Reading Malooga's critizism makes me kind of sad. MoA is open to many opinions, though it generally keeps with a lefty (in the European sense) and anti-imperialist trend.

My personal opinion though, expressed in my posts, are not as left sided as some seem to think. I am a social-democrat and realist.

If you carry other opinions you are not only free to expand on those in the comments.

I lift and front-page longer comments even when I do not agree with them. But I only do so if I see them timely enough to make them relevant. As I once a while sleep, a long comment that already attracted several other comments and was posted half a day ago or so will usually not get such a lift.

If you want to publish something here on the front page, to refute my arguments or for other means, feel free to send your piece per email. If it is reasonably argued, I'll post it without much regard to the ideological content or opinion.

So pieces of paper rated AAA by the credit rating agencies (implying virtually no risk of default loss) and sold for a 100 cents on the dollar (or more) are now worth a nickel — a 95% haircut. Something like $150 billion in the stuff was issued in the last two years of the bubble alone. Another $300 billion in slightly higher quality AAA-rated debt is probably worth 35-40 cents — at best.

As the FT notes, this kind of thing doesn't exactly inspire investor confidence:

I would hazard a guess that this is easily the worst outcome for any assets that have ever carried a "triple A" stamp. No wonder so many investors are now so utterly cynical about anything that bankers or rating agencies might say these days.

Which in turn suggests that sooner or later Milo Minderbinder and company are going to have to go back to the drawing board and figure out a better way to dispose of Big Shitpile than coating it in chocolate.

Billmon: Chocolate Covered Cotton: An Update

Lauding Obama? Me? Yes.

Not 'brilliant' – too much U.S. centric propaganda for that attribute – but a good speech and clear intentions:

Let me say this as plainly as I can: by August 31, 2010, our combat mission in Iraq will end.
…
After we remove our combat brigades, our mission will change from combat to supporting the Iraqi government and its security forces as they take the absolute lead in securing their country.

…
Through this period of transition, we will carry out further redeployments. And under the status of forces agreement with the Iraqi government, I intend to remove all US troops from Iraq by the end of 2011. We will complete this transition to Iraqi responsibility, and we will bring our troops home with the honour that they have earned.

I see no if's and maybe's. Good for Iraq, maybe very bad for Pakistan.

Towards the U.S. domestic realm: Well done. With that speech Obama has made himself Commander in Chief that will be respected by the U.S. forces. Not a small achievement. Some generals might revolt over this.

There is this little exchange I had with Jeremiah here, here, here and here about Counter Insurgency (COIN) and 4th Generation warfare.

It starts with Jeremiah quoting John Robb:

… [G]iven our experience with the recent punctuated evolution of warfare, that isn't likely to last given the depth/scale of the current crisis. As we have seen in recently (from Iraq to Nigeria to Mexico), the targeting of corporations is now a fixture of modern conflict (please read). The targeting of banks would be a natural extension of this trend line given the following: …

The 4th generation warfare crowd and the COIN promoters are the same phenomenon. People who have either not read history and believe they just invented the wheel and people who have learned from history but clad it into new soundbites to sell their books.

There is nothing new with insurgencies fighting against occupiers or people going on a rampage for some political aim. There is nothing new or special in any of the tactics and counter-tactics applied by them or against them.

Robb writes: "the targeting of corporations is now a fixture of modern conflict"

The targeting of corporations has been a fixture of ALL conflicts since the . When Jesus threw the money-changers out of the temple, that terrorist was targeting his times equivalent of corporations. The terrorists who committed the Boston tea party were targeting the British East India Company. In the 70s and 80s the RAF guerrilla in Germany targeted the big banks and corporations by shooting or kidnapping the CEOs.

I have read a lot of this 4GW stuff from Robb and others and find little new in there.Technology has evolved, the numbers of humans has grown, but the methods of fighting and surviving have not changed. If you want to know about 'resilient communities', on of Robb's current themes, read up on the Thirty Years' War, look for communities that survived the rampage intact and copy their behavior. Or simply reread the short version of it in Mother Courage.

The COIN stuff is nothing new either. Pat Lang says:

Cont. reading: On 4th GW, COIN And History

Barry Ritholtz says:

If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finish marginally ahead of George W. Bush on the list of worst presidents.

Yep – here is but one reason – NYT:

After two multibillion-dollar lifelines failed to shore up Citigroup, the government will increase its stake to 36 percent from 8 percent.

…
Citgroup shares were down 26 percent, to $1.80, at midmorning on Friday.

Under the deal, the Treasury Department agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock, giving taxpayers more risk, but more potential for profit if the company recovers.
…
The bank has offered to exchange up to $27.5 billion of preferred stock into common shares at a price of $3.25 a share, a 32 percent premium over Thursday’s close.

So the Obama administration just exchanged $25 billion worth of dividend paying preferred stock for not dividend paying common stock paying $3.25 a share while the market price for Citi common stock is $1.80.

Somehow that deal does not make sense to me …

There are lots of interesting thoughts in this interview. I especially agree with this part:

Heather Scoffield: Will globalization survive this crisis?

Niall Ferguson: It's a question that's well worth asking. Because when you look at the way trade has collapsed in the world in the last quarter of 2008 – countries like Taiwan saw their exports fall 45 per cent – that is a depression-style contraction, and we're in quite early stages of the game at this point. This is before the shock has really played out politically. Before protectionist slogans have really established themselves in the public debate. Buy America is the beginning of something I think we'll see a lot more of. So I think there's a real danger that globalization could unravel.

Part of the point I've been making for years is that it's a fragile system. It broke down once before. The last time we globalized the world economy this way, pre-1914, it only took a war to cause the whole thing to come crashing down. Now we're showing that we can do it without a war. You can cause globalization to disintegrate just by inflating a housing bubble, bursting it, and watching the financial chain reaction unfold.”

Heather Scoffield: Is a violent resolution to this crisis inevitable?

Niall Ferguson: “There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable. The question is whether the general destabilization, the return of, if you like, political risk, ultimately leads to something really big in the realm of geopolitics. That seems a less certain outcome.
…

There is 'western' meme, which was pushed by the Bush administration, that Arab countries fear a 'nuclear Iran'. How real is that?

A few days ago Reuters cited one non-government Arab source and several anonymous 'western' diplomats when it wrote on how Gulf Arabs fear U.S.-Iran diplomacy at their expense:

Gulf Arab states are beginning to worry that any U.S. rapprochement with Iran could ultimately lead to their worst nightmare — a nuclear-armed, non-Arab, Shi'ite Muslim superpower in their neighborhood.

…
"We have no objection to Iranian-American negotiations. On the contrary, we encourage this kind of dialogue as a way of avoiding taking the region into military action," said Mustafa Alani, at the Dubai-based Gulf Research Center.

"At the same time we have huge concerns that the Americans could give concessions to the Iranians which would undermine our security and be unacceptable to us," he said.

A few days later AP wrote with same theme also quoting Mustafa Alani. Mustafa Alani of the Gulf Research Center was born in Iraq and studied and worked extensively in the U.K. Der Spiegel talked with him too:

Last July the Guardian also quoted Mustafa Alani in the 'Arabs fear Iran' context. It also quoted one Abdullah Alshayji, introduced as a "Kuwaiti analyst". Well – Alshayji is also a Foundation Council Member of the Gulf Research Center.

In December 2007 the LA Times headlined Arabs fear Iran may now up the ante in the Mideast. The first quoted 'expert' on such such 'fear' is "Christian Koch, research director for international studies at the Gulf Research Center in Dubai, United Arab Emirates."

The Gulf Research Centers was founded and is financed by the Saudi businessman Abdulaziz Sager of the Sager Group:

When
and where an added value is deemed necessary the Sager Group
selectively represents some multinational corporations and assists them
in selling their products and services throughout the Kingdom of Saudi
Arabia both in the government and private sectors.

Sager Group also provides security services. (And also prime London real estate?)

To me it seems that all the 'reporting' of Arab 'fear' uses exactly one Arab source – the foundation of the Saudi businessman Abdulaziz Sager and its 'experts'. Note that Sager also argued for military rule in Iraq.

But what is the realist Arab opinion? Marc Lynch reports:

This afternoon I attended a fascinating conversation with Arab League Secretary-General Amr Moussa hosted by the Carnegie Endowment and moderated by the Washington Post's David Ignatius.
…
Moussa didn't bite when Ignatius suggested that Arab leaders were urging the U.S. to be tougher on Iran and to hold off on the promised dialogue. On the contrary, he responded, for the last few years it has been the Americans coming to the Arabs and talking up the Iran threat and not the other way around. He acknowledged Arab concerns about Iran, but concluded that the Arabs and Iran would have to learn how to co-exist. As to the Iranian nuclear program, Moussa would only talk about the double-standard surrounding Israeli nuclear weapons.

Will 'official' media, Reuters, AP, LA Times, now report Amr Moussa's take or will the continue to promote the  'fear' theme a Saudi businessman with interest in security services is selling them?

The U.S. has the only 5th generation fighter plane that exists – the F-22 build by Lockheed-Martin. When the current purchase order runs out, 183 of those will have been produced at a cost of $65 billion.

There is currently a discussion to buy more of these and the Obama administration will have to make a decision in April. The new order planes would have a system price of more than $200 million a piece.

These are really good planes. In an exercise against various 4th generation fighters like the F-15 the F-22 really stood out:

In amassing 144 kills to no losses during the first week of the joint-service Northern Edge exercise in Alaska last summer, only three air-to-air "kills" were in the visual arena–two involving AIM-9 Sidewinders and one the F-22's cannon.

The plane is stealthy and can kill any other plane from a distance without being detected.

So how many does the U.S. need? The Air Force's fighter mafia says 381. But what for?

The total number of airplanes in all air forces of this world is 27,489. Of those 3,704 are in the U.S. air force which leaves 23,785 in the rest of the world.

If the F-22 can achieve a kill ration of 144:0 against still quite modern F-15, the worst case one probably has to think of is a 144:1 loss rate – i.e. the 145th enemy got lucky and hit back at the F-22. To shoot down 23,785 other planes with F-22 at a kill ratio of 144:1 would require 165 of them.

Sure, the availability of the F-22 is only 60% because its stealth skin is hard and expensive to maintain. But who would want to shoot down all military planes of the rest of the world within one day? Why not allow for a week to do so?

Some argue that it would be a good economic 'stimulus' to buy these planes. That is wrong. Any Keynesian stimulus must meet the three-T criteria: 'timely, targeted, temporary.'

Ordering more F-22 that take years to be build is not timely. As all military spending is pure consumption, the new planes will never 'produce' anything, the spending is thereby not targeted. The high costs of maintenance and ongoing pilot training for these planes is not temporary.

Additionally any Keynesian program should be as productive as possible in that it creates additional benefit for the society. A new road, healthier or better educated people are good investments. Spend on infrastructure, health care and education gives some real bang for the buck. So why employ people to make unproductive planes when the same money can employ more people in other areas AND create better total return.

What is the real benefit of more fighter planes than are needed to shoot down all of the worlds military air planes? The make U.S. go broke? Then, maybe, I should support the new F-22 buy.

In yesterday's speech to Congress Obama claimed :

We invented solar technology, but we've fallen behind countries like Germany and Japan in producing it.
…
And I believe the nation that invented the automobile cannot walk away from it.

Both claims are definitely wrong.

How truthful then was the rest of the speech?

MoA lives off comments – feed it.

News & views …

So swapping $45 billion in preferred stock yielding 8% for $4 billion in common stock yielding a penny a share is "protecting the taxpayers"?

Billmon: Citi to Uncle Sam: For You We Make Special Deal

Citibank, with the help of the democratic senators it bought, wants lots of money for nothing. It is bankrupt and will go down. But Reid and others want to spend taxpayer money to push the inevitable a few month out.

It is not only the U.S. taxpayer Citi wants to screw. Singapur holds a bunch of preferred Citi stock too

Citi is driving the move. It approached regulators yesterday with a plan for the government to convert some of its US$45 billion (S$69 billion) in preferred shares into up to 40 per cent of common equity, according to news reports.

…
It is now scrambling to stitch together a life-saving deal by asking holders of preferred shares – including the Government of Singapore Investment Corporation (GIC) – to take more direct stakes.

GIC holds convertible preferred shares in Citi that it bought for US$6.88 billion in January last year. It can convert these into ordinary stock, but at a price likely to be more than 10 times Citi's current price. Until then, the preferred shares pay dividends every quarter at a rate of 7 per cent a year for as long as GIC wants to hold them.

Citi hopes to persuade GIC and other preferred stock holders, such as the Abu Dhabi Investment Authority and the Kuwait Investment Authority, to convert some of their stakes into common equity, according to news reports yesterday.

This would give the bank more capital and help it avoid drawing on another government lifeline, a move that would revive fears of nationalisation. If the government nationalises a bank, its common shares become virtually worthless.

There will be a lot of angry background talks between the involved governments.

What would happen if the U.S. takes Citibank into receivership and effectively wipes out the wealth of foreign taxpayers? Could that lead to real international crises which then might develop into something worse?

I fear that.

Rapprochement between the U.S. and Iran "will happen sooner rather than later" says Parviz.

I agree. There are multiple signs that the powers that be will let it happen this year.

The New York Times prints an op-ed urging for an immediate dialogue with the Ahmadinejad government.

It also sent Roger Cohen, its columnist for foreign affairs, to Iran and in the last three weeks he has written seven columns on Iran, all of them with a very positive tone. The most important one was published today on Iranian Jews:

“Let them say ‘Death to Israel,’ ” he said. “I’ve been in this store 43 years and never had a problem. I’ve visited my relatives in Israel, but when I see something like the attack on Gaza, I demonstrate, too, as an Iranian.”
…
Perhaps I have a bias toward facts over words, but I say the reality of Iranian civility toward Jews tells us more about Iran — its sophistication and culture — than all the inflammatory rhetoric.

As Cohen is a Jew and usually on Israel's side, the lobby will have difficulties to defame him for these lines.

The NYT editors would not push like this without some background information on coming policy changes.

The Canadian Globe & Mail chips in with a piece on Iran: the enemy that almost isn't debunking the 'nuclear threat' and other issues.

Italy, which is currently leading the G8, invited Iran to a G8+ foreign minister level meeting on Afghanistan.

The Jewish controlled Hollywood did NOT give an Oscar to the Israeli propaganda movie "Waltz With Bashir".

Despite several leaks and pushes by Dennis Ross friendly forces the Obama administration has NOT named him as the official point man for Iran. Ross' plan was to lead negotiations with Iran to let them fail and then to go to war for whatever fake reason. With Chas Freeman, an outspoken critic of Israel likely to be appointed head the National Intelligence Council, it will be difficult for Ross and others to make up a war reasoning out of thin air.

Another factor that will make a rapprochement easier is the presumably very right wing new Israeli government. Within a few month Nethanjahu and Lieberman will make themselves obnoxious in Washington and elsewhere. The Israel Lobby will lose power by supporting these lunatics.

Sure, there will be a public relations war where the lobby will push against rapprochement and the realists will push back. The Israeli government will try all tricks to spoil the party.

But the U.S.' need for Iranian cooperation on Iraq and Afghanistan is huge. The Iranian nuclear know-how ghost can not be put back into the bottle anyway. There is no other real reason to keep the relations as bad as they are.

Get ready for business …

Secret U.S. Unit Trains Commandos in Pakistan reports the NYT. This on the same day as the Pakistani Foreign Minister comes to Washington for Obama's strategic review, i.e. to receive orders. It comes on top of the recent announcement that U.S. killer drones are launched from Pakistani ground.

All these leaks are done to put pressure on the Pakistani government to go with the U.S. program without regard of its own people. With each day losing more respect in his own country through such leaks Zardari will soon solely depend on U.S. support to survive.

His recent peace offer to opposition fighters in Swat was a smart move. But in the 'west' it was immediately criticized and he will now be pressured to continue the fighting there.

For some background on the complicate sovereign and legal issues in Swat this (pdf) analysis by Sultan-i-Rome, a history Professor in Peshawar, is helpful.

The 'western' interference neglects that the people in Swat do have real grievance with the central government. Swat was a independent state/kingdom within Pakistan until 1969. The area had its own mild version of Sharia, Islam based law, and its own system of courts. The secular justice system the Pakistani government introduced in Swat since 1975 is unworkable as it takes years to get any case through the court system. The laws are unrepresentative:

[T]he area’s constitutional status has also created a sort of diarchy: the area is a Provincially Administered Tribal Area and hence, under the control of the provincial government, which is responsible for the maintenance of law and order. But the provincial government has no authority to make and promulgate laws for the area on its own. This is done with the consent of and by the governor of the province and president of the country; both of whom are neither part of the provincial government nor answerable to it. They are not answerable to the people either.

The fighting over a local justice system has continued since the early 1990s and has little to do with the Taliban issues in Afghanistan. A compromise in Swat could actually help to take away support from Wahabbi/Deobandi hardliners that are at the core of the Taliban.

Even without 'western' interference a compromise as now in negotiation will not be easy to achieve as there are already many other possible spoilers. Pressure on Zardari on this issue can only increase the strife in Pakistan and speed up his downfall.

What is Washington's Plan B when that happens?

American tea party? Looks more like the British variety to me.

Billmon: A Mad Tea Party

Maybe there is no way out of this mess, either practically or politically. Limitless growth, Edward Abbey once wrote, is the ideology of a cancer cell, and the doctrine of endless debt-fueled expansion may have created an economy so riddled with it that any therapy powerful enough to kill the cancer will also kill the patient. In other words, globalized capitalism (or rather, this strange brew of corporate oligopoly and lemon socialism) may have finally dug itself a hole too deep for the traditional neo-Keynesian policy tools (fiscal and monetary policy) to lift it out of.
But, if that's true, then our children and our grandchildren may indeed spit on our graves, but it's going to be because we have bequeathed them much bigger nightmares than an increase in the federal debt.

Billmon: Generational Theft? Sorry, That Money's Already Been Stolen

The picture is of a nearly perfect miniature model diorama my friend Lucas created.

bigger

Or maybe not …

Someone made a nice music clip using the same technique. A nearly perfect, stop-motion animated, small scale model world – with music – is below the fold.

Cont. reading: Some Things Seem Small

A few days ago the U.S. Defense Energy Support Center issued a solicitation for one year of fuel supplies to be used in Afghanistan from July on.

It needs:

• 67,320,000 U.S. Gallons – Turbine Fuel, Aviation
• 12,240,000 U.S. Gallons – Fuel Oil, Diesel
•  
  1,440,000 U.S. Gallons – Gasoline, Automotive, Unleaded

The total is 80 million gallons or 220,000 gallons per day.

Before the recent "surge" decision Stratfor estimated 75 million as the yearly demand for U.S. and NATO forces in Afghanistan. So the the 80 million gallons request will cover most of what is going to be needed.

The Iranian government should urge one of its oil companies to make an offer to deliver the 80 million gallons at a very favorable, subsidized price. An offer the U.S. would have trouble to refuse. Another offer should be made towards the solicitation for trucking service to transport that fuel to Bagram and other bases in Afghanistan.

Cont. reading: Iran Should Offer Fuel To DESC

Today's share price percentage change as of now:

Citigroup Inc.	-25.10
Bank of America Corporation	-17.05
Allied Irish Banks, plc. (ADR)	-10.37
Royal Bank of Scotland Group plc (ADR)	-9.32
U.S. Bancorp	-7.81
ICICI Bank Limited (ADR)	-7.79
Bancolombia S.A. (ADR)	-6.46
BBVA Banco Frances S.A. (ADR)	-6.28
The Bank of Nova Scotia (USA)	-6.18
Deutsche Bank AG (USA)	-5.72

Finally people start to recognize that these banks, and others, are zombies.

A solution I can agree with:

Cont. reading: Markets Today

Kyrgyzstan handed the U.S. the eviction note for its airbase in Manas. U.S. activities there will have to close down within 180 days.

The base was important as a relay for troops going to and coming from Afghanistan. Big jets could land there and smaller jets took the troops to their forward bases. Another important function of the base was the refueling of jets flying over Afghanistan by tanker airplanes out of Manas. There is no obvious other base that could fulfill that function.

But there is also good new – mostly for Russia – with a new land supply line activated today from the Baltic Sea to Afghanistan that could replace, at least in part, the endangered supply line through Pakistan. The first train with 100 containers of non-military supplies for U.S. troops in Afghanistan left Riga, Latvia, today. It will travel through Russia and Kazakhstan to Uzbekistan.

bigger

If the route is working as planed there will be some 20 to 30 trains per week. At an average 14 metric tons per 20 foot container that will be up to 6,000 tons in supply in some 430 containers per day. A new agreement with Tajikistan will allow for some 30 containers per day to go from Uzbekistan through Tajikistan and over a U.S. built bridge into Afghanistan.

There is no railway system in Afghanistan and the rail route from Latvia ends at Hayratan right behind the friendship bridge that connects Termez in Uzbekistan with Afghanistan. There the 400 containers per day will have to be put onto trucks to be driven over the Hindukush down to Balad Bagram Airbase near Kabul and further south to Kandahar for further distribution.

This is the original supply line the Soviets used when they got stuck in Afghanistan. The Russians build a tunnel at 3,400 m height under the Salang pass to cross the Hindukush and connect north Afghanistan with Kabul and the south:

Cont. reading: The New Route Plus Iranian Jet Fuel Supply To Afghanistan

So here we are: The banks are sitting on paper originally valued at 100 cents on the dollar (or even more) which is now worth 20 or 10 or 0 cents. If they sell the stuff at those prices, most of the capital they’ve put behind those assets will be erased, leaving them insolvent, technically and perhaps literally – as in, unable to cover their current liabilities. On the other hand, if they don’t sell their pieces of Big Shitpile, all their capital (including what Uncle Sam has already thrown into the till) will remain frozen in place, blocking them from doing any new lending. Without new lending, they can’t earn the profits they need to make good the losses they are sitting on. Zombies. Night of the Living Dead Banks.
…
One of the things that creeps me out about the political system’s response to the crisis so far – the insolvency of the banking system in particular – are the increasingly desperate attempts to maintain a phony façade of free markets and private enterprise, in an economy now utterly dependent on the federal safety net. I totally expected that from Hank Paulson and the Cheney Administration, but is Obama’s financial team really pressed from exactly the same Wall Street mold?

It may be best not to think too much about that question. It reminds me
too much of the USSR’s fetish for preserving the trappings of socialist
"democracy" – a Supreme Soviet, a ministerial government, courts, etc.
– even though the actual decisions were all made, behind the scenes, by
the party and the Politburo. It’s not a good sign when societies routinely lie to themselves about such big, fundamental truths, which in turn suggests that toxic assets may not be the poison we most need to worry about: The rottenness and decadence of the entire system may do us in first (not exactly a new theme for me.)

Billmon: Chocolate Covered Cotton