortunately the official leaders of the Jewish world are so committed to Zionism and defending the crimes of the state of Israel against the Palestinian people that they allow these outrageous comparisons between Mao and Hitler to pass as though it was the most natural thing in the world.

Bad as were the crimes of the Third Reich against the Jewish people, the Roma people-the so-called "gypsies"-homosexuals, and people with disabilities, they form only a part of its crimes. A central feature of fascism in general and German fascism-so-called National Socialism-in particular-is its hostility to all forms of organization of the working class. The Nazis were determined to destroy all forms of "Marxism." In Nazi terminology, this referred to both Social Democrats and "Bolshevism"-the Communist movement. They even abolished the anti-Marxist Catholic trade union movement.

It is easy to see why this aspect of the Third Reich is played down or more often ignored altogether nowadays. Unlike the case during the Cold War, the media largely ignores the trade union movement today. And when they do mention it, they treat it as a marginal remnant of the past with no future. Yet those who have studied the real history of the Third Reich know that before Jews were being thrown into concentration camps, not to speak of death camps, Communists to be followed by Social Democrats and trade union leaders were. Only after the workers' movement was smashed in Germany were the Jews and other victims rounded up and murdered in the death camps.

For this reason, I will examine the Third Reich and the circumstances both economic and political that led to its rise and fall. In what ways did Hitler's German empire resemble the other imperialist empires of Britain, France, Belgium and the present U.S. global empire and in what ways was it truly unique?

Of special interest is the role the Third Reich played in the rise of the present-day reich-the U.S. world empire.

_______

1 Volkswagen was founded in Nazi Germany by the Nazis in 1937. In a future post that will examine the nature of Nazi Germany, I will examine how and why this company came into being. The main problem with Volkswagen today, however, is not that it was founded by Nazis who are now long dead, but rather that it is a profit-driven corporation whose aim is to make a super-profit above and beyond the average rate of profit, just as all the other capitalist automobile companies are. (back)

2 Lenin stressed in his pamphlet "Imperialism" that uneven development is one of the most important characteristics of capitalism. It is interesting to see the former chairman of the U.S. Federal Reserve System-and our fellow blogger, the Republican Ben Bernanke-confirming Lenin on this point. (back)

3 The price of production, or production price for short, is the price that enables capitalists to realize the average rate of profit on their-or its, in the case of a corporation-total advanced capital. (back)

4 Taiwan was a part of China for centuries but was seized by Japan in 1895. The population of the island is overwhelmingly Han Chinese. It was returned to China in 1945 as a result of Japan's defeat in World War II. In 1949, the KMT-founded as a bourgeois nationalist party by China's first president, Sun Yat-sen-and headed by Chiang Kai-shek after Sun's death-were driven off the mainland and withdrew to Taiwan. There they continued to rule under U.S. protection as the "Republic of China."

During the Cold War, the U.S. media referred to the Chiang regime as "free China" or "nationalist China," while the People's Republic of China was referred to as "Red China." Chiang's regime continued to "represent" China in the U.N. until 1971. In the early 1970s, as the first steps toward normalized relations between the People's Republic of China and the United States were underway, the U.S. media dropped the term "Red China" and began to refer to China by its proper name the "People's Republic of China" or simply "mainland China"-or when they want to induce a feeling of hostility to China as "Communist China." The term "Red China" is no longer used.

The term "free China" or "nationalist China" has also disappeared from the U.S. media to be replaced by "Taiwan," which is treated as a separate country, though the government on Taiwan still calls itself the "Republic of China." The U.S. has encouraged the growth of a "pro-independence" party on Taiwan that claims that Taiwan is a separate country. The People's Republic of China insists that Taiwan is very much a part of China-a position also supported by the KMT.

The People's Republic of China hopes that peaceful reunification will occur in the future. However, it reserves the right to use force if peaceful means to bring about the reunification of China fail. Beijing's policy has since the days of Mao Zedong been to wait until China's rising military power obliges the U.S. to recognize in practice that Taiwan is indeed a part of China. At that point, Beijing hopes that a peaceful reunification of Taiwan with the rest of China will occur.

The U.S. for its part does not actually say it will and is not obliged by any treaty to defend Taiwan's "independence" in the event of armed conflict with the People's Republic of China. But it has hinted it might go to war to defend the "independence" of Taiwan. This is a brazen violation of China's right to self-determination and is one of the ways, though not the only one, that a shooting war could erupt between China and the U.S. (back)

5 Would a victory by Nazi Germany have resulted in the swastika flag of the Third Reich flying over the White House? A victory by the Nazis might well have occurred if bourgeois forces socially and politically analogous to those represented by Mikhail Gorbachev and Boris Yeltsin had taken over the USSR not in the 1980s, as occurred in real history, but rather in the 1930s and 1940s. I will examine this interesting question in the coming post that will examine the economics and politics of the Third Reich. (back)

6 An example of the growing instability of the dollar system is the current global economic slowdown-including the failure of U.S. industrial production to increase this year for the first time since the end of the Great Recession, despite strong auto sales and a recovering residential housing market. The immediate cause of this slowdown is the U.S. Federal Reserve Board's decision to end "quantitative easing." The Federal Reserve knows that if it resumes the quantitative easing policy, sooner or later a run on the dollar will occur that would put into question the continued rule of the "dollar reich" over the international monetary system and with it the "NATO reich" that the dollar reich finances. (back)

7 The danger that a local war can be transformed into a general war through alliances is illustrated by the events of 1914. The war began as a local war between Austria and Serbia. Germany came to the aid of its ally Austria. Russia then declared war on Germany and invaded Germany-with disastrous results for Russia-in an attempt to help its ally Serbia. Republican France then declared war on Germany in a move to protect its ally czarist Russia. And Britain then declared war on Germany in order to defend its allies Belgium, France and Russia. (back)

8 U.S. liberals-not to be confused with economic liberals-distinguish themselves from conservatives by advocating a larger role for government in the economy. U.S. conservatives, in contrast, are supposed to want to hold government intervention in the economy to a minimum.

But not all government intervention in a capitalist economy is progressive. Outlawing Hackintosh's in the interest of preserving Apple's super-profits is an example of a thoroughly reactionary form of state intervention. State intervention under capitalism can be progressive if it enables the productive forces to develop or at least be sustained. Similarly, state intervention that limits the workday, for example, is also progressive. But it can't be said that intervention by government is good in and of itself anymore than it can be said that it is always bad in and of itself. It all depends on the concrete circumstances. (back)

9 Just to name one these differences, Hitler fought a war of conquest against most of the other European nations, leading to the death of tens of millions of people. Mao fought a war for the liberation and unification of China. Perhaps only a professor who is a resident of a country whose territory has not been invaded by a foreign power for centuries can overlook this "tiny" difference between Hitler and Mao. There are many other differences as well, but this is not the place to list them since if I did I would have to write a large volume and not a footnote.

[Oct 12, 2015] Could The Syrian Conflict Change Global Geopolitics

naked capitalism

Few meetings ever started with dimmer prospects for success than the recent meeting between Presidents Obama and Putin.

The real call for the meeting stemmed from the EU refugee crisis. With a human catastrophe brewing in Europe and the Middle East, EU leaders are urgently demanding that the U.S. and Russia set aside their differences and begin to work together in an effort to resolve the Syrian conflict, the major cause of the massive movement of people seeking sanctuary.

Now, U.S./EU leaders are no longer insisting on the removal of Syrian President Bashar al-Assad from office as a pre-condition to negotiations over a new government, although the U.S. continues to insist that al-Assad's removal become part of any final settlement.

But how can such fundamental differences be set aside when the two sides can't even agree on the enemy they're fighting? The U.S. and its allies have defined the Syrian conflict as a civil war against a despotic regime. The Russians define the conflict as an invasion by foreign Islamic radicals, paid and supported by U.S.' Middle Eastern allies.

The EU has made its demands clear: solve the problem, we don't particularly care how, but it has to be done quickly. From that point of view, the U.S. and Russian leaders have little choice but to answer the call.

Russia is attempting to form and lead a UN authorized coalition against ISIL, the radical jihadists' adversaries that conquered large parts of Syria and Iraq, while threatening to engulf the entire region.

Obama has stated publicly that he welcomes help from Russia and Iran in the fight against radical jihadists, ISIL, in Syria, while still insisting that al-Assad must go. On their side, the Russians have made no secret of their strong objections to NATO-led regime change, citing the results of failed states in Iraq, Libya, Tunisia, and Egypt.

In a recent New York Times article, an Administration insider stated that the President believes Syria is a lost cause, one that U.S. military presence could only worsen.

Obama has also shown little reluctance to lead from behind, when supporting NATO partners, particularly with a U.S. public largely opposed to America's military engagement in any further Mideast wars.

But Russia is not NATO, and it's clear that the U.S. has no intention of following the Kremlin's lead in Syria, as its veto of the Russian coalition proposal at the UN Security Council clearly shows. Adding to that was the United States'strong condemnation of the Russian air attack on its first day of operations in Syria.

The urgency of the moment favors cooperation, while geography gives Russia major advantages in leading the fight. Russia's relationship with Iran, already fighting on the ground in Iraq, with its ally Hezbollah fighting in Syria, provides Russia with a readymade army to complement its air attacks.

With the Russians initiating air strikes against ISIL in Syria, the great fear of world leaders is that an accidental collision between opposing U.S. and Russian forces raises the risks of war between the two nuclear powers.

While both sides deny any intent at military collaboration or sharing of military intelligence in Syria, the two Presidents have agreed to meetings of their military leaders, ostensibly aimed at reducing the risk of accidental conflicts between them. How that can be done without shared military intelligence about troop movements, and planned air attacks remains a mystery.

Adding to the confusion is the increasingly cordial meetings between Russian and Saudi leaders.

Many believe that the Saudis, and their Gulf Kingdom partners, hold the key to resolving the conflict, as the major backers of the 'moderate Islamic' rebels fighting the Syrian Government forces.

The Saudis have largely refrained from criticizing the Russian military buildup in Syria, even though it bolsters the Assad regime, and the Kingdom continues to hold its cards close to its vest regarding their position on the new Russian military initiative in Syria.

At the same time, there were conflicting signals in regards to the relationship between Iran and Russia. Reports surfaced in late September that the two countries, along with Syria and Iraq, were coordinating military efforts against the ISIL. But at the UN meeting, Iran's President Rouhani made the surprising statement that Iran saw no need to coordinate military efforts in Syria, with the Russian goal to support its embattled ally in Syria, while Iran's goal is eradicate ISIL.

It's widely recognized that since the Iran nuclear deal, Iran and the U.S. have sought to move closer in other important areas. Still, Rouhani's UN statement seemed to belie the recent agreements between Russia, Iran, Iraq, and Syria to build an information center in Baghdad to share battlefield reconnaissance against ISIL.

That also falls in line with the new agreement with Iran, Iraq, and Syria to provide an air corridor for Russian military flyovers to Syria for Russian fighter planes and transport aircraft.

To observers, these agreements certainly smack of military coordination with Russia. Iran's need to distance itself from Russia seems to be made with an eye on the U.S., where hardline Presidential candidates threaten to tear up the nuclear agreement.

The highly charged political atmosphere in the U.S., in the midst of a Presidential election, only adds to the fog of war in Syria, forcing public denials and secret agreements where there needs to be utmost clarity, making military cooperation in Syria almost impossible, while raising the risks of accidental conflicts between so-called partners.

What then of western sanctions against Russia? In the eyes of the west, the Syrian conflict is beginning to eclipse Ukraine in importance. The U.S. seems satisfied to leave the Ukraine issue to Germany, France, Russia and Ukraine for settlement.

The EU is most likely to be the first mover to ease sanctions, realizing, as a number of EU leaders have stated, that it is fundamentally incompatible to rely on Russia's military might while starving the Russian economy.

In January, the EU sanctions are set to expire, requiring a unanimous vote of all member states for extension. The odds are rising that the EU will allow sanctions to expire.

If so, major global business will once again flock to Russia. That would include the return of major western energy companies that have played a critical part in Russian energy development. Once that starts, it will become far more difficult to reverse the momentum or re-impose sanctions.

Given the political atmosphere in Washington, it's clear the U.S. will leave its sanctions in place.


Sam Kanu, October 7, 2015 at 5:31 am

Given the political atmosphere in Washington, it's clear the U.S. will leave its sanctions in place.

Here you mean "Given the political instructions to Washington from Tel Aviv". I don't see any general feeling in the American people that demands ongoing conflict with Iran. This is not politics at all – just pure old tail wagging the dog.

JeffC -> Sam Kanu, October 7, 2015 at 11:18 am

Sanctions against Russia, not Iran.

Older & Wiser, October 7, 2015 at 6:48 am

The un-named 1800 lb Mr. and Mrs. Gorilla couple in the room are oil & gas.
Pipelines anyone ?

Massinissa, October 7, 2015 at 2:56 pm

Are there really pipelines in Syria? I thought it was through Iraq and Turkey.

ambrit, October 7, 2015 at 7:13 am

Given Russias' long term relationship with Syria, I'm bemused that any Neo of any stripe could with a straight face suggest that the Russians would abandon the Syrian Government to a bunch of Western backed wreckers.

Maintaining a foothold in the Middle East is basic Grand Strategy. America does it with Israel, so Russia does it with Syria.

In the long run, the Middle East is beginning a shake up. The post WW1 borders were incompatible with the ethnic groupings of the region. Now those old 'drawn on a map' borders are being broken apart and the pieces reassembled. This process can take years or decades to work out. The time frame depends on how 'responsible' the Great Powers are in dealing with the realignment process.

Do notice the framing of the issue in the MSM. "Irresponsible Russia" and "Assad Must Go" are everywhere proclaimed. Like the magicians they are, the MSMs rely on misdirection to try to pull off the 'trick.' While the West tries to browbeat the Russians, the Russians are persistently acting in their, and in the Syrian Governments, perceived best interests.

On the air front, the Russian "incursions" look to be standard battlefield intelligence work. Send a plane or two 'over the border' and see what sorts of anti air radars 'lock on' to your aircraft. This is something any competent air commander would want to discover. This is also a thinly veiled threat to the West; "Look! Anyone can play this game!" The basic point being; there is no such thing as a 'no fly zone,' if you are willing to fight.

The Russian message is basic; "Put up, or shut up."

NotTimothyGeithner, October 7, 2015 at 9:05 am

The post WWI borders are fairly similar to Ottoman administrative districts. The Kuwait city-state answered to the governor of Baghdad within their framework. The issue has been foreign powers using sectarian ties to divide the little people from cooperation which was achievable under the Sultan for 500 years. Even Hussein found the Shiites to be exceptionally loyal during the Iran-Iraq War.

The rise of the Saudis, allowing the Israelis to knock over Lebanon and run an apartheid state, and supporting oppressive regimes which would have fallen or reformed (pretty much all the Gulf states which also have ancient borders) are major issues. There have always been states centered around the modern cities (Ur and Babylon were replaced by Baghdad) or provinces. I believe the creative borders argument was always a "White Man's Burden" excuse to justify control. "Professor Scott, why do they fight in the Middle East?" Excuses about unfortunate cartography sound better than "I needed to build a railroad and did the want to pay the locals, so I cooked up a rape story in one village, handed out guns, and slaughtered the adult males in the other village."

On the other hand, Africa was carved up bizarrely based on rail and ship movements.

todde, October 7, 2015 at 8:11 am

KSA claims Assad must go and I doubt they will support Russia.

Who is supporting IS? I find it hard to believe they can maintain armed conflict on several fronts without a state backer.

Where are the 10s of billions of dollars in turkeys central bank in accounts called unknown foreign sources and errors and adjustments?

Iran will support Assad regardless of American actions.

blert, October 7, 2015 at 5:54 pm

Two factors.

Iran was using Turkey as a front, Ankara collected its 'cut.' Turkey was laundering monies from the Gulf, too, probably Golden Chain funding for the fanatics in Syria. Erdogan has more side action than Rick's Cafe American.

Eureka Springs, October 7, 2015 at 9:02 am

Madness R U.S. US, Saudi, Turks and Israeli's must be held at bay at the very least. It's (Russia, Iran, Syria) who are the only entities resembling a possible humanitarian, rule of law base of action now or possibly working towards that kind of end game.

That's how low we are, R or D, … the creators and perpetrators of al Q and all of their newly named lackeys doing our dirty work continuously since the 1980's. It's not impossible to know who we are and what we have long done… Reading Obama's words and Putin's it is clear Putin is being far more honest and consistent in both action and words.

Maybe we should stop blowing up hospitals and imprison leaders who order or even allow it to happen. Nah, there are too many unarmed citizens in wheelchairs who must be shot.

blert, October 7, 2015 at 6:02 pm

Bin Laden has gone on record - time and time, again - denouncing your thesis. He never needed American funding - ever. He would never, ever, grovel to the kafir.

It's only recently that 0bama started funding AQ's front organs, al Nusrah inparticular. BOTH ISIS and al Nusrah are joined at the hip and are al Qaeda fronts. They only had a falling out, circa 2011.

The FSA is a total fiction. It's a Western media construct. Syria is a fight between brutal Assad and two feral al Qaeda fronts… that can't be controlled. The UK, US and Jordan trained most of ISIS' cadres in the Jordanian desert back in 2011-12. They then went rogue. That (mostly Jordanian) force is still the dominant core of ISIS. Our crass media is complicit in covering up a reality that the rest of the planet is hip to.

Eureka Springs , October 7, 2015 at 8:07 pm

Agree with you after your first three lines. I guess those shoulder fired missiles which al Q used to take out Russian helicopters in Afghanistan during the '80's were Costa Rican made and supplied.

Massinissa, October 7, 2015 at 8:29 pm

So Bin Laden was actually giving money and guns to Zbigniew Brzezinski instead of the other way around?

You have seen that famous photo of Bin Laden and Zbigniew Brzezinski right? Just google it.

Stephen V, October 7, 2015 at 10:44 am

Never expected to hear this re: Iran– https://www.rt.com/shows/watching-the-hawks/317844-oily-mess-tax-us/

A retired Army Colonel who served under Colin Powell actually says he's afraid of a future Israeli false-flag operation that will start a US war with Iran
– move the cursor to 15 mins...

Steven, October 7, 2015 at 11:10 am

Somewhere I remember reading an analysis of the Syrian conflict along the following lines:

  1. It does indeed involve geopolitics – with the aim being to replace Europe's dependence on Russian oil and gas with that from U.S. Middle-eastern 'allies'. To do that it is necessary to build a pipeline across Syria – and insure the Syrian government is firmly in the pocket of the U.S. and its allies.
  2. Without wishing to denigrate the influence of AIPAC, this conflict has far more to do with preserving and possibly extending US global hegemony (with a continuing full-employment program for the country's Congressional military-industrial complex) than it does Israel's inordinate control over US foreign policy. All the blather about democracy vs. dictatorship and/or Sunni vs. Shia vs. Sunni is just offal fed to the cannon fodder used by powers great and small to get it to sacrifice itself for their ambitions.
  3. Like ambrit said, this is just "basic Grand Strategy". It is way past time for US 'leaders' to recognize the full spectrum dominance they enjoyed in the aftermath of WWII was (charitably) an accident of history and come to terms with a multi-polar world and the concept of collective security to which they gave so much word of mouth to a population disgusted with the carnage and destruction of the second "war to end all wars".

Hespeler1, October 7, 2015 at 4:19 pm

Steven, Pepe Escobar has written extensively about the "pipeline wars" ("pipelinestan"), the Empire is trying to starve Russia's finances in part by bypassing Russia's pipelines. Greece was pressured into refusing to be the Turkish Stream's terminus and distribution hub for Southern Europe. We all know how much they needed the revenue from that, but TPTB said no. Grand Strategy=break up Russia, steal her resources, put pressure on China. I fear that the Empire won't stop until they accomplish this, or are buried.

OpenThePodBayDoorsHAL, October 7, 2015 at 12:11 pm

Sometimes things are just so obvious. US "veto of the Russian coalition proposal at the UN Security Council". Could be because the US wants to lead a bigger, better coalition, maybe ours will include Samoa or something. Or, um, duh, could be because US doesn't really want to fight ISIS since that's our dog in this fight. Funny how a few days bombing by Russia has had a real impact on actual ISIS fighters…whereas US bombing tends to be on stuff like bridges and power plants and hospitals that hurt Assad more than they hurt ISIS.

I mean how bleeding obvious when we get John McCain high fiving ISIS…and our grand plan was to find "moderate" maniacs that would do our bidding. "OK everybody, form a line, if you're an extremist take the T-shirt on the left, if you're a moderate take a T-shirt on the right". That strategy has worked out so well for us in the past, we spent $500M and trained precisely "4 or 5" guys.

Yankee go home.

sid_finster, October 7, 2015 at 12:32 pm

http://www.zerohedge.com/news/2015-10-07/russian-warships-launch-missile-attack-syrian-targets-clearing-way-iran-ground-invas

Is it not most edifying that Iraq is now apparently allowing Russian cruise missiles to fly over its territory, or at least not objecting? (Not that Iraq could do much about it…)

Harry, October 7, 2015 at 5:20 pm

Iraq is part of the Russian coalition as well as China and you probably do know that Iraqi prime-minister already made a statement that he would not object against Russians decimating ISIS on the Iraqi territory. And look, oil prices are already going up – that's what Putin really needed and this is one of the eight reasons why he started a war in the Middle East.

NotTimothyGeithner, October 7, 2015 at 8:52 pm

Started a war? You do realize training a day arming rebels is an act of war even if Congress hides the funding in the classified budget or if it's done by the CIA instead of corporate approved soldiers. The U.S. government has started numerous wars without Congressional approval, mostly because Congress is still afraid of elections. Russia is allied with Syria. If anything Putin has shown remarkable constraint.

Synoia, October 7, 2015 at 1:06 pm

There are three sides to Syria:

1. New Caliphate – Includes Turkey & Saudi Arabia – Look at a map and think contiguous empire -ISIS is their tool.

2. US dislike of Assad, and allied with Turkey and Saudi Arabia, but dislikes New Caliphate and ISIS.

3. Russia, Iran, Syria, Hezbollah etc, dislike New Calipahe, becue of potential threat to Russia from Muslim arc from Iran through to China (the Stans).

Which leaves the US's allies in direct opposition to the US' goals, and leads to lies, deceit and deception from parties (1) and (2).

The role of ISIS is to destabilize Syria and Iran, to create an opportunity for Turkish Troops (500,000 man army), and Saudi money to enter, the region "to keep the peace," thus furthering their imperial ambitions.

The US is trying to eliminate Assad, but not enable a new Caliphate, and undermine Russia's and Iran's influence in the area, because Oil and exceptionalism (for exceptionalism see collective ego, or stunning arragance).

Russia and Iran see the solution to a New Caliphate as Assad in power, and a weakening of US influence.

aka: Quagmire

NotTimothyGeithner -> Synoia, October 7, 2015 at 8:56 pm

The U.S. government's side* is childish at best. The only real plan was Sunni elements of the army would assume power when Assad was removed from power with a little Saber rattling much like Libya with the GNC. Obama's ego prevents him from recognizing what a stupid idea this was and how radically different types Assad a day Gaddafi's power bases were.

*They are hiding behind the war powers act and approval from post 9/11 legislation. Congress an otherwise President are too cowardly to call our actions acts of war which is what they are.

washunate, October 7, 2015 at 1:40 pm

No.

But seriously, it is interesting seeing what the Oilprice guys think their audience wants to hear. They are clearly inside the MSM echo chamber. You have everything from dichotomous balance (because truth has two sides) to the charged political atmosphere (which sadly forces otherwise honest and transparent leaders to engage in secrecy and deception against their will).

I particularly love how casual the author is with the notion that the President of the United States has an explicit policy goal of deposing the leader of a sovereign nation. Ho hum, just another head of state that must go.

susan the other, October 7, 2015 at 2:15 pm

This summary by Berke also reflects my puzzled observations. It wasn't that long ago that we worried about a fundamentalist insurrection in SA and so we politely made ourselves scarce to help the Saudis out.

There's probably now a pre-arranged trade off for the Saudis and Iran: SA gets to take over Yemen; Iran gets to create a corridor through Syria. Who knows. I thought the meeting at the UN between Obama and Putin was such thinly disguised cooperation that surely some MSM would comment – but none did.

And the EU has stated (above) that sanctions against Russia are incompatible because the EU is "relying on Russia's military might" and shouldn't therefore starve the Russian economy. Wow, let's hear the story on that please.

So did Holland send in the French bombers to help out Russia? Maybe SA and RU are chummy because Russia is going to get the contract to build the new pipeline from the Gulf to Europe.

blert, October 7, 2015 at 6:08 pm

Actually all of the load growth, for OPEC, is towards India and points east. American fracking has released a glut of oil into the Atlantic Ocean market space.
Nigeria essentially lost North America as a customer - all together. If Libya and Venezuela get their act together, the glut becomes even more pronounced. Then toss in Brazil's new out put.

Brian M, October 7, 2015 at 8:10 pm

many of the fracked wells will fail amazingly quickly. So, this may not be true for long...

skippy, October 7, 2015 at 8:14 pm

A giddy operator with the rights to a gas-rich parcel of land can't just drill willy-nilly. Well design considerations are very complex and attention to detail must span the construction, testing phase, and decommissioning of the well post-production. Moreover, drilling wells are often constructed uniquely with regard to the geology and geography of the specific location. For instance, because much of the shale formation in Pennsylvania lies beneath a shallower gas formation, it is easier for the shallower gas to escape during the initial drilling process. This in turn has made it difficult for drillers to design failproof wells that can be sealed off from the younger deposits completely.

http://frackwire.com/well-casing-failure/

Jim, October 7, 2015 at 2:26 pm

At this point in the Syrian crisis it appears that the national security network (several hundred high-level military, intelligence, diplomatic and law enforcement agencies) are still debating among themselves what the U.S. response will be to Russian military initiatives in Syria and potentially Iraq.

For all Bernie Sanders supporters, it will be interesting to see what his stance on Syria will be. Will he break( at least rhetorically) with these national security elites( who since WWII have basically dictated Presidential moves in the national security arena) or will he cave to this present structure of networked power despite his "democratic socialist" credentials.

Will Sanders maintain this continuity of American foreign policy that so shocked Obama supporters?

Will the United State continue on its path of greater centralization, less accountability and emergent autocracy despite whoever wins the increasingly powerless Presidencyj?

RUKidding, October 7, 2015 at 2:33 pm

Here's my bet for the answer to your last 2 Q:

1. Yes
2. Yes

James Levy, October 7, 2015 at 3:00 pm

Unfortunately, I concur.

The amazing thing is watching the utter horror and confusion of the MSM and the Talking Heads as the Russians do things (bombing ISIS! Firing cruise missiles!!!) that the US does just about every other Tuesday, as if these things are some kind of massive breach of the peace on the order of Hitler invading Poland. The lack of any self-awareness is stunning.

Oregoncharles, October 7, 2015 at 2:55 pm

"Russia is attempting to form and lead a UN authorized coalition against ISIL"

The obvious solution, especially if it does not include the US. I'm anti-interventionist in general, but ISIL poses us the problem the Nazis did: this cannot be allowed to stand. They're actually taking us back to the 7th Century, morally, and for that matter doing things Mohammed probably wouldn't have stood for. Except in degree, most of their actions are not unprecedented, even in modern times; what's unprecedented is their extreme openness about it. Hypocrisy is an acknowledgment of morality; these people are trying to CHANGE morality, reversing hundreds of years of hard-won progress. They're a kind of monster we thought we were rid of. And they've been successful enough militarily, at least in that deeply destabilized region, to present a real threat.

Ultimately, they will have to be suppressed; it won't be easy or bloodless. The Russians' proposal may be self-interested, but it's the only approach likely to work. American bombing certainly won't.

ISIL's PR skills bother me on another level: they're extremely convenient for the interventionists. They've even got me going. And there are real connections between it and the US authorities, especially in Iraq, to say nothing of the Saudis. I can't help but wonder whether it's a CIA operation, either run amok or conceivably still under control. (If you aren't paranoid, you aren't paying attention.)

Steven, October 7, 2015 at 4:17 pm

I keep wondering how much of what goes on here in the commentariat of Naked Capitalism is just preaching to the choir and how much represents (well deserved) contempt for the official government / MSM (but I repeat myself) line among the population at large. That contempt – if it exists – is in my humble opinion – a national security issue / crisis.

JTMcPhee, October 7, 2015 at 7:46 pm

Quoting the captain of the Titanic, "More steam! Full speed ahead! We gotta show the world what this baby will do!"

[Oct 07, 2015] US Ruling Circles Split On Use of Jihadists in Syria

"... Well, the United States and its allies are speaking gobbledygook, and Russia is speaking straight up plain international law truth. Theyve come to the aid of the recognized government of Syria, which is being attacked by proxies of other countries, the U.S., the Saudis, other Gulf states, and Turkey, in violation of international law. ..."
"... They are defending principles of international law. And the U.S. and its allies are violating international law, and the U.S. and its allies cannot draw some kind of red line around ISIS, the wayward jihadists that dont want to take orders, and expect the Russians to only discipline their little bad boys and leave the other jihadists alone. That only makes sense to idiots like the New York Times and CNN and the rest. ..."
"... in a way the Russian military intervention against the jihadists in Syria has given the Obama administration another chance to back off of that decades-long policy of using Islamic jihadists as footsoldiers for imperialism in the Muslim world. ..."
"... there was a growing split in the U.S. government in ruling circles, in the intelligence agencies, even three years ago. And there was a fear that the jihadists would have, were developing their own kind of agenda. And theres nothing that U.S. imperialists dislike more than people who have their own agenda. And we know now that in August of 2012, we know this because of a memo that came to light this year, that analysts for the Defense and Intelligence Agency were warning that the jihadists, the people who would become the Islamic State, were likely to declare their own caliphate. And that would mean that they would have their own policies and they would fight their own war, not the war that the United States wanted them to fight. ..."
"... And although that warning didnt cause the U.S. to reverse its long policy of supporting jihadists, it did I think make Obama much more cautious, and I think thats why he backed off from bombing Syria that same year. The same Defense Intelligence Agency analysts are now screaming that the top Pentagon brass are lying about the kinds of reports that theyve been given, reports about the growing strength of ISIS. And that argument in itself is signs of a real split in the intelligence agencies, a split in the U.S. military, a split in the Obama administration itself. A split that was evident when Hillary Clinton was secretary of state. ..."
Oct 07, 2015 | therealnews.com
BALL: So what is going on here? It almost sounds like a neo-Cold War indirect conflict of superpowers vying for colonial control over their property, or a fight over whose anti-Assad allies should be supported. What is going on?

FORD: Well, the United States and its allies are speaking gobbledygook, and Russia is speaking straight up plain international law truth. They've come to the aid of the recognized government of Syria, which is being attacked by proxies of other countries, the U.S., the Saudis, other Gulf states, and Turkey, in violation of international law. And the Russians say that they are not just defending the government that they have had relations with for decades. They are defending principles of international law. And the U.S. and its allies are violating international law, and the U.S. and its allies cannot draw some kind of red line around ISIS, the wayward jihadists that don't want to take orders, and expect the Russians to only discipline their little bad boys and leave the other jihadists alone. That only makes sense to idiots like the New York Times and CNN and the rest.

BALL: But again, for those of us who have varying understandings of what's happening here, it would seem like the U.S. would not have a problem with Assad's territory being bombed, given that the U.S. and Obama's administration in particular is no fan of Bashar al-Assad and his leadership there in Syria. Why then are they having a problem with what Russia's doing, and to what extent are the problems that are claimed to be addressed there actually caused in their origin by the United States and its policies?

FORD: Well, the United States has, and Obama knows the United States has, problems that go beyond the Russian intervention. They have problems with their own policy, which has brought them to this state of affairs. And in a way the Russian military intervention against the jihadists in Syria has given the Obama administration another chance to back off of that decades-long policy of using Islamic jihadists as footsoldiers for imperialism in the Muslim world.

And the reason that I say another chance is because it was the Russians back in 2012 who gave President Obama a similar opportunity to re-think that jihadist 35-year-old policy when they proposed that the international community supervise the destruction of Syria's chemical weapons. That was back in 2012. And that allowed President Obama to back off from his threat to attack Syria, to bomb the Syrian government. I think that President Obama backed off on that threat not because of domestic or international opposition. The United States acts unilaterally all the time, I think he could have gotten away with it. I think that Obama was genuinely afraid of what would happen if the Syrian government collapsed. And make no mistake about it, if the United States had attacked the Syrian government directly the dynamic of the situation would have compelled the United States to keep on attacking until that government was totally destroyed, just like they did to Col. Gaddafi's government in Libya only one year before.

But it is very clear, now quite clear in hindsight but I think it was visible back then, that there was a growing split in the U.S. government in ruling circles, in the intelligence agencies, even three years ago. And there was a fear that the jihadists would have, were developing their own kind of agenda. And there's nothing that U.S. imperialists dislike more than people who have their own agenda. And we know now that in August of 2012, we know this because of a memo that came to light this year, that analysts for the Defense and Intelligence Agency were warning that the jihadists, the people who would become the Islamic State, were likely to declare their own caliphate. And that would mean that they would have their own policies and they would fight their own war, not the war that the United States wanted them to fight.

And although that warning didn't cause the U.S. to reverse its long policy of supporting jihadists, it did I think make Obama much more cautious, and I think that's why he backed off from bombing Syria that same year. The same Defense Intelligence Agency analysts are now screaming that the top Pentagon brass are lying about the kinds of reports that they've been given, reports about the growing strength of ISIS. And that argument in itself is signs of a real split in the intelligence agencies, a split in the U.S. military, a split in the Obama administration itself. A split that was evident when Hillary Clinton was secretary of state.

So the Russian intervention is now forcing Obama's hand. He's going to have to decide if he's going to continue this policy with the jihadists, or if he's going to go for some kind of containment or stabilization of the battle lines in Syria. We know it's quite obvious that Turkey and Saudi Arabia and the Gulf states wanted an all-out offensive to take out the Assad government once and for all, but that has been checked definitively by the Russians. And that gives Obama another chance to cooperate with the people in the region, with Syria and with Iran, and with the government of Iraq, as well as with the Russians. He has that chance again, if he takes it.

[Oct 04, 2015] Wake-up call on Syrian army weakness prompted Russian intervention

Notable quotes:
"... If the USA has not intervened covertly, Russia would not have intervened overtly. ..."
"... The basic rational always seems to be that US targets, including the bombing targets and civilian deaths, are legitimate, while Russia involvement is nefarious a priori. Russian reporting is usually termed ' Russian propaganda', while US reporting, which is as unified and unanimous in its judgement, just reversed, is seen as telling the truth. ..."
"... "......British soldiers have been caught posing as Arabs and shooting Iraqis in the occupied city of Basra in southern Iraq. A group of them was caught yesterday by Iraqi police. They were driving an Iraqi car, wearing Arab clothing, and carrying weapons and explosives........police and civilians have been targeted and killed by "terrorists" or "insurgents. .........But this is the first time that any of those responsible have been caught in the act, and it is now clear that at least some of them are working directly for the occupying forces ..."
"... USA is wining by sophisticate wide 'divide and rule' policy; so it remains very strong at influencing, manipulating and weakening its competitors. ..."
"... It was America and its proxies which turned Syria from a relatively secular, functioning State into the mess we have there today by supporting those opposed to the government. ..."
"... It's hard not to conclude that the US would rather have countries unstable and in ruins that under control of a leader that isn't one of their puppets. ..."
"... The petulant warmongers in USA and NATO are now coordinating a major disinformation campaign. According to the President of the Russian Federation the lies about civilian deaths were even reported BEFORE the Russian airstrikes were launched. ..."
"... Step down and - then what? What the hell's wrong with you people? How about the Russians are simply sickened to fuck by the spectacle of the psychos you propagandize for playing their little games? Dirty, dirty, weasly words. ..."
"... whether its goal is to strike at Islamic State or, more likely, to take on any rebel force fighting Bashar al-Assad in order to prevent the final and complete descent of Syria into the pit of total bloody anarchy and slavery at the hands of a myriad lunatic death cults. ..."
"... the root cause of terrorism is the original arming of ISIS by your US bosses (to fight Assad) and of AlQaida and the Taliban ( to fight the Russians), in addition to the prolific funds provided by the gulf monarchist dictatorships allied to the USA. ..."
"... The US coalition is limited to preventing the Caliphate from spreading into forbidden territory but leaving it free to act in Syria. The columns of trucks and pick-up of Daesh which took Palmyra on May 21st circulated uncovered in the desert without being worried by the US Air Force. ..."
"... The US strategy, the long term strategic vision, was to bring down Assad under the blows of ISIS. And when the thugs will be in Damascus and attack the Russians in Tartus, the americans will support them until the Russians will withdraw, finally the US will bomb and destroy in half a day all the Califat's army which they contributed to create (the good guys). ..."
Oct 01, 2015 | The Guardian


Normin 2 Oct 2015 13:16

Russia had to step in and bring attention to the proxy groups operating in Syria under US support. After years of lies the divide and conquer, regime change to puppet government plan has been exposed.

The US support of these groups against Assad coincides with Israeli security concerns which deem a destabilized Middle East a boost to Israel's security. This unprecedented foreign state influence starts in Washington with Congress, various advisers, think tanks, lobby groups, and full media support.

It's interesting to see how Russia acts to pursue state interests without being hobbled by the concerns and questionable influence of another country that does not have similar foreign policy interests as the USA. Time for a change in US policy, it's long overdue.

mgeary 2 Oct 2015 12:56

Sadly, as always in war the truth is amongst the first victims.

This conflict is another product of the old "divide and conquer" tactic, adapted to the current reality. When you do not like a nation`s leadership, you find a group of dissidents, train them, arm them and let them loose.

The civilians, women and children killed, the lives ruined and the homes lost are just collateral damage.

The situation in Syria is by the making of the powers involved, so complicated, with so many factions involved, that we should be very careful when we pass judgement.
Several of the people commenting here and some reporters have already done so with bias, according to their interests.

Thomas Hood -> eelolondon 2 Oct 2015 12:44

If the USA has not intervened covertly, Russia would not have intervened overtly.

Glauber Brito 2 Oct 2015 11:25

It is difficult to criticize Russian involvement in the Syria, when considering that it has been the US invasion and occupation in Iraq, which incidentally claimed well over 100,000 civilian lives, that sent the entire Middle East into turmoil.

The basic rational always seems to be that US targets, including the bombing targets and civilian deaths, are legitimate, while Russia involvement is nefarious a priori. Russian reporting is usually termed ' Russian propaganda', while US reporting, which is as unified and unanimous in its judgement, just reversed, is seen as telling the truth.

Which is exactly what the Russians are telling their viewers and listeners. It would be utterly refreshing, if the media would start demonstrating the same critical bias towards the government and the use of language, as they do of the Russians.


Madranon LaterNow 2 Oct 2015 09:16

I suspect that this is all about the House of Saud's internal war manifesting in proxy wars destabilising the region in some sick power struggle between the royal families.
Besides, the only real victims in this are the non Sunnis, the groups that Saudi Arabia has long persecuted within its own borders for decades. The aim, i believe is a totally Sunni middle east with all other sects and religions driven out or exterminated. With the help of western weapons, Britain likes to make a few bob out of any civil war and regional horror.

WhetherbyPond -> diddoit 2 Oct 2015 03:13

"the term Ziocons is offensive."

I meant to give offence. Being violently nationalistic, expansionist, racist and corrupt is offensive. If the apartheid state of Israel was any other country the west would be up in arms and calling for sanctions and regime change; however, because of the vile actions of the Nazi's and others, and the fact that the west did very little to help the poor souls who were being persecuted and murdered, the Ziocons use the guilt that is rightly felt in the west as a shield to cover their actions and silence their critics.


SHappens 123dcp 2 Oct 2015 02:16

US journalist Nir Rosen wrote in 2012, "every day the opposition gives a death toll, usually without explanation ... Many of those reported killed are in fact dead opposition fighters ... but described in reports as innocent civilians killed by the security forces ."
http://www.counterpunch.org/2015/08/21/the-douma-market-attack-a-fabricated-pretext-for-intervention/

The figures about casualties comes from The Syrian Observatory for Human Rights (OSDH) is an agency close to the rebels financed by Arab monarchies and Western states and headquartered in London. It publishes its toll of months of war Syria. These macabre figures reveal surprising dishonesty of traditional media and contradict the pro-interventionist propaganda. Note that Reuters was not allowed to check their figures.

The OSDH announced that there would have been 220,271 deaths.

Nearly half of the victims of war are soldiers and loyalist militiamen.

The number of "Bashar soldiers" killed is higher than the number of civilians killed. On the other hand, the Syrian Arab army is essentially composed of conscripts, that is to say citizens who defend their country, their institutions and their government, we can say that the army is inseparable from the Syrian people.

Therefore, it is also dishonest to hold Assad responsible for the deaths of more than 220,000 Syrians as do the media and provocative militants since the first victim of the war in Syria is the army, so the people in uniform, so the "people pro-Assad".

Let us turn now to the number of civilian casualties. The OSDH counted 104,629 killed.

This figure does not distinguish the Syrians that could be broadly described as "pro-government" or "pro-rebellion".

The number of civilians, including women and children, which can be in the pro-Assad camp of anti-rebel or neutral is probably extremely high especially if one takes into account the mass killings which occurred by terrorist groups in the Kurdish areas of the north of the country, in neighborhoods and Shiite villages and Christian and among the Sunni patriots all over the country.

The anti-government armed groups have also claimed hundreds of executions of civilians including children, suspected of sympathy with the Syrian regime.

As for victims of the armed opposition, the OSDH recorded 37,336 killed, twice less than killed Syrian soldiers (90,000) and one fifth of the total number of victims of war (220,271).

These armed groups are themselves engaged in wars that cause the death of many pro-rebel fighters and their families. Thus among the 104,629 civilian victims of the Syrian confit, it should take into account hundreds of rebels killed by pro-rebel civilians.

On reading the tragic toll of the OSDH, the Syrian situation shows that this is not Bashar, but the rebellion that is killing the Syrian people. Therefore, the Syrian state is right to fight against terrorism to restore peace in the country like any other state in the world

Which leads us to defend the non-interference and peace in Syria, with Assad.
http://www.syriahr.com/en/2015/04/310000-people-killed-since-the-beginning-of-the-syrian-revolution/


GERALD710 -> eelolondon
2 Oct 2015 00:47

I agree and disagree.
The protests began in Daraa. Where the protesters did an idiotic thing. The region was suffering from a severe drought. Now instead of protesting for relief aid, they were protesting for the downfall of the regime?????

There was nothing at all peaceful in the protests of Hama and Homs in 2011 where protestors deliberately murdered policemen and women and the Muslim Botherhood was busy already chanting 'Alawites in Coffins and Christians to Beirut'. A very dangerous chant in the two cities where minorities made up more than a third of the population.

I am sorry, if a bunch of Islammist nutjobs start talking of putting my people in coffins and deporting my allies to Beirut, I would have leveled them to the Ground. Have you seen the Old City of Homs? That would have been anyone's reaction.

Sparingpartner 1 Oct 2015 20:45

If you can't own the economy, fuck the place up! Great policy in the so called propagation of democratic freedoms... and while you are at it, explain to me once gain why Australia needs to not only be involved in this inglorious cluster-fuck but want to urge the Americans to step it up - like they're not doing enough?

Sweet Jesus in heaven save me from the do-gooders in this world!

buildabridge -> Clark8934 1 Oct 2015 20:34

Or a deliberate cunning foreign policy to divide and create chaos?

Back in 2005 Bashra under occupation by British forces:

"......British soldiers have been caught posing as Arabs and shooting Iraqis in the occupied city of Basra in southern Iraq. A group of them was caught yesterday by Iraqi police. They were driving an Iraqi car, wearing Arab clothing, and carrying weapons and explosives........police and civilians have been targeted and killed by "terrorists" or "insurgents. .........But this is the first time that any of those responsible have been caught in the act, and it is now clear that at least some of them are working directly for the occupying forces"

http://www.theinsider.org/news/article.asp?id=1556

buildabridge -> ComradeFunk 1 Oct 2015 20:15

Not so sure. USA is still the strongest military power with the furthest reach by miles. It has the smartest and best funded Foreign Offices and Spy Networks, human and electronic. This chaos in the Middle East, any slowly further North, is US foreign policy firing on all cylinders, to create chaos in Eurasia to prevent Eurasia from settling down and trading peacefully with each other, and so USA becoming sidelined. USA is succeeding and winning with minimal loss, far away from Eurasia. USA remains strong and Eurasia becomes weaker fighting with itself, just like WW1 and WW2.

USA is wining by sophisticate wide 'divide and rule' policy; so it remains very strong at influencing, manipulating and weakening its competitors.

mandzorp -> eelolondon 1 Oct 2015 18:06

Russia are bombing in support of the government of Syria. It was America and its proxies which turned Syria from a relatively secular, functioning State into the mess we have there today by supporting those opposed to the government.

cherryredguitar -> tubes99 1 Oct 2015 17:47

Just making the point that the US/UK are on the same side as Islamic nutters who eat dead people's internal organs.

TheChillZone -> LoveisEternal 1 Oct 2015 17:26

Yeah, whereas the West's nation building in Iraq, Afghanistan, Libya etc has gone soon well. Russia can't do any worse than us....and at least hey are doing something to fight isis and the legions of terrorsst groups that are lining up to take control of Syria. It's hard not to conclude that the US would rather have countries unstable and in ruins that under control of a leader that isn't one of their puppets.

KriticalThinkingUK 1 Oct 2015 15:07

As a matter of fact the Russian intervention at Syria's invitation was necessary because of the failure of the US to halt ISIS. Yes, the same ISIS that the USA originally armed ( to fight Assad). Syrian Government forces currently control territory that holds 80% of the Syrian population and you can be sure that ISIS are now doomed by the coalition of Syria, Russia, Iran, Iraq and others, with or without the support of the outmaneuvered (again) USA.

The petulant warmongers in USA and NATO are now coordinating a major disinformation campaign. According to the President of the Russian Federation the lies about civilian deaths were even reported BEFORE the Russian airstrikes were launched.

Politicians across Europe are welcoming Russia's intervention as the only long term solution to the refugee crisis and literally hundreds of millions of Europeans are supporting Russia's attack on ISIS, whatever lies you may read from the old cold warriors and their oligarch's press in the US and UK.


retsdon 1 Oct 2015 17:20

whether its goal is to strike at Islamic State or, more likely, to take on any rebel force fighting Bashar al-Assad in order to shore up his position and stave off demands that he step down.

Step down and - then what? What the hell's wrong with you people? How about the Russians are simply sickened to fuck by the spectacle of the psychos you propagandize for playing their little games? Dirty, dirty, weasly words.

Here, try the truth.

whether its goal is to strike at Islamic State or, more likely, to take on any rebel force fighting Bashar al-Assad in order to prevent the final and complete descent of Syria into the pit of total bloody anarchy and slavery at the hands of a myriad lunatic death cults.

You just can't bring yourselves to admit that your neo-liberal masters have cocked their little adventure up completely this time, can you? Eh?


Realworldview 1 Oct 2015 17:04

Wake-up call on Syrian army weakness prompted Russian intervention

Very true, the collapse of the Syrian army was looking increasingly likely. This interesting article on the Saker website adds further clarity, by discussing what will not happen, what will happen, what has already happened, and what might happen. Finally some clarity about the Russian plans about Syria that ends with this paragraph, which raises the prospect of some "interesting times" in Syria and the wider Middle East:

Of course, I am under no illusions about any real change of heart in the imperial "deep state". What we see now is just a tactical adaptation to a situation which the US could not control, not a deep strategic shift. The rabid Russophobes in the West are still out there (albeit some have left in disgust ) and they will now have the chance to blame Russia for anything and everything in Syria, especially if something goes really wrong. Yes, Putin has just won another major victory against the Empire (where are those who claimed that Russia had "sold out" Syria?!), but now Russia will have to manage this potentially "dangerous victory".

If nothing else, it explains the wall to wall media propaganda blitz that started with the first Russian air strikes.

KriticalThinkingUK -> psygone 1 Oct 2015 16:45

Wake up psygoon...

the root cause of terrorism is the original arming of ISIS by your US bosses (to fight Assad) and of AlQaida and the Taliban ( to fight the Russians), in addition to the prolific funds provided by the gulf monarchist dictatorships allied to the USA. Its a fact whether you like it or not...the US propaganda offensive to try and cover up their stupidity will go nowhere. The truth will out and the terrorists will be destroyed by the coalition of Syria, Russia, Iran and Iraq etc, with or without the support of the USA. The Russian intervention against ISIS has massive support in Europe, who can take no more refugees. Europe, the whole of the middle east, Russia and above all the Syrian people (especially the Kurd and Christian minority communities) all need a stable government in Syria, not another failed state like Libya and Iraq.


Abiesalba -> Jack Seaton 1 Oct 2015 16:02

As for ISIS being a threat to Russia, does anyone seriously believe that ISIS are going to get anywhere near those maps you linked to?

Yes. The media in the European countries which are on the ISIS map reported about this map with concern already when it was published a year ago. (One of the links to ISIS maps in my previous post goes to Slovenia's national broadcaster, the other to an Austrian newspaper - both Slovenia and Austria are on the ISIS map).

Because unlike you, we understand that ISIS does not have to physically occupy all these countries. Its strategy is to first have groups pledging allegiance to ISIS in these countries. And in this respect, ISIS is VERY successful and has in only one year spread its influence into rather many countries. Besides, it has also claimed incredibly much territory in Syria and Iraq, while the US-led coalition (comprising very mighty armies) claim they are fighting against them!

And ISIS is already in the Russian Federation!!!! See for example:
-
-
8 ISIS supporters killed in N. Caucasus special op

(2 August 2015)

Russian security forces have foiled a terrorist group that recently pledged allegiance to ISIS in Ingushetia, in the Northern Caucasus, according to the National Anti-Terror Committee (NAC). Security forces seized explosives, weapons and over 2,000 rounds of ammunition.
-
-
How Russian Militants Declared A New ISIS 'State' In Russia's North Caucasus

(26 June 2015)

The Islamic State group announced the creation of its northernmost province this week, after accepting a formal pledge of allegiance from former al Qaeda militants in the North Caucasus region of Russia.

Clark8934 1 Oct 2015 16:01

The west is physiologically defunct. Fact. Their fragile idealistic bits-and-pieces approach to having a belief system, full of irrational claptrap is being so painfully allowing the Syrian conflict to run and run.

However terrifying the reality becomes the west withdraws into a sort of elitist denial and always seem to have international law on their side however many times they break it!

It seems a long time ago now that anyone in the West thought and articulated with such clarity, realism, and sense as the Russians. The political correct bigots in the West created this situation , one where no-one dare talk sense for fear of ridicule. Long live Putin.


AgeingAlbion 1 Oct 2015 15:30

Putin at least has been consistent throughout. He has backed Assad from day one.

The west first thought it was going to be another wonderful Arab Spring, then thought they could manage to back the "right" rebels as opposed to Isis, then said chemical weapons were a "red line" them failed to do anything when the red line was crossed then said Assad must go before negotiations and now meekly accept he might have to be part of the solution.

How much has that dithering achieved and how many lives has it cost? If Russia moves in directly and uses the Red Army to destroy Isis will it really be worse than our messing around?

SHappens 1 Oct 2015 15:26

Good summary. As an add on from Dr Bachar al-Jaafari, permanent syrian UN delegate 16/09/2015

- In the North, there are outlawed groups of called armed terrorists " Armed with the conquest " [Jaïch al-Fath], financed by Qatar and Turkey, that sends every day thousands of shells on Aleppo, killing hundreds and mutilating thousands of our citizens, preventing them from meeting their elementary needs on a daily basis.

In the South, rages another terrorist army financed by Saudi Arabia and Jordan, member state of this organization, country brother and neighbor of Syria. An army which proceeds in the same way by despicable terrorist acts against our citizens in this region.

In the suburbs of Damascus(damask), rages another army from the city of the Duma, a group of terrorists financed by Saudi Arabia, called up " Armed with the Islam " [Aich al Islam].

There are three terrorists groups who are armed, the first under the command of Turkey, the second in command of the Jordan, the third under the command of Saudi Arabia and Qatar. Backed up by the US, UK and France.

The US coalition is limited to preventing the Caliphate from spreading into forbidden territory but leaving it free to act in Syria. The columns of trucks and pick-up of Daesh which took Palmyra on May 21st circulated uncovered in the desert without being worried by the US Air Force.

The US coalition's airstrikes look like at best a gesture, at worst a smokescreen for future bombing campaign against Syria. The war prevented on September 2013 would be triggered under a new guise. But Russia took the ground. The priority is the fight against jihadism, associated with integrating the power of the political opposition, elections and a regional peace conference.

The US strategy, the long term strategic vision, was to bring down Assad under the blows of ISIS. And when the thugs will be in Damascus and attack the Russians in Tartus, the americans will support them until the Russians will withdraw, finally the US will bomb and destroy in half a day all the Califat's army which they contributed to create (the good guys).

Russia is about to put an end to this circus, hopefully with little collateral damage (thus beware of western propaganda on civilians toll) having high weapons tech to select targets accurately as mentioned in this article.


Abiesalba -> KriticalThinkingUK 1 Oct 2015 15:22

Politicians across Europe are welcoming Russia's intervention as the only long term solution to the refugee crisis and literally hundreds of millions of Europeans are supporting Russia's attack on ISIS, whatever lies you may read from the old cold warriors and their oligarch's press in the US and UK.

Very true. Here is Slovenia, the public opinion seems to be very strongly siding with Russia and against the insane US (judging from comments on forums).

And the US/UK media are truly an amazing brainwashing propaganda machine, straight from Orwell's 1984.


Jan Burton 1 Oct 2015 14:47

Russia isn't dumb or dishonest enough to make the meaningless distinctions between ISIS and other Islamist groups that the west insists on making. They're all out for the same thing and only differ on the details.

Putin in merely doing what needs to be done.

cherryredguitar 1 Oct 2015 14:48

Given that the so-called moderate rebels have a leader who videoed himself cutting a dead person's body open and eating one of the guys internal organs, the Russians are right not to differentiate between them and Isis.

Destroy all the extremists, even the ones that the Americans and Saudis like.

Abiesalba -> RobertNeville 1 Oct 2015 14:46

the Russians are allowed to fly the skies of Syria and the US is not.

Yes. Because the Syrian government asked Russia for a military intervention, whereas the US apparently have some superior right to illegally breach international borders as they wish and bomb whomever they like (Afghanistan, Iraq, Libya, Syria, Pakistan).

By the way, the very fact that Iraqi government asked for a military intervention is used by the US-led coalition to justify their strikes in Iraq.

jvillain -> Mr Russian 1 Oct 2015 14:44

The US, France and finally to a slightly lesser degree the UK want Assad gone more than they want ISIS, Al Quaida or the Army of God gone. If Assad falls all his weapons will belong to ISIS and crew as well as having total control of a state. The so called rebels are only 5% or so of the people fighting. All the other opposition groups have either merged with ISIS or been eliminated.

If Assad falls there will no longer be a choice but to put western boots on the ground in Syria in a big way.

WhetherbyPond 1 Oct 2015 14:43

The Ziocons in the US are very upset that their geopolitical game is being thwarted by Russia.


Abiesalba -> Mr Russian 1 Oct 2015 14:41

It surely is interesting how the Anglo-American media today went all hysterical about the alleged civilian casualties in Russian air strikes.

Well, how about some hysteria about this then:
-
-
About 3000 people, including 162 civilians, killed in US- coalition airstrikes on areas in Syria

The Syrian Observatory for Human Rights, June 2015
-
SOHR documented the death of 2896 people at least since the beginning of the U.S led coalition air strikes on Syria in 23/Sep until this morning, while hundreds others were wounded, vast majority IS extremists.

The number of civilians who were killed in the coalition airstrikes on oil areas, where there are oil refineries, oil wells, building and vehicles, in the provinces of al- Hasakah, Deir Ezzor, al- Raqqa, Aleppo and Idlib has risen to 162, including 51 children and 35 women.

Among the deaths, there are a family of a man, his wife and their 5 children killed due in US- led coalition airstrikes on the village of Dali Hasan in east of the town of Serrin in northeast of Aleppo and 64 civilians killed by a massacre committed by the U.S led coalition warplanes on Friday's night in 04/30/2015 when they targeted Bir Mahli village near the town of Serrin in Aleppo with several air strikes, and the death toll of this massacre includes:

– 31 children under the age of 16 including ( 16 females and 15 males ).
– 19 women above the age of 18.
– 13 men above the age of 18.
– A 18 years old boy.
-
-
For more about civilian casualties due to the US-led coalition strikes in Syria and Iraq, see the Airwars website:

584 – 1,720 civilians killed:

To date, the international coalition has only conceded two "likely" deaths, from an event in early November 2014. It is also presently investigating seven further incidents of concern; is carrying out credibility assessments on a further 13; and has concluded three more investigations – having found no 'preponderance of evidence' to support civilian casualty claims.

[Oct 04, 2015] Saudis Mull Launch Of Regional War As Russia Pounds Targets In Syria For Fourth Day

Notable quotes:
"... Yes it is more about water rights than oil. ..."
"... Overthrowing Assad cuts Hezbollahs supply lines, which is THE point of the excercise. ..."
"... Now WATER and Israel. You are barking up the right tree. Much of all of this is about Greater Israel. If you were old like me, you would remember back when secular Arab states actually possed a real threat to Israel. All those state are now torn to pieces by US policy. So, see the connection? ..."
"... I maintain most of this is Israeli based. With the US doing Israeli bidding. ..."
"... You know most Americans are clueless as all they get is overwhelming propaganda from cradle to grave. It is the US policy makers that know they can use the American people's labor to continue with their nefarious plans. ..."
"... The neocons love death and killing, and it will come home. Ask Imperial Rome. The hubris is absolutely breathtaking." ..."
"... And once again we see who is driving American foreign policy in the Middle East -- our good friends the Royal family of Saudi Arabia. Putin really made a brilliant play on this one. Most Americans are cheering for him as he destroys the CIA created boggie man ISIS, and the CIA controlled US media doesn't know what the fuck to say about it because they've already convinced the public that ISIS is the real reason we're screwing around in Syria. Check mate unless the US decides to go full retard and start bombing the Russians based upon some false flag like the Russians bombing a hospital or something -- oops, can't really do that now either. ..."
"... The US has launched 6700 airstrikes on ISIS while the Russians have apparently degraded ISIS in just 60 airstrikes. ..."
"... The US and its allies have carried out 6700 airstrikes at an expense of nearly $4 billion in the year since President Barack Obama ordered a campaign against Islamic State. Yet the terror group shows no sign of defeat and has even expanded its reach. ..."
"... Sure a lot of ISIS fighters are probably true believers but those are the ones who will stand, fight, and be killed (blind pawns). However, seeing this is as much a covert operation as an overt operation then one has to think that the brains of the operation is made up of state operatives or mercenaries. These will not stand, fight, and die but run, re-arm, and redeploy elsewhere (Afghanistan->Stans->Russia or Afghanistan->China?). ..."
"... McCain is implicitly-and sections of the media are explicitly-pointing to a change in the Pentagon's rules of engagement in Syria announced by the Obama administration last spring that allows US forces to combat Syrian government forces or any other group or country that attacks US-backed "rebels." This is meant to put pressure on the White House to initiate attacks not only against Damascus, but also against Moscow. ..."
"... America's elites are as Trump says : a nation of neo-con elites whose mantra breeds --as incarnated by the NRA lobby --psychopathic mad shooters who have the genius of the devil. ..."
"... For some reason, nobody in the US-Saudi-Turkish-Israeli nexus thought Russia would actually intervene. I don't know why. Russia went to the mat over Syria a few years back when Obama, fresh off the triumph of turning Libya into a dumpster fire, shipped the same mercenaries who did the Gadhafi hit-job to Syria, freshly re-armed. Remember, those guys' presence was the real reason for the Benghazi fiasco; a fact HRC and the Obama Administration can't speak out loud and the GOP knows full well, making Benghazi the perfect political football. ..."
"... The US strategy of sparking and fueling a Sunni vs. Shi'a world sectarian war has taken a brutal hit. The Shi'a are in the extreme minority of Islam, but not in the Middle East, between Iran and the Mediterranean. ..."
"... But I'm keeping an eye on the Uighurs in China's Xinjiang Province, and the various -Stan nations. It will take a little while, but I'm guessing there will be "Mysterious", "Spontaneous" uprisings of extremist Sunni violence there. And "Mysterious" newcomers with beards and Saudi accents. ..."
"... Brilliantly, the Russians have stolen the "War on Terror" narrative. The US psychotics, psychopaths and megalomaniacs have proven incredibly stupid. Russia asks the US to join them in fighting the war on terror. Hilarious. ..."
Oct 04, 2015 | www.zerohedge.com

Looney

Lemme get it straight… Saudi Arabia and Qatar can't handle the Houtis in Yemen, but they think they can take on Russia? Oh, boy! I need a bigger popcorn bucket! ;-)

strannick

Like the US, these vile medieval "regional allies" try to frame their propaganda to show that this is about removing the dictator Assad, who actually is one of the most benign in that demented region. Its not.

They want him out because he opposed their pipeline, favoring instead the Iraqi Iran Shiite pipeline, which all three nations agreed to create. So much for national self determination. Otherwise they wouldnt give a shit what deranged lunatic ran Syria, or if Syria was ruled by some king as demented and tyranical and genocidal as they, -the Saudis and Qataris- are themselves.

Winston Churchill

Its not about an indefencible gas pipline at all.

By deception we wage war.

Its about potable water in south Lebanon.

Without that Israel is a failed desert state within ten years.

Go do the research yourself, all the data has been out there for nearly fifty years.

Hidden in plain sight.

swmnguy

Israel has to have the Litani river from source to outlet.

The pipeline from Qatar is a real project too, though.

Captain Debtcrash

Saudis' won't mess with Russia because they know the US probably wouldn't intervene on their behalf, we don't want to mess with Russia either and vice versa. It was already agreed we would let them do what they want and talk a good game in opposition.

That said, if I'm wrong, I don't think we will have to worry about low oil prices any more.

Oracle of Kypseli

Desal water is much more expensive than oil.

And... Yes it is more about water rights than oil. The Jordan river is now a small slow moving creek.

Winston Churchill

The Litani is part of the headwaters of the river Jordan.

The Golan overlooks the Jordan.Whick looks like a stream in comparison to what is was fifty ago, and a dried up mud hole relative to 150yrs ago. I wish I could post a photo from the 1860's I have of the Jordan, its a glass plate negative taken by my great grandfather.

Overthrowing Assad cuts Hezbollahs supply lines, which is THE point of the excercise.

If, as reported yesterday, Putin is going to supply Hezbollah direct with armaments, Putin will have a Israels balls in a vice, no wonder Nutjob is going apeshit..

Jack Burton

Good point Winston. I have always been dubious about the Pipeline argument. As you say, even if built, this pipeline would run through very hostile places, sure to be hit over and over again.

Now WATER and Israel. You are barking up the right tree. Much of all of this is about Greater Israel. If you were old like me, you would remember back when secular Arab states actually possed a real threat to Israel. All those state are now torn to pieces by US policy. So, see the connection?

Israel must, with in a decade take and hold souther Lebanon of perish. The only water left is there, Israel must have it. So they will take it, to hold it, they need Syria dead and Lebanon a failed stated.

I maintain most of this is Israeli based. With the US doing Israeli bidding.

The Indelicate ...

the Qatar pipeline argument never made any sense because:

1] you don't build a pipeline through chaos which will last years, which is precisely what Israel, most of all wants - a bloodletting that destroys another regional economic, and to an extent military rival.

2] Cost/benefit wise it doesn't make sense to spend this sort of money and time to go through Syria - look at a map.

3] Israel's Leviathan find, it's plans to ethnically cleanse the remainder of Palestine, and find/create pretexts to attack and invade more of Lebanon, Syria, and Sinai. It's plans to steal the gas that, if international law applied to the Jewish State, Gaza, Syria, and Lebanon.

Early Zionist Interest In Lebanon - Laura Zittrain Eisenberg
http://www.bintjbeil.com/E/history/zionism.html

Israel Wants The Litani River Desperately
http://northerntruthseeker.blogspot.com/2010/08/israel-wants-litani-rive...

HOORAY FOR HEZBOLLAH!
http://www.tomatobubble.com/id775.html

flysofree

This is a load of crap. I lived in the Caribbean and our source of water was desalinization plant. It wasn't as expansive as you say, even the poorest locals could easily afford it. The problem with desalinization plants was that intake valves would clog up with seaweed during storms!

There is no evidence whatsoever that Israel is planning any aggression towards its neighbors. It's also no secret that ALL of Israel air strikes into Syria involved intercepts of weapons shipments from Iran; that's clearly stated in mainstream media reporting!

You must be a deluded old twig, if you even attempt to compare Nazi Germany Lebensraum policies of total liquidation of local populations to modern Israeli politics of settler land grab in the West Bank.

Winston Churchill

I'm old like you Jack, but travelled extensively throughout the MENA, a family tradition you could say, my great grandfather and grandfather were involved in opening up tourism/biz to a lot of the area.Long before oil was discovered. Have some 'wrong side of the blanket' relatives who I keep in contact with as well.

SWRichmond

Lemme get it straight… Saudi Arabia and Qatar can't handle the Houtis in Yemen, but they think they can take on Russia? Oh, boy! I need a bigger popcorn bucket! ;-)

Putin is confident in his backing at home. Russian people are, for lack of a better way to put it, accustomed to "doing without" while supporting the motherland. Saudi, on the other hand, has completely spoilt their home population with their temporary wealth (now in doubt), paying them just to live, making them soft and expectant, petulant, self indulgent (sound familiar?). Putin is quite obviously "going for it", pressing his position, because he believes he will prevail. The gloves are off. USA is broke, and Putin knows it. Petrodollar is on its death bed, and he knows it, and he is willing to overtly hasten its death.

Final question, for bonus points: how do nations traditionally finance wars?

Answer: BY DEBASING THEIR CURRENCIES.

PacOps

Didn't someone pull some kind of shit like that on the Soviet Union a few decades back? ;-)

Sun, 10/04/2015 - 11:48 | 6628206 swmnguy

The Russian people can feed themselves. Not lavishly; cabbage and "cole" vegetables; potatoes; a little meat, fish and poultry; cold-weather grains; but they can feed themselves. Not so much for the Saudis and Qataris etc. Also, the Russians make their own stuff. They don't have to import slaves who outnumber them.

Yes, if the luxury is suddenly removed from their lives, the Russian people wouldn't notice, never having had much in the first place. But the Saudis and Qataris can't survive in their current arrangements.

kananga

"So, millions of Saudi refugees invading Europe?"
More like, 100 Saudi Royals invading Monaco.

lincolnsteffens

You know most Americans are clueless as all they get is overwhelming propaganda from cradle to grave. It is the US policy makers that know they can use the American people's labor to continue with their nefarious plans.

Sir Edge

Yes...

Plus One Kabillion SWR... Perfectly Said...

"USA is preparing to rip itself apart. For some reason Americans believe they can foist death, destruction, mayhem and hopelessness upon the entire rest of the planet, while somehow remaining immune from it themselves. The neocons love death and killing, and it will come home. Ask Imperial Rome. The hubris is absolutely breathtaking."

strannick

Exactly.

How dare Russia and Iran tinker with America and Suadis bombed out, fucked up Shangrala that is their legacy in the Middle East.

researchfix

They know what´s coming. Iran and Russia will chase ISIS to the Saudi border. And then they stop the chase. And then the next chapter enfolds.

cosmyccowboy

Stick with the small bucket, I do not believe that the Saudi little boy lovers and women beaters sill last long against the Russians, Syrians and Iranians. Their mercenaries will flee from a real fighting force!

HowdyDoody

Saudi are being setup as Zion's stooges. If they win - ZIon gets lebensraum to the north of Israel, if they lose - lebensraum to the south. The inevitable public reason for the land grab - poor defenseless little Israel needs a buffer zone between it and the Muslims.

LetThemEatRand

And once again we see who is driving American foreign policy in the Middle East -- our good friends the Royal family of Saudi Arabia. Putin really made a brilliant play on this one. Most Americans are cheering for him as he destroys the CIA created boggie man ISIS, and the CIA controlled US media doesn't know what the fuck to say about it because they've already convinced the public that ISIS is the real reason we're screwing around in Syria. Check mate unless the US decides to go full retard and start bombing the Russians based upon some false flag like the Russians bombing a hospital or something -- oops, can't really do that now either.

Bendromeda Strain

And once again we see who is driving American foreign policy in the Middle East -- our good friends the Royal family of Saudi Arabia.

Do not fail to miss the "go to" interview with the demon worshipper at The European Council of Foreign Relations. Saudi Arabia's interest just happens to *currently* align with the globalists. Convenient for them - for now.

TheReplacement

I disagree. I think the drivers are unnamed and the royals of KSA are both a faction and a pawn. They would look at themselves and see a faction. When looked down upon by TPTB they are pawns (like 99.999999% of humanity).

I also do not see most Americans cheering for Putin. I see most Americans are absolutely ignorant and clueless as per usual. Some think they are informed and think evil Putin grasping at empire. I cannot speak to Putin's motives and I do hold suspicion of anybody who has maintained power like his as long as that man. Still, I have to ask them what exactly Putin has done.

"Invaded Ukraine."

Really? Show me pictures and video that isn't years old and taken from a completely different country while I show you pictures and video of the US State Department funding and fomenting a violent uprising by neo nazis against a constitutionally elected government (this is not to say that I disagree in any way with Ukrainians taking action of their own volition but that isn't what happened).

"Well, he shot down that jetliner."

Proof? The west has all the evidence and we have no proof. You do realize the official report only confirmed that the jet was in fact shotdown. They have presented no evidence that either confirms nor denies any particular faction did in fact shoot it down.

"He's invading Syria."

Putin was invited by the Syrian government because ISIS and their allies were starting to win the war despite our forces supposedly bombing them all year. If we were bombing and droning them, in addition to the fighting by the Iraqis, Syrians, and Kurds, then why were they still winning? If Russia, Syria, and Iran all want to defeat ISIS then who is it that wants ISIS to win - who is supporting the bad guys in black if all the other bad guys are trying to kill them?

"I don't know. You wanna watch the Redsox?"

JustObserving

The corrupt, criminal, cruel cabal that rules Saudi Arabia should have collapsed years ago. So let them start another war and collapse now. Karma is a bitch. Hope ISIS are pushed into Saudi Arabia and Turkey.

The US has launched 6700 airstrikes on ISIS while the Russians have apparently degraded ISIS in just 60 airstrikes. Was the US dropping care packages and videos made in Langley?

The US and its allies have carried out 6700 airstrikes at an expense of nearly $4 billion in the year since President Barack Obama ordered a campaign against Islamic State. Yet the terror group shows no sign of defeat and has even expanded its reach.

http://www.rt.com/news/314885-isis-usa-anniversary-campaign/

TheReplacement

I question that narrative. Sure a lot of ISIS fighters are probably true believers but those are the ones who will stand, fight, and be killed (blind pawns). However, seeing this is as much a covert operation as an overt operation then one has to think that the brains of the operation is made up of state operatives or mercenaries. These will not stand, fight, and die but run, re-arm, and redeploy elsewhere (Afghanistan->Stans->Russia or Afghanistan->China?).

JustObserving

Does the Doomsday clock have a seconds hand ?

Does it have a nanosecond hand?

Threat of wider war mounts as Russia continues airstrikes in Syria

More prominent are voices calling for an even more reckless US policy of escalation against both Assad and Putin. They speak for powerful sections of the foreign policy and military-intelligence establishment that are implacably hostile to the nuclear deal with Iran and bent on war with Russia and China.

John McCain, the Republican chairman of the Senate Armed Services Committee, spoke for this faction Wednesday. He declared from the Senate floor, "Into the wreckage of this administration's Middle East policy has now stepped Putin. As in Ukraine and elsewhere, he perceives the administration's inaction and caution as weakness, and he is taking advantage."

On Thursday, McCain told CNN that he could "absolutely confirm" that the initial Russian strikes were "against our Free Syrian Army or groups that have been armed and trained by the CIA…"

McCain is implicitly-and sections of the media are explicitly-pointing to a change in the Pentagon's rules of engagement in Syria announced by the Obama administration last spring that allows US forces to combat Syrian government forces or any other group or country that attacks US-backed "rebels." This is meant to put pressure on the White House to initiate attacks not only against Damascus, but also against Moscow.

http://www.wsws.org/en/articles/2015/10/02/syri-o02.html

falak pema

That the Sunni clans find the Russian Iran entente a threat to their creationist minded ideology is understandable--to the extent that Turkey has reverted to obscurantist logic and effaced Ataturk's legacy from its current political inclination-- and that Saud and Qatar, as inheritors of the Pax Americana Oil protected legacy, have reverted to the same ideological stance in a regressional spiral that shocks the word-- is one thing ; that the West adheres to this same logic is another. The history of the wahhabist arabs monarchies is diametrically opposed to that of the West in terms of political priorities.

The latter trend, of regression to neo-feudal ideology, is a betrayal of western values that are the bedrocks of our society.

There is no excuse for this regression, now brought out to the open by a Shia theocracy aligned with a autocratic Russia, which make the so called democratic West look like the new Evil Empire.

We are now in a spiral in West that will bring down democracy and replace it by a neo-feudal autocracy that will have nothing to envy the most evil traits of the Spanish Inquisition.

America's elites are as Trump says : a nation of neo-con elites whose mantra breeds --as incarnated by the NRA lobby --psychopathic mad shooters who have the genius of the devil.

Even Putin and Khameini look like moderates!

ThroxxOfVron

Russia is not allied with Iran.

That both Russia and Iran perceive that it is in their individual interestes to intervene in Syria does not make them allies.

The only reason that Russia and Iran welcome the others intervention is that it temporarily relieves each of them of the full weight of the financing costs of their respective interventions which would be higher if undertaken alone, and relieves both of some amount of the international political pressures being manifest by the US/Zio powers opposed to their interventions.

Russia and Iran do not share the same goals and will not employ the same methods.

Any appearance of mutual support is tangenital and temporary. It will dissipate rapidly when their true divergent interests become apparent in due course and as their opportunities in the Trans-Syrian theater evolves.

Likely the two will immediately become opponents in Syria as other forces are ejected from the theater in much the same manner as Russia and the British/US did in Germany when Berlin fell at the end of the WW2.

What I do not think is being spoken of publicly is the fact that Iraq is effectively being carved up while the focus is on Syria.

I do not think Iraq will exist, or certainly will not exist with the same territorial boundaries, when the Trans-Syrian ( Great Sunni/Shia ) War is concluded.

swmnguy

I would guess Kurdish leaders are doing everything they can to get an audience in the Kremlin about now. This is their best chance ever at an independent Kurdistan, protected by Iran and Russia. There won't ever be a better moment for them. The US has been using them as we used the Hmong in Laos in the Vietnam War. Time for the Kurds to get out of the firing line and into an arrangement with local regional powers who will actually pay them in the coin of their choosing in return for their services.

swmnguy

I don't think Saudi Arabia can do anything more than transfer some ancient handheld anti-arcraft missiles to their Syrian proxies, through third-parties. I can't imagine the Saudis openly attacking the Russians. I doubt they'd ship anything directly traceable back to them.

For some reason, nobody in the US-Saudi-Turkish-Israeli nexus thought Russia would actually intervene. I don't know why. Russia went to the mat over Syria a few years back when Obama, fresh off the triumph of turning Libya into a dumpster fire, shipped the same mercenaries who did the Gadhafi hit-job to Syria, freshly re-armed. Remember, those guys' presence was the real reason for the Benghazi fiasco; a fact HRC and the Obama Administration can't speak out loud and the GOP knows full well, making Benghazi the perfect political football.

But if you look at the atlas, and at Russian behavior since the 1970s, it's pretty obvious why they aren't going to tolerate radical insane Sunni mercenary armies running around in their backyard. In Syria, different from Ukraine, the local recognized government can invite them in. Now it looks like the local recognized government in Iraq has invited them in, too.

The US strategy of sparking and fueling a Sunni vs. Shi'a world sectarian war has taken a brutal hit. The Shi'a are in the extreme minority of Islam, but not in the Middle East, between Iran and the Mediterranean.

The Saudis will whine and cry, but not do much. Israel is going to get real quiet. I'd guess the US will cut bait on their proxies. But I'm keeping an eye on the Uighurs in China's Xinjiang Province, and the various -Stan nations. It will take a little while, but I'm guessing there will be "Mysterious", "Spontaneous" uprisings of extremist Sunni violence there. And "Mysterious" newcomers with beards and Saudi accents.

45North1

All this crap really ramped up about the time Libya was destroyed by NATO. Civilian deaths certainly have soared from 2011 to now.

Not saying there is a coincidence with respect to Libya being destroyed , but I can't help but think there is some link between liberated Libyan weapon staches and the accelerated actions of the various iterations of Syrian Rebels and re-labeled Terrorists in Syria. Syrian People have subsequently suffered. Infrastructure has been destroyed, Syria risks a future as a failed state (ala Libya) if overrun. I am sure Syria can take some comfort in knowiing that Libya got a new Central Bank as NATO munitions were still landing.)

Hopefully Policies of other players in the Syrian mess don't adopt the in for a penny , in for a pound approach to this debacle.... but I have my doubts.

Islam needs to get itself together if there is ever to be peace in the Middle East.

Pigs will probably fly first.

Atticus Finch

Brilliantly, the Russians have stolen the "War on Terror" narrative. The US psychotics, psychopaths and megalomaniacs have proven incredibly stupid. Russia asks the US to join them in fighting the war on terror. Hilarious.

Paracelsus

Correct. Gaddafi would have had tons of munitions.These were transported with US help thru Turkey into Syria.With the Iraq war destabilizing the entire region,

The Kurds were able to establish there own mini-state with the bonus of oil in the ground. Turkey has always been the weak man in the area politically, and has always opposed an
independent Kurdish nation.

I am waiting for the first Russian warplane to be brought down and the pilot roasted in a cage (on video). I can't see where the Russkies would be very happy with the CIA/Mercs who provided the ManPads for this event. The Russkies are very good at the airpower thing. The Iranians are tough on the ground. The Russkies seem to want to get this over in months or less.

Funny how they don't seem to worry about any UN Security Council condemnation. Chinese Veto?

Well, death of the PetroDollar system. History in front of our eyes.. The only wildcard is the Israelis threat to use nukes if they don't get their way. Aside from the PetroDollar collapse, there exists a strong threat of China and others dumping Treasuries on the finance markets (if they are unhappy with US foreign policy).

"May you live in interesting times".....

Truly Inspiration

You really raise serious questions about just how "intelligent" US intelligence actually is??

Why shall US target their own people when the ISIS top commander is an AMERICAN! You don't believe it?

Nada a 19 year old woman just escaped from hell,

http://www.dailymail.co.uk/news/article-3253107/Is-ISIS-commander-AMERIC...


sudzee

SA worried that the "coalition of the good and honest" Russia/Syria/Iran and Iraq will corner ISIS and force them south thru western Iraq/eastern Jordan into Saudi Arabia itself. The Royal Family, beheaders in chief, will receive the goes around.

AlfredNeumann

Hillary Clinton : We created Al-Qaeda
Hillary Clinton : We created Al-Qaeda
https://www.youtube.com/watch?v=Dqn0bm4E9yw

Gregor Samsa

This cartoon says it best: http://sputniknews.com/cartoons/20151002/1027919479/us-russia-syria-cart...

forgotten in th...

Here some social media statements by members of the "moderate islamic opposition" that Barack Obama and his two piece of shit (Cameron and Hollande) are supporting.

From wikipedia

In response to reports of Russian intervention, the Army of Conquest's Liwa al-Haqq commander Abu Abdullah Taftanaz posted a tweet addressing the "infidel Russians", inviting them to send troops to Syria and saying that "we have thousands like Khattab" who would "slaughter your pigs".[76][77] Abu Abdullah Taftanaz also tweeted Russian military terms for Syrian rebels to familiarize themselves with if they intercepted Russian radio chatter.[78][79][80][81][82] Reportedly Chechen and Caucasian foreign fighters have begun flocking to the coastal regions of Syria where the Russians are based in order to seek them out.[83]

Ahmad Eissa al-Sheikh, a commander in Turkish/Saudi-backed Ahrar ash-Sham,[84] threatened to bring upon "Russian hell in a Levantine flavor" if they encountered the Russians.[85][86] Harakat Fajr ash-Sham al-Islamiya leader Abu Abdullah ash-Shami tweeted about the "globalization" of the "Levantine Jihad".[87][88] He also tweeted that on the Russians and said that "The Levant will become their graveyard, with the permission of Allah".[89] The Al-Qaeda-linked Al-Nusra Front[90] has set a reward for the seizure of Russian soldiers of 2,500,000 Syrian pounds (approximately US$13,000).[91][92]

The Syria based, Al-Qaeda linked Saudi cleric Abdallah Muhammad Al-Muhaysini threatened that Syria would be a "tomb for its invaders" or "graveyard for invaders" in response to the Russian intervention and brought up the Soviet war in Afghanistan.[93][94][95]

AlfredNeumann
Syria Update# Air Duel between the Sukhoi Su - 30 Russian SM and Israeli F-15 Tags:
Six Russian fighter jets type Multirole Sukhoi SU - 30 SM have intercepted 4 Israeli McDonnell Douglas F-15's fighter bombers attempting to infiltrate the Syrian coast.The Israeli F 15 warplanes have been flying over Syrian airspace for months and in particular the coast of Latakia, which is now the bridgehead of the Russian forces in Syria.

The Israeli jets would generally follow a fairly complex flight plan and approach Latakia from the sea

On the night of 1 October 02, 2015, six Sukhoi SU-30 Russian SM fighters took off from the Syrian Hmimim airbase in the direction of Cyprus, before changing course and intercepting the four Israeli F-15 fighters off the coast of Syria, that were flying in attack formation.

Surprised by a situation as unexpected and probably not prepared for a dogfight with one of the best Russian multipurpose fighters, Israeli pilots have quickly turned back South at high speed over the Lebanon.

The mighty Israeli military doesn't do so well against opponents who can actually fight back! They'll probably bomb Gaza again so they can feel butch about themselves!

Read more: WHAT REALLY HAPPENED | The History The US Government HOPES You Never Learn! http://whatreallyhappened.com/#ixzz3ncnOMUxV

Amun

"on November 2, 1917, British imperialism in Palestine began when Lord Balfour, the then British foreign secretary and former prime minister, sent a letter to Baron Rothschild, one of the leaders of the Zionist movement. This letter became known as the "Balfour Declaration".

In that letter, Balfour promised British support for the Zionist programme of establishing a "national home for the Jewish people" in Palestine. This pledge of support was made without consulting the indigenous Christian and Muslim inhabitants of Palestine, the Palestinian people. And it was made before British troops had even conquered the land.

Balfour, on behalf of Britain, promised Palestine – over which Britain had no legal right – to a people who did not even live there (of the very small community of Palestinian Jews in Palestine in 1917, very few were Zionists). And he did so with the worst of intentions: to discourage Jewish immigration to Britain. No wonder Lord Montagu, the only Jewish member of the Cabinet, opposed the declaration.

And yet, just two years earlier, Britain had committed herself to assisting the Arab nations in achieving their independence from the Ottoman Empire. Arab fighters all over the region, including thousands of Palestinians, fought for their freedom, allowing Britain to establish her mandate in Palestine. "

http://www.telegraph.co.uk/news/worldnews/middleeast/palestinianauthority/9645925/Britain-must-atone-for-its-sins-in-Palestine.html

Abiesalba 1 Oct 2015 14:29

With respect to the total mess in Syria, to my knowledge there has been only one recent poll conducted across Syria (see below). The pollsters say that the poll is representative of the people of Syria. A similar poll was also conducted in Iraq. Both polls were conducted in June-July 2015:
-
82% of Syrians agree that ISIS was foreign-created by the US (17% disagree).

85% of Iraqis agree that ISIS was foreign-created by the US (10% disagree).
-
-
Among the warring sides in Syria, Assad has the highest (!) support – 47% of Syrians think he has a POSITIVE influence (50% negative) .

Compare to the groups which the US 'coalition' and the Anglo-Americans media claim we should all support:

Free Syrian Army – 35% positive, 63% negative

Syrian Opposition Coalition – 26% positive, 72% negative
-
Considering the polling results, anyone claiming that Assad should be removed is working AGAINST half of the Syrians. Putin is right – Assad has to be included in any solution to the war. Else, there will immediately a rebellion of half of Syrians against FOREIGN powers toppling Assad.

Assad will not come to the negotiating table without Putin.

Besides, it is clear that for Syrians (and Iraqis), the truly BAD guys are the Americans.
-
-
PUBLIC OPINION IN SYRIA
-
Fieldwork: June 10 to July 2

Respondents: 1,365 Syrians from all 14 governorates of the country
-
-
Thinking about the persons and the groups which are working now in Syria, Generally, do you think that their influence is negative or positive on the matters in Syria
-
Positive … Negative
-
47% … 50% … Bashar al-Asad
43% … 55% … Iran
37% … 55% … Arab Gulf Countries
35% … 63% … Nusra Front
35% … 63% … Free Syrian Army
26% … 72% … Syrian Opposition Coalition
21% … 76% … Islamic State
-
-
There are many reasons around to explain the presence of ISIL in Iraq/Syria, please tell me if strongly agree, somewhat agree, somewhat disagree, or a strongly disagree for the reason that explains the presence of ISIL?
-
Agree … Disagree
-
82% … 17% … ISIL is foreign made by the US

59% … 40% … As a result of widespread sectarian politics in the Arab countries and in Turkey

55% … 44% …ISIL is made by some Arab regimes

50% … 48% … ISIL is created by foreign countries to find a balance with Iran

44% … 55% … Wrong policies pursued by the Syrian government

42% … 56% … Syrian regime made ISIL for marking the opposition to terrorism

39% … 57% … Iran is supporting this organization to weaken Iraq and take it under its control

22% … 76% … Sectarian congestion that has arisen in Syria
-
-
Do you support or oppose the international coalition airstrikes in Syria?
-
Support … Oppose

47% … 50%
-
-
According to your view, which of the following represent the best solution for the crisis which Syria is in today?
-
51% … Political solution
37% … Military solution
-
-
Note: The poll has a margin of error of +/-3 percentage points.

Sources:

Polls Show Syrians Overwhelmingly Blame U.S. for ISIS (16 September 2015)

Full polling reports by the British ORB International (affiliate of WIN/Gallup International):

* Syria http://www.opinion.co.uk/perch/resources/syriadata.pdf

* Iraq http://www.opinion.co.uk/perch/resources/iraqdata.pdf

[Oct 04, 2015] Gulf states plan military response as Putin raises the stakes in Syria

Notable quotes:
"... The Russian intervention is a massive setback for those states backing the opposition, particularly within the region – Qatar, Saudi Arabia and Turkey – and is likely to elicit a strong response in terms of a counter-escalation ..."
"... Saudi Arabia and Qatar are already embroiled in an expensive and bloody war in Yemen that may limit both their military and financial resources. ..."
Oct 04, 2015 | The Guardian

Regional powers have quietly, but effectively, channelled funds, weapons and other support to rebel groups making the biggest inroads against the forces from Damascus. In doing so, they are investing heavily in a conflict which they see as part of a wider regional struggle for influence with bitter rival Iran.

In a week when Russia made dozens of bombing raids, those countries have made it clear that they remain at least as committed to removing Assad as Moscow is to preserving him.

"There is no future for Assad in Syria," Saudi foreign minister Adel Al-Jubeir warned, a few hours before the first Russian bombing sorties began. If that was not blunt enough, he spelled out that if the president did not step down as part of a political transition, his country would embrace a military option, "which also would end with the removal of Bashar al-Assad from power".

... ... ...

"The Russian intervention is a massive setback for those states backing the opposition, particularly within the region – Qatar, Saudi Arabia and Turkey – and is likely to elicit a strong response in terms of a counter-escalation," said Julien Barnes-Dacey, senior policy fellow at the European Council on Foreign Relations.

... ... ...

Saudi Arabia and Qatar are already embroiled in an expensive and bloody war in Yemen that may limit both their military and financial resources.

[Oct 04, 2015] Nonsense on data revisions

"... I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired. ..."
"... they are all of the neo-liberal religion; group-thinkers ..."
Oct 04, 2015 | mainlymacro.blogspot.com
mainly macro
Anonymous, 1 October 2015 at 01:04
When I reread my collection of BBC articles for the period 2008-15, some of which I have reposted on this blog in the past, I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired.

Since 2008, Robert Peston, Stephanie Flanders, Hugh Pym, and Andrew Neil have had terrible economic crises, and it must be more than just governmental pressure that has produced such concentrated ineptitude.

acorn, 1 October 2015
Alas, they are all of the neo-liberal religion; group-thinkers. Peston has never understood the difference between a currency issuing government and a currency using non-government sector. Hence, government financial accounts are totally different to a households financial accounts.

They all think that the government has to tax and/or borrow "money", before it has any to spend. Never stopping to think where the people it taxed or borrowed from, got such "money" in the first place.

Politicians and the IFS peddle the same myth. Liars and fakers the lot of them. Stick with the accountants.

http://www.icaew.com/en/about-icaew/newsroom/press-releases/2015-press-releases/fall-in-tax-receipts-hinders-progress-in-deficit-reduction-says-icaew

[Oct 04, 2015] Syria and the Danger of Moral Imperialism

Oct 02, 2015 | The American Conservative

A dozen years after George W. Bush invaded Iraq, ISIS occupies its second city, Mosul, controls its largest province, Anbar, and holds Anbar's capital, Ramadi, as Baghdad turns away from us-to Tehran. The cost to Iraqis of their "liberation"? A hundred thousand dead, half a million widows and fatherless children, millions gone from the country and, still, unending war.

How has Libya fared since we "liberated" that land? A failed state, it is torn apart by a civil war between an Islamist "Libya Dawn" in Tripoli and a Tobruk regime backed by Egypt's dictator.

Then there is Yemen. Since March, when Houthi rebels chased a Saudi sock puppet from power, Riyadh, backed by U.S. ordinance and intel, has been bombing that poorest of nations in the Arab world. Five thousand are dead and 25,000 wounded since March. And as the 25 million Yemeni depend on imports for food, which have been largely cut off, what is happening is described by one U.N. official as a "humanitarian catastrophe."

... ... ...

What Putin seems to be saying to us is this:

If America's elites continue to assert their right to intervene in the internal affairs of nations, to make them conform to a U.S. ideal of what is a good society and legitimate government, then we are headed for endless conflict. And, one day, this will inevitably result in war, as more and more nations resist America's moral imperialism.

Nations have a right to be themselves, Putin is saying. They have the right to reflect in their institutions their own histories, beliefs, values and traditions, even if that results in what Americans regard as illiberal democracies or authoritarian capitalism or even Muslim theocracies.

There was a time, not so long ago, when Americans had no problem with this, when Americans accepted a diversity of regimes abroad. Indeed, a belief in nonintervention abroad was once the very cornerstone of American foreign policy.

[Oct 03, 2015] Oil Bulls Lose Faith in Recovery as Russia Adds to Global Glut

Looks like Bloomberg is becoming Fox of economic and financial news...
"Other countries, such as Russia, are pumping at full tilt" looks like a lie. Russia production might be cur if additional tax on oil producers is restored by government.
I also like ""The U.S. producers are the only ones doing their part to reduce the global glut," -- another lie. shale producers are uncompetitive at this level f prices and some can't even serve their debt. the same is true for oil sands. They are cutting all corners, endangering the environment.
There is no return to "cheap oil" regime despite period of overinvestment that was bright by prices above $80 per barrel.
The fact that "Retail investors which pulled $393 million in September" just confirm that they are a food for Wall Street sharks... Moreover investment in oil ETFs with their complex "futures based" algorithms of matching oil price is in itself probably a sign of not being too intelligent. The game on this table of Wall Street casino is a for professionals and HFT robots, not for lemmings (aka retail investors).
"... U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. ..."
Oct 03, 2015 | Bloomberg Business

Hedge funds trimmed bullish oil bets for the first time in six weeks, losing faith in a swift recovery as Russia boosted output to the highest since the Soviet Union collapsed.

Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.

U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. WTI traded in the tightest range since June last month as China's slowing economy and the highest Russian output in two decades signaled the global glut will linger.

"The U.S. producers are the only ones doing their part to reduce the global glut," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "Other countries, such as Russia, are pumping at full tilt. The cutbacks by shale producers here aren't going to have much impact, especially given the slowing global economy."

... ... ...

Russian oil output rose to a post-Soviet record last month as producers took advantage of the weak ruble to push ahead with drilling. The nation's production of crude and condensate climbed to 10.74 million barrels a day, 1 percent more than a year earlier and topping a record set in June, according to data from the Energy Ministry's CDU-TEK unit.

... ... ...

Investors pulled $393 million in September from United States Oil Fund, the largest U.S. exchange-traded product that tracks crude futures, the biggest withdrawal since April.

See also:

[Oct 03, 2015] Lawrence Wilkerson The Empire is in Deep, Deep Trouble

Oct 03, 2015 | naked capitalism

This is a must-watch video. Wilkerson describes the path of empires in decline and shows how the US is following the classic trajectory. He contends that the US needs to make a transition to being one of many powers and focus more on strategies of international cooperation.

The video is full of rich historical detail and terrific, if sobering, nuggets, such as:


History tells us we're probably finished.

The rest of of the world is awakening to the fact that the United States is 1) strategically inept and 2) not the power it used to be. And that the trend is to increase that.

Wilkerson includes in his talk not just the way that the US projects power abroad, but internal symptoms of decline, such as concentration of wealth and power, corruption and the disproportionate role of financial interests.

Wilkerson also says the odds of rapid collapse of the US as an empire is much greater is generally recognized. He also includes the issues of climate change and resource constraints, and points out how perverse it is that the Department of Defense is the agency that is taking climate change most seriously. He says that the worst cases scenario projected by scientists is that the world will have enough arable land to support 400 million people (no typo).

Be sure to listen to the Q&A as well.

https://www.youtube.com/watch?v=ckjY-FW7-dc

Published on Sep 24, 2015

The speech covered National Security, Climate Change, Interminable War, Debt, Immigration, Inequality, racism, and much more. The speech is striking in its honesty. It is likely poignant to Republicans who have bought into rationalization of the intransigence of the Republican Party.

Foy, October 3, 2015 at 7:26 am

Thanks for the link Yves, that's a first class speech. Great to hear one that is 'off the cuff' with no notes etc. Hits it out of the park on each point he makes. So many great lines in it.

"Empires at the end concentrate on military force as the be all and end all of power… at the end they use more mercenary based forces than citizen based forces"

"Empires at the end…go ethically and morally bankrupt… they end up with bankers and financiers running the empire, sound familiar?"

"So they [empires] will go out for example, when an attack occurs on them by barbarians that kills 3000 of their citizens, mostly because of their negligence, they will go out and kill 300,000 people and spend 3 trillion dollars in order to counter that threat to the status quo. They will then proceed throughout the world to exacerbate that threat by their own actions, sound familiar?…This is what they [empires] do particularly when they are getting ready to collapse"

"This is what empires in decline do, they can't even in govern themselves"

Quoting a Chinese man who was a democrat, then a communist (under Mao) then, when he became disenchanted, a poet and writer…

"You can sit around a table and talk about politics, about social issues, about anything and you can have a reasonable discussion with a reasonable person. But start talking about the mal-distribution of wealth and you better get your gun" …."that's where we are, in Europe and the United States".

And all from a retired republican colonel…

Norb, October 3, 2015 at 8:17 am

How many chances can "Rich and Powerful Men" be given to determine the direction of civilization? It seems that those in power believe that if they are part of the 400 million class that survives the current crisis, all is well in the world. The powerless will die in their millions, and the wealthy move along to the next phase in the human drama.

We are facing a crisis of accountability. We as citizens of this country have to find ways of holding those in power accountable for their actions. Wilkerson seems to have a conscience, but it is troubling to hear some of his "solutions" to the crisis we face. He is part of the military industrial complex we were warned about and still people seek out his advice. He spends his time advising how to relocate military bases due to sea level rise- WTF.

If our energy, resources, and political thought don't center around ending poverty, bringing social justice to all of humanity, and limiting war- the future for humanity will be bleak.

Llewelyn Moss, October 3, 2015 at 8:31 am

Who could have known that Perpetual Carpet Bombing Of The World… would SOLVE NOTHING and destroy the US financially and morally. Who could have known… except anyone with half a brain.

If Wilkerson is a true MIC Lacky, I'm much less interested in hearing his solution.

Radu Andrei

Here's what i do not understand: if "your party" is so extremist that it no longer represents any of your beliefs and political/social/fiscal positions, why the hell is it still "your party" ? I do hope it's just the attachment to the word "republican" and when it comes to voting you do it with your head.

On a side note, i like this person. A true republican, NOT the ultra-religious, warmongering, xenophobic, bigoted, anti science, anti environment, oblivious to facts, obtuse, disingenuous, backstabbing, hypocritical and hateful breed that's surfacing lately.

Sabine Ziya

I agree with you Radu. It's scary to watch the Republican party right now. They are so full of hate. They claim to walk the way of their Jesus Christ, but I wonder if Jesus would call them Pharisees, blasphemous, and hypocritical.


[Sep 29, 2015] World set for emerging market mass default, warns IMF - Telegraph

"... Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress. ..."
"... We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. ..."
"... The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world. ..."
Sep 29, 2015 | telegraph.co.uk

TheBoggart

"The International Monetary Fund (IMF) has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging
market corporate defaults"

https://www.youtube.com/watch?...

blueba • 7 hours ago

Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress.

We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. Then a few more small transfers and the the big "crisis" of 2007-8 which is ongoing and where close to a trillion in assets were consolidated in the hands of oligarchs.

First load on the debt with money created out of thin air by banks, then foreclose after the phony "bubble" bursts. Then walk away Scott free with the assets.

The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world.

[Sep 28, 2015] Obama America Has Few4 Economic Interests In Ukraine... And This Very Big One

Sep 28, 2015 | Zero Hedge
As part of his UN speech seeking to restore a crumbling Pax Americana, president Obama, eager to cover up US involvement in the Ukraine presidential coup of early 2014 (who can forget Victoria Nuland "strategy" interception in which she laid out the post-coup lay of the land, while saying to "fuck the EU"), just said that "America has few economic interest in Ukraine."

Herdee

Where and what did they do with Ukraine's gold bullion reserves and who is in possession of them right now and why is it such a big secret to everyone that overthrew the Government there?

directaction

Who cares? The Ukraine gold and all the rest of their resources are legitimate wartime plunder, booty, if you will. If the Ukrainians are stupid enough to happily allow the USA to barge in and take everything of value from them why should we weep?

viator

"George Soros has long called for the West to pump billions into Ukraine. Now he says he's ready to walk the talk.
The veteran hedge fund investor told an Austrian newspaper he was prepared to invest $1 billion in the collapsing war-ravaged economy under certain circumstances.

"There are concrete investment ideas, for example in agriculture and infrastructure projects. I would put in $1 billion," he told Der Standard. "This must generate a profit. My foundation would benefit from this, not me personally."

The Hungarian-born billionaire said Europe and the U.S. must show strong political leadership over Ukraine -- that would make it more attractive to private investors. The West could provide finance at European interest rates close to zero, for example.

A spokesman for Soros said his investment would depend on the West doing "whatever it takes" to rescue Ukraine."

http://money.cnn.com/2015/03/30/investing/ukraine-soros-billion-russia/

The Indelicate ...

What do you figure, LL - is the "New Khazaria" theory in any way legit, or is it bullshit?

Israel's Secret Plan for a "Second Israel" in Ukraine
http://m.strategic-culture.org/news/2014/12/03/israel-secret-plan-for-se...

Notwithstanding the heavy presence of dual citizens yadda yadda, I kinda think the "secret report" was tongue-in-cheek and that this is basically bullshit. But in this messed up crazy world... stranger things....

I don't see Crimea going back to Ukraine though.

Latina Lover

Since the discussion is now academic (Crimea is not leaving Russia unless Russia itself is destroyed), I will be brief.

Kolomoysky is the president of a European Jewish Group, and active in Chabad. He was promoting Crimea as an alternate Jewish homeland until Crimea rejoined Russia. Kolomoysky then lost his real estate holdings, and Chabad the ability to dominate the Crimea.

If you are interested in further background, check out the following link:

http://www.inss.org.il/uploadImages/systemFiles/The%20Jewish.pdf

[Sep 27, 2015] US On The Ropes China To Join Russian Military In Syria While Iraq Strikes Intel Deal With Moscow, Tehran

Sep 27, 2015 | Zero Hedge
What appears to have happened here is this: Vladimir Putin has exploited both the fight against ISIS and Iran's need to preserve the regional balance of power on the way to enhancing Russia's influence over Mid-East affairs which in turn helps to ensure that Gazprom's interests are protected going forward.

Thanks to the awkward position the US has gotten itself in by covertly allying itself with various Sunni extremist groups, Washington is for all intents and purposes powerless to stop Putin lest the public should suddenly get wise to the fact that combating Russia's resurgence and preventing Iran from expanding its interests are more important than fighting terror.

In short, Washington gambled on a dangerous game of geopolitical chess, lost, and now faces two rather terrifyingly disastrous outcomes: 1) China establishing a presence in the Mid-East in concert with Russia and Iran, and 2) seeing Iraq effectively ceded to the Quds Force and ultimately, to the Russian army.

[Sep 27, 2015] How America built its empire The real history of American foreign policy that the media won't tell you

Sep 27, 2015 | www.salon.com

Salon.com

The book tries to do two things. One is to cover the history of American foreign policy, from around 1900 to the present, tracing the gradual construction of a global empire. This first really came into view as a prospect during the Second World War and is today a reality across all five continents, as a glance at the skein of its military bases makes clear. The Cold War was a central episode within this trajectory, but the book doesn't treat just the U.S. record vis-á-vis the USSR or China. It tries to deal equally with American relations with the Europe and Japan, and also with the Third World, treated not as a homogenous entity but as four or five zones that required different policy combinations.

The second part of the book is a survey of American grand strategy-that is, the different ways leading counselors of state interpret the current position of the United States on the world stage and their recommendations for what Washington should do about it.

The "big think" set, in other words-Kissinger, of course, Brzezinski, Walter Russell Mead, Robert Kagan. And then people such as Francis Fukuyama, whom I consider a ridiculous figure but whose thinking you judged worth some scrutiny. How did you choose these?

From the range of in-and-outers-thinkers moving between government and the academy or think-tanks-who have sought to guide U.S. foreign policy since 2000, with some intellectual originality. Kissinger isn't among these. His ideas belong to a previous epoch, his later offerings are boilerplate. Fukuyama, who sensed what the effects of office on thought could be, and got out of state service quite early, is a mind of a different order. The figures selected cover the span of options within what has always been a bipartisan establishment.

You make a distinction between American exceptionalism, which is much in the air, and American universalism, which few of us understand as a separate matter. The first holds America to be singular (exceptional), and the second that the world is destined to follow us, that the trails we've blazed are the future of humanity. You call this a "potentially unstable compound." Could you elaborate on this distinction, and explain why you think it's unstable?

It's unstable because the first can exist without the second. There is, of course, a famous ideological linkage between the two in the religious idea, specific to the United States, of Providence-that is, divine Providence. In your own book "Time No Longer" you cite an astounding expression of this notion: "However one comes to the debate, there can be little question that the hand of Providence has been on a nation which finds a Washington, a Lincoln, or a Roosevelt when it needs him." That pronouncement was delivered in the mid-1990s-not by some television preacher, but by Seymour Martin Lipset: chairs at Harvard and Stanford, president of both the American Sociological and the American Political Science Associations, a one-time social democrat.

What is the force of this idea? A belief that God has singled out America as a chosen nation for exceptional blessings, a notion which then easily becomes a conviction of its mission to bring the benefits of the Lord to the world. President after president, from Truman through to Kennedy, the younger Bush to Obama, reiterate the same tropes: "God has given us this, God has given us that," and with the unique freedom and prosperity he has conferred on us comes a universal calling to spread these benefits to the rest of the world. What is the title of the most ambitious contemporary account of the underlying structures of American foreign policy? "Special Providence," by Walter Russell Mead. Year of publication: 2001.

But while a messianic universalism follows easily from providential exceptionalism, it is not an ineluctable consequence of it. You mount a powerful attack on the idea of exceptionalism in "Time No Longer," but-we may differ on this-if we ask what is the more dangerous element in the unstable compound of the nation's image of itself, I would say exceptionalism is the less dangerous. That may seem paradoxical. But historically the idea of exceptionalism allowed for an alternative, more modest deduction: that the country was different from all others, and so should not be meddling with them-the argument of Washington's Farewell Address [in 1796].

A century later, this position became known as isolationism, and as the American empire took shape, it was all but invariably castigated as narrow-minded, short-sighted and selfish. But it could often be connected with a sense that the republic was in danger at home, with domestic ills that needed to be addressed, which vast ambitions abroad would only compound. Mead terms this strand in American sensibility Jeffersonian, which isn't an accurate description of Jefferson's own empire-building outlook, but he otherwise captures it quite well.

We don't ordinarily apply the term "exceptionalist" in the same breath to America and to Japan, though if there is any nation that claims to be completely unique, it is Japan. But the claim produced a drastic isolationism as a national impulse, both in the Tokugawa period [1603-1868, a period of severely enforced seclusion] and after the war. Does that support the point you're making?

Exactly. Historically, exceptionalism could generate a self-limiting, self-enclosing logic as well as the gigantic expansionist vanities of the Co-Prosperity Sphere and the "Free World" [narrative]. In the American case, the two strands of exceptionalism and universalism remained distinct, respectively as isolationist and interventionist impulses, sometimes converging but often diverging, down to the Second World War. Then they fused. The thinker who wrote best about this was Franz Schurmann, whose " Logic of World Power" came out during the Vietnam War. He argued that each had a distinct political-regional base: the social constituency for isolationism was small business and farming communities in the Midwest, for interventionism it was the banking and manufacturing elites of the East Coast, with often sharp conflicts between the two up through the end of thirties. But in the course of the Second World War they came together in a synthesis he attributed-somewhat prematurely-to FDR, and they have remained essentially interwoven ever since. The emblematic figure of this change was [Arthur H.] Vandenberg, the Republican Senator from Michigan [1928-51], who remained an isolationist critic of interventionism even for a time after Pearl Harbor, but by the end of the war had become a pillar of the new imperial consensus.

Mainstream debate today seems to have constructed two very stark alternatives: There is either engagement or isolation. In this construction, engagement means military engagement; if we are not going to be militarily engaged we are isolationists. I find that absolutely wrong. There are multiple ways of being engaged with the world that have nothing to do with military assertion.

True, but engagement in that usage doesn't mean just military engagement, but power projection more generally. One of the thinkers I discuss toward the end of my book is Robert Art, a lucid theorist of military power and its political importance to America, who argues for what he calls selective-expressly, not universal-engagement. What is unusual about him is that in seeking to discriminate among engagements the U.S. should and should not select, he starts considering in a serious, non-dismissive way what would typically be construed as isolationist alternatives, even if ending with a fairly conventional position.

How far do you view the contemporary American crisis-if you accept that we are living through one-as, at least in part, one of consciousness? As an American, I tend to think that no significant departure from where find ourselves today can be achieved until we alter our deepest notions of ourselves and our place among others. I pose this question with some trepidation, since a change in consciousness is a generational project, if not more. Our leadership is not remotely close even to thinking about this. I'm suggesting a psychological dimension to our predicament, and you may think I put too much weight on that.

You ask at the outset whether I accept that Americans are living through a crisis. My reply would be: not anything like the order of crisis that would bring about the sort of change in consciousness for which you might hope. You describe that as a generational project, and there, yes, one can say that among the youngest cohorts of the U.S. population, the ideologies of the status quo are less deeply embedded, and in certain layers even greatly weakened. That is an important change, but it's generational, rather than society-wide, and it's not irreversible.

At the level of the great majority, including, naturally, the upper middle class, the image you use to describe the purpose of your last book applies: you write that it aims "to sound the tense strings wound between the pegs of myth and history during the hundred years and a few that I take to be the American century. It is this high, piercing tone that Americans now have a chance to render, hear, and recognize all at once. We have neither sounded nor heard it yet." That's all too true, unfortunately. The most one can say is that, among a newer generation, the strings are fraying a bit.

I tend to distinguish between strong nations and the merely powerful, the former being supple and responsive to events, the later being brittle and unstable. Is this a useful way to judge America in the early 21st century-monumentally powerful but of dubious strength? If so, doesn't it imply some change in the American cast of mind, as the difference between the two sinks in?

That depends on the degree of instability you sense in the country. In general, a major change in consciousness occurs when there is a major alteration in material conditions of life. For example, if a deep economic depression or dire ecological disaster strikes a society, all bets are off. Then, suddenly, thoughts and actions that were previously inconceivable become possible and natural. That isn't the situation so far in America.

Can you discuss the new accord with Iran in this context? I don't see any question it's other than a breakthrough, a new direction. What do you think were the forces propelling the Obama administration to pursue this pact? And let's set aside the desire for a "legacy" every president cultivates late in his time.

The agreement with Iran is an American victory but not a departure in U.S. foreign policy. Economic pressure on Iran dates back to Carter's time, when the U.S. froze the country's overseas assets after the ousting of the Shah, and the full range of ongoing U.S. sanctions was imposed by the Clinton administration in 1996. The Bush administration escalated the pressure by securing U.N. generalization of sanctions in 2006, and the Obama administration has harvested the effect.

Over the past decade, the objective has always been the same: to protect Israel's nuclear monopoly in the region without risking an Israeli blitz on Iran to preserve it-that might set off too great a wave of popular anger in the Middle East. It was always likely, as I point out in "American Policy and its Thinkers," that the clerical regime in Tehran would buckle under a sustained blockade, if that was the price of its survival. The agreement includes a time-out clause to save its face, but the reality is an Iranian surrender.

You can see how little it means any alteration in imperial operations in the region by looking at what the Obama administration is doing in Yemen, assisting Saudi Arabia's wholesale destruction of civilian life there in the interest of thwarting imaginary Iranian schemes.

This next question vexes many people, me included. On the one hand, the drives underlying the American imperium are material: the expansion of capital and the projection of power by its political representatives. The American mythologies are shrouds around these. On the other hand, the issue of security has a long history among Americans. It is authentically an obsession independent of capital-American paranoia dates back at least to the 18th century. I don't take these two accountings to be mutually exclusive, but I'd be interested to know how you reconcile these different threads in American foreign policy.

Yes, there has been a longstanding-you could say aboriginal-obsession with security in the United States. This can be traced as an independent strand running through the history of American dealings with the outside world. What happened, of course, from the Cold War through to the "war on terror" was a ruthless instrumentalization of this anxiety for purposes of expansion rather than defense. At the start of the Cold War you had the National Security Act and the creation of the National Security Council, and today we have the National Security Agency. Security became a euphemistic cloak for aggrandizement.

The United States occupies the better part of a continent separated by two immense oceans, which nobody in modern history has had any serious chance of invading, unlike any other major state in the world, all of which have contiguous land-borders with rival powers, or are separated from them only by narrow seas. The U.S. is protected by a unique geographical privilege. But if its expansion overseas cannot be attributed to imperatives of security, what has driven it?

A gifted and important group of historians, the Wisconsin school [which included the late William Appleman Williams, among others], has argued that the secret of American expansion has from the beginning lain in the quest by native capital for continuously larger markets, which first produced pressure on the internal frontier and the march across the continent to the Pacific, and when the West Coast was reached, a drive beyond into Asia and Latin America, and ultimately the rest of the world, under the ideology of the Open Door.

A couple of good scholars, Melvyn Leffler and Wilson Miscamble, one a liberal and the other a conservative, have identified my position with this tradition, taxing me with a belief that American foreign policy is essentially just an outgrowth of American business. This is a mistake. My argument is rather that because of the enormous size and self-sufficiency of the American economy, the material power at the disposal of the American state exceeded anything that American capital could directly make use of or require.

If you look at the First World War, you can see this very clearly. East Coast bankers and munitions manufacturers did well out of supplying the Entente powers, but there was no meaningful economic rationale for American entry into the war itself. The U.S. could tip the scales in favor of the British and French variants of imperialism against the German and Austrian variants without much cost to itself, but also much to gain.

The same gap between the reach of American business and the power of the American state explains the later hegemony of the United States within the advanced capitalist world after the Second World War. Standard histories wax lyrical in admiration of the disinterested U.S. generosity that revived Germany and Japan with the Marshall and Dodge Plans [reconstruction programs after 1945], and it is indeed the case that policies crafted at the State and Defense Departments did not coincide with the desiderata of the Commerce Department. The key requirement was to rebuild these former enemies as stable capitalist bulwarks against communism, even if this meant there could be no simple Open Door into them for U.S. capital.

For strategic political reasons, the Japanese were allowed to re-create a highly protected economy, and American capital was by and large barred entry. The priority was to defend the general integrity of capitalism as a global system against the threat of socialism, not particular returns to U.S. business. The importance of those were never, of course, ignored. But they had to bide their time. Today's Trans-Pacific Partnership will finally pry open Japanese financial, retail and other markets that have remained closed for so long.

Comments form marknesop.wordpress.com

Oddlots, September 26, 2015 at 9:38 am

This is full of insight to my mind:

http://www.salon.com/2015/09/23/how_america_built_its_empire_the_real_history_of_american_foreign_policy_that_the_media_wont_tell_you/

et Al, September 26, 2015 at 10:32 am
This stood out for me:

I'd like to turn to the origins of the Cold War, since I believe we are never going to get anywhere until these are honestly confronted. You give a forceful account of Stalin's reasons for avoiding confrontation after 1945 and Washington's reasons for not doing so. But should we attribute the outbreak of the Cold War to the U.S. without too much in the way of qualification?

We can look at the onset of the Cold War on two levels. One is that of punctual events. There, you are certainly right to pick out the ideological starting gun as Truman's speech on Greece in 1947, designed the "scare hell" out of voters to win acceptance for military aid to the Greek monarchy. In policy terms, however, the critical act that set the stage for confrontation with Moscow was the flat American refusal to allow any serious reparations for the staggering level of destruction Russia suffered from the German attack on it. The most developed third of the country was laid waste, its industry and its cities wrecked, while Americans suffered not a fly on the wrist at home-basking, on the contrary, in a massive economic boom. There was no issue Stalin spoke more insistently about than reparations in negotiations among the Allies. But once the fighting was over, the U.S. reneged on wartime promises and vetoed reparations from the larger part of Germany-far the richest and most developed, and occupied by the West - because it did not want to strengthen the Soviet Union and did want to rebuild the Ruhr as an industrial base under Western control, with a view to creating what would subsequently become the Federal Republic.

Oddlots, September 26, 2015 at 11:05 am
Agreed. I also think he helpfully callobrates the loss of European independence…

[Speaking of the era of De Gaulle, Adenauer and Eden] "Since then, there has been nobody like this. If we ask why, I think the answer is that all these people were formed before the First and Second World Wars broke out, in a period in which major European states had as much weight as the United States on the international checkerboard, if not more. They were not brought up in a world where American hegemony was taken for granted. All of them were involved in the two World Wars, and in the Second De Gaulle had good reason to be distrustful of the U.S., since Roosevelt was long pro-Vichy and wanted to oust him as leader of the Free French.

We could add, incidentally, a couple of later politicians, who fought in the second conflict. One was the English Tory prime minister, Edward Heath, the only postwar ruler of Britain who never made the trip to simper on the White House lawn, receiving an audience and paying tribute, that would become a virtual ceremony of investiture for any new ruler around the world. The other was Helmut Schmidt, a veteran of Operation Barbarossa [the Nazi invasion of the Soviet Union in June 1941] who scarcely concealed his disdain for Carter. These were latecomers from the past. Their successors have grown up under U.S. paramountcy and take it for granted. This is America's world. It is second nature for them to defer to it."

He also exposes that the crop that followed made a show of independence but toed the line:

"During the countdown to the war in Iraq, there were large street demonstrations in not a few countries, which Dominique Strauss-Kahn - no less - described as a European Declaration of Independence. Schröder [Gerhard, the German chancellor from 1998-2005] announced that Germany could not accept the war, and Chirac [Jacques, the French president, 1995-2007] blocked a U.N. resolution endorsing it. Were these bold acts of independence? Far from it. The French envoy in Washington told Bush in advance: You already have one U.N. resolution saying Saddam must comply with inspections, which is suitably vague. Don't embarrass us by trying to get another resolution that is more specific, which we'll have to oppose. Just use that one and go in. No sooner, indeed, was the attack launched than Chirac opened French skies to U.S. operations against Iraq. Can you imagine De Gaulle meekly helping a war he had said he opposed? As for Schröder, it was soon revealed that German intelligence agents in Baghdad had signaled ground targets for "Shock and Awe." These were politicians who knew the war was very unpopular in domestic opinion, and so made a show of opposing it while actually collaborating. Their independence was a comedy."

This last part was news to me.

[Sep 27, 2015] Ukraine was downgraded to default

"... the inept idiots in Kiev borrowed from whomever they wanted, including a group that helped push Argentina into near bankruptcy. ..."
"... "If Aurelius also refuses to take part, the bonds it holds will remain in default, potentially allowing the hedge fund to chase Ukraine in courts in London and elsewhere. "That bond will remain out there like some of the Argentine debt. Ukraine will remain in default," Nomura strategist Tim Ash said, although he noted that Ukraine had fewer assets than Argentina for hedge funds to seize." ..."
"... the judges in the US ruled in favor of the hedge fund over Argentina, so there's clear precedent ..."
Sep 27, 2015 | marknesop.wordpress.com
ucgsblog, September 26, 2015 at 12:55 pm
Time for Financial News. As a result of the Gas/Oil Wars, Russia pulled ahead, because Putin used the money intended for recapitalization of the gas/oil industry, to recapitalize the gas/oil industry. Some in the West are shocked at that, firmly believing that he was supposed to steal the money. Ah yes, the power of believing in your own propaganda.

In other news, Ukraine was downgraded to default: https://www.rt.com/business/316521-standardpoors-ukraine-selective-default/

Why you ask? Because the inept idiots in Kiev borrowed from whomever they wanted, including a group that helped push Argentina into near bankruptcy. And now they're about to do the same to Ukraine: http://www.buenosairesherald.com/article/199119/%E2%80%98vulture%E2%80%99-fund-aurelius-targets-ukraine-debt

"If Aurelius also refuses to take part, the bonds it holds will remain in default, potentially allowing the hedge fund to chase Ukraine in courts in London and elsewhere. "That bond will remain out there like some of the Argentine debt. Ukraine will remain in default," Nomura strategist Tim Ash said, although he noted that Ukraine had fewer assets than Argentina for hedge funds to seize."

Oh yeah, the judges in the US ruled in favor of the hedge fund over Argentina, so there's clear precedent. Whoopsie. The reason this looks really bad, is that there are no good solutions out of this. If Ukraine defaults, it'll be stuck permanently on the teat of the US/EU, as I predicted in June: https://ucgsblog.wordpress.com/2014/06/09/the-box-not-seen/

If the judges flip flop, Argentina will have a clear cut case against the hedge funds, pushing Obama into a battle with the hedge funds, when they have the Republicans on their side. If Obama pays this hedge fund, Franklin-Templeton will demand the same exact treatment, adding to Obama's sentiment as the Debt King of the United States. Not to mention that Congress wouldn't authorize that big a sum. There are no good options of out this, for either Poroshenko or Obama. To quote Gordon: "da, cheburashke ne vezet"

[Sep 27, 2015] Argentina vs vulture funds

"... The Argentine government managed to restructure about 93% of that debt through heavily discounted bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted bonds for new securities, and they have hounded Argentina in courts across the globe for close to a decade seeking full repayment. ..."
Sep 27, 2015 | marknesop.wordpress.com

et Al, September 26, 2015 at 1:44 pm

http://blogs.wsj.com/moneybeat/2014/06/30/argentina-vs-bondholders-the-epic-saga/

The Argentine government managed to restructure about 93% of that debt through heavily discounted bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted bonds for new securities, and they have hounded Argentina in courts across the globe for close to a decade seeking full repayment.

https://en.wikipedia.org/wiki/Argentine_debt_restructuring

As part of the restructuring process, Argentina drafted agreements in which repayments would be handled through a New York corporation and governed by United States law. The holdout bondholders found themselves unable to seize Argentine sovereign assets in settlement, but realized that Argentina had omitted to provide for holdout situations and had instead deemed all bonds repayable on pari passu (equal) terms that prevented preferential treatment among bondholders. The holdout bondholders therefore sought, and won, an injunction in 2014 that prohibited Argentina from repaying the 93% of bonds that had been renegotiated, unless they simultaneously paid the 7% holdouts their full amount due as well. Together with the agreement's Rights Upon Future Offers ("RUFO") clause, this created a deadlock in which the 93% of renegotiated bondholders could not be paid without paying the 7% holdouts, but any payment to the holdouts would potentially (according to Argentina) trigger the 93% being due repayment at full value too; a sum of around $100 billion which Argentina could not afford.[6] The courts ruled that as Argentina had itself drafted the agreement, and chosen the terms it wished to propose, it could not now claim the terms were unreasonable or unfair, and that this could not be worked around by asserting sovereign status since the injunction did not affect sovereign assets, but simply ruled that Argentina must not give preferential treatment of any group of bondholders over any other group when making repayments.

…NML Capital Limited, a Cayman Islands-based offshore unit of Paul Singer's Elliott Management Corporation, purchased many holdings in 2008, paying an estimated USD49 million for one series of bonds whose face value was over USD220 million;[22] with the subsequent boom in Argentine bond values, this face value grew to USD832 million by 2014.[26] They in turn established the American Task Force Argentina lobbying group against Argentine bond restructuring efforts,[19] and sued to enjoin Argentina's ongoing payments to the bondholders who had participated in the earlier restructurings.[2]
####

Nothing can stop red blooded capitalists! I suspect that death is but a minor inconvenience.

https://www.youtube.com/watch?v=fhw9qvoxKMM

https://youtu.be/IXKEKQ8vU28

ucgsblog, September 26, 2015 at 1:55 pm

And this is what awaits Ukraine. Welcome to Capitalism Kiev, please read the small font. Oh, you don't read? Wonderful! We shall have a good time doing business together! How much for Dnepropetrovsk?

Warren, September 26, 2015 at 2:24 pm

These hold-out creditors aren't called fondo buitre for nothing!!!!!

[Sep 26, 2015] The Table Is Set For The Next Financial Crisis

"... The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. ..."
Sep 26, 2015 | Zero Hedge
The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.

The millions in upfront fees, along with their lack of conscience in bribing Moody's and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child's play compared to the last six years).

... ... ...

Greenspan created the atmosphere for the greatest mal-investment in world history. As he raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled "exotic" mortgages to dupes who weren't capable of making the first payment. This is what happens at the end of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial losses.

Once the Wall Street machine runs out of people with the financial means to purchase a home or buy a new vehicle, they turn their sights on peddling their debt products to financially illiterate dupes. There is a good reason people with credit scores below 620 are classified as sub-prime. Scores this low result from missing multiple payments on credit cards and loans, having multiple collection items or judgments and potentially having a very recent bankruptcy or foreclosure. They have low paying jobs or no job at all. They do not have the financial means to repay a large loan. Giving them a loan to purchase a $250,000 home or a $30,000 automobile will not improve their lives. They are being set up for a fall by the crooked bankers making these loans. Heads they win, tails the dupe gets kicked out of that nice house onto the street and has those nice wheels repossessed in the middle of the night.

The subprime debacle that blew up the world in 2008 was created by the Federal Reserve, working on behalf of their Wall Street owners. When interest rates are set by central planners well below levels which would be set by the free market, based on risk and return, it creates bubbles, mal-investment, and ultimately financial system disaster. Did the Fed, Wall Street, politicians, and people learn their lesson? No. Because we bailed them out with our tax dollars and have silently stood by while they have issued $10 trillion of additional debt to solve a debt problem. The deformation of our financial system accelerates by the day.

The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. With real median household income still 6.5% BELOW 2007 levels, 7.3% BELOW 2000 levels, and about equal to 1989 levels, the only way the ruling class could manufacture a fake recovery is by ramping up the printing presses and reigniting a housing bubble and an auto bubble. They even threw in a student loan bubble for good measure.

... ... ...

The entire engineered "housing recovery" has had a suspicious smell to it all along. The true bottom occurred in 2009 with an annual rate of 4 million existing home sales. An artificial bottom of 3.5 million occurred in 2010 after the expiration of the Keynesian first time home buyer credit that lured more dupes into the market. The current rate of 5.31 million is at 2007 crash levels and on par with 2001 recession levels. With mortgage rates at record low levels for five years, this is all we got?

What really smells is the number of actual mortgage originations that have supposedly driven this 35% increase in existing home sales. If existing home sales are at 2007 levels, how could mortgage purchase applications be 55% below 2007 levels? If existing home sales are up 35% from the 2009/2010 lows, how could mortgage purchase applications be flat since 2010?

New home sales are up 80% from the 2010 lows, but before you get as excited as a CNBC bimbo over the "surging" new home sales, understand that new home sales are still 60% BELOW the 2005 high and 25% below the 1990 through 2000 average. So, in total, there are 1.5 million more annual home sales today than at the bottom in 2010. But mortgage originations haven't budged. That's quite a conundrum.

As you can also see, the median price for a new home far exceeds the bubble highs of 2005. A critical thinking individual might wonder how new home sales could be down 60% from 2005, while home prices are 15% higher than they were in 2005. Don't the laws of supply and demand work anymore? The identical trend can be seen in the existing homes sales market. The median price for existing home sales of $228,700 is an all-time high, exceeding the 2005 bubble levels. Again, sales are down 30% since 2005. I wonder who is responsible for this warped chain of events?

AlaricBalth

This FRED chart I have posted, which corresponds with the effective Fed Funds Rate chart in the article, will show exactly what a daunting problem the the US and the Federal Reserve is being forced to deal with. I have overlaid the Labor Force Participation Rate with M2 Velocity of Money, each beginning in 1960. M2 velocity refers to how fast money passes from one holder to the next. The labor force participation rate is a measure of the share of Americans at least 16 years old who are either employed or actively looking for work. If money demand is high, it could be a sign of a robust economy, with the usual corresponding inflationary pressure.

As you can see, each peaked around 1997-98 and have been in slow decline ever since. Unless the Fed has a plan to increase the LFPR, people are not going to be spending money they just do not have.

Demographically, this is not going to happen. Baby boomers will still be retiring at a rate of 10,000 per day and manufacturing is never coming back to the US until we are a third world country with a cheap labor force.

This is not an issue that can be fixed by political promises. So no matter which political party is in control, this will not be repaired with platitudes. This is a structural macro-economic phenomenon which is caused by demographics and poor long term fiscal planning.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Vst

TeethVillage88s

Anyone have this video?

Elizabeth Warren Video, Late Night with Steven Colbert, 23 Sept 2015.

Defends Dodd-Frank and gave stats to prove the value of CFPB formed, like 650,000 complaints handled, and many changes forced on corporations.

Edit: Looks like CBS didn't release the segment of Elizabeth Warren only, so you have to go through whole show or just the 2:00 minute segment that only shows her saying she is not running for President.

Shame on CBS, as usual.

http://www.cbs.com/shows/the-late-show-with-stephen-colbert/video/jUNG_y...

Apparently I don't have the computer configured to play it anyway.

FreedomGuy

I do not think Wall Street and your local bankers or mortgage brokers are the bad guys here. Frankly, they look at the rules and try to make a living in the mortgage business. They are not angels but neither are they demons and I do not think they purposely write bad business.

I think the Wizard of Evil behind the curtain is first and last the government including a GSE like the Fed. They set this stuff up. You know you can load up Freddie and Fannie with smelly stuff and off-load risk. They hold rates near historic lows so people can buy more.

This drives prices and all the flipping crap and related stuff I hate.

I am in the middle of this. Being an avid reader of ZH I have become a proper pessimist. I did a cash-out refi and am paying off virtually all other loans...or more properly moving them to the tax deductible home loan. I was going to rent and move north because of work but after lots of research, breathtaking price increases and a few other cautions I decided to sit it out.

I am going to see what the economic terrain looks like in 6 months or more.

The thing is you have to play the game as it is, today, not as you think it should be.

marts321

Don't hate the player, hate the game.

TeethVillage88s

Check out the growth of Holding companies.

Financial Business; Credit Market Instruments; Liability, Level
2015:Q1: 14,104.57 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, TCMDODFS,

Holding Companies; Credit Market Instruments; Liability, Level
2015:Q1: 1,380.52 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, CBBHCTCMDODFS,
https://research.stlouisfed.org/fred2/series/CBBHCTCMDODFS

U.S.-Chartered Depository Institutions; Credit Market Instruments; Liability, Level
2015:Q1: 669.90 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, CBTCMDODFS,

Now, we know that in 2007 the Biggest Wall Street banks wanted access to Deposits in the USA. So maybe I don't have the date, could have been planned from Lehman Request date to become a Deposit Bank while an Investment Bank.

So today we have Holding Companies that are allowed to have Deposits while doing commercial and investment work and proprietary trading... and now are 30% Bigger after all the Bailouts and transfer of Taxpayer and Retirement Funds to them.

Holding Companies have Doubled Liability since 3QTR 2007

Wow

TeethVillage88s

Too Bad we don't have Honest Brokers in DOJ, FBI, SEC, FINRA, FTC, GAO, CBO, FED, Treasury, OCC, FSOC, BCFP, CFTC, FDIC, FHFA, SIPC

I'm not sure how you can isolate or focus your condemnation or fault.

  • - Private & Public Pensions, Retirement Funds, Deposit Insurance, The Fact that our Wall Street Banks are Borg connecting to AI Technology,... and Complexity is increasing at an Exponential Rate meaning Risk is Exponential as well
  • - Big Concern -- pay outs for Pension Benefit Guaranty Corporation (federal Trust Fund), 1999 = $1.23 Billion, 2000 = $1.35 Billion, 2001 =$1.37 Billion. Okay, but today 2010 = $5.59 B, 2011 = $5.89 B, 2012 = $5.86 B, 2013 = $5.89 B. There is a continual need to supplement Pensions. 2010 PBGC's deficit increased 4.5 percent to $23 billion (Liabilities beyond assets)
  • - Federal direct student loan program 1999 = $52 Billion, INCREASED to 2013 = $675 Billion. (Risky)
  • - 2013 Total FDIC Trust Fund in Treasuries = $36.9 Billion + $18 billion in the DIF (Risky)
  • - 2013 Total National Credit Union Trust in Treasuries = $11.2 Billion

Edit: This applies, $8.16 Trillion in US Deposits

Total Savings Deposits at all Depository Institutions
2015-09-07: 8,164.3 Billions of Dollars (+ see more)
Weekly, Ending Monday, Not Seasonally Adjusted, WSAVNS,
https://research.stlouisfed.org/fred2/series/WSAVNS

dizzyfingers

"Sociopaths" (psychopaths) rise to the top. They are not like others. http://www.healthguidance.org/entry/15850/1/Characteristics-of-a-Sociopath.html

EndOfDayExit

To all hysterical critics of the FED, what do you suggest they do instead? The rich can do nothing, sit it out, the poor meanwhile will starve and die (and probably riot before they die).

The poor need jobs. Now almost at any cost, because those jobs are few and far in between as we are competing with China. So they do ZIRP, NIRP whatever, something, anything to at least marginally force the rich to spend. For, if people do not spend there will be even less jobs…and less tax revenue collected for the government to run and distribute around… and it all starts going downhill.

The FED is just trying to keep the system at the higher spending point. It does not seem to work very well, but the next option is a direct confiscation and redistribution of assets (to keep those poor jobless souls content). Nobody gives a f* about inequality until it becomes a riot-provoking problem itself. Ugly as it is there is actually logic in what the FED is doing.

Batman11

The globalists rush to take the profits in the good times but run and hide in the bad.

Where is the profit in sorting out the bad times? In the bad times national institutions, Governments and Central Banks, get left to sort out the mess loading the costs onto national tax payers.

When things go wrong nationalism rises as each nation is left to fend for itself. We should know how it works by now, this isn't the first time.

  • 1920s/2000s - high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase
  • 1929/2008 - Wall Street crash
  • 1930s/2010s - Global recession, currency wars, rising nationalism and extremism
  • 1940s/? - Global war

We are nearly there with the Middle East on fire and the two nuclear super-powers at each other's throats.

Maybe next time we will know better, third time lucky.

mianne

Cherry picker, I agree with you : " All our government up here has to do is get out of NATO, disband our version of the CIA, divorce Homeland Security, duty and tax all imports to the hilt, keep our water, electricity and natural resources to ourselves and manufacture our own products... Then you can have all the wars you want in the middle east and we will watch it on television without worrying about whether to be part of the murder brigade or not."

But as for ourselves, as governed by the totalitarian EU whose representatives are non elected by people, but were chosen by the international finance tycoons ( our elected presidents deprived of any power by the supranational non elected entity, US- OTAN driven European Union), we are just powerless slaves .

However we won the referendum ( 52 % ) against the content of the Maastricht-Lisbon European Constitution, but they do not take it into account, submitting us to the ignominious treaty . Democracy ?

[Sep 26, 2015] The City Of London Has Turned Britain Into A Civilized Mafia State

"... Property in this country is a haven for the proceeds of international crime. The head of the National Crime Agency, Donald Toon, notes that "the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK." ..."
"... The City is a semi-offshore state, a bit like the UK's crown dependencies and overseas territories, tax havens legitimised by the Privy Council. Britain's financial secrecy undermines the tax base while providing a conduit into the legal economy for gangsters, kleptocrats and drug barons. ..."
"... Yep. Socialism for us. Feudalism for the people. Because.....we're too big to fail. "They gotcha by the balls -- " - George Carlin ..."
"... London is an independent city-state, with mafia owners going back 1000+ years. Website admits it's a corporation http://www.cityoflondon.gov.uk/Pages/default.aspx ..."
"... assassination politics: http://www.forbes.com/sites/andygreenberg/2013/11/18/meet-the-assassinat... ..."
"... I'm not sure that author actually knows what he is talking about. "The City" has nothing do with domestic UK money laundering in real estate, because no one with money actually lives in "the City." They generally live in the West End or on country estates- that's the real estate that is being used to launder money. And the City is hardly the UK's only tax haven for corporations -- Jersey, Guernsey and Isle of Man are all short puddle jumper flights from LCY, and if you want to use long haul flights out of Heathrow- the list of Crown dependencies and overseas territories serving as tax havens is almost endless... the Cayman Islands, British Virgin Islands and the Bermuda Triangle being the most familiar to Americans trying to lose fiat in boating accidents. ..."
"... "What Do You Think of Western Civilization?" "I Think It Would Be a Good Idea" -- Gandhi
"...London is now the global money-laundering centre for the drug trade, says crime expert ..."
"... It's a big club and we ain't in it...... R.I.P. George Carlin ..."
"... "The City" = croupier and enforcer of the global casino. ..."
"... The lesson - a financial sector without a commensurate sized industrial base will rapidly evolve into organised crime. ..."
Sep 10, 2015 | Zero Hedge
Submitted by Mike Krieger via Liberty Blitzkrieg blog,

While an earlier post related to the likely bursting of the London real estate bubble, this one highlights a blistering critique of the role the City of London has played in transforming Great Britain into what George Monbiot calls a "civilized mafia state." But that's just an appetizer. This extremely well written and information article is a must read for anyone still in the dark regarding London's central role within the global financial crime syndicate.

Here are a few excerpts from the Guardian:

To an extent unknown since before the first world war, economic relations in this country are becoming set in stone. It is not just that the very rich no longer fall while the very poor no longer rise. It's that the system itself is protected from risk. Through bailouts, quantitative easing and delays in interest-rate rises, speculative investment has been so well cushioned that – as the Guardian economics editor, Larry Elliott, puts it – financial markets are "one of the last bastions of socialism left on Earth".

Public services, infrastructure, the very fabric of the nation: these too are being converted into risk-free investments. Social cleansing is transforming central London into an exclusive economic zone for property speculation. From a dozen directions, government policy converges on this objective.

Property in this country is a haven for the proceeds of international crime. The head of the National Crime Agency, Donald Toon, notes that "the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK."

It's hardly surprising, given the degree of oversight. Private Eye has produced a map of British land owned by companies registered in offshore tax havens. The holdings amount to 1.2m acres, including much of the country's prime real estate. Among those it names as beneficiaries are a cast of Russian oligarchs, oil sheikhs, British aristocrats and newspaper proprietors. These are the people for whom government policy works – and the less regulated the system that enriches them, the happier they are.

The speculative property market is just one current in the great flow of cash that sluices through Britain while scarcely touching the sides. The financial sector exploits an astonishing political privilege: the City of London is the only jurisdiction in the UK not fully subject to the authority of parliament. In fact, the relationship seems to work the other way. Behind the Speaker's chair in the House of Commons sits the Remembrancer, whose job is to ensure that the interests of the City of London are recognised by the elected members. (A campaign to rescind this privilege – Don't Forget the Remembrancer – will be launched very soon.)

The City is a semi-offshore state, a bit like the UK's crown dependencies and overseas territories, tax havens legitimised by the Privy Council. Britain's financial secrecy undermines the tax base while providing a conduit into the legal economy for gangsters, kleptocrats and drug barons.

Even the more orthodox financial institutions deploy a succession of scandalous practices: pension mis-selling, endowment mortgage fraud, the payment protection insurance con, Libor rigging. A former minister in the last government, Lord Green, ran HSBC while it engaged in money laundering for drug gangs, systematic tax evasion and the provision of services to Saudi and Bangladeshi banks linked to the financing of terrorists. Sometimes the UK looks to me like an ever so civilised mafia state.

The government also insists that there is no link between political donations and seats in the House of Lords. But a study by researchersat Oxford University found that the probability of so many major donors arriving there by chance is 1.36 x 10-38: roughly "equivalent to entering the National Lottery and winning the jackpot 5 times in a row". Why does the Lords remain unreformed? Because it permits plutocratic power to override democracy. Both rich and poor are kept in their place.

Governed either by or on behalf of the people who fleece us, we cannot be surprised to discover that all public services are being re-engineered for the benefit of private capital. Nor should we be surprised when governments help to negotiate, without public consent, treaties such as the Transatlantic Trade and Investment Partnership and the Comprehensive Economic and Trade Agreement, which undermine the sovereignty of both parliament and the law. Aesop's observation, that "we hang the petty thieves and appoint the great ones to public office", remains true in spirit, though hanging has been replaced by community payback.

Wherever you sniff in British public life, something stinks: I could fill this site with examples. But, while every pore oozes corruption, our task, we are told, is merely to trim the nails of the body politic.

To fail to confront this system is to collaborate with it.

Most people don't want to face this, but it's undeniably true.

umbotron

Yep. Socialism for us. Feudalism for the people. Because.....we're too big to fail. "They gotcha by the balls -- " - George Carlin

JoeSexPack

London is an independent city-state, with mafia owners going back 1000+ years. Website admits it's a corporation http://www.cityoflondon.gov.uk/Pages/default.aspx

Short vid explains.

https://www.youtube.com/watch?v=LrObZ_HZZUc

Why matters? The square mile is home to Bank of England (private corp), HQ of Freemasons & branch offices of all major banks on Earth. It is center of world finance, & has been for centuries. Privately-owned Bank of E was model later replicated with FED, ECB, WB, IMF & most others.

US revolutionary War was fought to fee US from having to use Bank of E's debt notes. Sound familiar? We're back there now. Same struggle against same institutions.

KnuckleDragger-X

If you read about the history of London, you'll notice it has always been a very bizarre and screwed up place. They are now reaching their Nirvana of fucked uppedness.....

two hoots

What they can no longer do with their Dutch East India Company and with the by-gone reach of the Empire they do in the M A Rothschild tradition with their global financial tenacles

Chuck Knoblauch

Civilized assassins needed.

sleigher

assassination politics: http://www.forbes.com/sites/andygreenberg/2013/11/18/meet-the-assassinat...

lawyer4anarchists

Of course the author is right. And of course this has always been the case, it is not new. The problem we have in this country is that the people have the laughable notion that there is some magical time to "go back to" where the "constitution and it's rights" were the law. lol. The people are so lost. The constitution is not what people think. It is there to enslave you. It was never a source of freedom. Until they wake up and realize this fact, well... they will keep getting what they are getting. http://www.thetruthaboutthelaw.com/the-peoples-case-for-what-happened-at...

Urban Redneck

I'm not sure that author actually knows what he is talking about. "The City" has nothing do with domestic UK money laundering in real estate, because no one with money actually lives in "the City." They generally live in the West End or on country estates -- that's the real estate that is being used to launder money. And the City is hardly the UK's only tax haven for corporations -- Jersey, Guernsey and Isle of Man are all short puddle jumper flights from LCY, and if you want to use long haul flights out of Heathrow -- the list of Crown dependencies and overseas territories serving as tax havens is almost endless... the Cayman Islands, British Virgin Islands and the Bermuda Triangle being the most familiar to Americans trying to lose fiat in boating accidents.

Peribanu

Unlike the Yanks, we Brits don't have a constitution written down from first principles. Our "constitution" is the body of laws of the country, but it goes back so far that any contemporary changes are minor, superficial, and irrelevant. Many of the formal institutional powers in the country are the unfortunate but necessary result of a compromise between landowning aristocrats of old and the bourgeoisie who wanted a slice of the cake. The workers are merely tolerated. The internal mafia are the oh-so-very-refined aristocracy, whose heads were never cut off unlike in France, together with the rather uncouth capitalists and self-made money men, who are also tolerated, since someone has to provide one with an income, ideally by devising ways to get the workers to pay 90%-100% of their income back to us as rent. The other mafia are the rich foreigners -- Russian oligarchs, and the "persecuted" rich of the world, who are allowed to reside in Britain on condition that: a) they bring in lots of lovely "investments"; and b) don't get involved, at least publicly, in any of that unnecessary "politics" that goes on overseas. In Britain we long ago abolished politics. The commoners come and go with their naive belief that they can actually change things, while the core institutions of the country are unchanging and eternal: Eton, Oxford, Cambridge, the Civil Service, MI5, MI6, the BBC, and, of course, the Monarchy. God Save the Queen! (Or should I call her the Godmother?)

q99x2

The scum of the world all located in one place. How convenient is that. Won't be long before they start going after one another. Then poof.

JustObserving

Re: The City Of London Has Turned Britain Into A "Civilized Mafia State"

Civilized?

"What Do You Think of Western Civilization?" "I Think It Would Be a Good Idea" -- Gandhi

London is now the global money-laundering centre for the drug trade, says crime expert

The City of London is the money-laundering centre of the world's drug trade, according to an internationally acclaimed crime expert.

UK banks and financial services have ignored so-called "know your customer" rules designed to curb criminals' abilities to launder the proceeds of crime, Roberto Saviano warned. Mr Saviano, author of the international bestseller Gomorrah, which exposed the workings of the Neapolitan crime organisation Camorra, said: "The British treat it as not their problem because there aren't corpses on the street."

http://www.independent.co.uk/news/uk/crime/london-is-now-the-global-mone...

London: A giant washing machine for the filthy cash of a corrupt elite: http://www.ibtimes.co.uk/london-giant-washing-machine-filthy-cash-corrup...
Calculus99

London: The money laundering capital of the world.

Fear not though because Prime Minister Cameron has said he's going to stamp down on it especially the offshore companies that are buying up all the property. BWHAHAHAHAHA.

ThroxxOfVron

...& Obama's new Affirmative Action figurehead at the DOJ has agreed with her underlings that since it is now well past the Statute Of Limitations for prosecuting anything even vaguely related to the fraud-induced economic disaster which culminated in the interbank and equities markets implosions that it is time 'to get touch on White Collar Crime.'

Dr. Engali

It's a big club and we ain't in it...... R.I.P. George Carlin

Salah

Been that way since their founders escaped from the Pope & the King of France, 10/13/1307

https://lordmayorsshow.london/history/gog-and-magog

Jonathan Living...

I'm fascinated by The City - so much of British law seems so weird ~ even just the status of Wales, which is in some ways its own country within the UK, some ways just part of England, but they have their own Parliament.

Anyway there's always google, but if anyone has come across any particularly good articles or books on the subject of the City's history and status, please share the wealth.

I wonder if, like our Electoral college, most people would agree it should be abolished but most people simply dont know about it.

22winmag

Let's dismantle Miami and sell it off in order to fund the criminal prosecution and incarceration of the CIA scum and drug runners who built that city thanks to decades of drug smuggling and money laundering. Then we move on to D.C.

Salah

No, make NYC & Long Island a US "City-State", but with no US Congressional representation, or taxation, or US financial insurance guarantees or citizenship.

1 crash later, they'll clean-up mightily and be a little Dubai.

jcdenton

We do have $100 BILLION for that on the way ..

http://www.veteranstoday.com/2015/01/11/another-thwarted-attempt-to-hija...

Another major disbursement scheduled is 100 Billion USD to set up an ongoing special Task Force to investigate and prosecute organized crime and government and corporate corruption at any level.

... Funds were disbursed on December 15, 2014 ...

https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp (see file with interview dated Dec. 3, 2014)

youngman

Well they still have a Royal Family...go figure......and remember any news or numbers that come out of London are probably wrong... Faked...or just fixed....they cheat well there

rufus66

Meanwhile in the news today, Revenue Canada uncovers something fishy regarding between kpmg's Great Britain connection and rich clients ......

http://www.cbc.ca/news/business/kpmg-offshore-sham-deceived-tax-authorit...

Solio

"So it just means that more of the tax burden is borne by the middle class."

What middle class?!!

Calculus99

The difference between Miami and London is Miami knows it's bent. London likes to hide/forget and think/preach it's honest.

homebody

This will be fixed by adding 800,000 economic refugees from Syria and Africa

XRAYD

London has always been thus ... from the age of Dickens, and the Colonial Empire Head Office - now masquerading as the "Commonwealth"!

NotApplicable

Indeed.

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

Salah

"The City" = croupier and enforcer of the global casino.

1. Look for things to "break apart", i.e. Ottoman Empire, Hapsburg Empire, Russian Empire, Spanish Empire, USSR, et al

2. Look for things to "put together", i.e. USA, Chile (sans Bolivia on the Pacific), South Africa, Rhodesia, Oz, NZ, Hong Kong, Singapore, et al

They've been working this biz-model since the North Sea Knights Templars escaped the big deception in 1307

JessieSharpton

Ah the knights templar, the prototypical pre Rothschild banking mafia incarnation.

SillySalesmanQu...

Just my own personal observation here, but what do these three things have in common, why and who created them in the first place?

Most bad shit that happens to average people seem to emanate from:

1. Vatican City

2. City of London

3. Washington D.C.

Chosenpeople

Britain has become a classic dystopian state. They have cameras everywhere, and I mean everywhere. The state runs and controls everything. The place is swarming with foreigners, it is difficult to find a white Englishman in London. Britain is dead.

ajax

London became the mega-city in "Blade Runner" instead of L.A.

umblemore

Before the banking mafia looted Britain's industrial base and shipped it offshore industry was the dominant power and although the City was part crooked it was also kept part functional as a utility for industry.

Over the last 30 years or so since they offshored all the industry the financial power has become completely dominant and completely criminal. To a certain extent the London branches of the Wall St banks are where they do their dirtiest deeds because it's easier to get away with in London.

The lesson - a financial sector without a commensurate sized industrial base will rapidly evolve into organised crime.

MSimon

For several Centuries Brit banks have been running the dope racket.

You might recall "Opium Wars" or if you want to be modern - NATO in Afghanistan.

jcdenton

Next, we will have the courage to write about Dachau?

http://www.veteranstoday.com/2015/05/04/neo-so-much-more-than-nukes/

MSimon

Since 1840 - at least

http://www.zerohedge.com/news/2015-09-07/bed-despotic-house-saud#comment...

MSimon

The Brits have been at it for a long time: http://www.zerohedge.com/news/2015-09-07/bed-despotic-house-saud#comment...

[Sep 26, 2015] Paul Krugman Dewey, Cheatem Howe

"... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."
"... The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). ..."
Sep 26, 2015 | economistsview.typepad.com

Economist's View

Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:
Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.
  • Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.
  • Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...

There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?

Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...

A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...

The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.

But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.

So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.

reason

"Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."

That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!

reason

"So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."

Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.

[Sep 25, 2015] Paul Krugman Dewey, Cheatem Howe

The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.
"... So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell. ..."
"... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."
"... The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). ..."
"... The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust. ..."
"... Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model. ..."
"... But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go! ..."
"...


..."

Sep 25, 2015 | Economist's View
Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:
Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.

Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.

Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...

There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?

Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...

A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...

The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.

But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.

So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.

reason

"Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."

That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!

reason

"So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."

Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.

RC AKA Darryl, Ron said in reply to reason...

YEP!

What politicians can get away with is an artifact of the limited toolset that the electorate has to express its informed will. We need a well educated democracy and the democratic part of that requires Constitutional electoral reforms (e.g., gerrymandering, campaign finance). A bit of the educational aspect of a voting actually democratic republic would naturally work itself out with a more engaged and empowered electorate participating ACTIVELY.

With the system as it is then it takes a shock wave through the electorate for them to throw the bums out, but there is no follow through. There is a failsafe reaction function, but no more than that except on specific social issues that get overwhelming support where politicians can move with the electoral majority at zero cost while reactionary politicians can triangulate and pander some votes from the minority opinion of those too old or set in their ways to participate in the social sea change.

ilsm said in reply to RC AKA Darryl, Ron...

The threat is "faith voters", dogma developed by billionaires' propaganda to plunder the world.

DrDick said in reply to reason...

Krugman is far too kind to the businessmen. The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust.

DeDude said in reply to reason...

Exactly; what we need is a detailed debate on each specific regulation. What it intends to accomplish, whether that could be accomplished in a less burdensome way, and whether the accomplishment is sufficient to justify the burden. However, that is not something that can happen in the 15 second soundbite that appears to be the attention span of the average voter.

Lee A. Arnold said in reply to Second Best...

Second Best: "Markets work if allowed to self regulate."

No. Never happened, except in local instances. For self-regulation you need proper prices, and for proper prices you need proper supply and demand.

For proper supply you need perfect competition, so there must be numerous competitors entering the same market, and this requires, among other things, almost no intellectual protection.

For proper demand, you need perfectly informed consumers, and this is not only impossible, but it is getting far far worse, because the complexity of the world is increasing.

The problem with state regulation is that it also falls prey to the same objections, although at a slower rate. We use votes not prices, but the same imperfection of information and lack of flexibility causes problems with the voting system.

When you combine this problem with the increase in inequality (which was masked temporarily by World War II and the subsequent spurt of blue-collar jobs productivity), we are headed into an accelerated amelioration of the market system by greater public ownership.


RC AKA Darryl, Ron said in reply to Lee A. Arnold...

"Peanut butter does not kill people, people kill people."

[If you can read a opening sentence like that and not recognize it as satirical parody, then you might want to look around to find the sense of humor that you lost. When the will of the people is no more than a euphemism for dollar democracy then parody, satire, sarcasm, and a healthy dose of cynicism are called for.]

JF said in reply to RC AKA Darryl, Ron..

Lee A Arnold - Think Jonathan Swift and his piece about the way to reduce subsidies for the orphaned poor infants, it is to reduce their number so we feel good about the fact that we help the few poor infants left alive.

I reacted a few times to Second Best's comments before I recognized the satire.

But I also have used his comments as a way to bring out the more logical, real-world of facts and rationality - so commentary helps either way. I suppose that serves 2nd Best's interests too.

JF said in reply to JF...

I believe the Jonathan Swift recommendations are the preferred republican-party approach to Social Security too. Really need fewer claimants, that will solve the accounting problems.

RC AKA Darryl, Ron said in reply to Second Best...

"Peanut butter does not kill people, people kill people. Car emissions do not kill people ... high drug prices do not kill people ... people do."

[This is an economics blog. You cannot be that "subtle (???)" and expect people to recognize your satire. Maybe there is a humorous math equation that economists can understand. I guess economics graduate school is so boring that most people lose all sense of humor. I am glad that Krugman has kept his.]

Richard H. Serlin said...

"Then there's for-profit education, an industry wracked by fraud - because it's very hard for students to assess what they're getting - that leaves all too many young Americans with heavy debt burdens and no real prospect of better jobs. But Mr. Bush denounces attempts at a cleanup."

And worse, wasting their incredibly valuable and rare young years, quite possibly their only chance before age and children make it extremely hard, not getting an education. Such a big thing. You don't do it when you're young, with the power and freedom and lack of dependents of youth, the opportunity may easily be gone forever. Such a brutal cost these predators and their Republican allies extract.

RC AKA Darryl, Ron said in reply to Richard H. Serlin...

https://en.wikipedia.org/wiki/College_tuition_in_the_United_States

Cost shifting and privatization

One cause of increased tuition is the reduction of state and federal appropriations to state colleges, causing the institutions to shift the cost over to students in the form of higher tuition. State support for public colleges and universities has fallen by about 26 percent per full-time student since the early 1990s.[10] In 2011, for the first time, American public universities took in more revenue from tuition than state funding.[9][11] Critics say the shift from state support to tuition represents an effective privatization of public higher education.[11][12] About 80 percent of American college students attend public institutions...

bakho said...

Economics Professors of the "free market" bent for years have indoctrinated youth with the misguided notion that "regulations are bad" and market methods, no matter how RubeGoldberg, are always better. " You don't need to regulate pollution, just put a tax on it," as an example. Even cap and trade would not work without stiff emissions regulations.

Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model.

ilsm said in reply to bakho...

Sanctity of the "market"......

I got a jar of this snake oil here too!

The market they sell is the one that runs in Honduras

Tom aka Rusty said...

A couple of random observations:

Last time I looked about 150 Dodd-Frank regs had not been written yet, some of the key ACA regs are three years late.

Obama-ites have written some of the most complex, convoluted regs of the past 40 years, the health EMR regs have practically guaranteed a windfall for IT companies and a failure for EMR/EHR.

No mention of the Obama-Holder "too big to prosecute doctrine."

The new overtime regs will likely be in the "driving thumb tacks with a sledge hammer" mode.

But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go!

pgl said in reply to kthomas...

Rusty wants us to believe he is the only one who understands health care so he is a persistent critic of ObamaCare. But now he wants to pretend he's the expert on financial markets too? Seriously? Dodd-Frank is complicated only because the Jamie Dimons of the world milk every opportunity to game financial markets. If Rusty thinks letting Jamie Dimon evade any financial market regulation is a good idea - he is the most clue person ever.

DrDick said in reply to pgl...

He was just trying to do us a favor and demonstrate exactly what is meant by "knee-jerk opposition to regulation ."

JF said in reply to Tom aka Rusty...

Have you ever looked at the multi-party derived hedging instruments in play now - they can hardly get more complex, and indeed most didn't understand them when they were made, and these are still complex now.

So I have to say, that the 'marketplace' makes Krugman's point about complexity. It comes from humans cunningly doing stuff that serves their interests at the time as they see it. Not always wisdom at work here.

But it is complex, and so regulation of such complexity, if the generally applicable rules seek some fairness (classes of people are usually affected differently) and stands a test of due process too - the regulations will also need to be complex. The complexity came first, the regulations come afterwards (after society learns of the stupidity the hard way).

Railing about this is a form of misleading sophistry, a rhetorical device to reverse the causality.

We can think with more foresight and regulate before the stupid complexity arises, but it does take a rational policy making environment for this exploration, discussion and policy-making to occur with good foresight - I am waiting for the new Congress in 2017.

If the Warren-Sanders people have any influence then, we may see a whole lot less complex financial system (it's a riot when you think how the Efficient Market Hypothesis, a theoretical justification for the marketplace's range of instruments in fact led to more complexity, less real efficiency and effectiveness, and ossification of the system when it needed to be resilient but stable as a well-behaved system can be).

We will probably be better off after the 2017 debates. After all, this community of actors are only intermediaries on behalf of real productive outcomes truly needed by society - right, they are just intermediaries? How much inter-mediation does the economy need?

david s said...

The Obama Administration has been friendlier to corporate America than W's was.

http://theweek.com/speedreads/454963/matt-taibbi-bush-far-tougher-than-obama-corporate-america

im1dc said...

While it was Ronald Reagan and his Republican Party that called for deregulation not much was done until Alan Greenspan, then Chairman of the Federal Reserve, gave federal deregulation his blessing in speeches from NY to Aspen to California in which he said "the market" will reign in excesses and regulate itself b/c of competition acting egregiously would create.

Oopsie, Old Alan got it ALL WRONG again!

I thought a little history would help in this thread.

likbez said...

My impression is that regulation always reflects the needs of who is in power today. One the key ingredients of political power is the ability to push the laws that benefit particular constituent. And to block laws that don't.

If we assume that financial oligarchy is in power today, then it is clear that there can be no effective regulation of financial services and by extension regulation of derivatives. And if on the wave of public indignation such regulation is adopted, it will be gradually watered down and then eliminated down the road.

And you can always hire people who will justify your point of view.

In this sense neither Milton Friedman nor Greenspan were independent players. They sold themselves for money and were promoted into positions they have for specific purpose. I am not sure the either of them believed the crap they speak or wrote.


[Sep 25, 2015] Big Business Is Economic Cancer, Part I Zero Hedge

It is under state capitalism that TBTF can't exists. Under neoliberalism they rule the country, so the question about cutting their political power of dismantling them is simply naive. Nobody give political power without a fight.
"... Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators". ..."
"... There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality. ..."
"... An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition. ..."
"... But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks. ..."
"... Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state. ..."
Sep 25, 2015 | www.zerohedge.com

Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators".

Today we have corporate monoliths which are literally orders of magnitude larger than any remotely "optimal" size, with the ultimate and most-obvious examples being those hideously bloated financial behemoths which we now know as "the Big Banks". How ridiculously too-big have the Big Banks gotten?

Even the most-ardent admirer of the Big Banks in the entire media world, Bloomberg, couldn't stop itself from openly salivating about how much "profit" could be had, just by beginning to chop-down the financial fraud-factory which we know as JPMorgan Chase & Co.:

JPMorgan Chase & Co, the biggest U.S. bank by assets, would be worth 30 percent more if broken into its four business segments, an unlikely scenario, an analyst at Stifel Financial Corp.'s KBW unit said.

Note that there is not one word in the article indicating that there couldn't be a lot more profit to be made, by then smashing those pieces into much smaller pieces still. This article simply pointed to the instant profit of 30% which would be available just by beginning to chop-down this obscenely large behemoth, and in the simplest manner possible.

Why would "smaller" be much more valuable, in our forward-looking markets, in the case of smashing JPMorgan down-to-size (or at least beginning that process)? Obviously a major portion of that profit quotient would have to be derived from greater efficiency. Smaller is better.

However, pointing out that even the greatest admirer/biggest cheerleader of the Big Banks has observed how we would all be better off if the Big Banks were smaller is only a start. We then come to the heinous propaganda which the cheerleaders (including Bloomberg) have dubbed "too big to fail".

This is a very simple subject. "Too big to fail" is a pseudo-concept which is entirely antithetical to any economic system which even pretends to adhere to the principles of "free markets". Free markets demand that insolvent entities fail, it is the only way for such free markets to heal, when weakened by the misallocation of assets (such as in the case of insolvent enterprises). No business, or group of businesses could ever be "too big to fail".

There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality.

Understand that our own, corrupt governments embarked upon this criminal insanity long after the equally criminalized government of Japan already proved that too-big-to-fail was a failed policy. Not only could there never be an argument in favor of this criminality, our governments knew it would fail before they ever rubber-stamped this systemic corruption.

But all of these arguments against the insanity of perverting and skewing our economies in favor of Big Business, and against Small Business pale into insignificance compared to the principal condemnation of too-Big Business: the economic "cannibals" known as monopolies and oligopolies.

For readers unfamiliar with these terms because the Corporate media and charlatan economists try to pretend that these words don't exist, a brief refresher is in order. As most readers know, a monopoly is where a single enterprise effectively controls an entire market or sector. While a "monopoly" may be desirable when playing a board-game, in the real world these parasitic entities do nothing but blood-suck, from any/every economy they are able to "corner".

However, the majority of people, even today, are at least partially familiar with the evils of monopolies, thus the ultra-wealthy Oligarchs rarely attempt to perpetrate their systemic theft via these corporate fronts. Instead, they perpetrate most of their organized crime via oligopolies.

An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition.

These corporate fronts cooperate as closely as possible in systemically plundering economies. How do monopolies/oligopolies rob from us? The "old-fashioned" way for these blood-suckers to do so was via simple price-gouging. When you have complete control over a sector/market, you can charge any price you want.

However, not surprisingly, the Little People tend to notice when the Oligarchs use their corporate fronts to engage in simple price-gouging. They actually begin to notice the general evil which oligopolies/monopolies represent, and that is "bad for business" (i.e. crime).

Instead, the Oligarch Thieves of the 21st century engage in their robbery-by-corporation in a different, more sophisticated/less-visible manner: via corporate welfare. What other crime can monopolies and oligopolies perpetrate, with overwhelming success? Naked extortion.

As previously explained; "too-big-to-fail" (and now even "too big to jail") is nothing but the most-obvious and most-despicable form of corporate extortion (or simply economic terrorism): give us all the money we want, or we'll blow up the financial sector. Small banks could never perpetrate such a crime (terrorism).

But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks.

Typically, the extortion which precedes even more Corporate welfare, occurs in this form: give us everything we want, or we will close our factory/business, and you will (temporarily) lose those jobs. Here we don't need to imagine this in the hypothetical, as we have a particularly blatant example of such Corporate extortion/welfare, courtesy of U.S. Steel:

U.S. Steel Canada Inc. is threatening to cease operations in Canada by the end of the year if an Ontario Superior Court judge rejects its request to stop paying municipal taxes, halt payments into pension funds, and cut off health care and other benefits to 20,000 retirees and their dependents. [emphasis mine]

... ... ...

kanoli

Like most of Jeff Nielson's rants, this one is nonsensical. If small business hires more people to produce the same product or service as a big business, they cannot do so at the same or lower price unless they are paying a lower wage.

The problem with big business isn't that it is big - it is their tendency to lobby government for regulations that stifle small business competitors.

If politicians were not for sale, it wouldn't matter whether a business is big or small. Neither would have undue influence on the law.

The problem is regulatory democracy where all laws are constantly subject to fiddling by an elected legislature.

Element

In practice a balanced mix of all sized businesses are necessary in a planetary civilization that trades products globally. Getting the mix 'right' and not having big business get away with preventing competition, or of govt throttling to skim and micro-control is most of the deleterious effect on business, and on human beings in general.

Unfortunately humans have been trained to like Logos, and to buy 'wants' accordingly.

iDroned on a bit,

2c

newnormaleconomics

Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state.

The current state of the evolution of "capitalism" is its advanced, late-stage, financialized, globalized phase.

With Peak Oil, population overshoot, unprecedented debt to wages and GDP, Limits to Growth, climate change, a record low for labor share, decelerating productivity, OBSCENE wealth and income inequality, and increasing geopolitical tensions, growth of real GDP per capita is done, which means that growth of profits, investment, and capital formation/accumulation is done, which in turn means "capitalism" is done.

... ... ...

[Sep 24, 2015] Central Banks Have Made the Rich Richer

Sep 24, 2015 | economistsview.typepad.com
Economist's View
Paul Marshall, chairman of London-based hedge fund Marshall Wace, in the FT:
Central banks have made the rich richer: Labour's new shadow chancellor has got at least one thing right. ... Quantitative easing ... has bailed out bonus-happy banks and made the rich richer. ...

It is no surprise that the left is angry about this, nor that they are looking for other versions of QE that do not so directly benefit bankers and the rich. Instead of increasing the money supply by buying sovereign bonds from banks, central banks could spread the love evenly by depositing extra money in every person's bank account..., it might have been fairer.

Mr McDonnell and Jeremy Corbyn, the new Labour leader, advocate a second approach: targeting QE at infrastructure projects. The central bank would buy bonds direct from the Treasury on the understanding that the funds would be used to improve housing and transport infrastructure. ...

QE had clear wealth effects, which could have been offset by fiscal measures. All political parties should acknowledge this. So should those of us who want free markets to retain their legitimacy.

[Sep 24, 2015] The Oligarch Recovery 30 Million Americans Have Tapped Retirement Savings Early In Last Year

Sep 24, 2015 | www.zerohedge.com

Zero Hedge

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

The ongoing oligarch theft labeled an "economic recovery" by pundits, politicians and mainstream media alike, is one of the largest frauds I've witnessed in my life. The reality of the situation is finally starting to hit home, and the proof is now undeniable.

Earlier this year, I published a powerful post titled, Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the "Recovery," which highlighted how a growing number of Americans have been taking out unconventional loans, not simply to overcome an emergency, but for everyday expenses. Here's an excerpt:

Families' savings not where they should be: That's one part of the problem. But Mills sees something else in the recovery that's more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

It's not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. "People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences," Mills says.

Of course, it's not just "alternative financial services." Increasingly desperate American citizens are also tapping whatever retirement savings they may have, including taking the 10% tax penalty for the privilege of doing so. In fact, 30 million Americans have done just that in the past year alone, in the midst of what is supposed to be a "recovery."

From Time:

With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.

Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic-a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.

So now we know what has kept meager spending afloat during this pitiful "recovery." A combination of "alternative loans" and a bleeding of retirement accounts. The transformation of the public into a horde of broke debt serfs is almost complete.

Don't forget to send your thank you card to you know who:

Screen Shot 2015-08-20 at 3.21.02 PM

* * *

For related articles, see:

[Sep 24, 2015] Michael Hudson – Episode 19

Sep 24, 2015 | store.counterpunch.org

Audio Player

Podcast: Play in new window | Download

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This week, Eric has an in depth conversation with economist Michael Hudson, author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Eric and Prof. Hudson discuss the evolution of finance capital from its humble parasitical beginnings to the comprehensive global network of economic tapeworms and barnacles that it is today. They examine neoliberal terrorism, how debt is used as a weapon, and the disastrous effects of the financialization of the real economy. Hudson outlines the relationship between the parasites and their bloodsucking policies of austerity, providing insight using the example of Latvia, where he witnessed first hand the smash-and-grab nature of such prescriptions. Plus, Eric and Michael touch on Obama as Wall Street errand boy, the importance of left economic organizing, and much much more.

Musical interlude from the exciting new band GospelbeacH, and intro and outtro from David Vest.

[Sep 24, 2015] Is Goldman Preparing To Sacrifice The Next Lehman

Sep 24, 2015 | Zero Hedge

Wow, talk about a nice fit! The following image describes a speed wobble when going too fast on a bicycle.

Bay Area Guy

Paulson should most definitely be in prison. I was no fan of Lehman, but what happened to them was nothing short of a criminal conspiracy.

Thorny Xi

He's suffered so much though.

http://www.forbes.com/sites/morganbrennan/2012/06/05/billionaire-john-pa...

RopeADope

Hank not John.

John is the colossal failure that could not come up with a good trade idea on his own if his life depended on it.

Debt-Is-Not-Money

I was fascinated that Bear Stearns was the first to go as Bear was the only large company that failed to respond to the Fed's calls when LTCM almost brough down the house in 1998.

Not if_ But When

Well, you know........he also lied to Congress. (but that's small potatoes).

froze25

Very true, let them fall and then bailout the rest. Well played Goldman.

KnuckleDragger-X

Lehman had to die to save GS since GS were actually in more trouble......

Bay of Pigs

What ever happened to Douche Bank anyway?

Edit: Damn, good ole Marty beat me to the punch.

Deutsche Bank – the New Lehman Brothers?

http://www.armstrongeconomics.com/archives/37443

jeff montanye

the greatest control fraud in history, the 2008 seizure of the u.s. government's financial/regulatory apparatus by wall street's banks and trading houses to recapitalize themselves and avoid prosecution for their enormous crimes, is tremendously evil. it will never be prosecuted or its errors corrected until the psychopaths at the head of our society are neutralized.

only 9-11 can do this. it is the crime that is clear-cut, unambiguously wrong, provable, without a statute of limitations (treason/murder/kidnapping), sufficiently inflammatory (very important) and really comprehensive in its list of perps, especially after the fact (the editors of the new york times don't actually have to go to jail; just most people have to think they should).

https://www.youtube.com/watch?v=OsoY3AIRUGA.

https://www.youtube.com/watch?v=0GNww9cmZPo

http://www.luogocomune.net/site/modules/sections/index.php?op=viewarticl...

mind by mind. do your part.

Divine Wind

Bullish for PMs, right?

HardlyZero

After MF Global, it is not clear how the markets are safe for buyers, sellers, brokers, banks, etc.

But as always, have your physical setup and safe first before going out to see what's going on.

NoDebt

"If a counterparty liquidates, net exposure becomes gross [emphasis added by me], and suddenly everyone starts wondering where all those "physical" commodities are."

For those who may not quite grasp this, it means all your "hedging" against falling prices is null and void and you are left with full-in-the-face long exposure PLUS entities dealing in the physical commodity can suddenly be looking down a long tunnel of "failure to timely deliver" on contracts they've signed.

But, then again, 2016 is the last year for a lame duck president... traditionally a very good year to "clean house" and get the government to bail you out.

[Sep 20, 2015] Imperialism on the March: Africa, Syria, and Beyond

"...Draitser examines some of the volatile conflicts on the continent, attempting to trace how they relate to the US-NATO regional and global hegemonic agenda. From there, he provides his analysis of Syria and the US role in the rise of ISIS/ISIL, as well as Washington's militarization of Latin America in order to stifle its independence and growing alliances with the non-western world."
Sep 20, 2015 | stopimperialism.org

Eric Draitser appears on WBAI 99.5 FM (NYC) for part 2 of his interview on imperialism in the world today.

https://www.youtube.com/watch?feature=player_detailpage&v=WZghyoQi3yE

He describes in detail what the US and its neocolonial NATO allies are doing in Africa, with close attention to the grand strategy of militarily checking the economic influence of China. Draitser examines some of the volatile conflicts on the continent, attempting to trace how they relate to the US-NATO regional and global hegemonic agenda. From there, he provides his analysis of Syria and the US role in the rise of ISIS/ISIL, as well as Washington's militarization of Latin America in order to stifle its independence and growing alliances with the non-western world. Finally, Draitser touches on the current situation in Haiti and the grand strategy of containing China through the Asia Pivot and the Trans-Pacific Partnership. All this and much much more in this wide-ranging interview.

[Sep 19, 2015]Greece awaits outcome of Alexis Tsipras gamble: 'We have all aged'

I am not sure that what EU wants is recovery. I think that idea is a fire sell of key Greek assets to Germany for pennies of a dollar. Distressed sales, you know. Welcome to modern debt slavery.
.
"..."Dutch economist Maarten Verwey has unprecedented powers as his taskforce oversees the implementation of Greece's cash-for-reforms rescue package...Whoever ends up moving into Maximos Mansion, the official Athens residence of Greece's prime ministers, after Sunday's election, they will not, in any meaningful sense, be running the country.
.
That honour might be said to go instead to a besuited Dutch economist in Brussels with the imposing title of director-general in the secretariat-general of the European commission in charge of the Structural Reform Support Service.
.
Maarten Verwey, a senior civil servant at the Dutch finance ministry who joined the commission in 2011 and led its Cyprus assistance programme, heads what amounts to an EU taskforce for Greece, Greek media have said. "
Sep 19, 2015 | The Guardian

monzer7 19 Sep 2015 22:28

They sucked up to their politicians, whilst they ignored the obligations of their society. Any collective responsibility was surrendered for personal gain.

As usual... The Politicos grabbed the loot, and did a quick exit.

What remains, is your problem!

====

Do you see it?... That debt necklace that continues to engulf you?

The moral catastrophe this EU promoted...

We have to respond - but do reflect when you vote when Cameron decides.

rberger -> Sehome 19 Sep 2015 21:47

While there might be some economic sense to your idea, the politics make it unlikely to happen. The Southern Europe countries wanted the stable currency and low interest rates associated with the Bundesbank. If you asked Spain whether they wanted to go into a union with people like Greece, it wouldn't make any sense to them - they would prefer to stick to their own currency.

Xenkar -> Mackname 19 Sep 2015 21:42

We have to keep pretences about Democracy in Europe is all. As for the renaissance I can't see Greece waiting 3 centuries as a debt colony, unless you are referring to the word literally, or to the sociological results of the renaissance after its end which was the return of Democracy in a revolutionary fashion.

rberger -> Pannie321 19 Sep 2015 21:40

Of all the privatizations that have been done since the crisis started, not a single one has gone to a German company. (The airport operations one may go to a joint venture with Fraport but it hasn't been finalized yet.) The winners of the privatizations have been from countries like China, Hungary, Azerbaijan, etc (i.e., usually not EZ countries). I don't think there are any German companies involved in any of the upcoming privatizations either.

Mackname 19 Sep 2015 21:27

I don't understand the logical that keeps those people voting for something that they have no power to do a damned thing about it.

Those people need a renaissance.

slipangle -> Shizam13 19 Sep 2015 21:25

"German jackboot" that really is disgraceful, Germany would be far happier if Greece had run proper balanced budgets. The Greeks were the architects of their own disaster,Germans should be thanked for bailing the fools out rather then insulted.

randomguydeaustralie -> Sehome 19 Sep 2015 21:19

What, like an Austro-Hungarian Empire you mean?? That ended pretty badly as I recall

Pannie321 -> rberger 19 Sep 2015 21:14

Merkel has never been supportive of Greece, she along with Schauble are entirely responsible for impoverishing Greece for the benefit of German Banks. Just check out which Country's businesses are buying up Greek assets cheaply, check out the Nationality of the Business that hasn't paid any V.A.T. revenues or social security(N.I.) contributions for the past 20 years. That business has now conveniently sold their interests.

DogsLivesMatter -> TheRuthlessTruth 19 Sep 2015 21:10

The World Bank and the IMF.

deskandchair 19 Sep 2015 20:56

Why have elections when thanks to Tsipras treacherous deal it makes absolutely no difference who's elected. Greece your new PM is Maarten Vervwey:

"Dutch economist Maarten Verwey has unprecedented powers as his taskforce oversees the implementation of Greece's cash-for-reforms rescue package...Whoever ends up moving into Maximos Mansion, the official Athens residence of Greece's prime ministers, after Sunday's election, they will not, in any meaningful sense, be running the country.

That honour might be said to go instead to a besuited Dutch economist in Brussels with the imposing title of director-general in the secretariat-general of the European commission in charge of the Structural Reform Support Service.

Maarten Verwey, a senior civil servant at the Dutch finance ministry who joined the commission in 2011 and led its Cyprus assistance programme, heads what amounts to an EU taskforce for Greece, Greek media have said. "
http://www.theguardian.com/world/2015/sep/18/eurozone-greek-prime-minister-maarten-verway-greece-bailout

Sehome 19 Sep 2015 20:26

I have watched economic problems from Portugal to Greece for a few years now, seemingly insoluble without German/Brussells dictates, and I have a Propossal:
All Southern Europe, with its own level of economic strength, languages and cuisine and weather, should withdraw from EU and be its own Union, with its own currency. All of wealthy, arrogant Northern Europe including Scandinavia would be Europe North, but with no power to order anything at all in Europe South.
This would leave Czech Rep, Slovakia, Poland, the Balts and the poor small countries of Yugoslavia, either to form a Middle Europe, or break to join the North or South.
Three Europes, I think, makes more sense when one considers language, culture, values, and economics.

OXIOXI20 -> TheRuthlessTruth 19 Sep 2015 20:22

You ever hear of bank bailouts, 2008, 2010, 2012 ??

Scrotalyser 19 Sep 2015 19:46

I hate to have to tell them, but the Greeks sold their country for Euros. So they can't do anything, because they gave their power away to a cabal of faceless fraudsters.

Captain_Tibbets 19 Sep 2015 19:41

Tell the EU to shove their debts.

Iceland is doing fine now. You don't need the Euro. It's a curse not a blessing. We did tell you that.

This German mercantilist farce needs to stop. Do it now whilst they're in a blind panic about their disasterous asylum plans which are on the brink of causing war between Hungary and Slovenia. Kick the Germans when they are down - it's the best way, they're not so good fighting on two fronts historically...

[Sep 18, 2015] Ukranian official finds wrong kind of corruption, setup and arrested for corruption

Moscow Exile, September 16, 2015 at 1:09 am

You just couldn't make it up!

SBU catches State Employment Service chief taking bribe

See also: Ukraine Anti-Corruption Official Arrested for… Corruption

It's all Putin's/Russia's doing, though.

Stands to reason …

marknesop, September 16, 2015 at 7:49 am
Mmm hmmmm, large amount of cash found in vehicle, check. Weapon and ammunition found in vehicle, check. What…no air tickets to Moscow? Where's the flippin' air tickets, you incompetent cretins?? There always have to be air tickets, Christ, do I have to run a fucking seminar or something?

I'd be willing to bet his real crime was getting in someone's way in the Porky/Yatsie machine, simply because it has happened over and over since they took power – as predictable as darkness at the end of daylight. Official commissioned to root out corruption, official finds wrong kind of corruption, official announces the finding of corruption, official accused of corruption, found with large amount of cash, sometimes weapons although that's not of much consequence in a country full of them, and who uses a rifle downtown to extort money?…and air tickets, signifying an intent to flee. Always remember the air tickets, it's important.

I wouldn't go so far as to say he has done nothing wrong, but he is likely no more corrupt than the rest of the organization, including a president who is still raking in the dough from private enterprise and owns his own media channel. Perhaps that's what endears him so to the west, who see him taking his first tottering steps toward a society utterly dominated by corporatism and business to the exclusion of all other concerns, beyond paying them pious lip service at election time. American policymakers probably envy him his open graft and lawbreaking, and wish they, too were allowed to merely promise to sell their corporate interests if elected and then forget about it, whereupon everyone else would just ignore it and figure there is nothing untoward about a political figure making a little brass. After all, that pathetic Ukrain