Saturday, January 4, 2014

Today's links

1---The Quiet Coup, Simon Johnson, Atlantic May 2009 (recap from archives)

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise...

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them....

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:
• insistence on free movement of capital across borders;
• the repeal of Depression-era regulations separating commercial and investment banking;
• a congressional ban on the regulation of credit-default swaps;
• major increases in the amount of leverage allowed to investment banks;
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
• an international agreement to allow banks to measure their own riskiness

Backroom dealing: The Bailouts

In September, we saw the sale of Merrill Lynch to Bank of America, the first bailout of AIG, and the takeover and immediate sale of Washington Mutual to JP Morgan—all of which were brokered by the government. In October, nine large banks were recapitalized on the same day behind closed doors in Washington. This, in turn, was followed by additional bailouts for Citigroup, AIG, Bank of America, Citigroup (again), and AIG (again).
Some of these deals may have been reasonable responses to the immediate situation. But it was never clear (and still isn’t) what combination of interests was being served, and how. Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple. ...

 In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions...

As an unnamed senior bank official said to The New York Times last fall, “It doesn’t matter how much Hank Paulson gives us, no one is going to lend a nickel until the economy turns.” But there’s the rub: the economy can’t recover until the banks are healthy and willing to lend. ...

Big banks, it seems, have only gained political strength since the crisis began. ...

If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.

In some ways, of course, the government has already taken control of the banking system. It has essentially guaranteed the liabilities of the biggest banks, and it is their only plausible source of capital today. Meanwhile, the Federal Reserve has taken on a major role in providing credit to the economy—the function that the private banking sector is supposed to be performing, but isn’t. Yet there are limits to what the Fed can do on its own; consumers and businesses are still dependent on banks that lack the balance sheets and the incentives to make the loans the economy needs, and the government has no real control over who runs the banks, or over what they do.

At the root of the banks’ problems are the large losses they have undoubtedly taken on their securities and loan portfolios. But they don’t want to recognize the full extent of their losses, because that would likely expose them as insolvent. So they talk down the problem, and ask for handouts that aren’t enough to make them healthy (again, they can’t reveal the size of the handouts that would be necessary for that), but are enough to keep them upright a little longer. This behavior is corrosive: unhealthy banks either don’t lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and as it does, bank assets themselves continue to deteriorate—creating a highly destructive vicious cycle. ....

The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivership—recognizing reality—and transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump banks—cleansed and able to lend safely, and hence trusted again by other lenders and investors—could then be sold off.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5 trillion...

The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.....

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.
 
The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big.

2---Shiller: Another Housing Bubble?, cnbc

3---S&P 500 up 173 percent from a 12-year low in 2009, Bloomberg

We like to believe that everything is going to be gradual, everything is going to be smooth, and everything is going to be hunky-dory,” Plosser said during a discussion at the Philadelphia conference. “History does suggest that the Fed, as an institution, is oftentimes late when it comes to tightening.”

Three rounds of stimulus have helped propel the S&P 500 higher by as much as 173 percent from a 12-year low in 2009. Equity returns will slow this year, Wall Street strategists forecast. The index will end 2014 at 1,950, according to the average of 20 estimates compiled by Bloomberg. That represents a 5.5 percent gain from the end of 2013.

4---4 Reasons the Housing Bubble May Pop in 2014, daily finance

5---1930s-style debt defaults likely, says IMF research, cnbc

Many advanced economies are likely to require financial repression, outright debt restructuring, higher inflation and a variety of capital controls, a new research paper commissioned by the International Monetary Fund (IMF) has warned.
The magnitude of today's debt in Western economies will mean fiscal austerity will not be sufficient, Harvard economists Carmen Reinhart and Kenneth Rogoff said in the report, as policymakers continue to underestimate the depth and duration of the downturn.
"It is clear that governments should be careful in their assumption that growth alone will be able to end the crisis. Instead, today's advanced country governments may have to look increasingly to the approaches that have long been associated with emerging markets, and that advanced countries themselves once practiced not so long ago," they said....

"In light of the historic public and private debt levels...it is difficult to envision a resolution to the current five-year-old crisis that does not involve a greater role for explicit restructuring," they said.

5--Ongoing credit contraction in the Eurozone, sober look

Related to this weakness in credit growth, the area's disinflationary pressures do not seem to be abating, with the latest CPI aggregate below 1%. In Spain for example consumer prices have been basically flat for the past two years.

6---Pending homes sales "was the worst November since November 2009", WSE

The NAR’s Pending Home Sales Index had its second straight year to year decline in November. This index represents contracts signed during the month. Most result in closed sales within 30 to 60 days. This is as close as we get to a real time barometer of actual housing market sales volume, although Redfin, an online real estate brokerage, reports a sample of the 19 big markets they represent a little earlier in the month. That measure also declined on an annual basis for two straight months. It may be time to start worrying that the pitiful housing “recovery” under way for two years has reached its limit....

November is always a weak month, but the 17.9% decline for the month was the worst November since November 2009, which was exacerbated by the expiration of an earlier Federal tax credit to home buyers which had stolen sales from the future. This November’s decline wasn’t quite as bad a drop as the 22% decline in November 2008 at the worst point in the housing crash, but it was worse than the 17.2% drop in November 2007, in the earlier months of the collapse.

7---Waging war on Russia: Looking into Volgograd terror blasts, RT


Any conflict between Russia and these countries, as we see currently playing out in Syria, should be understood as merely one aspect of a larger geopolitical and strategic conflict between Russia and the West (US-NATO-GCC-Israel primarily). As the Russian Caucasus has become a critical part of Russian energy delivery infrastructure, it has taken on an added importance. The South Stream Pipeline, along with a number of other projects, has positioned Russia as a principal energy source for Europe, thereby weakening the position of Western energy interests who would love to monopolize the flow of oil to Europe. As long as Saudi Arabia and other US clients continue to be a primary source of energy, their interest will always be the destabilization of Russia. ....

In the Russian Caucasus, Doku Umarov and similar leaders only exist because of an elaborate network of financiers and influential policymakers who portray their war of terrorism as a “liberation struggle.” Terrorists such as Umarov are best understood by their connection to the various organs of Western intelligence. ....

One such entity that bears scrutiny is the American Committee for Peace in the Caucasus (ACPC), previously known as the American Committee for Peace in Chechnya. As reported by Right Web at the Institute for Policy Studies: “The ACPC was founded in 1999 by Freedom House, a neoconservative organization that has worked closely with the U.S. government, receiving funds from the National Endowment for Democracy and other US democratization initiatives.” This intimate relationship between the ACPC and the US State Department indicates not merely a confluence of interests, but rather a direct relationship wherein the former is an organ of the latter.

The paternalistic role of the US intelligence establishment in the ACPC is made all the more evident when one examines some of the more well-known members of the ACPC, including former National Security Advisor Zbigniew Brzezinski, former Pentagon advisor Richard Perle and other top neocons such as William Kristol, Elliott Abrams, Kenneth Adelman and Robert Kagan. What becomes apparent in even a cursory analysis of these figures is that, despite the preponderance of neoconservatives, the top members of the ACPC are pulled from both the liberal and conservative establishments. Therefore, one can see how the ACPC represents a bipartisan consensus within the US ruling class – a consensus of aggression against Russia.

The ACPC has taken the lead in championing the cause of separatism and terrorism directed toward Russia, both tacitly and overtly. After having championed the cause of former Chechen Foreign Minister Ilyas Akhmadov in his quest for asylum in the United States – subsequently granted along with a generous taxpayer-funded stipend – ACPC member Zbigniew Brzezinski went so far as to write the foreward to Akhmadov’s book “The Chechen Struggle.” The alliance between political figures such as Akhmadov and terrorist leaders in the region demonstrates conclusively the partnership between the various terror networks and the ruling class in the West.

Situated between Syria and Central Asia, and straddling the energy-rich Caspian region, the Russian Caucasus has become a flashpoint in world affairs. The geopolitical realities are brought into stark relief by the unimaginable grief of the families of innocents killed needlessly by these horrific acts of terrorism. In mourning the dead, we must come to understand more clearly, and on a systemic level, how international terrorism operates, and how it is used as a weapon by the forces of empire.

...Chechen (and other Caucasian) fighters constitute a sizeable contingent among the jihadi elements waging war on Assad and the Syrian people (though this has been denied by Chechnya’s leadership). Groups such as the Muhajireen Brigade, led by their commander known as Abu Omar al-Chechen, have been instrumental in maintaining the fighting in the face of the defeat of many of the Syrian and regional jihadi groups

8---Machinists’ union rams through sellout deal at Boeing, wsws

The deal—which extends the current contract from 2016 to 2024—eliminates company-paid pensions, imposes higher healthcare costs in accordance with Obama’s health care law and reduces wage increases. It also bar strikes through the expiration of the contract...

The vote tally was greeted in the Everett, Washington union hall with shock, anger and accusations of vote rigging....

One Everett, Washington Boeing worker told the World Socialist Web Site, “It’s the same deal as before. It’s a bunch of hooey. Even if they build the body here the building of the wings are in question. It is like Boeing is pulling a fast one.” Remarking on the role of the IAM, he said, “Everyone is very pissed off about it. It is like collusion. I think there is going to be serious blowback with the union over this. The union really is tied in with Corporate America.”

Another Boeing worker, commenting on the Seattle Times blog, explained why he changed his vote from “yes” to “no”. “I voted yes the first time and voted no this time. Boeing is getting the largest tax break in history. They don’t need corporate welfare, to give executives huge raises, while cutting my measly pay. Between taxes, healthcare, food, gas, rent, etc., my family is still not doing great. Why should we take a cut so the board approves bonuses for themselves?”...

Workers must reject the unions’ political subordination of the working class to the Democratic Party

9---Over 100 Killed as al-Qaeda Seizes Most of Fallujah, antiwar
Fighting Continues on Outskirts, But City Has Fallen

10--Volgograd and the Conquest of Eurasia: Has the House of Saud seen its Stalingrad?, global research

A new House of Saud spin on the “redirection” has begun. If there is anything the House of Saud knows well, it is rounding up fanatics as tools at the service of Saudi Arabia’s patrons in Washington. They did it in Afghanistan, they did it Bosnia, they have done it in Russia’s North Caucasus, they did it in Libya, and they are doing it in both Lebanon and Syria. It does not take the British newspaper The Independent to publish an article titled “Mass murder in the Middle East is funded by our friends the Saudis” for the well-informed to realize this.
 
The terrorist bombings in Lebanon mark a new phase of the conflict in Syria, which is aimed at forcing Hezbollah to retreat from Syria by fighting in a civil war on its home turf. The attacks are part of the “redirection.” The House of Saud has accented this new phase through its ties to the terrorist attacks on the Iranian Embassy in Beirut on November 19, 2013. The attacks were carried out by individuals linked to the notorious Ahmed Al-Assir who waged a reckless battle against the Lebanese military from the Lebanese city of Sidon as part of an effort to ignite a sectarian civil war in Lebanon.
Al-Assir’s rise, however, was politically and logistically aided by the House of Saud and its shameless Hariri clients in Lebanon. He is also part of the same “redirection” policy and current that brought Fatah Al-Islam to Lebanon. This is why it is no surprise to see Hariri’s Future Party flag flying alongside Al-Qaeda flags in Lebanon. After Al-Assir’s failed attempt to start a sectarian Lebanese civil war, he went into hiding and it was even alleged that he was taken in by one of the GCC embassies.
 
In regard to the House of Saud’s roles in the bombings in Lebanon, Hezbollah would confirm that the attack on the Iranian Embassy in Beirut was linked to the House of Saud. Hezbollah’s leadership would report that the Abdullah Izzam Brigade, which is affiliated to Al-Qaeda and tied to the bombings, is directly linked to the intelligence services of Saudi Arabia.
 
Moreover, the Saudi agent, Majed Al-Majed, responsible for the attack would be apprehended by Lebanese security forces in late-December 2013. He had entered Lebanon after working with Al-Nusra in Syria. Fars News Agency, an Iranian media outlet, would report on January 2, 2014 that unnamed Lebanese sources had also confirmed that they had discovered that the attack was linked to Prince Bandar.....
 
Volgograd and the Conquest of Eurasia
While speculation has been entertained with warning in this text, most of what has been explained has not been speculative. The House of Saud has had a role in destabilizing the Russian Federation and organizing terrorist attacks inside Russia. Support or oppose the separatist movements in the North Caucasus, the point is that they have been opportunistically aided and used by the House of Saud and Washington. Despite the authenticity of the narrative about Bandar’s threats against Russia, Volgograd is about Syria and Syria is about Volgograd. Both are events taking place as part of the same struggle. The US has been trying to encroach into Syria as a means of targeting Russia and encroaching deeper in the heart of Eurasia.

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