Friday, March 25, 2011

Weekend links

1-- The Austerity Delusion, Paul Krugman, New York Times

Excerpt: Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.

It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe. ...

Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating...: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.

So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned...

2--Phase Shift: The Next Leg Down in House Prices, Charles Hugh Smith, of two minds

Excerpt: There are too many houses and not many buyers. The demographics are this: Baby Boomers are trying to sell to cash out or move, and the impoverished generations behind them cannot afford bubble-era prices. Just because prices have retreated to 2002 levels doesn't mean they're cheap--2002 was already a bubble, as you can see in the chart.

The Federal-supported "recovery" is in trouble, politically and financially. As long as the nation obeys the whip of the Fed and allows it to print $1 trillion to buy Treasury debt every year, then the travesty of a mockery of a sham can continue. But as I noted yesterday, this policy is destroying the dollar and the purchasing power of households. That game cannot run for long without political pushback. Saving the "too big to fail" banks and the Financial Plutocracy might be Item #1 on the Fed's list, but it ranks decidedly lower on voters' agendas.

Every investor who bought with cash because "this is the bottom" will 1) be underwater and anxious to sell and 2) be out of cash, having bet their capital playing "catch the falling knife" with real estate valuations. Sorry, cash buyers: the knife is still falling.

3--Housing raises US recession alert, Reuters

Excerpt: “We continue to believe that this dip in housing will translate into a double dip on the overall U.S. economy, further rolling forward any stimulus-exit plans set by the Fed, and setting the stage for an announcement of QE3 in July,” said said Douglas Borthwick of Faros Trading. “Jobs and housing remain the focus for the Fed, and both areas continue to face severe difficulties.”

The problems lie not just with new homes. The overall picture is of a housing market slouching its way into a double-dip slump.

Sales of existing homes also fell last month, by a less precipitous 9.6 percent, down 2.8 percent from a year ago.

Prices of existing homes, unsurprisingly, are falling as well, down 0.3 percent in January nationwide, according to the FHFA, the third straight monthly fall....

At a paper delivered at the central banking conference in Jackson Hole, Wyoming, in 2007 entitled “Housing IS the business cycle”, UCLA professor Edward Leamer argued that residential investment plays a key role in US recessions. He demonstrated that 8 out of 10 postwar recessions were foreshadowed by serious and sustained problems with housing, at least as of 2007.

Counting the most recent recession we can now call that 9 out of 11, with a good shot shortly at 10 out of 12.

“Of the components of GDP, residential investment offers by far the best early warning sign of an oncoming recession,” Leamer wrote.

4--The Imaginary World in Which Washington Lives, Dean Baker, Truthout

Excerpt: Politicians routinely make similarly absurd statements about Social Security, implying that the program and the country are about to go broke. Of course, both claims are obviously untrue. According to the Social Security trustees, the program can pay all scheduled benefits for the next 26 years with no changes whatsoever and, even after that date, can always pay close to 80 percent of scheduled benefits. Instead of our children being broke, average wages are projected to be more than 40 percent higher in 2040 than they are today.

This means that, when a politician whines about Social Security or the country going broke, the correct response from a reporter should be, "Congressman, you know that the program is fine for more than a quarter century into the future," or, "Congressman, you know that our children and grandchildren will on average be far richer than we are today."

Unfortunately, you won't hear reporters making these corrections either. Fortunately, there are groups like Social Security Works, the Campaign for America's Future and Institute for Women's Policy Research that do correct bad reporting on Social Security, so there is at least some limit to how bad it can get.

However, the country is unlikely to see competent reporting on these and other topics that are central to national political debates until new media outlets, like Truthout, The Huffington Post and ProPublica, mature further and displace the traditional outlets.

5--The road to fiscal crisis, Simon Johnson, Project Syndicate

Excerpt: The insight of Admati and her collaborators is simple and very powerful. Higher leverage allows bankers to earn more money, but it can easily become excessive for shareholders – because it makes the banks more vulnerable to collapse – and it is terrible for taxpayers and all citizens, as they face massive downside costs. In the US, the costs include more than eight million jobs lost since 2007, an increase in government debt relative to GDP of around 40% (mostly due to lost tax revenue), and much more.

Mervyn King, a former academic who is currently Governor of the Bank of England, and his colleagues have a vivid name for the toxic cocktail that results: “doom loop.” The idea is that every time the financial system is in trouble, it receives a great deal of support from central banks and government budgets. This limits losses to stockholders and completely protects almost all creditors.

As a result, banks have even stronger incentives to resume heavy borrowing (as Admati argues), and, as rising asset prices lift the economy in the recovery phase, it becomes possible for them to borrow even more (as Bernanke knows). But what this really amounts to is taking on more risk, typically in an unregulated, unsupervised way – and with very little effective governance within the banks themselves (again, Admati explains why bank executives like it this way).

The Bernanke-Admati-King view suggests that the Washington Fiscal Consensus is seriously deficient. The US and global economy will recover, to be sure. But that recovery will be just another phase in the boom-bust-bailout cycle.

America’s too-big-to-fail banks are well on their way to becoming too big to save. That point will be reached when saving the big banks, protecting their creditors, and stabilizing the economy plunges the US government so deeply into debt that its solvency is called into question, interest rates rise sharply, and a fiscal crisis erupts.

In other words, the “doom loop” isn’t really a loop at all. It does end eventually, as it has – just for starters – in Iceland, Ireland, and Greece.

6--Rights are curtailed for terror suspects, Wall Street journal

Excerpt: New rules allow investigators to hold domestic-terror suspects longer than others without giving them a Miranda warning, significantly expanding exceptions to the instructions that have governed the handling of criminal suspects for more than four decades.

The move is one of the Obama administration's most significant revisions to rules governing the investigation of terror suspects in the U.S. And it potentially opens a new political tussle over national security policy, as the administration marks another step back from pre-election criticism of unorthodox counterterror methods....

Before becoming president, Mr. Obama had criticized the Bush administration for going outside traditional criminal procedures to deal with terror suspects, and for bypassing Congress in making rules to handle detainees after 9/11. He has since embraced many of the same policies while devising additional ones—to the disappointment of civil-liberties groups that championed his election. In recent weeks, the administration formalized procedures for indefinitely detaining some suspects at Guantanamo Bay, Cuba, allowing for periodic reviews of those deemed too dangerous to set free.

The Bush administration, in the aftermath of 9/11, chose to bypass the Miranda issue altogether as it crafted a military-detention system that fell outside the rules that govern civilians. Under Mr. Bush, the government used Miranda in multiple terror cases. But Mr. Bush also ordered the detention of two people in a military brig as "enemy combatants." The government eventually moved both suspects—Jose Padilla, a U.S. citizen, and Ali al-Marri, a Qatari man—into the federal criminal-justice system after facing legal challenges. In other cases, it processed suspects through the civilian system.

7--Morgan Stanley's liquidity pool, Economics of contempt

Excerpt: It’s now official: the week of September 15, 2008 was a really bad week to work in Morgan Stanley’s prime brokerage. And the next week wasn’t so hot either. Various internal documents released with the FCIC report provide a fairly detailed picture of Morgan Stanley’s liquidity position during the crisis, and it’s not pretty. Prime brokers like Morgan Stanley relied heavily on customer cash held in prime brokerage accounts (known as “free credits”) to fund themselves. So when hedge funds all pulled their cash from Morgan Stanley’s prime brokerage after Lehman failed, that had a direct effect on Morgan Stanley’s liquidity pool.

On one day alone (Wednesday, September 17th), Morgan Stanley’s prime brokerage lost $36.6 billion in free credits. That’s $36.6 billion instantly gone from the firm’s liquidity pool. To add insult to injury, that same day, prime brokerage customers also withdrew $12.3 billion of excess margin, which dealers also count toward their liquidity pool. For the week, Morgan Stanley’s prime brokerage lost an amazing $86.5 billion in liquidity. And the next week, they suffered an additional $43.3 billion of outflows, for a two-week total of $129.8 billion. That’s a hell of a fortnight!

Overall, Morgan Stanley’s liquidity pool was falling by tens of billions per day — the firm was basically imploding. Without the government bailout, it’s pretty clear that they wouldn’t have lasted another week.

8-- Matt Stoller: The Federal Reserve’s Wheezy Independence Takes Another Hit, naked capitalism

Excerpt: During the discussion of Dodd-Frank, Congress deliberated without knowing that the Federal Reserve had extended $9 trillion to various banks, foreign central banks, corporations, and hedge funds, often collateralized by junk. That’s roughly $30,000 of lending for every American. Shouldn’t Congress have known that Harley Davidson and McDonald’s were making payroll with Federal Reserve loans (or perhaps just getting access to cheap working capital unavailable to normal corporations)? That seems like a useful testament to the fragility of our financial system, something to know about before engaging in supposedly wholesale reform.

More to the point, there is now an explicit two-tiered monetary system, where elites can borrow against junk collateral under difficult circumstances, while ordinary people face foreclosure and bankruptcy should they encounter liquidity or solvency problems....

As emergency lending information is released, one can almost hear the laughter from big banks executives. They won, or so they think. Yet, the reputational damage from the crisis to Wall Street is at this point enormous, both within banks and among the public at large. The specific documents released over Bear Stearns will probably show what we already know – excessive deference to banking interests.

The situation right now feels depressing. Wall Street mega-banks, and the Federal Reserve officials in charge during the collapse, are more powerful than ever. Ultimately, the consent of the governed does actually matter. Markets do not work when there is effectively no rule of law, or rigged rules. That is what we may be seeing in housing, with cultural shifts away from home-buying. The next crisis, and it is coming, will see wholesale reform of the Federal Reserve and the banking system. The public has noticed that the arguments from big banks are both untrue and self-serving, and that the Federal Reserve’s vaunted independence is simply more of the same.

The Fed and the concentrated banking interests took advantage of a deference to authority and a reservoir of trust that the public had in the system. That trust was key to achieving what they needed. But it is now tapped out. And the next time that consent is necessary, it just won’t be there

9--The Gap Between New and Existing Home Sales: Adjusting to the Bubble, Dean Baker, CEPR

Excerpt: In his blog today, Floyd Norris notes an unprecedented divergence between the trends in existing home sales and new home sales. He points out that existing home sales have held up reasonably well, while new home sales are down by more than 75 percent from their bubble peak.

While this is largely true (Core Logic and real estate analyst Keith Jurow have noted an upward bias in the realtors' data on existing home sales) this gap is also entirely predictable given the rise and fall of the housing bubble. New homes are the mechanism that adjusts supply and demand. When prices went through the roof during the run-up of the bubble, builders rushed to build new homes so that they could profit from the extraordinarily high prices. As a result, we had near record rates of new construction from 2002-2006.

However, once the bubble burst and prices began to tumble, there was little reason to build new homes. A large supply of homes for sale and falling prices, makes building new homes an unprofitable venture. The price that builders can expect to receive is on average more than 30 percent less than it was at the peak of the bubble and they are likely to have to wait a long period of time before they can even make a sale.

For this reason, it should not be surprising that new home sales have fallen by much more than existing home sales following the collapse of the bubble. They will presumably rise back to a more normal level in the next two or three years, which is likely to mean at least a 100 percent increase from the February level. At that point, we will again be building homes fast enough to replace worn out structures and to meet the needs of a growing population.

10--The Old Bill; Stopping quantitative easing may be harder than starting it, The Economist

Excerpt: BILL GROSS is the most famous and experienced bond-fund manager in the world. So when he says PIMCO’s Total Return, the $237 billion fund which he manages, is avoiding Treasury bonds, investors should take notice.

Mr Gross is particularly worried about the effect of quantitative easing (QE) by the Federal Reserve, the second round of which is due to expire in June. He has described this process, whereby the Fed creates money to buy both mortgage-backed securities and Treasury bonds, as a form of pyramid or Ponzi scheme.

PIMCO reckons the Fed has been responsible for 70% of recent Treasury purchases, with foreigners buying the other 30%. “Who will buy Treasuries when the Fed doesn’t?” asks Mr Gross, adding that the danger is of a spike in bond yields as private investors demand a higher return to compensate them for the risks of inflation or dollar depreciation. ...

Nevertheless, it is legitimate to worry whether getting out of a QE programme will be as easy as getting into it. (This problem also faces the Bank of England and the European Central Bank.) It is not simply a matter of ceasing to buy bonds. Unless they want to end up with a permanently bigger balance-sheet, central banks must offload those bonds they have already bought.

It is no answer to say that the programme will wind itself up naturally as the bonds mature. Unless the government concerned is running a surplus by that stage (dream on), maturing bonds need to be refinanced. So the private sector will have to absorb not only that year’s financing programme but the surplus offloaded by the central bank. This is no small matter. The Fed has an asset pile of some $2.6 trillion, of which just under half is Treasuries.

Herein lies the rub. In what circumstances would investors be most keen to buy more government bonds? When the economy is struggling. But central banks will be highly unlikely to reverse QE at that stage. In any case, cynics suspect the problem with QE is that there may never be a moment when central banks feel confident enough to unwind it. After all, American GDP grew by a respectable 2.8% last year and growth of more than 3% is forecast for this year. Yet this week’s Fed policy meeting indicated that the second round of QE would still be completed.

As the programme has evolved so have the justifications for QE. In testimony to Congress on March 1st, Ben Bernanke, the Fed’s chairman, cited the evidence of its success: “Equity prices have risen significantly, volatility in the equity market has fallen, corporate-bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen to historically more normal levels. Yields on five- to ten-year nominal Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases.”

11--The Fed Places Stock in the Bull Market, Kelly Evans, Wall Street Journal

Excerpt: When it comes to the U.S. stock market, what goes up apparently must not come down.

That at least is how the Federal Reserve seems to approach monetary policy these days. Officials are famously leery of intervening when the stock market looks frothy (or irrationally exuberant), but not when it is sinking. The stock market's swoon last summer, after all, helped prompt the Fed's current bout of government-bond buying.

As the June 30 end date for that $600 billion program looms, Fed officials have so far made it pretty clear they want to wrap it up as planned. Should a change be in store, they will have to start laying the groundwork pretty soon, lest markets be taken by surprise. That is why Fed watchers will be paying particularly close attention to speeches in coming weeks, especially comments from Chairman Ben Bernanke....

Quite simply, the market has become a key Fed tool in boosting growth and (at least in theory) in generating jobs in the short term.

Indeed, home prices are falling again, gas prices rising and many households remain cut off from credit or wary of using it like they did to fuel spending during the boom. "You simply cannot afford to have home prices and equity prices slump together for any length of time," says Moody's Capital Markets Chief Economist John Lonski, or growth prospects would quickly sour.

Yet it is hardly encouraging that the U.S. economy is now more reliant than ever on the stock market. For one, the immediate benefits from share appreciation largely flow to well-off households and exacerbate income inequality. The correlation between household net worth and consumer spending is twice as strong as it was in the 1990s. That makes any market disruptions even more of a threat to growth.

It also makes the chance of renewed Fed action more likely should markets fall hard after June. With stocks once again buoyant, the Fed may not be able to stomach watching them sink.

12--Default or not to default? Now that's a no-brainer, The Independent

Excerpt: Let us never forget that the actions of 100 people or so at the top of Irish banks have brought this country to the point of financial ruin.

Now, in isolation, the country's fiscal deficit (forecasted to be €12bn this year) is problematic but manageable, but when added to the colossal burden of the banking losses, Ireland can no longer keep its head above water.

Leading Trinity College economist Philip Lane said it was now questionable whet- her we could sustain this debt mountain.

"Is the size of the bank debt big enough so that the sovereign debt becomes unsustainable?" Lane said. "I think everyone would agree, it's a very close call at this stage."

Others have gone further. Richard Portes of the London Business School said: "Based on current government policies, I find it very difficult to see how Ireland can meet the sovereign obligations it has incurred in the medium-to- long term. The simple dynamics of debt require there needs to be growth if a country is to break out of this debt trap. And that is not going to happen if Ireland is to continue on this path of fiscal austerity. If you continue on this path it will ultimately lead to a sovereign default."

To my mind, the question is no longer whether Ireland should default but a question of when. We won't have a choice.

Former NTMA boss, Dr Michael Somers, said Ireland was now caught in a classic debt spiral.

"There is no way we will ever pay this stuff back, it will just be refinanced. The awful thing is that I know there are figures going around showing virtually no growth for the next three years and you ask yourself what comes after that, further tax hikes and you ask yourself how are we ever going to get out of this. We are in a downward spiral," he said. ...

Let me be clear. Any debt owed by the State for the keeping of the lights on, keeping doctors and nurses working in our hospitals and teachers in our schools must be met and honoured in full.

But, Ireland must now tell those who gambled on our banks that they must take a hit. On that portion of the debt, €22bn in unguaranteed stuff and a further €60bn-plus of other bank-related stuff, Ireland must inflict losses on the investors who took a punt and failed.

It's like the old saying, if you owe the banks €40,000 they have you by the balls, if you owe them €40m, you have them by the balls. This is how Ireland needs to start dealing with the ECB.

13--A Looming Disaster: Europe, Newsweek

Excerpt: While the world has been transfixed with Japan, Europe has been struggling to avoid another financial crisis. On any Richter scale of economic threats, this may ultimately count more than Japan’s grim tragedy. One reason is size. Europe represents about 20 percent of the world economy; Japan’s share is about 6 percent. Another is that Japan may recover faster than is now imagined; that happened after the 1995 Kobe earthquake. But it’s hard to discuss the “world economic crisis” in the past tense as long as Europe’s debt problem festers—and it does.

Just last week, European leaders were putting the finishing touches on a plan to enlarge a bailout fund from an effective size of roughly €250 billion (about $350 billion) to €440 billion ($615 billion) and eventually to €500 billion ($700 billion). By lending to stricken debtor nations, the fund would aim to prevent them from defaulting on their government bonds, which could have ruinous repercussions. Banks could suffer huge losses on their bond portfolios; investors could panic and dump all European bonds; Europe and the world could relapse into recession.

Unfortunately, the odds of success are no better than 50–50.

Europe must do something. Greece and Ireland are already in receivership. There are worries about Portugal and Spain; Moody’s recently downgraded both, though Spain’s rating is still high. The trouble is that the sponsors of the bailout fund are themselves big debtors. In 2010, Italy’s debt burden (the ratio of its government debt to its economy, or gross domestic product) was 131 percent; that exceeded Spain’s debt ratio of 72 percent. Debt ratios were high even for France (92 percent) and Germany (80 percent).

14--Higher Inflation Expectations Are Spreading, Wall Street Journal

Excerpt: The Federal Reserve expects higher price pressures to be “transitory.” But other economic players aren’t so sure.

A new survey of finance professionals done by J.P. Morgan shows core inflation expectations are rising around the world.

In the U.S. specifically, the mean response is that core inflation, as measured by the consumer price index excluding food and energy, will be running 1.8% a year from now. That is up from 1.4% when the survey was last done in November and up from February’s actual reading of 1.1%. The survey polled about 750 respondents, with about 40% from North America.

The report notes the recent jump in oil prices and the longer-running increase in commodity prices may be skewing responses. But the report notes core inflation rates have already been rising in the U.S. and the U.K.

The complication for the outlook is that investors think higher headline inflation will hang around in the medium term, defined as two to five years from now. When asked about medium-term inflation, the mean answer called for a 2.9% U.S. inflation rate.

Sixty-one percent of those surveyed think inflation will be running above the Fed’s target, generally thought to be around 2%. Of those respondents, 12% thought inflation would be “significantly” above target.

The sentiment among finance professionals echoes inflation concerns coming from the U.S. household sector. The preliminary March consumer survey done by Thomson Reuters/University of Michigan shows consumers think top-line inflation will be a rapid 4.6% a year from now and 3.2% five years from now.

Rising inflation expectations complicate Fed policy. Central bankers have set “stable inflation expectations” as one criterion for keeping interest rates exceptionally low “for an extended period,” as the March 15 policy statement said.

The danger to the outlook is that rising expectations could mean higher wages and prices will be incorporated into union contracts and buying contracts leading to higher actual inflation.

15---Student loans: debt, defaults and delinquents, FT.Alphaville

Excerpt: According to new provisional data from the US Department of Education assembled by the Chronicle of Higher Education, 39 colleges, mostly “proprietary”, have average loan default rates of above 40 per cent within three years of repayment. Around one third-of these are in the Everest network, though coding issues make it difficult to work out the spread across different campuses....

The CHE has a full table of results (subscription only), but here are its average default rates by sector:

For the public institutions analyzed, the two-year rate was 6 percent and the three-year rate was 10.8 percent; for private institutions, the two-year rate was 3.7 percent and the three-year rate was 7.1 percent; and for the for-profit colleges, the two-year rate was 11.3 percent and the three-year rate was 24 percent.

Why the big jump in default rates between two year and three years after graduation? The CHE suggests that it is because for-profit colleges, keen not to lose their access to federal aid, actively monitor their graduates and encourage them to make their payments those first two years — CHE refers to it as “demand management”....

Now, the years 2005-9 were unusual for many reasons, and of course there are perfectly healthy reasons (continuing study for example) for postponing repayments. But having only one-third of student borrowers follow the “normal” path of repayment still seems a bit low....

An op-ed in Sunday’s Boston Globe underplayed the for-profit problems but got its main point spot on:

With all of the energy expended taking sides — for or against regulations, short sellers, private equity, and Goldman Sachs — lost in the discussion is the precarious state of America’s education debt. Since 2003, the total debt burden from education loans to private and public institutions has grown 18 percent per year and now stands at over $500 billion. By contrast, mortgage and credit card debt has fallen over the past three years.

At the housing bubble peak, the mantra was “homeownership at any cost.’’ Here, it seems to be “higher education at any cost.’’

16--Stock Market In A State Of Denial, Comstock Partners Inc

Excerpt: the so-called strengthening recovery that supposedly more than offsets all of the above is highly fragile and subject to reversal. The second dip in housing that we have expected is now upon us. House prices are falling and inventories are extremely high while close to a quarter of homes with mortgages are underwater. The further dip in prices will put even more mortgages underwater, leading to even more foreclosures and an undermining of consumer net worth, confidence and spending. Real wages have decreased in four of the last five months and even new orders for durable goods, a precursor for capex, has weakened in the last two months.

In addition let's not overlook the point that QE2, which is pouring about $3.5 billion into the economy every weekday, is due to end on June 30th, and is unlikely to be extended. Both the economy and the market slowed significantly after the conclusion of QE1 and came back only with the announcement of QE2. At that point monetary policy becomes a headwind instead of tailwind at a time when political pressures are reining in fiscal policy as well.

In sum investors are in a state of denial similar to when they denied the dot-com boom was a serious problem in early 2000, or that subprime mortgages were a problem in 2007. This is typical of investor behavior at tops in all publically traded markets over hundreds of years, and human behavior is not likely to suddenly change now.

17---Wikileaks: Lebanon's leaders conspired with Israel to bomb Lebanon, Angry Arab

Excerpt: The the most damning Wikileak on Lebanon thus far.

"Jumblatt noted the heavy destruction of Lebanese
infrastructure but bemoaned the irony that Hizballah's
BEIRUT 00002403 003 OF 003

military infrastructure had not been seriously touched.
Jumblatt explained that although March 14 must call for a
cease-fire in public, it is hoping that Israel continues its
military operations until it destroys Hizballah's military
capabilities. "If there is a cease-fire now, Hizballah
wins," said Jumblatt. "We don't want it to stop," Hamadeh
chimed in. Hizballah has been stockpiling arms for years and
its arsenal is well-hidden and protected somewhere in the
Biqa Valley. Jumblatt marveled at the cleverness of the
Iranians in supplying Hizballah with the anti-ship missile
that hit an Israeli gunboat.

8. (C/NF) Responding to Jumblatt's complain that Israel is
hitting targets that hurt the GOL while leaving Hizballah
strategically strong, the Ambassador asked Jumblatt what
Israel should do to cause serious damage to Hizballah.
Jumblatt replied that Israel is still in the mindset of
fighting classic battles with Arab armies. "You can't win
this kind of war with zero dead," he said. Jumblatt finally
said what he meant; Israel will have to invade southern
Lebanon. Israel must be careful to avoid massacres, but it
should clear Hizballah out of southern Lebanon. Then the LAF
can replace the IDF once a cease-fire is reached. A defeat
of Hizballah by Israel would be a defeat of Syrian and
Iranian influence in Lebanon, Hamadeh added. For emphasis,
Jumblatt said that the only two outcomes are total defeat or
total success for Hizballah.
9. (C/NF) Hamadeh said that an Israeli invasion would give
Siniora more ammunition to deal with Hizballah's arms.
Jumblatt thought the crisis could end in an armistice
agreement like after the 1973 war. A buffer zone in the
south could then be created."

March 14 clowns upset that Israeli humiliatingly rushed out of Lebanon
"Jumblatt thought that the Israelis were in "too much of a hurry to leave," for, once the Israelis are out of Lebanon, in his view, a major pressure point on Hizballah is removed. In Jumblatt's view, Hizballah is not in the mood right now to attack the IDF, even inside Lebanon, but having the Israelis inside is an embarrassment to Hizballah. "We can ask, 'why is Israel occupying part of Lebanon?'" Jumblatt explained. The Israelis no longer seemed insistent on waiting until the arrival of an expanded UNIFIL, Hamadeh said, describing a briefing he had received from the Lebanese general who had participated in an IDF-UNIFIL-LAF meeting in Naqoura earlier that day. Hamadeh said that many Israelis had already departed Lebanon and wanted to begin a more formal handover to UNIFIL as early as 8/16, well before any new UNIFIL troops would be ready to go. "How is it that Israel can insist on a new multinational force, but then they end up just leaving the same old UNIFIL to take over?" Khoury asked

How March 14 received the news of Israeli humiliation in 2006
"The ebullient mood on the streets outside Hamadeh's seaview apartment contributed to the unrelentingly bleak mood of the March 14 figures inside, as other March 14 politicians called Hamadeh, Jumblatt, and Khoury intermittently throughout the evening to express fear -- and, in a few cases, a desire to quit Lebanon altogether

This is how the US and French colonial ambassadors issue orders to their tools in March 14
"Emie and Ambassador Feltman prodded the Lebanese on a "moment of truth" regarding Hizballah's arms, but Hamadeh, Jumblatt, and Khoury thought that provoking that moment of truth now would hand Hizballah a clear victory. "We need to wait at least until 'the celebrations' are over," Jumblatt said

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