Catastrophic Volvo Order Numbers Are Fake
Mish headlines: Volvo Truck Orders Decline 99.63 percent; Auto Industry Faces Crash in US. Mish's Volvobit is based on a Bloomberg commentary which 'reports':
Picture a highway gridlocked by 41,815 abandoned trucks -- because Volvo's order book got destroyed to the tune of 99.63 percent, with customers signing up for just 155 vehicles in the three-month period, the Gothenburg, Sweden-based company said last week.
I tend to check the numbers I post and the number of 41,815 less orders certainly is suspect.
First: The 155 number Volvo announced was just for sales in Europe, not worldwide as the Bloomberg commentary makes one believe. Volvo truck orders worldwide in Q3, which include Mack in the U.S., were 32,072.
Second: Here is what the Volvo CEO actually remarked on the 3rd quarter Europe order numbers:
In Europe, customers are continuing to adopt a wait-and-see attitude to the ordering of new vehicles and equipment. Moreover, they have increasingly opted to cancel already placed orders. For our part, we have made sure to diligently go through and cleanse out orders in order to secure the quality in our order books. The same number of orders that have been received in Europe during the quarter have been removed from the order books, which contributed to a virtual standstill in net order bookings.
We fudged the order number in Europe over several of the last quarters but we have now decided to stop lying about these. Turns out we reported so many fake orders, that the total amount of fake orders we had to discard is just as big as all the real orders we got this quarter in Europe.
Here are the reported European order numbers for Volvo trucks picked from its various quarterly interim reports:
Is it not obvious that starting with Q4 2006 the numbers were somewhat unrealistic? Maybe people ordered two trucks to make sure that they got one on time? Or maybe there was some new sales incentive introduced in late 2006 that payed the Volvo salesmen per order instead of per payed delivery? Or maybe starting Q4 2006 the Volvo CEO got payed extra for each reported order?
We don't know.
But I am sure that Volvo got more than 115 odd orders for trucks in Europe in the third quarter of 2008. I would guess the total to be in the low 20,000 range. But last month Volvo checked their books and took out the over-reported orders from 2007. The numbers of fake or dubious orders they trashed were just as big as real orders from Europe in Q3 2008.
Maybe there are still more fake orders hidden. The numbers in that table above suggest that their might have been 5 quarters with 10,000 over-reported orders each half of which were 'cleaned' in Q3 2008. The rest will be subtracted from the real Q4 order numbers. Interestingly orders in other areas than Europe as reported hardly dipped in Q3-2008.
This was simply a management decision to pretend there is a catastrophic slump when there only was a reversion to mean and/or a big quirk in the numbers the Volvo management does not want to reveal in plain language.
A lot of this stuff is happening right now. With all the bad general news currently 'reported' it is very easy for any management to conceal previous misdeeds as current grand economic problems. What easier way to absolve yourself?
There is no catastrophe here and while I tend to be gloom and doom myself, Mish and others goe too far and with too little research into repeating sensational Bloomberg commentary.
Bloggers should do better.
Panic about Afghanistan
Panic seems to set in over the situation in Afghanistan.
Two weeks ago people from Obama and McCain campaigns got a special briefing about Afghanistan:
Over two days, according to participants in the discussions, the experts laid bare Afghanistan’s most pressing issues. They sought to make clear that the next president needed to have a plan for Afghanistan before he took office on Jan. 20. Otherwise, they said, it could be too late.
The briefing on Afghanistan appears to have been the most extensive that Bush administration officials have provided on any issue to both presidential campaigns.
“The intent was to ensure that everyone understand that the situation is very fast-moving, and if the new administration spends three months trying to figure out what to do, it’s too late,” said one administration official who participated in the discussion.
Why couldn't that wait two or three weeks? The possible decisions are anyway quite limited. There are three possible outcomes in Afghanistan.
- The foreign troops retreat under fire.
- The foreign troops negotiate a ceasefire with the major Taliban groups and retreat in orderly fashion.
- An increase in force to train the Afghan army, hand the problem to them, retreat in orderly fashion while they cover your ass and then watch the Afghan army fail from the outside.
Military planners now think they may need to send more than double the number of extra troops initially believed needed to help fight the war in Afghanistan.
The buildup in the increasingly violent campaign could amount to more than 20,000 troops rather than the originally planned 10,000, two senior defense officials said Wednesday on condition of anonymity because no new figures have been approved. ...
The Defense Department already has approved the deployment of about 4,000 people — one additional Marine combat battalion and one Army brigade to be sent by January.
The number of U.S. troops in Afghanistan has grown from fewer than 21,000 two years ago to more than 31,000 today.
With 150,000 U.S. troops in Iraq it is unlikely that the field commander's request can be fulfilled. It is either Iraq or Afghanistan, not both of them. But even if troops could be moved within a few month, what would they be able to achieve except to anger more Afghan people. More troops with their long and thick logistic tail are certainly not the way to some solution in Afghanistan. The can only delay the necessary retreat.
There are only few journalists in Afghanistan and I assume we only get little news of what is really happening there. The doubling of the reinforcement request and the extraordinary briefing of the campaigns point to some real panic over the situation on the ground.
Syria: Then why should we care ...
Petraeus said the flow of foreign fighters from Syria to Sunni insurgent groups including al Qaeda in Iraq has declined to 10-20 people a month from a height of 160.
Petraeus sees increasingly durable gains in Iraq , Reuters, Oct 7
The helicopter-borne attack into Syria was by far the boldest by American commandos in the five years since the United States invaded Iraq and began to condemn Syria's role in stoking the Iraqi insurgency.
The timing was startling, not least because American officials praised Syria in recent months for its efforts to halt traffic across the border.
U.S. says Iraqi militant killed in Syria raid, IHT, Oct. 28
Thousands of Syrians have taken to the streets of the capital Damascus to protest against a US raid which killed eight people near the border with Iraq.
Syria has demanded a formal apology for the raid and has threatened to cut off co-operation over border security if there is any repeat of the incident.
Syrians march in protest at US raid, Al Jazeera, Oct. 30
A private Syrian television station also reported that Damascus was reducing the number of troops on its border with Iraq in response to the "American aggression." The station, Dunia, showed footage of what appeared to be Syrian troops dismantling positions on the Iraqi border and leaving the area.
TV Station Reports Damascus Pulling Troops From Iraq Border In Response To "American Aggression", CBSnews, Oct 31
If confirmed, that is a smart move in my view. If the result of any effort to accommodate the U.S. is only to get bombed, why should Syria bother at all about who goes from Syria to Iraq?
Visually Noticing The Downturn
The Baltic Dry Index measures cost for cargoes of raw materials by sea. It was around 2,000 points in the beginning of 2006. It jumped to 12,000 in mid 2008. Since then it fell to 925. That is an unprecedented collapse of freight rates.
But its not only raw material transport which slumped. Yesterday I took this picture of a usually empty part of Hamburg harbor.
bigger, other perspective
These are five perfectly good feeder ships, normally used to distribute oversea containers coming from China to the Baltics and up to the UK, Sweden and Norway. Now they are moored to dolphins in the middle of the river.
I pass the place quite often and I never saw more than one ship laying there except during Christmas week. But I used to have a book with a harbor picture taken at the same place during the Great Depression. It showed some 15 out-of-work ships moored there.
These feeder ship are owned by small investors through private closed funds sold by local banks here. While Greece and Japan own the big bulker fleets, German private funds dominate the worldwide container ship market with ownership of some 3,000+ ships.
Having these out of work, will hit the income of a lot of normal folks around me.
Those ships are the first big locally visible sign of the downturn I noticed here.
What are signs in your area?
If only ...
If only ...*
* the remark does not relate to the people living throughout Palestine, but to the zionist fiction of some democratic Jewish nation state with undefined borders, without a constitution and which is neither democratic nor Jewish.
Talks With Which 'Taliban'?
Some 'western' military chiefs urged talks with Taliban to find a political solution to the conflicts in Afghanistan and Pakistan. Now everyone seems to have agreed to the plan:
The announcement that contacts would be sought with the Taliban came at the close of a two-day gathering of elders and prominent figures from Pakistan and Afghanistan.
"We agreed that contacts should be established with the opposition on both sides," said former Afghan foreign minister Abdullah Abdullah, who led his country's delegation to the meeting in the Pakistani capital, Islamabad.
These plans have the support from the U.S. government. But now comes the big question. Who are the Taliban?
The recent talks the Afghan government held in Saudi Arabia were with former Taliban officials who are no longer involved in fighting and with Gulbuddin Hekmatyar, a longtime competitor of the original Taliban.
In Pakistan a group named Tehreek-e-Taleban led by Baitullah Mehsud is fighting against the Pakistani government in north-west Pakistan. (Some Pakistanis allege the group has Indian and U.S. support.)
In Afghanistan there are many groups, all labeled Taliban by the 'western' media, fighting against the foreigners and the government. Some of them have bases in Pakistan others do not.
U.S. drones have several times attacked Jalaluddin Haqqani's houses in west Pakistan. His clan and organization fight on both sides of the Durand line and were on and off allies of the old Taliban. As a former mujaheddin Haqqani enjoyed U.S. support as an anti-Soviet fighter.
The Hezb-e-Islami Afghanistan (HIA) led by Gulbuddin Hekmatyar is anti-Taliban but famous for switching sides on a moments notice.
The original Taliban are said to be led by Mullah Omar and headquartered in Quetta in Pakistan's south western Balochistan province. There are also several neo-Taliban groups solely based in Afghanistan.
Added to the mix are various types of 'foreigners' which the 'west' all labels al-Qaeda. Some are Arab fighters who fought against the Soviets and later settled in Pashtun areas on both sides of the border. Others are fresh recruits from the Gulf, a few Uighurs from west China and some veterans from the Chechnyen wars.
So while talking with the Taliban is now the new rage, who will these talks actually be with?
As there is no leader of all these 'Taliban'. There is no single person or group to talk with. There is also no real offer. The U.S. seems to be determined to stay in Afghanistan but the most important request from all the separate groups is a retreat of the foreign forces.
The U.S. may try to bribe this or that leader to temporarily switch sides. But I doubt that an Anbar province like full sized bribery will work in Afghanistan.
Some of the above are likely making more from the drug trade than the U.S. will be willing to offer. The Canadian military is paying local Afghans $300-500 a month to guard Canadian soldiers in their camps. The various Taliban are said to offer $300 a month to their fighters, while the Afghan army seeks recruits but pays only a slim $135. Imagine only what effects competitive incentives for turncoat 'Taliban' will have on the creation of a competent Afghan army.
The plans to now negotiate with the 'terrorists' are therefore likely to end nowhere unless the 'west' is willing to retreat.
Volkswagen Shorts Get Run Over
The financial turbulence brings up all kind of strange stories like Citibank's crazy business model. Here is another one.
As the recession settled in, car sales have tanked and car makers are in trouble. But this week Volkswagen shares exploded and for a few minutes Volkswagen was, on paper, the world's most expensive company. This is the mother of all short squeezes.
- 20% of Volkswagen shares are owned by the state of Lower Saxony.
- Porsche, having made loads of money in previous years, is for some time know to own 35% of Volkswagen shares and aiming for a controlling majority of 75%.
- A lot of hedge funds sold short Volkswagen share and hoped that Volkswagen's share price would sink with the economy.
- The shorts had borrowed 12.9% of Volkswagen's common stocks. Some did not borrow the shares at all. Their bets were naked:
Conventionally, the trader will "borrow" securities from a current shareholder, typically a bank or prime broker, agreeing to return them on demand. The seller delivers these shares to a buyer, who takes full ownership and likely does not know that he is participating in a short sale. When the seller wants to "unwind" the position, he buys back equivalent shares in the market and returns them to the lender.
Naked short selling is a case of short selling without first arranging a borrow. If the stock is in short supply, finding the borrow can be difficult to arrange.
- On Sunday Porsche announced that it had bought an additional 7.6% of Volkswagon shares and had acquired options from other shareholders to buy another 31.5% of shares.
- With 94.1% (20+35+7.6+31.5) of Volkswagen shares effectively taken off the market and further buy demand from Porsche, the price for still outstanding shares went up.
- The folks that lend 12.9% of Volkswagen common shares are now asking the shorts to give them back. The shorts have to buy those in a market that can only provide half of them or settle in cash at current market prices.
- That drove the share prices up into lunatic highs, 1,005.01 euros at the top, and will ruin the hedge funds that made these deals.
Writes the FT:
“I have hedge fund managers literally in tears on the phone,” said one London-based auto analyst.
It is rumored that hedge funds lost some $10-15 billion on their Volkswagen bets. I am not sorry for these people. They wanted to play in the casino and they knew the risk.
It is fine to short a stock when one expects it to go down. But it was well known that Porsche had the intend to buy as many Volkswagen shares as it could get. There was no good reason to bet against its ability to do so.
Following the Volkswagen jump today, the DAX30 index, which includes Volkswagen, jumped up 11% and road killed lots of index short folks.
The current downturn will likely see more of such strong market reactions upwards and downwards. With each one the believe in 'free markets' will be hit and the myth of 'deregulation is good' will be exposed for what it is.
That's fine with me. Especially when such market troubles squeezes those who profited from the false believe.
If we really need to go through another depression lets hope that it will hit the players just as much as the normal folks. That is likely the only way to prevent another credit bubble and bust for the rest of our and our children's life.
Citibank's Crazy Business Model
The bank offers consumer-credit up to €50,000 starting at 3.99% effective yearly interest rate. In the lower right corner, Citibank offers 5.15% interest on 12 month fixed deposits.
Citibank is borrowing at 5.15% and lending at 3.99%? That will certainly generate some great turnover, but why is that supposed to be a sane business model?
Because of income tax on interest it would likely not be profitable for me to borrow from Citibank and deposit the borrowed money with them. But how does this work from Citibank's perspective?
Why The Attack In Syria?
What the f--- was yesterdays special operation strike against Syria about?
A reader at Joshua Lanid's blog reports:
I just spoke on the phone with a doctor in ABou Kamal- He confirmed that the attack happened around sunset. The 4 helicopters came from the East of the township, he saw them coming. The soldiers debarked and shot people who were working in a building under construction on the periphery of the township.
9 people were pronounced dead on arrival to the hospital- Two more are severely wounded and are being operated on right now [he does not expect them to survive]- He has not read the papers (there are none to read at this time of the night) nor listened to the news and there is no internet there….His report was completely spontaneous-
I was not able to get the details on the ages of the injured but he described them as poor simple people (Masakeen) from the town. If the matter were otherwise, he would have let me know.
There were no recent reports or accusation from the military against infiltration in Iraq from Syria. So what was the point?
Such an invasion of a foreign country must have been ordered from the highest level of the White House.
The only motive I can think of is that this is supposed to help McCain. Others suspect the same:
What better way to move the American people back to a neoconservative view than by provoking a Syrian/American conflict days before one of the most fateful elections in American history. Most Americans are fed up with foreign wars, unbelievable debt from those wars, and economic failure. Yet if we can provoke Syria into retaliating against the United States somehow, then we can terrify the American people enough right now before the elections. Then they will vote from fear, not from the perspective of pragmatism and realism, and certainly not from a position of vision and hope. It has happened before in history.
But Syria is very unlikely to retaliate. It did not retaliate when the Israelis bombed the box on the Euphrates a year ago. It did not retaliate when Israel in February killed Hezbollah leader Imad Mughniyeh with a car bomb in Damascus. Instead Syria continued with a policy of building better relation with its neighbors and even, for the first time in history, officially acknowledged the borders of Lebanon.
So if this was an attempt to stoke up an additional war, the lack of judgment is astonishing. Then again - the neo-cons have never shown good judgment at all.
Action Is Needed For Real Change
The Real News Network is a fine new medium and Jay Paul is doing real good in building it up.
Here is his recent series of interviews with Howard Zinn.
In the first segment, Zinn says one should vote for Obama. But he makes a very important additional point.
Voting for Obama will only bring change if there is constant, huge pressure on him to really move towards real change. Such pressure will require a social movement and direct civil action to have some relevance.
Obama will only end the wars if some anti-war movement gets loud again. He will only raise taxes on the rich if there is public pressure to do so. He will only stop giving taxpayer money to the owners of the banks if there is civil action to pressure him to instead hand the available money to those in need.
When did Obama ever talked about the poor? He talked about the 'middle class'. When did he talked about the poor?
Zinn sees the current situation comparable to the 1930s. Only direct action, labor strikes and civil disobedience moved FDR to implement the programs he implemented.
The good thing about this recession is that the indignation level of people may actually rise to a point to pressure Obama to really do something sensible. It still will need a lot of agitation and activism to counter the usual slump in activity after the election and to turn that indignation into pressure. Obama will do nothing significant, if he is not pressured from the street to do do so.
Think about that and what you probably could do after the election and prepare for now.
Zinn's advice is not only to U.S. people. Obama has been hailed as the savior in European media. This to give him leverage to ask, for example, for more European troops for the senseless war in Afghanistan. Only an increase in action to counter such moves, real public pressure, will lead to a real change of course.
Any action will have to start soon after the election as it might decide about the selection of various ministers or secretaries. If you do not want Dennis Ross as sec-state, be ready to have an argument against him and voice it loud. If you do not want another former Goldman Sachs CEO as sec-treasury (Rubin) be ready to have an argument against him and voice it loud.
Be ready to take the streets over these issues. Be ready to ask other to also take to the streets and have an argument ready to convince them to do so.
Ban Of CDS Gets Some Traction
While not driven by my recommendation to declare all Credit Default Swaps null and void the general idea seem to get a bit of traction.
At The Agonist Sean-Paul Kelly asks:
It seems to me that one of the most significant problems we face right now (and going into the future) is CDSs. What would happen if the Federal Government simply said: "they are all dead trades. if you sold protection you are off the hook, if you bought it, too bad"?
He points to a NYT piece which includes this:
Janet Tavakoli, a finance industry consultant who is president of Tavakoli Structured Finance, said the stock market’s gyrations are a result of a severe lack of confidence in the very officials who are charged with cleaning up the nation’s mess.
She also suggests that financial regulators impose a form of martial law, allowing them to rewrite derivatives contracts that bind counterparties to terms they may not even comprehend.
Chua Soon Hook who runs a profitable billion dollar fund for Asia Genesis Asset Management explained on Bloomberg TV how CDS are now used to raid leveraged companies and even countries.
Hedge funds and banks load up with cheap credit insurance via CDS for debt of a company or country. They then short that companies stock. With that, the stock value of the company sinks, the default likelihood of that company increases and the value of the CDS bought goes up. This gives the fund money to buy more credit insurance which, as other market participants watch the increasing default spreads, will again increase the default risk of the company and the value of the bought insurance and the value of the short.
Credit insurance can be written, bought and sold in unlimited number. A company's $1 billion total debt can be insured a 100 times and more. Even if the likelihood of a debt default increases only a tiny a bit, a big CDS position in a thinly traded market may double in value pretty fast. The leverage possible with these instruments makes the above a very profitable deal. Chua suggests to immediately make the writing of any new CDS worldwide illegal.
A scheme similar to the above now gets some interest from New York State and federal prosecutors:
Prosecutors are looking at whether traders manipulated the largely unregulated market for credit-default swaps to drive down the price of financial shares over the last year, people briefed on the investigation said.
In an unregulated over-the-counter market there are no rules and manipulation will be very hard to prove.
It seems to me that a similar raid tactic is now used to profit from problems in some countries:
The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland's debt before it sought a rescue from the International Monetary Fund.
Russia has over $500 billion in foreign reserves. The high CDS spread is by all means totally out of whack with reality. But with a rumor here and there, I am sure it can be driven up even more and some holders of some CDS will profit a lot from that.
Like Chua I believe that these CDS make the crisis we are in much worse and create a lot of unnecessary damage in the real economy. If a company has to pay higher interests because of CDS bets against it, jobs get lost.
The markets that should reflect the real economy get out of whack because of unregulated instruments like CDS. The false sentiment they generated then influences the real economy. This is an example of Soros' reflexivity.
So here again the steps to get rid of these:
At the same time:
- all financial exchanges and markets of the world close for a week
- CDS are declared null and void and new CDS creation is forbidden until new regulation is in place
- the publicly dealt financial entities have seven days to figure out and publicly restate the value of their liabilities and assets excluding all CDS
- a onetime windfall tax will be created that socializes overt advantages some entities will have from this
- the proceed of that tax shall be used to prop up the capital of the big losers in a program comparable to the Reconstruction Finance Corporation of 1932.
There is legal precedence (pdf) for such a big move.
The killing of the credit default swap markets, which only grew big over the last two years, will take a lot of insecurity out of the financial world, reintroduce confidence and bring lending back to normal levels. Even a threat to make CDS null and void, would be useful.
It still will need a while for people to get used to the thought that states could do such a thing. Please let me know if and when you see the idea mentioned elsewhere.
G8 - Relevant? No - The Picture Though Is
Thought this one might be relevant now.
It is colorful and lively.
OT 08-36Typepad still sucks.
Open thread ...
Billmon: The Conservative Tawana Brawley
Personally, I'm just waiting for the first right-wing wacko blogger to make the argument that even if Todd did lie, her story was "mythically" true because it represents the real life experience of so many delicate blossoms of young Caucasian womanhood.
Given the mental and emotional similarities between the "post-modern" left and the "pre-rational" right, I suspect it's only a matter of time.
Billmon: The Conservative Tawana Brawley
Dennis Ross Prepares For War On Iran
Yesterday two former 'bipartisan' senators had an op-ed in the Washington Post calling on the new U.S. president to launch an outright attack on Iran after some sham negotiations:
[W]hile a diplomatic resolution is still possible, it can succeed only if we negotiate from a position of strength. This will require better coordination with our international partners and much stricter sanctions.
Both to increase our leverage over Iran and to prepare for a military strike, if one were required, the next president will need to begin building up military assets in the region from day one.
Jonathan Schwarz summarizes the logic of the op-ed:
Now that would be correct if Iran would really try to get the power to stop the U.S. from attacking, i.e. to acquire nuclear bombs. But the IAEA and the U.S. intelligence community say Iran is not even trying. The correct summery of the op-ed's logic is thereby:
We're Going To Attack You If We Assume You Try To Get The Power To Stop Us From Attacking You
Glenn Greenwald shows how little real 'bipartisanship' the Bipartisan Policy Center really includes. Its report (pdf) is essentially an AIPAC product written by the American Enterprise Institute neocon Michael Rubin.
Helena Cobban points to the role of Dennis Ross, the zionist-neocon ex-Reagan, ex-Bush I, ex-Clinton hand. Ross is now Obama's middle east adviser and a member of the 'bipartisan' group.
Jim Lobe suspects Dennis Ross is trying to maneuver Obama into attacking Iran:
According to a variety of sources, Ross was the main drafter of Obama’s pander (except on the settlers) to AIPAC’s annual convention here in May and has since raised his hopes for a top post in an Obama administration, possibly even secretary of state. Frankly, I doubt that the latter prospect is realistic, but — and here’s the main point — I have it from several sources close to the campaign that he is more eager to gain control over the Iran portfolio (possibly special envoy) than to work on the problem that he knows best from his long experience, the Israel-Palestinian conflict. If he succeeds in his quest and if this report is any reflection of his views, then the U.S. could very well find itself at war with Iran within a remarkably short period of time.
He later updates:
Make sure you also read in this connection today’s New York Times article by David Sanger, particularly the part about the purported e-mail from Obama that was routed through an unidentified “aide,” who I presume to be Ross. The coincidence of the appearance of this article with the Coats-Robb op-ed suggests an effort to box Obama into a pre-election position. The Iran part of the story by Sanger, who considers himself a foreign-policy player, as well as a reporter, tracks the report’s narrative quite nicely.
The Sanger piece Jim points to includes this:
Mr. Obama, the candidate who has expressed far more willingness to sit down and negotiate with the Iranians, said in an e-mail message passed on by an aide that in any final deal he would not allow Iran to produce uranium on Iranian soil, the same hard-line view enunciated by the Bush administration.
Mr. Obama’s position is closer to the zero-tolerance approach adopted by the Bush administration. “I do not believe Iran should be enriching uranium or keeping centrifuges,” he said in an e-mail message passed on by aides.
Jim is right to suspect some concerted action by Ross and his 'bipartisan' group. Today said Dennis Ross is interviewed by the Israeli newspaper Haaretz (which introduces him as possible Sec State). First the usual lies:
Preventing Iran from going nuclear is a very high priority for [Obama], not only because it's such a threat to Israel, but because it's such a threat to the United States.
Today Iran is a nuclear power - it doesn't have nuclear weapons yet, but in 2001 it was not yet able to convert uranium or uranium gas, it didn't have a single centrifuge. Now it's stockpiling highly enriched uranium.
"Stockpiling highly enriched uranium" - 4-5% enriched is all Iran does says the IAEA.
Then Ross pushes the point of the 'bipartisan' bomb-Iran report. Negotiate to gain leverage with allies, but expect the negotiations to fail, which would then lead to and 'justify' an attack:
When Senator Obama suggests that he would be prepared to meet with [Ahmadinejad], he says such a meeting first has to be prepared. What he means is that you have to coordinate with your allies - all your allies. Secondly, it means you have to check whether you can put together an agenda for a lower-level meeting. If it becomes clear that you can't put together such an agenda, then you don't hold a meeting at a high level - the presidential level - because it's not going to lead anywhere.
Imagine Dennis Ross as special Iran envoy in an Obama administration trying very hard to "put together an agenda for a lower-level meeting" only to fail to get such an agenda. Because that would be exactly the logic of the report, fake negotiations with Iran to get allies with the next step being bombs dropping on Iran.
Dennis Ross is maneuvering to get to that point.
Additionally the danger of a conflict with Iran increased today because the attempts of the Israeli prime minister-designate Tzipi Livni to form a coalition with Labor and the ultra-religious Shas failed. This will likely lead to snap-elections and a future Israeli government with the leader of the far-right Likud party, Netanjahu, as prime minister.
Netanjahu as prime minister and Dennis Ross as Obama's Iran envoy would be a very deadly combination.
Financial Crisis: Again on the Border of a Meltdown?
Regulators in Taiwan ordered insurers to limit their holdings of Freddie, Fannie, and Ginnie Mae paper. The stated reason was that they could not assess the credit risk and could not rely on published ratings. The explicit repudiation of rating agency ratings seems to be the first move of this type. and may be the beginning of a trend.
This statement either shows considerable ignorance or is an early warning of worries about the creditworthiness of the US government.
What calls this action into question, however, is that inclusion of Ginnie Mae on the list. Ginnies are full faith and credit obligations of the US government. If you are worried about the payment risk on Ginnies, then you are worried about the creditworthiness of the US government, period.
- the worst is still ahead of us
- we are again on the border of a systemic financial meltdown
- 2/3 of global GDP (countries) is in recession
- IMF may soon be out of money (see remark below)
- a panic is the stock market is possible
- expect stock market closures for several days
- politicians are out of possible policy responses
- we will have 2 years of recession
- followed by Japan like stagnation
- the crisis has geopolitical and social-political consequences (Roubini explicitly mentions China's possible demand of Taiwan)
The IMF has $100 to $250 billion it can lend to countries in need. This is now too little. As the NYT reports today, there are talks of 'western officials' to somehow enable the IMF to lend up to $1 trillion to emerging market countries (Brazil, South Africa, Turkey.) The piece does not say where that money would come from.
The Fed has now acknowledge a loss of $2.6 billion on the $29 billion of loans it took over in the Bear Stearns bailout. Those losses will grow. AIG got a $123 billion loan line from the Fed in its bailout. $90.3 billion of these have now been used by AIG to pay off bad bets on Credit Default Swaps. AIG will need more money.
As Roubini says politicians are running out of policy options. The only policy response that I can think of would make a real difference is to declare all credit default swaps null and void.
A finance professional from Shanghai was on Bloomberg TV yesterday and came close to that: Chua Says New Credit-Default Swaps Should Be Banned. He believes that CDS are now used to manipulate (short) some currencies and stock markets and threaten to bankrupt whole countries making the situation even worse than it already is. He may well be right.
With concern of U.S. solvency now being official, some CDS issuers and speculators may think about this and try a trick or two against the U.S. If Soros could break the Bank of England, could some savvy rich folks from Asia or the Gulf try a similar trick on a different country?
The Taiwanese regulators seem to think so.
Election Results - Rightwing View
While the election race is on it is important to keep up on how the wingnuts see it. You'll have to live with them no matter what's the outcome.
Washington Times did an interview with the now again maverick John McCain:
Sen. John McCain on Wednesday blasted President Bush for building a mountain of debt for future generations, failing to pay for expanding Medicare and abusing executive powers, leveling his strongest criticism to date of an administration whose unpopularity may be dragging the Republican Party to the brink of a massive electoral defeat.
"We just let things get completely out of hand," he said of his own party's rule in the past eight years.
In an interview with The Washington Times, Mr. McCain lashed out at a litany of Bush policies and issues that he said he would have handled differently as president, days after a poll showed that he began making up ground on Sen. Barack Obama since he emphatically sought to distance himself from Mr. Bush in the final debate.
The return of the maverick in the public mind?
That highlighted poll reference may be caused by the IBD/Tipp poll, a seemingly conservative view prefered by freepers because(?) it doesn't go into electoral votes, the only measurement that counts in the end. But that 'poll' caught this:
The Republican is making headway with middle- and working- class voters, and has surged 10 points in two days among those earning between $30,000 and $75,000.
What would have cause that? Palin's wardrobe bill that was, in 60 days, twice the yearly income of the top income families asked in that poll? That is somewhat implausible to me.
But then. Who knows?
Democracy does not mean that people vote their interest.
Pakistan On Its Way Back To Military Rule
Now that is what I'd call a prime target:
Last week, after months of Pakistani delays, about 30 U.S. military trainers were permitted to set up operations north of the [Federally Administered Tribal Areas], a U.S. official said. The trainers will provide counterinsurgency instruction to Pakistani army soldiers, who in turn will train members of the Frontier Corps, the government's paramilitary force in the FATA.
Pakistan Will Give Arms to Tribal Militias
Those 30 'trainers' better watch their back.
Pakistan will provide arms to some parts of the tribes in FATA, who will then fight other local powers called 'Taliban'. Guess where those arms will end up when, as usual, this or that group changes its allegiance.
The policies in and around Pakistan are again full of inconsistencies. During the last weeks the U.S. has some 12 times used drone-missiles to bomb targets in FATA. Today, it killed nine people in such an attack.
Only yesterday after two weeks of negotiation the two houses of parliament unanimously adopted a resolution calling for "an urgent review of the national security strategy and revisiting the methodology of combating terrorism in order to restore peace and stability through an independent foreign policy."
The resolution also said:
The challenge of militancy and extremism must be met through developing a consensus and dialogue with all genuine stakeholders.
That Pakistan’s sovereignty and territorial integrity shall be safeguarded. The nation stand united against any incursions and invasions of the homeland, and calls upon the government to deal with it effectively.
That Pakistan’s territory shall not be used for any kind of attacks on other countries and all foreign fighters, if found shall be expelled from our soil.
That dialogue must now be the highest priority, as a principal instrument of conflict management and resolution. Dialogue will be encouraged with all those elements willing to abide by the Constitution of Pakistan and rule of law.
Somehow that resolution does not fit with arming tribal forces and U.S. missile attacks on Pakistani ground.
But the Pakistani president Zardari, now as despised as the General Musharraf was before him, does not care about what the parliament or the people think.
That could for now be excused as Pakistan is only weeks away from defaulting on its debt. All 'friends' of Pakistan have so far declined to lend money. Zardari is on his way to Saudi Arabia to ask again while his prime minister is in China to again beg for help. The humiliating walk to the IMF seems inevitable. But even before the economic crisis Zardari has never shown any distance to the politics pr
oescribed from the U.S.
The continued U.S. attacks on FATA may well incite even more tribal people against the Pakistani government. One suspects they are planed with the aim to keep them busy against the Pakistani state so they will leave the occupation forces in Afghanistan alone.
That would be a miscalculation. By now most Taliban action in Afghanistan seem to be indigenous and the line of supply for these forces in south and west Afghanistan is coming from the south through Quetta, not from the eastern FATA.
With severe economic problems like daily electricity blackouts getting worse and coming additional IMF strictures one can easily imagine that Pakistan will soon be again in a struggle against a U.S. influenced ruler who acts against the interest of his people and the expressed will of the parliament.
China Hand asks if military rule will come back to Pakistan within the next year. I find that more likely by each day.
NATO's Toothless Anti-Piracy Show
NATO sent a small flotilla to the coast of Somalia. Additionally there are ships from Russia, Britain, India and the U.S. in the area. Supposedly they are looking for pirates along the 1,880 miles of Somali coastline.
But nobody knows what these ships can really allowed to do. What distinguishes a pirate boat from fishermen? What could be done when some fishermen are observed capturing a cargo ship. Are Somalis boarding an international ship which is illegally fishing in Somali waters pirates or informal coast guards?
"We don't know," say's NATO:
U.S. Admiral Mark Fitzgerald said while he was aware of where the pirates were operating, there was little he could do militarily to stop them and that guidelines on how to take them on -- including whether to shoot -- were still in the works.
"You know, I don't think we've gotten the rules of engagement yet from NATO," Fitzgerald told reporters on Monday during a briefing on U.S. naval operations in Europe and Africa.
Those rules of engagement will likely be very restricted.
The German frigates who are part of the NATO flotilla are, for example, not allowed to engage pirates at all. The German constitution sees pirates as a police problem, i.e. a state coast guard issue, not a federal military task.
Other countries have similar restrictions:
[The Danish] captured 10 people, but after holding them for six days aboard a Danish ship, the suspects were set free and put ashore in Somalia because the legal conditions surrounding their detention were unclear.
Denmark's Defence Ministry said Danish law did not allow for prosecution of the men before a Danish court. The ministry said it had explored the possibility of handing them over to other countries but that was also not feasible.
There is now a UN resolution which allows some measures against pirates in Somali waters, but this is unlikely to change national caveats.
Unless the world accepts and negotiates with a Somali government that the Somalis themselves recognize as legitimate, there is little anyone can do about the problem.
Despite all the media notice piracy around Somalia gets, it is by far not the most dangerous area. The International Maritime Bureau lists the coasts of Nigeria, Indonesia and Tanzania as comparatively more dangerous waters.
For now crewmen on board of cargo ships ready to hose down lots of water on anyone trying to board their ship seem to be the best defense against piracy. The IMO's advice to captains:
Water hoses compel the attackers to fight against the jet of water that may also swamp their boats and damage their engines and electrical systems. Water pressures of 80lb per square inch and above have repulsed boarding parties. Special fittings for training hoses may be considered to provide protection for the operators. A number of spare fire hoses could be rigged and tied down to be pressurized at short notice if a potential attack is detected.
That is certainly cheaper and likely more effective than the current toothless cannon-boat policies.
Who wrote their speech?Barfly vbo pointed to this amazing video in a recent comment.
On the left John Howard, then Prime Minister of Australia. On the right Stephen Harper, now Prime Minister of Canada, and leader of the Conservative Party of Canada.
Who wrote their speech?
What Will Be The Future Economy
lifted from a comment
The issue that I still have not seen anyone address is -- what will or should be the key features of the USA's economy in 5 or 10 years?
It is an important issue because the failure to address this issue responsibly 10 years ago is the reason we are where we are today. The USA has increasingly re-aligned into a service economy to a large part in response to China's growing export power & further assisted it by exporting much of its own manufacturing base to China. Essential regulations were tossed & interest rates lowered to fuel financial services & mortgages. Wage-stagnation followed, likewise massive debt across the board as the financial sector boomed & leveraged. Obviously a poor plan that was not sustainable.
We are now seeing a reversal of roles in the levels of scrutiny of G7 vs. non-G7 and this issue is probably getting far more attention outside the G7 countries than at at home. Like politicians everywhere, the G7 focus will be on stabilizing the debt situation & bringing back a sense of normalcy. If that is all that is done in the next few years, its going to be inadequate. There has to a re-alignment of the USA's economy into a sustainable mode that is consistent with its economic & trade ties with the rest of the world.
One key marker the rest of the world is going to be watching is the USA's military budget. If its not trimmed substantially in order to ease the debt crisis, the rest of the world is going to throw up its arms in frustration.
Where From Here? U.S. Default?
My general estimates on the economic future now gets gloomier each day. That may be the consequence of a severe cold I am working through or the reason for it. There is need for severe triage measures to be taken. Instead billion dollar band aids are applied to the bleeding arteries of Wall Street.
It seems I am not the only one to see problems in that.
Sharon recently pointed to GEAB as does Sustain26 in comments. That European prediction service now sees a U.S. default on its debt in the summer of 2009. That is a frightening possibility. I am not sure yet what the chances for that are, but they are now certainly quite above zero. What would be the consequences of a U.S. default on its international debt?
GAEB also points out that U.S. pension plans, which have been based on stock investments, are likely up in smoke. Something that is already assured and that U.S. media have yet to catch on to.
Maybe it is lunatic to think of a U.S. default, but here is a paragraph from the Wikipedia entry on course of events of the Russian financial crisis in 1998 edited to fit today's situation:
Prior to the culmination of the economic crisis, the [Treasury] bonds issuance policy was described as similar to a pyramid scheme or Ponzi scheme [..], with the interest on matured obligations being paid off using the proceeds of newly issued obligations.
Declining productivity, an artificially high [..] exchange rate between the [dollar] and foreign currencies to avoid public turmoil, and a chronic fiscal deficit were the background to the meltdown. The economic cost of the [..] war[s] was also a cause of the crisis. In the first half of , the [U.S.] economy showed some signs of improvement. However, soon after this, the problems began to gradually intensify. Two external shocks, the [mortgage crisis] and the [increase in oil prices], also impacted [U.S.] reserves.
After the breakdown Russian retirees had to sell their last shirt to survive. Many didn't.
While Roubini still foresees the biggest decline since the Great Depression, other are as gloomy as I am and think that things may get worse than that.
At TomDispatch Mike Davis writes:
[L]ike the Grand Canyon's first explorers, we are looking into an unprecedented abyss of economic and social turmoil that confounds our previous perceptions of historical risk. Our vertigo is intensified by our ignorance of the depth of the crisis or any sense of how far we might ultimately fall.
He mentions one of my favorite indicators for the U.S. decline:
We are seeing the consequences of a perverse restructuring that began with the presidency of Ronald Reagan and which has inverted the national income shares of manufacturing (21% in 1980; 12% in 2005) and those of financial services (15% in 1980; 21% in 2005).
Tony Karon, the Rootless Cosmopolitan, builds on the above in an excellent piece about the depression he sees coming and remarks:
Restoring confidence in the credit system may prevent a cataclysmic meltdown in the U.S. economy, but it won’t fix the long-term decline based on fundamental ailments that the bubble-driven stock market and real estate booms of the past decade have simply deferred. Instead of manically watching the Dow yo-yo from day to day, we should simply recognize that it has been vastly overvalued for some time. Until such time as America’s economy (the real economy, not the fetish market of financial services) has been restored to some semblance of health — a generational project, unfortunately, given the devastation wrought by a generation of Reaganomics and, it must be said, by its “New Democrat” imitators — any dramatic recovery in the Dow will be brittle, based on false confidence or some new “bubble.”
To put this more bluntly, fixing America’s economy will require not only jettisoning the Reagan dogma of deregulation, shrinking government, and tax cuts as the cornucopia of economic growth, but also the Clinton legacy that turned the Democratic Party into as much of a friend to Wall Street as the Republicans had traditionally been. Wall Street is not the economy, and the last two decades have shown that the stock market can be hale and hearty even when the economy is being steadily denuded. It’s on fixing the real economy that voters should be forcing politicians to focus.
Lastly even the Wall Street Journal gets a bit gloomy as it now reports on the decline of the empire:
Mr. Fingar, the intelligence analyst, said in his speech that the post-Cold War period of overwhelming U.S. dominance was "anomalous." America's elevated status on the military, political, economic and possibly cultural fronts "will erode at an accelerating pace, with the partial exception of the military," he said.
Many nations, from Japan to Israel to European allies, continue to rely on Washington's power to guarantee regional stability. Asked Wednesday night if the U.S. was in decline, Defense Secretary Robert Gates responded after a recent tour of allied nations: "No. ... Every one of the countries wants to have better relations with the United States. They still see the country as the last, best hope."
If the U.S. defaults, will that still be the case?
Race to the Bottom
On October 4th I wrote in Smoot-Hawley By Subsidies:
Bad times often lead to economic fights across borders. Smoot-Hawley used tariffs with the intend to block out imports. Another method of preference of domestic producers is to feed them with subsidies.
Last weekend Congress passed a bill that will give the U.S. auto industry access to $25 billion of subsidized federal loans. Additionally the Paulson bailout is worded in a way that allows the Treasury to buy up bad performing car loans the big three have made to sell their products. If the Treasury pays more than the market value for such 'assets', the result is a direct capital injection by the government into the Detroit companies. (Only without any upside for the taxpayer.)
As a consequence of U.S. subsidies to its carmakers, European carmakers also asked their government for money. As the FT reports today, their wish will be fullfilled:
German and French carmakers, which have asked the European Commission for €40bn ($53bn) in cheap loans, are eligible to tap their governments’ banking rescue plans, according to government officials.
Both the German and French finance ministries said on Monday that the financing arms of carmakers could use the state guarantees for new lending of up to €400bn and €320bn respectively.
This is protectionism by subsidies. Protectionism by ramping up custom duties made the 1920s/30s depression great.
Trade wars via subsidies have the same consequences though they might cost the taxpayers more than tariff schemes. The propping up of overcapacities eventually leads to state bankruptcy.
The money for the subsidies should better be used to help dismantle some overcapacity and to prop up new industries in alternative energies.
It seems like the politicians are trying their best to repeat the errors made 80 years ago.
Without my knowledge, Typepad, the system this blog runs on, yesterday made (again) some weird changes. This time they seem to have limited comment display to 50 per thread.
I have no idea why and will try to fix this as soon as possible.
Use as open thread.
Only cynicism could coerce a negative opinion of the idealism, honour and optimism of Barrack Obama. That this site hasn't been leading the fight for him with all of their friends still surprises me.
Obama now wants to give the war-criminal Colin Powell a role in his administration:
"He will have a role as one of my advisers," Barack Obama said on NBC's "Today" in an interview aired Monday, a day after Powell, a four-star general and President Bush's former secretary of state, endorsed him.
"Whether he wants to take a formal role, whether that's a good fit for him, is something we'd have to discuss," Obama said.
Which leads me reformulating Waldo's post:
Only cynicism could coerce a positive opinion of the alleged idealism, honour and optimism of Barack Obama. That this site hasn't been leading the fight against him with all of their friends still surprises me.
That said, I expect a more benign administration from Obama than the current one. He will probably put some decent judges into the Supreme Court and may raise taxes on the richest 5%.
But apart from that, I do not expect less lies or less belligerence in foreign policy from an Obama administration than from Bush. I hope that financial constrains will limit his abilities to wage wars.
It seems to be time to make this clear. While anyone is invited to comment at this blog, no one has a 'right' to be welcome here. So without further ado here are some rules that apply:
Comments that may get unpublished/deleted:
- Off-topic comments that interrupts threads. There is always a Open Thread for such stuff linked at the top-left of the homepage.
Comments that will certainly get deleted:
- Commercial spam
- Anything written majorly in CAPs
Stuff that will get a persons IP addresses blocked from commenting here:
- Unprovoked personal attacks
- Commenting under multiple names
- Taking on the personality of another commenter
Some people come here through anonymizer services. If they misbehave, I have to block all comments coming through the anonymizer they use. That may effect legitimate commenters as their comments will have to be reviewed by me before they get published (or not). Sorry, can't help it.
I periodically remove blocked IP addresses. So anyone who is blocked can come back after a while. Still, if the behavior has not changed, I will immediately block the person and/or IP addresses again and will delete their comments as appropriate.
The above is subject to change.
The Narrow Path of U.S. Foreign Policy
McClatchy's Warren Strobel writes: Foreign affairs: McCain, Obama view world in starkly different ways
Separated by a generation and by one's legendary military experience, Sens. John McCain and Barack Obama offer voters contrasting worldviews, suggesting that they'd pursue different foreign policies as president.
That is of course nonsense.
While Obama and McCain may differ in how to proceed with U.S. exceptionalism, both subscribe to it and the general course of both would deviate only a few degrees left or right from the general line. Writes Strobel:
Obama and his running mate, Sen. Joseph Biden, promise a return to a traditional Democratic foreign policy that some call liberal internationalism. They favor intervention to stop ethnic slaughter, strengthening global rules against the spread of dangerous weapons and working through international organizations when possible.
McCain, who insists that he's not a clone of President Bush, indicates that he'd pursue a more robust application of U.S. power. He favors aggressive efforts to spread democracy overseas, espouses a hostile view of Russia and seems more inclined to use force and act unilaterally to deal with threats to the country.
How is "intervention" to stop alleged ethnic slaughter not a "robust" application of U.S. power? How does "working through international organizations when possible" differ from being inclined to act unilaterally?
For the victims, the marketing arguments that enables an U.S. president to send bombs down their houses make no difference.
The LA Times sees it more realistic: Obama, McCain aren't worlds apart on foreign policy
John McCain and Barack Obama have been quietly recalibrating their messages on foreign policy in ways that often have moved them closer to the political center -- and to each other.
The Economists comes to the same conclusion:
On a surprising range of foreign-policy issues, the rivals have morphed into each other.
Both candidates are essentially on the same page on every foreign policy issue that is relevant.
Only if one starts from a very narrow view of possible foreign policy differences one can conclude that these candidates differ. But the world is wide and to talk and then bomb Iran is not the only alternative to bombing Iran outright.
Billmon: The New Stabbed In the Back Myth
We've crossed some more lines, in other words -- in a long series of lines that have made it increasingly difficult to distinguish between the ultraconservative wing of the Republican Party and an explicitly fascist political movement. And John McCain and his political handlers appear to have no moral compunctions whatsoever about whipping this movement into a frenzy and providing it with scapegoats for all that hatred, simply to try to shave a few points off Barack Obama's lead in the polls.
To call this "country first" only works if you assume your opponents (and scapegoats) are not really part of that same country. And we all know where that leads.
The New Stabbed In the Back Myth
Post Card from a Vandal
Beq sent this one.
This isn't new but when I came across it recently I reconnected.
It's called "Post Card from a Vandal".
It's my acrylic paint over found "living room" landscape art from a local thrift store.
In The Long Run ...
In the long run, the American people can have confidence that our economy will bounce back.
President's Radio Address , October 18, 2008
Long run is a misleading guide to current affairs. In the long run we are all dead.
John Maynard Keynes, A Tract on Monetary Reform, ch. 3, 1923
One wonders what Bush's speechwriters were thinking ...
Then again: They may be right in their estimate of a time-frame for the recovery.
The IMF Is Getting Back Into Business
The International Monetary Fund is hated by everyone who ever came under its regime. One of its function is to be a lender of last resort whenever a country goes bankrupt. Such IMF loans come with strict conditions and neoliberal policy demands: Fire the teachers, lower taxes, lower social expenditure, allow foreigners to buy up your country and so on.
After the Asian financial crisis the IMF had little to do. Many countries build up foreign reserves to protect their currencies and economies and nobody asked the IMF for loans. Latin America paid off its outstanding debt to the IMF. For a while Turkey was the only country with IMF mangling but this year it repaid most of its outstanding IMF loans and was freed from the international debt tower.
The IMF had nothing to do but as the international credit bubble goes bust it is back in business. Only this time the customers are a bit different.
The current list of countries talking with the IMF is getting longer each day. Iceland was for starters. Estonia, Latvia and Lithuania and the Ukraine are likely to fall under IMF dictatorship. Serbia and Hungary are also candidates.
It will be interesting to see if the IMF will apply the usual torture or have less neoliberal recipes for these countries. Most of the above are already drunk on neoliberal kool-aid like regressive tax regimes and more of that drug will not do them any good.
Another candidate for IMF help was Pakistan which has less than five mouth worth of foreign reserves available, high inflation and immediately needs a loan of at least $10 billion. But there has been no talk of IMF intervention. The IMF has so often intervened in Pakistan that it is accused to be the real culprit of the countries current state.
Pakistan had hoped for help from Saudi Arabia but the Saudis hate president Zardari and his Bhutto clan and want their candidate/proxy Nawaz Sharif to rule that country. They have not answered the calls from Islamabad. Pakistan also asked the U.S. but the result was only a paltry $4 billion international arrangement which comes with very harsh conditions:
During its negotiations with the World Bank and other IFIs, Pakistan pledged to reduce its fiscal deficit from 7.7 per cent of the GDP last year to 4.3 per cent of the GDP this year.
Pakistan agreed to reform its tax policy and tax administration with the aim to mobilize additional revenue. The tax to GDP ratio is to be reduced to 15 percent of the GDP over the next five to seven years. Pakistan promised to tighten monetary policy as and when needed.
In most European countries the tax to GDP ratio is around 40%. In the U.S. it is about 30%. How is Pakistan supposed to provide for its people with a tax ratio of 15%? This is a formula for more instability.
Zardari's first official trip abroad is to China where he is currently asking for more money. He will get some and the conditions will likely be less harsh than those coming with the U.S. arranged loan.
China may well be really smart and lend a full $10+ billion and recommend that some of that is used for infrastructure development. That would avoid the pressure on Pakistan from the conditions of the U.S. arranged loan.
Could the Baltics, the Ukraine and other East- Europeans do something Zardari like and go to Moscow? A bailout from Russia might have better condition then an IMF loan from Washington DC. If they are smart, they will at least give it a try.
Further Ideas For A New Financial System
Investors pulled at least $43bn from US hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by a leading research house shows.
Withdrawals can lead to a vicious circle in the markets, as funds sell holdings to return money to clients, depressing prices and prompting further redemptions.
A fundraiser for a major hedge fund said the period “between now and December 1 is a sort of death march” for the industry.
The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses.
The industry, which manages close to $2,000bn, has experienced outflows during only a handful of months previously, including a small outflow in April of this year.
A $2 trillion industry will shrink by 50% to one trillion. Half of that because people want to get out of them. To pay out the hedge funds will have to sell assets they currently hold into falling markets.
That is an additional $500+ billion of asset sales still to come which guarantee that there will be no sustained rally in the stock markets at least until the end of the year and likely much longer. Instead markets will fall further for everyone, including your pension fund, because leveraged hedge funds now need to sell.
Why do we have totally unregulated hedge funds at all? Do they add value to the societies we are living in? How?
If we build a new financial system, should we do away with these? In my opinion yes. We should not have unregulated and unsupervised entities gambling with the financial systems that are supporting our real economies.
Some other still developing thoughts for a new financial system:
- Complexity prevention: Ban derivative deals except between buyers/sellers of the underlying asset. (Farmers and millers should be allowed to deal in grain derivatives ...).
- Cheating society prevention: No regulated financial entity shall deal with tax-havens.
- Too big to fail prevention: Any financial entity with a balance sheet total of more than 20% of the GDP of its resident country must split into two or more independent entities.
- ... (more ideas to come)
The libertarian in me hates complex regulations. There are much simpler tools available to prevent certain behavior especially between greedy parties. With regard to tax havens one can for example simply declare any financial contract with them against public policy and thereby unenforceable if front of a court. That will not prevent all dealings with them. But soon enough too many folks will get burned in such dealings and without recourse will never again get near to them.
Please add your thoughts and ideas in the comments.
Election Thread - Nasty Version
Any good caption for this one?
No, it is not photoshopped. Here is another angle.
And by the way - where is Palin? Still shooting that flic?
turn up your sound, move the cursor around and click - gets better and better.
Ethiopian Troops Leave Somalia
Why is a Scot newspaper the only one to report this from Somalia?
SOMALIA'S FRAGILE government appears to be on the brink of collapse. Islamist insurgents now controls large parts of southern and central Somalia - and are continuing to launch attacks inside the capital, Mogadishu.
Ethiopia, which launched a US-backed military intervention in Somalia in December 2006 in an effort to drive out an Islamist authority in Mogadishu, is now pulling out its troops.
A shipment of Ethiopian weapons, including tanks, left Mogadishu port last month as part of the withdrawal. Bringing the equipment back to Ethiopia by land would have been impossible - analysts believe Ethiopian troops and their Somali government allies control just three small areas in Mogadishu and a few streets in Baidoa, the seat of parliament. There are now estimated to be just 2500 Ethiopian soldiers left inside Somalia, down from 15,000-18,000 at the height of the war.
Burundi just deployed more peacekeepers to Mogadishu. There are now 3,200 African Union troops from Uganda and Burundi there and they are also under attack as they seem to play the side of the 'government'. They and other non-Somalis should leave and give the country time to heal.
As the Sunday Herald notes:
The government's fall would mark the end of a disastrous US-backed intervention. For six months in 2006, Somalia was relatively calm. A semblance of peace and security had returned to Mogadishu. The reason was the rise of the Union of Islamic Courts (UIC), a loose coalition of Islamist leaders who had driven out Mogadishu's warlords.
Hardline elements within the UIC vowed to launch a jihad against Somalia's traditional enemy, Ethiopia. The US viewed the UIC has an "al-Qaeda cell" - a belief not shared by the majority of analysts and diplomats.
The concern the 'west' now voices about Somalia is piracy. There was little to no piracy when the UIC ruled. Leave the country alone and deliver aid when asked is the best the international community can now do.
Pentagon Still Uses My 'Make Your Own' Schema
Back in 2005 I came up with this "Make Your Own" schema to generate reports about U.S. successes against 'Al-Qaeda in Iraq'.
[top | important | most wanted | close | key] al-Zarqawi [aide | lieutenant | associate | "cell prince" | figure] [captured | arrested]
(some date) (some place in Iraq)
[Iraqi | US | US and Iraqi] forces have [nabbed | captured | arrested] [a | one | two] [senior | middle] [figure | operations chief | terrorist operative] of [Jordanian | al-Qaeda-linked | Iraq's most wanted] terrorist Abu Musab Zarqawi.
(arabic name), also know as (other arabic name), was [detained | picked up] on (some date) during an [Iraqi police | US military | US and Iraqi] [raid | road block | operation] in (some place in Iraq).
[spokesman | US General | Iraqi minister] said ["major catch" | "significant impact" | "big step forward"].
The old post included some 20 real life examples of its use. The schema was out of fashion for a while but today it is BACK!!!
American troops acting on a tip killed the No. 2 leader of al-Qaida in Iraq — a Moroccan known for his ability to recruit and motivate foreign fighters — in a raid in the northern city of Mosul, the U.S. military said Wednesday.
U.S. troops killed Abu Qaswarah, also known as Abu Sara, on Oct. 5 after coming under fire during a raid on a building that served as an al-Qaida in Iraq "key command and control location for" in Mosul, the military said.
The insurgent leader became the senior al-Qaida in Iraq emir of northern Iraq in June 2007 and had "historic ties to AQI founder Abu Musab al-Zarqawi and senior al-Qaida leaders in Afghanistan and Pakistan," the military said.
US troops kill No. 2 leader of al-Qaida in Iraq, Oct 15, 2008
Checking the above I should have made a special provisions for 'al-Qaeda's No.2'. That guy seems to be an attractive and regular subject of schema generated success-news. Consider:
The Iraqi Interior Ministry said Abdullah Latif Al Jaburi was arrested in a raid by U.S.-led coalition forces in Duluiya, 90 kilometers north of Baghdad on March 4. Al Jaburi was identified as the No. 2 operative in the Al Qaida-affiliated Islamic State in Iraq.
U.S. captures Iraq's number 2 Al Qaida leader, March 6, 2007
Iraq's national security adviser, Mowaffak al-Rubaie, said Hamed Juma Faris al-Suaidi, al-Qaida's number two commander in the country, told reporters today that he had been arrested last week.
Iraq's al-Qaida number two arrested, Sept 3, 2006
Iraqi and U.S. forces claimed a major blow against one of the country's deadliest insurgent groups Tuesday, saying they killed the No. 2 leader of al-Qaida in Iraq who masterminded a brutal escalation in suicide bombings that claimed nearly 700 lives in Baghdad since April.
Number Two Leader of al-Qaida Killed in Iraq, Sept 30, 2005
I guess McCain will tonight use today's "Make Your Own" generated Pentagon news to make some weird argument about staying in Iraq.
That is likely the reason why this was put out in the first place.
Elections in Canada
'First-past-the-post' election rules, like in yesterday's election to the Canadian House of Commons, produce results that do not reflect the public will. Is this really 'democratic'?
|2008||Seats||Seats %||Popular Vote %|
|Independents and no affiliation||2||0.6%||0.65%|
Pure proportional elections can also be problematic when there are significant regional differences or minority groups.
My personal preference is a mixed voting system where everybody has two votes. Half of the parliament members should be voted for in a first-two-past-the-post round and a runoff election round between those two. This would be the first vote. The second vote elects the other half of the parliament members proportionally through party lists.
Financial Markets: What's Next?
social conservatives conservative socialists have now partly nationalized the major banks. That seems to have been the right thing to do, though I would have liked more strings attached to the move.
But what's next?
The stock markets have regained a bit and some lending may eventually restart, but the underlying problems have yet to be solved.
There have been some $650 billion of losses from mortgage lending recognized within the banking system, but the IMF expects the total losses to be $1.4 trillion. When these additional losses will get recognized all the capital the governments just injected in these banks will not be enough to make up for them. The situation will then be the same as it was last Friday and require additional capital injection.
The shadow financial system of hedge funds and private equity funds still exists and will need to further deleverage to eventually dissolve. This guarantees another two to four quarters of quite massive selling in about any asset class but, maybe, treasuries.
The Main Street economy will go deep into recession and there are yet no plans on how to soften the fall and eventually restart growth. A big infrastructure program would certainly help. (For my country, east Europe and Russia: a new fast-freight railroad from Hamburg to Shanghai.)
The collateral damage on pension funds, the Federal Deposit Insurances Corp, municipal funds etc is immense. Is there a way to repair them or do they need to be replaced?
All of the bad side effects from these current gigantic interventions need to be cleaned up. LIBOR manipulation is only one of them. The Fed and other central banks will need to mop up the additional liquidity they injected before it ignites serious inflation.
What we have seen so far can be exaggerated as 'the poor got robbed so the rich can make more loans to the poor.'
Where is the social benefit?
Can we please have a plan for a financial system that is a service to the economy and not a drag - not a monster that depends on over-leveraged quant strategies nobody really understands?
This one sounds good to me:
[Berkshire Hathaway's vice chairman] Munger wants Wall Street balance sheets reduced by 70% and insists that the firms "be a market maker, a broker, an underwriter and a custodian of securities but not the hedge funds they have become." He wants to restrict leverage to 50% on every securities transaction except for the Treasury trading desk where "you're dealing with the safest securities around."
To rid Wall Street of its Las Vegas tone, Munger suggests leveling the options exchanges in Chicago and New York, and banning completely all derivatives contracts, a rather impossible vision but one that's true to his spirit.
Banning derivatives is certainly not an impossible vision. Declare them illegal and send anyone to jail who uses them anyway. But even if we have plans to make banking as boring again as it should be, how do we get from here to there?
There seems to be no unified plan yet on how to tackle all the above problems. I am afraid the only idea people will come up with is to again inflate the system and feed cheap money into it until another bigger bubble of fantasy profits forms somewhere (alternative energies are a candidate). That was the Greenspan strategy which created the current problems.
The politicians seem to believe that now all is well and we can go again down the same old path. That is wrong and we need better ideas. Those ideas will a first view seem radical or shrill. But a year ago socializing Wall Street was a shrill idea too.
I'll try to come up with some policy ideas over the next days. Any suggestions are welcome. What are your's?
The Dead SOFA
The Status of Force Agreement (SOFA) the U.S. negotiates with Iraq seems to be dead. As Leila Fadel reports from Baghdad:
Time's running out for reaching a security agreement with the U.S., and an accord is unlikely before the end of this year, Iraq's Sunni Muslim vice president said Monday.
The United Nations mandate that authorizes the U.S. military presence in Iraq will expire on Dec. 31 and without a so-called status of forces agreement, it's questionable whether the U.S. will have a legitimate right to maintain its troops in Iraq, Vice President Tariq al Hashimi told McClatchy.
Maliki tells the London Times that British troops are no longer needed in Iraq. But he seems to be more optimistic on the SOFA than al Hashimi:
Mr al-Maliki hopes that the pact with the US will be approved by the end of the year. Failure to do so would force him to ask the UN to extend its mandate for all foreign troops to stay in Iraq.
But if Maliki really wants a SOFA why has he changed the approval process?
Maliki’s government turned the political procedures around, instead of passing the final document to the Presidential Council to approve the final document and then passing it to the parliament, a political decision issued today that the parliament should approves the final document before passing it to the Presidential Council.
Turning this process around means more delay since the parliament is divided on SOFA’s approval and that can takes months before the parl. Members can reach “something” and all that time SOFA is still on halt and invalid. This allows Maliki to buy more time.
That decision was probably made on urging by Grand Ayatollah Ali Sistani, whom Maliki visited last week.
The U.S. is looking into alternatives:
One possibility is an extension of the United Nations mandate that expires at the end of the year. That would require a Security Council vote that both governments believe could be complicated by Russia or others opposed to the U.S.-led war. Another alternative would amount to a simple handshake agreement between Iraqi Prime Minister Nouri al-Maliki and President Bush to leave things as they are until a new deal, under a new U.S. administration, can be negotiated.
I doubt that Maliki will agree to a simple handshake on this, or that the U.S. could accept the legal insecurity that would come with it. The path through the UN is not without problems as it would continue to restrict Iraq's sovereignty. If that path fails too, there is a third alternative Maliki tells the Times:
"If that happens, according to the international law, Iraqi law and American law, the US forces will be confined to their bases and have to withdraw from Iraq."
My hunch is that this last alternative is exactly what Maliki wants.
How will the U.S. react to it?
About $300 trillion of contracts world wide are anchored to the London Interbank Offered Rate (LIBOR) interest rate.
A higher LIBOR means higher interest rates for many, many people. Interest rates of many mortgages, commercial papers and municipal loans are bound to LIBOR rates.
LIBOR is the reported or guesstimated interest rate of loans big banks make to each other.
As all banks can now borrow at very cheap central bank rates in practically unlimited amounts real interbank lending ceased to exist.
There are now lots of international initiatives to revive interbank lending which will all fail as long as central banks like the Fed keep up their current policy of unlimited lending against collateral of very dubious quality for very low rates.
Meanwhile the private banks involved in determining the daily LIBOR rates will report their estimation of such rates and the average will be published as that days LIBOR rate. This directly influences the credit conditions for the real economy.
Variable interest rates on credit card loans, adjustable mortgages to home owners, revolving credits to producing companies are contractually bound to interest rates at LIBOR+X.
But the real LIBOR of interbank lending does not exist anymore if interbank lending, like now, has been replaced by unlimited lending from central banks to private financial institutions.
The London Review of Books recently had a decent piece on how LIBOR is in fact determined. It solely depends on input from private banks and that does not necessarily mean on input of their real lending conditions:
Note the conditional: a Libor input is what a bank could do, not what it has done. So judgment is involved. A bank might not have borrowed anything in the minutes before 11 a.m.
A bank might have borrowed cheap from the Fed, but not from it peers. So it might report an estimate to LIBOR that is much higher than the real interest rate it pays actually is.
This is a racket.
Borrow cheap at the Fed window, report high fantasy interbank lending rates to LIBOR and pocket the difference from the commercials who have to borrow from you at LIBOR+X.
Yves at Naked Capitalism recently put up a chart that shows how the rates reported from various banks for LIBOR suddenly vary extraordinary. While usually the banks reported rates for interbank lending that differed by 0.02% in interest, they now report rates that differ by of up to 1.75%. It is obvious that some of the banks are trying to manipulate LIBOR up.
In consequence the real economy will suffers from too high LIBOR+X interest rates and the banks will reap profits on huge margins between Fed rates and fictional LIBOR+X rates.
There are two ways to solve this:
a. Stop making cheap central bank loans available to banks and let real interbank lending revive to determine a realistic LIBOR.
b. Legislate to convert all LIBOR+X rates contracts to Fed-rate+Y contracts.
If this is not done immediately, the banks will suffocate the real economy to enrich their owners and management.
The European 'Saving' Programs
There are all kinds of programs in various European countries to 'save the financial system'.
There seem to be three different points in all of them:
- Injecting capital into banks that have lost so much that their capital base in now inadequate
- Guaranteeing interbank credit
- Regulatory 'relief'
I get the first point. If done correctly, the banks will be triaged and only those who have a chance to survive and are really in need will be propped up. Their shareholders will be punished.
The second point I do not get at all.
The reason why interbank lending needs to be guaranteed, we are told, is because interbank lending has ceased. The reason for that is distrust between banks. The distrust is understandable as the fall of Lehman Brothers has hit its creditors pretty hard.
But there is a simple thing with credit. If lending is risky a higher risk premium is needed. The borrower will have to pay higher interest rates. That is what the recent rise in LIBOR (London Inter Bank Offer Rate) is expressing. I do not see anything wrong with this. This risk of lending to Lehman was obviously miss-priced. The risk is now high, so are the interest rates, so what? Some point out that the TED spread is high. That is the difference between LIBOR and the interest rates Treasury bonds are paying. But why is it supposed to be bad that the spread is high?
The Fed and other Central Banks are now lending to about every financial entity as much as those want. Why would banks borrow from each other at all if they can borrow much cheaper from the Central Banks?
I can see problems coming up when real economy entities need credit to run their business. If lending to them drys up, some otherwise valid business might shut down. But if that is the risk, why not attack that problem directly and issue credit to those real economy companies who need it?
The third point of 'regulatory relief' is outright dangerous. Banks have to mark assets to market prices. Now they will be allowed to mark those assets to whatever they think might be appropriate. Does this increase or decrease the risk of lending to them? It increases the risk as the real value of these banks can not be determined when they mark to model. Just like the immense Fed lending this policy is counterproductive to the aim of reigniting interbank lending.
The markets in Europe are rallying today. I see no reason for this but simple hype of the announced programs that are not even spelled out yet in full. Do future earning expectations in a likely recession environment really justify higher stock prices?
The German program was announced to be some €500 billion. It is in fact much smaller. But the commentators on various German newspaper sites, even conservative ones, are outraged. The political backlash will be immense. Only one in ten Germans owns stocks. To risk taxpayer money to prop up the markets is therefore very unpopular.
Where by the way is the U.S. plan? An what is it? Good to hear that Sherlock Holmes is now involved in solving that mystery.
Bill Kristol The Über-Hypocrite
Bill Kristol gave lots of bad advice to the McCain campaign. Now, he says, McCain should fire his campaign. This of course without one ounce of acknowledgment that it was Kristol himself who had pushed for all the points that went wrong. Consider two of his recent columns:
As one McCain adviser told The Washington Post, “you’ve got to get it [the financial crisis] over with and start having a normal campaign.”
McCain should break the mold and acknowledge, even emphasize the crisis.
How McCain Wins, September 28, 2008
McCain should stop unveiling gimmicky proposals every couple of days that pretend to deal with the financial crisis.
Fire the Campaign, October 12, 2008
Can he turn it around, and surge to victory?
He has a chance. But only if he overrules those of his aides who are trapped by conventional wisdom, huddled in a defensive crouch and overcome by ideological timidity.
With respect to his campaign, McCain needs to liberate his running mate from the former Bush aides brought in to handle her — aides who seem to have succeeded in importing to the Palin campaign the trademark defensive crouch of the Bush White House.
How McCain Wins, September 28, 2008
At Wednesday night’s debate at Hofstra, McCain might want to volunteer a mild mea culpa about the extent to which the presidential race has degenerated into a shouting match. And then he can pledge to the voters that the last three weeks will feature a contest worthy of this moment in our history.
Fire the Campaign, October 12, 2008
[Palin] should spend her time making the case for McCain and, more important, the case against Obama. As one shrewd McCain supporter told me, “Every minute she spends not telling the American people something that makes them less well disposed to Obama is a minute wasted.”
How McCain Wins, September 28, 2008
Obama’s [approval/disapproval rating] is a bit higher than it was a month ago. That suggests the failure of the McCain campaign’s attacks on Obama.
So drop them.
Fire the Campaign, October 12, 2008
Why such turncoat behavior? Best guess: Kristol is running for cover. In a few weeks he will point to his October 12 column and tell anyone who listens that if only McCain had followed his advice and fired his campaign all would have been well.
The scary thing is that some folks will believe him.
Congrats to Krugman
STOCKHOLM, Sweden - Princeton economist and New York Times columnist Paul Krugman won the Nobel economics prize on Monday for his analysis of how economies of scale can affect trade patterns and the location of economic activity.
"What are the effects of free trade and globalization? What are the driving forces behind worldwide urbanization? Paul Krugman has formulated a new theory to answer these questions," the academy said in its citation.
"He has thereby integrated the previously disparate research fields of international trade and economic geography," it said.
Krugman's sparse comment at his blog:
A funny thing happened to me this morning …
Indeed. After years of favoring 'Chicago economists', who laid the grounds for the current disaster, the Royal Swedish Academy of Sciences finally seems to change course.
Signs of the times?
Politics Of Rocket Launches
Current 'Top World News' at Yahoo: Russia's Medvedev test fires long-range missile
PLESETSK COSMODROME, Russia (Reuters) - President Dmitry Medvedev oversaw the test firing of an intercontinental Topol missile on Sunday and vowed to commission new generation weapons for Russia's armed forces.
A Reuters reporter said the truck-mounted Topol was fired at 3:23 a.m. EDT in drizzling rain from the Plesetsk cosmodrome, which is nestled among the taiga forests of Russia's north.
Current 'Top U.S. News' at Yahoo: U.S. space tourist blasts off in Russian rocket
BAIKONUR, Kazakhstan (Reuters) - U.S. video game magnate Richard Garriott blasted off into space aboard a Russian rocket on Sunday watched by his father, a NASA astronaut who went into space at the height of the Cold War.
The Russian Soyuz TMA-13 spacecraft lifted off in clear weather from the Baikonur Cosmodrome on the Kazakh steppes just after 1.00 p.m. (3 a.m. EDT).
For the next ten years the U.S. will have no human access to space as the Space Shuttle will be retired and no domestic substitute is available.
The U.S. will rent access through Russian capabilities. The revenue from that will increase Russian capabilities.
Fine with me.
How will the U.S.A. First crowd react to that?
How Will The Right React?
Assuming Obama wins the election, what will be the reaction on the right?
As far as I can distinguish them, there are three groups on the Republican side:
- the libertarians somewhat overlapping with
- the classic small state conservatives
- the value conservatives
- the neo-conservatives
We can assume that the economic situation will get worse and stay bad for at least two years.
How will these groups react under economic stress and out of power?
- Some kind of capitulation within the first two groups. They understand that state intervention, even though they hate it, is sometimes necessary.
- The neo-conservative group will try to change its mantle and to wiggle themselves into the Democratic realm.
- The middle group includes a lot of workers who will get screwed by the crisis. It includes the religious nuts. These are the people that think Obama is an Arab and a terrorist. If they find some kind of 'leader' they could become dangerous.
But I haven't been around in the states recently, so my take is likely not correct.
Please let us know your predictions.
Open Thread - 08-34
Please add your news and views ...
Financial Markets: The Fuse Continues To Burn
The global stock markets plunged again today. Barry Ritholz sees some reason to become bullish again, or at least to expect a counter rally. While we may get that, the rot in the system is now too deep to allow for a big one and another plunge is certain to follow.
President Bush asked today to have confidence. Also today U.S. banks were allowed to again lie about the value of their assets as the 'mark to market' rules are now suspended. Can we have confidence in the banks when we do not know what they hold and what the real value of these holdings are? No, we can't. That is why Morgan Stanley and Goldman, banks by now, are down 40% and 20% today.
There will be a meeting of global central bankers and finance ministers this weekend. They will now likely agree to proceed with the 'Swedish solution', i.e. to recapitalize the banks in exchange for stakes in these. While in principle a better plan than most others, it still has flaws.
The banks need to be triaged. Some are so broke that any capital injection will be a waste of taxpayer money that only delays their certain death. Some are so well off that they do not need any injection at all. They should not be offered such on favorable terms. Some are sound but lack capital. Those should be nationalized outright.
To do the triage a week long bank holiday needs to be declared which would allow time to evaluate the patients state, i.e. to have regulators take a real look into their books.
A really decisive move over the weekend would be to Declare All Credit Default Swaps Null And Void. That would solve 80% of the problems the banks have right now. Some would still fail, but with the big issue removed, interbank lending and commercial lending would carry less risk and revive.
If that does not happen, a global depression is now indeed a possibility.
Talks with the 'Taliban'
The Saudi Arabia had been asked by Afghanistan's president Hamid Karzai to arrange talks with the 'Taliban' about some kind of power-sharing. The British government supports such attempts and British military have spoken in favor of negotiations. The U.S. administration does not want such negotiations (or at least not now while McCain campaigns on a 'surge' strategy in Afghanistan.) Secretary of Defense Gates called such talks 'defeatist' even while U.S. military folks are pessimistic about Afghanistan and have spoken in favor of political solutions.
Reports about a first round of negotiations were first published two weeks ago. They took place in Saudi Arabia with Karzai's elder brother Qayum in attendance. From the anti-U.S. side Gulbuddin Hekmatyar took part. Not a real Taliban, but one of three major war lords fighting the U.S. with his own gang, Hekmatyar is also a former 'freedom fighter' who even was invited for a photo with Reagan in the Oval Office. But in current U.S. parlor he is a 'global terrorist'.
After these negotiations became public, indirect pressure was put on Hamid Karzai. Old reports of his younger brother's drug mafia relations were suddenly relaunched in the NYT. His older brother who led the talks and is also a member of the Afghan parliament was accused of lack of attendance and had to resign.
The U.S. wants permanent presence in Afghanistan. The British and other NATO countries are smart enough to know that this can not be achieved. They want out and to get out some kind of talks need to happen. The Afghan mujaheddin have no reason to agree to any U.S. or NATO presence. They are winning for now and that is unlikely to change.
Hamid Karzai may get fired one of these days and may get be replaced with current U.S. ambassador to the UN (and neocon) Zalmay Khalilzad.
Iran's 'Nuclear Detonators' Are A CIA Fake
The New York Times'
Judith Miller Elaine Sciolino has another 'nuclear Iran' scare story which immediately got picked up by other media:
International nuclear inspectors are investigating whether a Russian scientist helped Iran conduct complex experiments on how to detonate a nuclear weapon, according to European and American officials. As part of the investigation, inspectors at the International Atomic Energy Agency are seeking information from the scientist, who they believe acted on his own as an adviser on experiments described in a lengthy document obtained by the agency, the officials said.
Although officials would not say how they had obtained the new document, it was first publicly mentioned in an agency report in May as one of 18 documents presented to Iran in connection with suspected nuclear weapons studies. At the time it was described as a “five-page document in English” about experiments with a complex initiation system to detonate a large amount of high explosives and to monitor the detonation with probes. There was no indication that the document was a translation of a much longer, more comprehensive document in Farsi.
The original, Farsi document is described by officials familiar with it as a detailed narrative of experiments aimed at creating a perfectly timed implosion of nuclear material.
Wait a second: Iran, nuclear detonators and a Russian engineer? Where was that about? Oh yeah: "Operation Merlin"
To be precise, [the Russian scientist] was carrying technical designs for a TBA 480 high-voltage block, otherwise known as a "firing set", for a Russian-designed nuclear weapon. He held in his hands the knowledge needed to create a perfect implosion that could trigger a nuclear chain reaction inside a small spherical core.
The Russian, who had defected to the US years earlier, still couldn't believe the orders he had received from CIA headquarters. The CIA had given him the nuclear blueprints and then sent him to Vienna to sell them - or simply give them - to the Iranian representatives to the International Atomic Energy Agency (IAEA).
Gordon Prather did not believe Risen's tale that this was an attempt to lead Iran on a false technical path. He argues that the whole story was simply an attempt by the CIA to plant evidence against Iran. Also here.
The U.S. sent a Russian scientist as an agent to Vienna with manipulated blueprints of special detonators to hand them to a delegate from Iran. Eight years later the IAEA gets handed material by the U.S. about special detonator experiments allegedly made in Iran
Now Iran gets accused by U.S. and European 'officials' (note: NOT IAEA officials) of having worked or planed to work with such detonators based on a 'secret' long brief in Farsi of which the IAEA first only got handed a five page English copy.
I do smell a rat here - a big one. This is Iraq and 'Niger papers' all over.
Financial Markets: The Fuse Is Lit
The inverted pyramid of credit derivatives, insurances against bond failures, that sit on top of collateralized debt obligation which sit on top of bad loans is now really threatening to crash down on the financial system.
The failure of Lehman Brothers triggered 'credit default events' on bonds Lehman had issued. On Friday an auction will clarify what holders of Lehman bonds might get payed out of the bankruptcy assets. The difference of that value to the face value of the bonds will then have to be payed out by those who sold insurances in form of Credit Default Swaps on Lehman bonds to other parties.
As such risk insurances have not only be sold to people who actually hold Lehman bonds, but to anyone who wanted to buy and speculate with them, the amount that will have to be payed out will be a multiple of the nominal bond value Lehman defaulted on.
Writes the Financial Times (behind free subscription walls):
Banks are hoarding cash in expectation of pay-outs on up to $400bn of defaulted credit derivatives linked to Lehman Brothers and other institutions, according to analysts and -dealers.
Yesterday, the default of up to $500bn in derivative contracts linked to Fannie Mae and Freddie Mac was settled, the biggest such exercise ever carried out.
The Fannie and Freddie CDS settled at between 91.5 and 99.9 cents on the dollar, reflecting the fact its underlying debt is not in default after the mortgage groups were seized by the US government. The seizure did trigger defaults on derivatives, however.
The next test will be the unwinding of CDS linked to Lehman, which filed for bankruptcy three weeks ago. Michael Hampden-Turner, a credit strategist at Citi, estimates that there could be $400bn of credit derivatives referenced to Lehman.
These contracts will be settled on Friday, and with the recovery value on Lehman bonds currently estimated at about 10 cents on the dollar, the pay-out by banks and other sellers of credit protection on Lehman could reach a gross $360bn.
Anyone who still thinks that the Paulson plan with some $700 billion can safe the world from a crash needs to see a doctor. This was only one bank going under and it triggers payments of half the size of the Paulson plan.
The $360 billion in CDS payments probably triggered by Lehman's default might well take down some of those who wrote such insurances. That would then trigger additional 'credit default events' which would trigger further CDS payments in the hundreds of billions. This could quickly cascade taking down one financial entity after the other.
The numbers involved here are mind numbing. See the tables here for who holds how many of these nuclear time bombs. JP Morgan Chase leads the pack with $8 trillion of CDS in notional value.
Iceland has now seized the last of its three big banks, Kaupthing, and put it into receivership. That will trigger another round of CDS losses, more multi-billions that will have to be payed.
The threat of huge payouts that may trigger more defaults and the threat of additional credit default events is what freezes the interbank credit market and today send the LIBOR-Treasuries spread, the difference between interbank lending risk and the risk of lending to the government, to historic highs.
The fuse is now lit and its is only so long. The only way to stop the danger of an exothermic CDS chain reaction in the financial markets is by executive or legislative means: Declare All Credit Default Swaps Null And Void.
There is court tested precedence for this from the Roosevelt administration. Simply do it.
The U.S. Is Still Leading
Some have questioned the leading role of the United States in the 'free world.' They were wrong.
The U.S. is still leading and the world is still following. That is why the Associated Press headlines: