Friday, February 12, 2010

Leading Austrian Economist: Some Conspiracy Theories Are True


Many people are starting to appreciate the Austrian school of economics, and its recognition that unrestrained bubbles lead to economic crashes.

But many of those who respect Austrian economics dismiss all "conspiracy theories" as being crazy.

But in fact, leading Austrian school economist Professor Murray N. Rothbard wrote in 1965:

It is also important for the State to inculcate in its subjects an aversion to any "conspiracy theory of history"; for a search for "conspiracies" means a search for motives and an attribution of responsibility for historical misdeeds. If, however, any tyranny imposed by the State, or venality, or aggressive war, was caused not by the State rulers but by mysterious and arcane "social forces," or by the imperfect state of the world or, if in some way, everyone was responsible ("We Are All Murderers," proclaims one slogan), then there is no point to the people becoming indignant or rising up against such misdeeds. Furthermore, an attack on "conspiracy theories" means that the subjects will become more gullible in believing the "general welfare" reasons that are always put forth by the State for engaging in any of its despotic actions. A "conspiracy theory" can unsettle the system by causing the public to doubt the State's ideological propaganda.
And in 1977, Rothbard wrote:

Anytime that a hard-nosed analysis is put forth of who our rulers are, of how their political and economic interests interlock, it is invariably denounced by Establishment liberals and conservatives (and even by many libertarians) as a "conspiracy theory of history," "paranoid," "economic determinist," and even "Marxist." These smear labels are applied across the board, even though such realistic analyses can be, and have been, made from any and all parts of the economic spectrum, from the John Birch Society to the Communist Party. The most common label is "conspiracy theorist," almost always leveled as a hostile epithet rather than adopted by the "conspiracy theorist" himself.

It is no wonder that usually these realistic analyses are spelled out by various "extremists" who are outside the Establishment consensus. For it is vital to the continued rule of the State apparatus that it have legitimacy and even sanctity in the eyes of the public, and it is vital to that sanctity that our politicians and bureaucrats be deemed to be disembodied spirits solely devoted to the "public good." Once let the cat out of the bag that these spirits are all too often grounded in the solid earth of advancing a set of economic interests through use of the State, and the basic mystique of government begins to collapse.

Let us take an easy example. Suppose we find that Congress has passed a law raising the steel tariff or imposing import quotas on steel? Surely only a moron will fail to realize that the tariff or quota was passed at the behest of lobbyists from the domestic steel industry, anxious to keep out efficient foreign competitors. No one would level a charge of "conspiracy theorist" against such a conclusion. But what the conspiracy theorist is doing is simply to extend his analysis to more complex measures of government: say, to public works projects, the establishment of the ICC, the creation of the Federal Reserve System, or the entry of the United States into a war. In each of these cases, the conspiracy theorist asks himself the question cui bono? Who benefits from this measure? If he finds that Measure A benefits X and Y, his next step is to investigate the hypothesis: did X and Y in fact lobby or exert pressure for the passage of Measure A? In short, did X and Y realize that they would benefit and act accordingly?

Far from being a paranoid or a determinist, the conspiracy analyst is a praxeologist; that is, he believes that people act purposively, that they make conscious choices to employ means in order to arrive at goals. Hence, if a steel tariff is passed, he assumes that the steel industry lobbied for it; if a public works project is created, he hypothesizes that it was promoted by an alliance of construction firms and unions who enjoyed public works contracts, and bureaucrats who expanded their jobs and incomes. It is the opponents of "conspiracy" analysis who profess to believe that all events — at least in government —are random and unplanned, and that therefore people do not engage in purposive choice and planning.

There are, of course, good conspiracy analysts and bad conspiracy analysts, just as there are good and bad historians or practitioners of any discipline. The bad conspiracy analyst tends to make two kinds of mistakes, which indeed leave him open to the Establishment charge of "paranoia." First, he stops with the cui bono; if measure A benefits X and Y, he simply concludes that therefore X and Y were responsible. He fails to realize that this is just a hypothesis, and must be verified by finding out whether or not X and Y really did so. (Perhaps the wackiest example of this was the British journalist Douglas Reed who, seeing that the result of Hitler's policies was the destruction of Germany, concluded, without further evidence, that therefore Hitler was a conscious agent of external forces who deliberately set out to ruin Germany.) Secondly, the bad conspiracy analyst seems to have a compulsion to wrap up all the conspiracies, all the bad guy power blocs, into one giant conspiracy. Instead of seeing that there are several power blocs trying to gain control of government, sometimes in conflict and sometimes in alliance, he has to assume — again without evidence — that a small group of men controls them all, and only seems to send them into conflict...

Rothbard's points are well-taken: there are in fact conspiracies involving powerful people. But people that go off half-cocked with baseless allegations unsupported by the evidence do a disservice to everyone, and do nothing but muddy the waters.

We must treat conspiracy theories like judges are trained to do: as claims to be proven or disproven based on the evidence.



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Refuse to Pay Government Debt Incurred for Unlawful and Oppressive Purposes ... It Is the Personal Debt of Those Who Ordered It to Be Incurred


There is an established legal principle that people should not have to repay their government's debt to the extent that it is incurred to launch aggressive wars or to oppress the people.

These "odious debts" are considered to be the personal debts of the tyrants who incurred them, rather than the country's debt.

Wikipedia gives a good overview of the principle:

In international law, odious debt is a legal theory which holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, such as wars of aggression, should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

The doctrine was formalized in a 1927 treatise by Alexander Nahum Sack, a Russian émigré legal theorist, based upon 19th Century precedents including Mexico's repudiation of debts incurred by Emperor Maximilian's regime, and the denial by the United States of Cuban liability for debts incurred by the Spanish colonial regime. According to Sack:
When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime. The reason why these odious debts cannot attach to the territory of the state is that they do not fulfil one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the State. Odious debts, contracted and utilised for purposes which, to the lenders' knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation which has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.
Patricia Adams, executive director of Probe International (an environmental and public policy advocacy organisation in Canada), and author of Odious Debts: Loose Lending, Corruption, and the Third World's Environmental Legacy, has stated that:

by giving creditors an incentive to lend only for purposes that are transparent and of public benefit, future tyrants will lose their ability to finance their armies, and thus the war on terror and the cause of world peace will be better served.

A recent article by economists Seema Jayachandran and Michael Kremer has renewed interest in this topic. They propose that the idea can be used to create a new type of economic sanction to block further borrowing by dictators.
Jubilee USA notes that creditors may lose their rights to repayment of odious debts:

Odious debt is an established legal principle. Legally, debt is to be considered odious if the government used the money for personal purposes or to oppress the people. Moreover, in cases where borrowed money was used in ways contrary to the people’s interest, with the knowledge of the creditors, the creditors may be said to have committed a hostile act against the people. Creditors cannot legitimately expect repayment of such debts.

The United States set the first precedent of odious debt when it seized control of Cuba from Spain. Spain insisted that Cuba repay the loans made to them by Spain. The U.S. repudiated (refused to pay) that debt, arguing that the debt was imposed on Cuba by force of arms and served Spain’s interest rather than Cuba’s, and that the debt therefore ought not be repaid. This precedent was upheld by international law in Great Britain v. Costa Rica (1923) when money was put to use for illegitimate purposes with full knowledge of the lending institution; the resulting debt was annulled.

The launch of the Iraq war was an unlawful war of aggression. It was based on false premises (weapons of mass destruction and a connection between Iraq and 9/11; see this, this, this, this, this and this). Therefore, the trillions in debts incurred in fighting that war are odious debts which the people might lawfully refuse to pay for.

The Bush and Obama administrations have also oppressed the American people through spying on us - even before 9/11 (confirmed here and here) - harassment of innocent grandmothers and other patriotic Americans criticizing government action, and other assaults on liberty and the rule of law. See this. The monies borrowed to finance these oppressive activities are also odious debts.

The government has also given trillions in bailouts, loans, guarantees and other perks to the too big to fails. These funds have not helped the American people. For example, the giant banks are still not loaning. They have solely gone into speculative investments and to line the pockets of the muckety-mucks in the form of bonuses. PhD economist Dean Baker said that the true purpose of the bank rescues is "a massive redistribution of wealth to the bank shareholders and their top executives". Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City have all said that the United States is controlled by an oligarchy. PhD economist Michael Hudson says that the financial “parasites” have killed the American economy, and they are "sucking as much money out" as they can before "jumping ship". These are odious debts.

Bush, Cheney, Paulson, Geithner, Summers and others who ordered that these debts be incurred must be held personally liable for them. We the American people are not responsible to creditors - such as China, Saudi Arabia - who have knowingly financed these illegal and oppressive activities which have not benefited the American people, but solely the handful of corrupt politicians who authorized them.

Note: Of course, many mom and pop American investors hold U.S. treasury bonds as well. The size of their haircuts on U.S. bonds might - under a strict reading of the principle of odious debt - depend on whether or not they knew of the unlawful and oppressive activities of the U.S. government. Arguably, small individual investors tend to be much less knowledgeable about such matters than other countries such as China or Saudi Arabia.

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Thursday, February 11, 2010

There are No Conspiracies Because Daddy Will Always Protect Us


Yesterday, I wrote:

It is scary for people to admit that those who are supposed to be their "leaders" protecting them may in fact be human beings with complicated motives who may not always have their best interests in mind.

Indeed, long-term psychological studies show that approximately one-quarter of the American population has an "authoritarian personality", where they look for a "strong leader" to protect them (that's why even after his lies were exposed, Bush still stayed at approximately a 25% approval rating).

Authoritarians not only don't want to hear that the most powerful people might be acting against their interest, they will aggressively defend against any such information.

But it's not just the quarter of the population that can be said to clinically suffer from authoritarian personality disorder.

All of us - to one degree or another - have invested tremendous hope in the idea that our leaders and institutions will protect us.

As just one example, Americans have traditionally believed that the "invisible hand of the market" means that capitalism will benefit us all without requiring any oversight. However, as the New York Times notes, the real Adam Smith did not believe in a magically benevolent market which operates for the benefit of all without any checks and balances:

Smith railed against monopolies and the political influence that accompanies economic power ...

Smith worried about the encroachment of government on economic activity, but his concerns were directed at least as much toward parish councils, church wardens, big corporations, guilds and religious institutions as to the national government; these institutions were part and parcel of 18th-century government...

Smith was sometimes tolerant of government intervention, ''especially when the object is to reduce poverty.'' Smith passionately argued, ''When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.'' He saw a tacit conspiracy on the part of employers ''always and everywhere'' to keep wages as low as possible.

Similarly, many Americans have tended to naively believe that our leaders are selfless folks. They forget, of course, that the Founding Fathers loudly warned against relying on the charitable intentions of leaders, expressly set up a government based on the rule of law instead of the rule of men, and warned that the price of liberty is eternal vigilance in holding the feet of the powerful to the fire.

Networks of influence spanning governments and corporations are starting to be discussed by the left. See this, this, this, this and this.

But both the left and the right are still very timid about openly examining whether those in power in government and business are working to help us or to exploit us.

By understanding that everyone - to varying degrees - has psychological resistance to such an examination, based upon the need to assume that the "big people in charge" will protect them and would never hurt them, we can begin to break through their defenses.

With the authoritarians, be prepared for passionate defense of their world-views. But for the other 75% of the population, you may break through by challenging their beliefs in benevolent parental figures and institutions.

You might need to wake some people up by saying something like "Do you assume that Daddy will always protect you? Or do you think we may need to assume responsibility for helping to run things ourselves?"

But beware: you will be touching on very deep emotions, and may be met with a backlash. However, if done right, you might plant seeds for future reflection which will lead to real change.


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U.S. Bond Auctions Are Starting to Fail

Both long and short U.S. bond auctions are starting to fail. See this, this, this and this.

Tyler Durden concludes:

China is finally coming through on its Bond boycott promises.
For background, see this.





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Wednesday, February 10, 2010

Ferguson and Faber: Sovereign Debt Crisis Will Spread World-Wide, U.S. Debt Is Unsafe


In a must-read essay, Niall Ferguson slams the prevailing Keynesian consensus, and says that the sovereign debt crisis in Greece will spread to America:

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch...

US government debt is a safe haven the way pearl harbor was a safe haven in 1941.

And in a must-watch interview, Marc Faber says that the US, Europe and the entire developed world will default on their debt:









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Putting Greece in Perspective


Barry Ritholtz helps put Greece in perspective:

All by itself, the insolvent nation-state of California is the 8th largest economy in the world. Its the size of France. According to the CIA Factbook, Greece is number 34. That is a lot of hyperventilating about a relatively small impact to global GDP. Italy is 11, Spain is 13, Portugal is 50, and Ireland is 56.

Additionally, in the US, we have 43 of the 50 states in some form of financial distress.

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Ridicule of Conspiracy Theories Focuses On Diffusing Criticism of the Powerful


The label "conspiracy theory" is commonly used to try to discredit criticism of the powerful in government or business.

For example, just this week - after Tony Blair was confronted by the Iraq Inquiry with evidence that he had used lies to sell the Iraq war - Blair dismissed the entire Iraq Inquiry as simply being part of Britain's "obsession with conspiracy theories". (Not only did Blair know that Saddam possessed no WMDs, but the French this week accused Blair of using of ‘Soviet-style' propaganda in run-up to the Iraq war).

Of course, the American government has been busted in the last couple of years in numerous conspiracies. For example, William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").Similarly , 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency.

And the government spied on American citizens (even before 9/11 ... confirmed here and here), while saying "we don't spy". The government tortured prisoners in Iraq, but said "we don't torture".

In other words, high-level government officials have conspired to cover up the truth.

And Tom Brokaw notes:

All wars are based on propaganda.
A concerted effort to produce propaganda is a conspiracy.

Acceptable Versus Unacceptable Conspiracy Theories

Bernie Madoff's Ponzi scheme was a conspiracy. The heads of Enron were found guilty of conspiracy, as was the head of Adelphia. Numerous lower-level government officials have been found guilty of conspiracy. See this, this, this, this and this.

Time Magazine's financial columnist Justin Fox writes:

Some financial market conspiracies are real ...

Most good investigative reporters are conspiracy theorists, by the way.

Indeed, conspiracies are so common that judges are trained to look at conspiracy allegations as just another legal claim to be disproven or proven by the evidence.

But - while people might admit that corporate executives and low-level government officials might have engaged in conspiracies - they may be strongly opposed to considering that the wealthiest or most powerful might possibly have done so.

Indeed, those who most loudly attempt to ridicule and discredit conspiracy theories tend to focus on defending against criticism involving the powerful.

This may be partly due to psychology: it is scary for people to admit that those who are supposed to be their "leaders" protecting them may in fact be human beings with complicated motives who may not always have their best interests in mind. And see this.

For example, Obama's current head of the Office of Information and Regulatory Affairs - and a favored pick for the Supreme Court (Cass Sunstein) - previously:

Defined a conspiracy theory as "an effort to explain some event or practice by reference to the machinations of powerful people, who have also managed to conceal their role."
He has called for the use of state power to crush conspiracy allegations of state wrongdoing. See this, this and this.

Similarly:

Michael Kelly, a Washington Post journalist and neoconservative critic of anti-war movements on both the left and right, coined the term "fusion paranoia" to refer to a political convergence of left-wing and right-wing activists around anti-war issues and civil liberties, which he claimed were motivated by a shared belief in conspiracism or anti-government views.

In other words, prominent neocon writer Kelly believes that everyone who is not a booster for government power and war is a crazy conspiracy theorist.

Similarly, psychologists who serve the government eagerly label anyone "taking a cynical stance toward politics, mistrusting authority, endorsing democratic practices, ... and displaying an inquisitive, imaginative outlook" as crazy conspiracy theorists.

This is not really new. In Stalinist Russia, anyone who criticized the government was labeled crazy, and many were sent to insane asylums.

Using the Power of the State to Crush Criticism of the Government

The bottom line is that the power of the state is used to crush criticism of major government policies and actions (or failures to act) and high-level government officials.

Pay attention, and you'll notice that criticism of "conspiracy theories" is usually aimed at attempting to protect the state and key government players. The power of the state is seldom used to crush conspiracy theories regarding people who are not powerful . . . at least to the extent that they are not important to the government.
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China to Sell U.S. Assets


Something big is happening in China which could have a huge effect on the American economy.

On Tuesday, Reuters reported:

Senior Chinese military officers have proposed that their country ... possibly sell some U.S. bonds to punish Washington for its latest round of arms sales to Taiwan.

Now, Asia Times is reporting:

Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.

It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.

As Alphaville's Tracy Alloway writes:
In terms of overall holdings of US securities, Standard Chartered estimates the country had about $1.44 trillion at the end of August ($34bn more than official data):

Nevertheless, China still needs US debt to help offset its massive FX reserves — which it continues to build. We doubt it has yet found a better place than the US market to recycle its currency inflows. And until there’s concrete evidence of net-selling of Treasuries, threatening to sell US debt remains simple sabre-rattling over American finances.

It does, however, say something about the wider (delicate) Chinese-US relationship.

***

Update: The European FX analysts at BNP Paribas seem to have confirmed the SAFE report:

Dollar-denominated risk assets, including asset- backed securities and corporate, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest themselves of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events. Meanwhile, the Chinese military has urged the government to sell US bonds, boosting defence spending on Taiwan arms deal. Hence, we watch US spreads intensively. A widening of spreads would not bold well for share markets while putting economic recovery at risk. It was US liquidity feeding financial markets until January this year. Hence a decline of risk appetite suggests repatriation flows moving back into the USD.

And see this.


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Tuesday, February 9, 2010

Yes, America is Still in an Official State of Emergency


A reader asked whether the U.S. is still in an official state of emergency, and if so, what that means.

The answer is yes, we are still in a state of emergency.

Specifically:

On September 11, 2001, the government declared a state of emergency. That declared state of emergency was formally put in writing on 9/14/2001:

"A national emergency exists by reason of the terrorist attacks at the World Trade Center, New York, New York, and the Pentagon, and the continuing and immediate threat of further attacks on the United States.

NOW, THEREFORE, I, GEORGE W. BUSH, President of the United States of America, by virtue of the authority vested in me as President by the Constitution and the laws of the United States, I hereby declare that the national emergency has existed since September 11, 2001 . . . ."
That declared state of emergency has continued in full force and effect from 9/11 [throughout the Bush administration] to the present.
On September 10 2009, President Obama continued the state of emergency:
The terrorist threat that led to the declaration on September 14, 2001, of a national emergency continues. For this reason, I have determined that it is necessary to continue in effect after September 14, 2009, the national emergency with respect to the terrorist threat.
Does a State of Emergency Really Mean Anything?

Does a state of emergency really mean anything?

Yes, it does:

The Washington Times wrote on September 18, 2001:

"Simply by proclaiming a national emergency on Friday, President Bush activated some 500 dormant legal provisions, including those allowing him to impose censorship and martial law."

Is the Times correct? Well, it is clear that pre-9/11 declarations of national emergency have authorized martial law. For example, as summarized by a former fellow for the Hoover Institution and the National Science Foundation, and the recipient of numerous awards, including the Gary Schlarbaum Award for Lifetime Defense of Liberty, Thomas Szasz Award for Outstanding Contributions to the Cause of Civil Liberties, Lysander Spooner Award for Advancing the Literature of Liberty and Templeton Honor Rolls Award on Education in a Free Society:

In 1973, the Senate created a Special Committee on the Termination of the National Emergency (subsequently redesignated the Special Committee on National Emergencies and Delegated Emergency Powers) to investigate the matter and to propose reforms. Ascertaining the continued existence of four presidential declarations of national emergency, the Special Committee (U.S. Senate 1973, p. iii) reported:

"These proclamations give force to 470 provisions of Federal law. . . . taken together, [they] confer enough authority to rule the country without reference to normal constitutional processes. Under the powers delegated by these statutes, the President may: seize property; organize and control the means of production; seize commodities; assign military forces abroad; institute martial law; seize and control all transportation and communications; regulate the operation of private enterprise; restrict travel; and, in a plethora of particular ways, control the lives of all American citizens."
(Most or all of the emergency powers referred to by the above-quoted 1973 Senate report were revoked in the late 1970's by 50 U.S.C. Section 1601. However, presidents have made numerous declarations of emergency since then, and the declarations made by President Bush in September 2001 are still in effect).

It is also clear that the White House has kept substantial information concerning its presidential proclamations and directives hidden from Congress. For example, according to Steven Aftergood of the Federation of American Scientists Project on Government Secrecy:
"Of the 54 National Security Presidential Directives issued by the [George W.] Bush Administration to date, the titles of only about half have been publicly identified. There is descriptive material or actual text in the public domain for only about a third. In other words, there are dozens of undisclosed Presidential directives that define U.S. national security policy and task government agencies, but whose substance is unknown either to the public or, as a rule, to Congress."
As former United States congressman Dan Hamburg wrote in October:
While ... Congress and the judiciary, as well as public opinion, “can restrain the executive regarding emergency powers,” nothing of the sort has occurred.

Under the 1976 National Emergencies Act (50 U.S.C. 1601-1651), Congress is required to review presidentially declared emergencies. Specifically, “not later than six months after a national emergency is declared, and not later than the end of each six-month period thereafter that such emergency continues, each House of Congress shall meet to consider a vote on a joint resolution to determine whether that emergency shall be terminated.” Over the past eight years, Congress has failed to obey its own law, a fact that casts doubt on the legality of the state of emergency.

As far as public opinion is concerned, how many Americans are even aware that a state of emergency even exists. For that matter, how many members of Congress know? ...

The Obama administration is essentially arguing that the United States is currently in a state of resisting foreign invasion a full eight years after the attacks of 9/11!

This is ludicrous. [Dr. Harold C. Relyea, a specialist in national government with the Congressional Research Service (CRS) of the Library of Congress] argues that Congress and the judiciary, as “co-equal branches of constitutional government,” serve as a check on the executive power. As we have seen, Congress has either been shut out of this process, or, as in so many cases, it has capitulated. Dr. Relyea then offers that public opinion can restrain the executive. But the public doesn’t even know they’re living under a state of emergency. The media doesn’t report it, and the government is certainly not in the business of providing information that might raise the hackles of real Americans.

It’s time for the American people to rise to this challenge. Write your member of Congress, and your senators. Tell them to obey their own laws. Tell them to end this phony and treacherous state of emergency that imperils the freedom of us all.

Hamburg's must-read article also discusses the suspension of Possse Comitatus, the operation of Northcom inside the U.S., and the refusal of the Department of Homeland Security to provide information on the state of emergency to Congress or even to Congress members on the Homeland Security committee with the highest security clearances.

The Effect of a State of Emergency on the Economy and Business

The continuous state of emergency in effect from September 2001 to the present may have had a substantial affect on the economy and business.

Initially, as William K. Black - senior regulator during the S&L crisis, professor of Economics and Law, and an expert on white collar financial crime - has repeatedly pointed out, the government knew about an epidemic of mortgage fraud a long time ago. For example, the FBI warned of an "epidemic" of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies putted their agents off of financial fraud investigation and forced them to focus on terrorism instead. See this and this

And as Reuters noted last week:

U.S. securities regulators originally treated the New York Federal Reserve's bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.

The national security claim may seem outlandish, but it is nothing new.

As Business Week wrote on May 23, 2006:

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.
In other words, national security has been discussed for years as a basis of keeping normal accounting and securities-related disclosures secret. While "national security" and a state of "national emergency" may not be exactly the same, they are variations of a single theme - an existential threat to our nation - which has dominated American since September 11.

Similarly, Congressman Brad Sherman, Congressman Paul Kanjorski and Senator James Inhofe all say that the government warned of martial law if Tarp wasn't passed.

Last year:

  • Senator Leahy said "If we learned anything from 9/11, the biggest mistake is to pass anything they ask for just because it's an emergency"
  • The New York Times wrote:
    "The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress."

    ***

    Mr. Paulson has argued that the powers he seeks are necessary to chase away the wolf howling at the door: a potentially swift shredding of the American financial system. That would be catastrophic for everyone, he argues, not only banks, but also ordinary Americans who depend on their finances to buy homes and cars, and to pay for college.

    Some are suspicious of Mr. Paulson’s characterizations, finding in his warnings and demands for extraordinary powers a parallel with the way the Bush administration gained authority for the war in Iraq. Then, the White House suggested that mushroom clouds could accompany Congress’s failure to act. This time, it is financial Armageddon supposedly on the doorstep.

    “This is scare tactics to try to do something that’s in the private but not the public interest,” said Allan Meltzer, a former economic adviser to President Reagan, and an expert on monetary policy at the Carnegie Mellon Tepper School of Business. “It’s terrible.”

Most of the Fed and Treasury's looting of America to funnel trillions in bailouts, loans, guarantees, and other favors to the too big to fails was done under the justification of an "emergency".

I don't know whether the official declaration of a "state of emergency" in effect from September 2001 to today was directly used for financial looting. But again, the fear of an existential threat to our country was used to justify the looting.

And many people allege that the government has taken drastic steps to manipulate market prices. If true, the president's ability to use emergency powers to "stabilize the markets" no doubt makes manipulation easier.

Congress Has the Power to Revoke the State of Emergency

A note to Congressional staffers: Congressman Hamburg is right. Congress does have the power to revoke the state of emergency.

Specifically, the National Emergencies Act, 50 U.S.C. Sections 1601-1651 (passed in 1976), gives Congress the power to countermand a presidential declaration of national emergency. Indeed, in 1976, Congress rescinded all of the declarations of national emergency made since World War II, as many of them had been on the books for years and were giving the executive unrestricted powers which were undermining the Constitution.

In 1983, the Supreme Court struck down a portion of Congress' power to countermand a declaration of national emergency. But Congress got around that ruling by amending the National Emergencies Act in 1985 to confirm Congress' power to countermand - through a joint resolution between the House and Senate - a declaration of emergency by the president (see this).

Moreover, in 2007, the Bush Administration tried to ignore the National Emergencies Act by issuing National Security and Homeland Security Presidential Directive 51. But that dog won't hunt. The Constitution does not allow the president to unilaterally cut Congress out of the picture.

As former Chicago Federal Reserve economist and Senior Morningstar equity analyst William Bergman wrote in 2001:

Lord Acton’s famous saying that ‘power corrupts, and absolute power corrupts absolutely’ provides a valuable warning. In light of the sweeping powers seemingly provided by statutes like 12 U.S.C. 95a and 12 U.S.C. 95(a), those who care about democratic principles and freedom may wish to monitor the implications of these and other laws for government choices before conditions arise giving rise to assertions of emergency authority, in addition to behavior arising amidst an emergency itself. This study could usefully include a renewed assessment of the constitutionality of these and other emergency statutes, as well as more fundamental review of their welfare implications per se, including work along the lines produced for the Senate Special Committee to Terminate the National Emergency in 1973.[i]

[i] See for example Special Committee on the Termination of the National Emergency, “Emergency Powers Statutes: Provisions of Federal Law Now in Effect Delegating to the Executive Extraordinary Authority In Time of National Emergency.” United States Senate Report 93-549; November 19, 1973.



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13 Congress Members Write to FDIC Chair Regarding Executive Compensation


This was sent to me by a contact in Congress.

The FDIC has an open comment period for a rule they are considering to tie insurance deposit premiums to executive compensation structures. 13 members of Congress are sending the following letter to the FDIC as part of this open comment period.

Sheila Bair
Chairman
Federal Deposit Insurance Corporation
550 Seventeenth Street, NW, Room 6076
Washington, DC 20429


Dear Chairman Bair,

We write to applaud you for taking an important step towards holding bank executives accountable for risky, destructive behavior. If your proposal to tie deposit insurance premiums to executive compensation structures is enacted, banks will be charged more for deposit insurance if their executives gamble with the firm’s money. Our constituents feel that executives on Wall Street have looted their banks, and then have billed taxpayers “for services rendered.” They have lost confidence in other regulators. Thanks to you, finally it seems as though there’s a cop on the beat on Wall Street.

A bank executive who seeks to maximize short-term gain at the expense of solvency is not just putting his bank’s shareholders and creditors at risk, but also the US taxpayer and the FDIC deposit insurance fund. By seeking to foreclose that possibility, the FDIC continues to earn the kind of public trust that is so lacking throughout the regulatory community.

On the specific question of whether pay packages contribute to risk, it should by now be quite obvious that a financial institution that pays its executives with a ‘heads I win, tails you lose’ pay package is likely to destroy itself. We saw this during the Savings and Loan crisis, during the bailout of Long Term Capital Management, and during the most recent financial crisis. Paul Volcker, Bill Black, Simon Johnson, and other economists and observers have made this point.

It’s also clear, as well, what happens when executives have well-designed pay packages. When “bulge bracket” investment houses were private partnerships, executives were leery of putting their own capital on the line in risky schemes. This created a natural barrier against reckless and risky behavior. When Wall Street firms began going public, and offloading risk onto shareholders, executive behavior suffered. Now that these firms can gamble with money from the Federal Reserve and from taxpayers, executive behavior is even worse.

While it would be nice to presume that large banks are chastened by their recent need to beg the public for capital, it is clear that financial services executives “just don’t get it”. Lloyd Blankfein of Goldman Sachs recently claimed that his firm is ‘doing the lord’s work’. Harvard Business School Professor and Goldman Board member Bill George just compared bankers who lose gargantuan amounts of money to professional athletes and movie stars. The large bank lobby has worked furiously to water down reform; the Securities Industry and Financial Markets Association is resisting a mild fee on large banks, and aggressively sought loopholes in derivatives legislation.

Unlike those at community banks, executives at large Wall Street banks have consistently displayed cavalier attitudes towards risk. Despite large bonuses on Wall Street and the gnashing of teeth among regulators, very little seems to have changed as of yet. We applaud Chairwoman Bair and the FDIC for breaking this damaging cycle of passivity, and taking the first real steps to rein in dangerous executive compensation structures. According to Section 7 of the Federal Deposit Insurance Act, the FDIC clearly has the authority to use any factor it “determines relevant” when assessing the probability that the Deposit fund will incur a loss with respect to any specific institution. Compensation structures are certainly relevant in terms of understanding the risks that these banks are incurring.

We disagree with Comptroller John Dugan’s dissenting statement on this. Comptroller Dugan’s argument is that higher insurance deposit costs are unnecessary merely because Congress is debating granting authority to rein in executive pay, and that the Federal Reserve is working on the problem. He also argues that there is no evidence that executive compensation structures contribute to losses in the Deposit Insurance Fund. These arguments seem meritless. In light of recent history, trusting the Fed to rein in banker pay is like asking an arsonist to guard the armory. His argument that there is “no evidence” compensation structures contribute to institutional risk might have credibility if his own agency had shown any interest at all in stemming the ‘epidemic of mortgage fraud’ that the FBI noted as early as 2004. As is, his arguments simply justify the continued looting of large banks by their executives.

Our constituents are demanding action, not idle chatter. In Congress, we are debating what steps to take. In the meantime, we appreciate outstanding judgment that Chairwoman Bair, Vice Chairman Martin Gruenberg, and Thomas Curry have shown in carrying out their duty to the public.


Regards,


Alan Grayson
Michael Capuano
John Conyers
Lloyd Doggett
Keith Ellison
Bob Filner
Luis Gutierrez
Marcy Kaptur
William Lacy Clay
Eric Massa
Brad Sherman
Jackie Speier
Pete Stark


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Monday, February 8, 2010

"More Empires Have Fallen Because Of Reckless Finances Than Invasion"


While Eric Margolis' entire comment in the Toronto Sun is a must-read, the following two quotes really hit the nail on the head:

More empires have fallen because of reckless finances than invasion...

If Obama really were serious about restoring America’s economic health, he would demand military spending be slashed, quickly end the Iraq and Afghan wars and break up the nation’s giant Frankenbanks.

Margolis is right.

As I have repeatedly shown, war is bad for the economy. According to a Nobel prize-winning economist, the head of JP Morgan and others, the Iraq war and the war on terror in general were huge factors in destroying our economy.

America is a dying empire, destroying the last of its resources to fight unnecessary wars. Instead of rebuilding our economy so that we can once again be a strong nation, we are wasting trillions fighting those unnecessary wars, thus guaranteeing that we do not have the economic resources to defend ourselves in the future from real threats.

Don't believe me?

Well, our military and intelligence leaders say that the economic crisis is now the biggest threat to America's national security.

And as leading economic historian Niall Ferguson recently wrote in Newsweek:

Call the United States what you like—superpower, hegemon, or empire—but its ability to manage its finances is closely tied to its ability to remain the predominant global military power...

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force...

If the United States doesn't come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power.

The precedents are certainly there. Habsburg Spain defaulted on all or part of its debt 14 times between 1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same way: interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875. And don't forget the last great English-speaking empire. By the interwar years, interest payments were consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new German threat.

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.

And William R. Hawkins (formerly an economics professor at Appalachian State University, the University of North Carolina-Asheville, and Radford University) fills in some details on the fall of the Hapsburg empire:

Spain was the first global Superpower...With Spain as its political base, and gold and silver flowing in from its American colonies, the Hapsburg dynasty became the dominant power in Europe. It controlled rich parts of Italy through Naples and Milan, and Central Europe from the Netherlands through the Holy Roman Empire to Austria. In the 16th century it added the far distant Philippine islands to its empire. The Hapsburgs held off the Ottoman Turks, whose resurgent wave of Islamic conquest in the 16th century swept across the Balkans and nearly captured Vienna.

The Hapsburgs went into decline in the 17th century, and while any such momentous event has many causes, for our purposes the focus will be on the economic collapse of Spain, which not only sapped the empire of strength but served to build up the power of its rivals.

The demands of empire required a strong and growing economy, but Spain did not keep up with the economic expansion that was taking place in other parts of Europe. Madrid’s financial base fell out from under its empire. Spain could continue to consume in the short term because of the flow of precious metals from American mines, but it could not produce the goods it needed at home, which in the long-run proved fatal to its standing as a Great Power and as an advanced society.

Spanish imports were double exports and the precious metals became scarce within weeks of the arrival of the American treasure fleets as the money flowed to Spain's many creditors. What industry there was, along with banking and shipping, was in the hands of foreign owners. As a modern historian, Jaime Vicens Vives, has concluded, “This was one of the fundamental causes of the Spanish economy's profound decline in the seventeenth century, maritime trade had fallen into the hands of foreigners.” This, plus the “opening of the internal market to foreign goods,” produced a “fatal result.” Spain's exports were at the same time under heavy pressure by competitors in third country markets. A nation that cannot control its domestic market will seldom be able to sustain itself in foreign markets, which are inherently less accessible and more unstable.

Yet, Spanish leaders were deluded by a sense of false prosperity. This is testified by the statement of a prominent official, Alfonso Nunez de Castro in 1675: “Let London manufacture those fine fabrics of hers to her heart's content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens...so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody.” A few years later, the Madrid government was bankrupt. The Spanish nobleman had foolishly elevated consumption, a use for wealth, above production, the creation of wealth.

Historians have traced the flow of Spanish gold and silver across the markets of Europe. Those who “served” Spain by establishing industries to manufacture goods for the Spanish market gained the money. Spain’s rivals, France, Holland (which started a successful revolt in 1568) and England, prospered by their trade surpluses, and reinvested the money to expand their own capabilities. Another modern expert on Hapsburg history, Henry Kamen, has cited contemporary sources who referred to 17th century Spain as “the Indies for the foreigner.” The military empire of the Hapsburgs became the economic colony of other powers, or, to use a current phrase, Spain was the “engine of growth” for the rest of the continent.

Where there were jobs and prosperity, there was also rapid population growth, and rising tax revenue. Rival powers were able to field and finance military forces that could defeat the once superior Spanish forces both on land and at sea. The irony of this is that Spain was ruled by a warrior aristocracy tempered by centuries of constant warfare against Islamic hordes and Christian heretics. These nobles looked down on merchants and manufacturers and disparaged their mundane professions only to find that without a strong domestic business class they could not afford the fleets and armies that guarded the empire they had built.

Today, the American “empire” is also trying to consume more than it produces. The U.S. trade deficit is nearing Spain’s nadir of imports being double exports. Both government spending and private consumption are financed heavily by debt. Washington is printing money, the modern equivalent of digging gold out of the ground, rather than earning the means to pay its bills. And the political and military elites are apparently indifferent to the fate of domestic business and industry. Americans must learn ... from the Spanish experience ... and take corrective action while they still can.
As for the need to break up the "Frankenbanks", see this.




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What Do Rising Sovereign Credit Default Swaps Mean?


Here are the CDS of Greece, Portugal, Spain and the U.S.:














[click here for full image]

Rolfe Winkler argues that - in the short-run - the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) will slash their budgets and get bailed out by the EU.

Simon Johnson thinks that the weakening Euro caused by the PIIGS' woes will hurt American exports (weaker Euro equals stronger dollar), and could lead to problems for leading global banks.

Other commentators fear that the PIIGS' crisis has as much potential as a financial "contagion" as the subprime meltdown and the failure of Lehman.

But for the long-term view, we need a little more perspective. One of the world's leading economic historians - Harvard professor Niall Ferguson - says:

The economists are ill qualified to analyse the current economic situation since they lack the overview of historians such as himself.

"There are economic professors in American universities who think they are masters of the universe, but they don't have any historical knowledge. I have never believed that markets are self correcting. No historian could."

Ferguson warns of huge government debts threatening the solvency of entire nations:

"The idea that countries don't go bust is a joke... The debt trap may be about to spring ... for countries that have created large stimulus packages in order to stimulate their economies."

But whether or not large nations actually go bankrupt, one thing is clear . . . Larry Summers, Ben Bernanke, Tim Geithner and their foreign counterparts have failed.

As I noted in December 2008:

BIS [the Bank of International Settlements - the "Central Banks' Central Bank] points out in a new report that the bank rescue packages have transferred significant risks onto government balance sheets, which is reflected in the corresponding widening of sovereign credit default swaps:

The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets. This was particularly apparent in the market for CDS referencing sovereigns involved either in large individual bank rescues or in broad-based support packages for the financial sector, including the United States. While such CDS were thinly traded prior to the announced rescue packages, spreads widened suddenly on increased demand for credit protection, while corresponding financial sector spreads tightened.
In other words, by assuming huge portions of the risk from banks trading in toxic derivatives, and by spending trillions that they don't have, central banks have put their countries at risk from default.
Nothing has changed. As former chief Merrill Lynch economist David Rosenberg writes this week:

First the governments bail out the banks who were (are) basically insolvent. Then these governments, especially in Europe, see their balance sheets explode and face escalating concerns over sovereign default. The IMF now predicts that the government debt-to-GDP ratio in the G20 nations will explode to 118% by 2014 from pre-crisis levels of around 80%.

Now, the ball is put back onto the banks because many have exposure to the areas of Europe that are facing substantial fiscal problems right now. According to the Wall Street Journal, U.K. banks have $193 billion of exposure to Ireland. German banks have the same amount of exposure and an additional $240 billion to Spain. Many international bond mutual funds also have sizeable exposure to sovereign debt of Portugal, Ireland, Greece and Spain as well. Contagion risks are back. Stay defensive and expect to see heightened volatility.

In a nutshell, toxic assets have basically been swept under the rug in the hopes that we will outgrow the problem. Leverage ratios across every level of society are still reaching unprecedented levels as the public sector sacrifices the sanctity of its balance sheet in its quest to stabilize the dubious financial position of the household and banking sectors in many parts of the world.

Whatever bad assets have been resolved have almost entirely been placed on the books of governments and central banks, which now have their own particular set of risks, as we have witnessed very recently in places like Dubai, Mexico, and Greece, not to mention at the state and local government level in the United States. We simply have not seen a reduction in the percentage of properties with mortgages that are “under water”, hence the FDIC has identified 7% of banking sector assets ($850 billion) that are in “trouble”, so how can it possibly be that the financial system is anywhere close to some stable equilibrium?

When accurately measured, including the shadow inventory from bank foreclosures, there is still nearly two year’s worth of unsold housing inventory in the United States, and commercial vacancy rates are poised to reach unprecedented highs, and this excess supply is bound to unleash another round of price deflation and debt defaults this year. The balance sheets of governments are rapidly in decline across a broad continuum, and it is particularly questionable as to whether Europe is in sound enough financial shape to weather another banking-related storm.

The global economy is set to cool off. Not only is China and India warding off inflation with credit tightening measures but most of the fiscal and monetary stimulus thrust in the U.S.A. and Canada is behind us as well. And, the fiscal tourniquet is about to be applied in many parts of Europe, especially the PIIGS (referring to Portugal, Ireland, Italy, Greece and Spain — these countries account for a nontrivial 37% of Eurozone GDP). Greece’s GDP has already contracted by 3.0% YoY, as of Q4, and is expected to contract 1.1% in 2010 and 0.3% in 2011 as a 13% deficit-to-GDP ratio is sliced from 13% to 3% (assuming this fiscal goal can be achieved politically). Portugal has a 9.2% deficit-to-GDP ratio that is in need of repair and Spain has a deficit ratio that is even worse, at 11.4% of GDP.

The bottom line is that even if the fiscally-challenged countries of Europe do not end up defaulting, or leaving the Union, the reality is that they will have to take draconian measures to meet their financial obligations. Devaluation was the answer in the past in Greece but it cannot rely on that quick fix this time around without leaving EMU and if it did, then that could make it even harder to service its Euro-denominated debts — at least not without a restructuring. And, if Greece did attempt at a debt restructuring, rest assured that Italy, Spain, Portugal and Ireland would be next — we are talking about a combined $2 trillion of potential sovereign debt restructuring that would more than triple the $600 billion direct cost of the Lehman bankruptcy.

This poses a hurdle over global growth prospects at a time when Asia will feel the pinch from the credit-tightening moves in China and India. And heightened risk premia will also exert a dampening global dynamic of their own in terms of economic decision-making by businesses and households alike. The intense sovereign risk concerns are not limited to Europe either. In the U.S.A. we saw CDS spreads widen out to their highest levels since the equity markets were coming off their lows last April. According to the FT, the Markit iTrax SivX [sic] index of CDS on 15 western European sovereign credits rose above 100bps on Friday for the first time ever.

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Saturday, February 6, 2010

The OTHER Reason that the U.S. is Not Regulating Wall Street


Sure, American politicians have been bought and paid for by the Wall Street giants. See this, this and this.

And everyone knows that the White House and Congress - while talking about cracking down on Wall Street with strict regulation - have actually watered down some of the most important protections that were in place.

For example, Senator Cantwell says that the new derivatives legislation is weaker than the old regulation. And leading credit default swap expert Satyajit Das says that the new credit default swap regulations not only won't help stabilize the economy, they might actually help to destabilize it.

But the U.S. is not being sold out in a vacuum.

On March 1, 1999, countries accounting for more than 90 per cent of the global financial services market signed onto the World Trade Organization's Financial Services Agreement (FSA). By signing the FSA, they committed to deregulate their financial markets.

For example, by signing the FSA, the U.S. agreed not to break up too big to fails. The U.S. also promised to repeal Glass-Steagall, and did so 8 months after signing the FSA.

Indeed, in signing the FSA and other WTO agreements, the U.S. has legally bound itself as follows:

• No new regulation: The United States agreed to a “standstill provision” that requires that we not create new regulations (or reverse liberalization) for the list of financial services bound to comply with WTO rules. Given that the United States has made broad WTO financial services commitments – and thus is forbidden by this provision from imposing new regulations in these many areas – this provision seriously limits the policy [options] available to address the current crisis.

• Removal of regulation: The United States even agreed to try to even eliminate domestic financial service regulatory policies that meet GATS [i.e. General Agreement on Trade in Services] rules, but that may still “adversely affect the ability of financial service suppliers of any other (WTO) Member to operate, compete, or enter” the market.

• No bans on new financial service “products”: The United States is also bound to ensure that foreign financial service suppliers are permitted “to offer in its territory any new financial service,” a direct conflict with the various proposals to limit various risky investment instruments, such as certain types of derivatives.

• Certain forms of regulation banned outright: The United States agreed that it would not set limits on the size, corporate form or other characteristics of foreign firms in the broad array of financial services it signed up to WTO strictures ...

• Treating foreign and domestic firms alike is not sufficient: The GATS market-access limits on U.S. domestic regulation apply in absolute terms; that is to say, even if a policy applies to domestic and foreign firms alike, if it goes beyond what WTO rules permit, it is forbidden. And, forms of regulation not outright banned by the market-access requirements must not inadvertently “modify the conditions of competition in favor of services or service suppliers” of the United States, even if they apply identically to foreign and domestic firms.
In other words, the problem isn't just that Congress and the White House have sold out to the Wall Street giants.

The problem is also that the U.S. has signed WTO agreements that have given the keys to the too big to fails, and have neutered their regulators. Even if some politicians tried to stand up to Wall Street - or even if we "throw out all of the bums" currently in political roles - the U.S. would still be locked into the WTO's scheme for helping the financial giants to grow ever bigger and to take ever-bigger and ever-riskier gambles.

Indeed, the financial giants are pushing hard for further deregulation, demanding that the WTO's "Doha round" of agreements be signed.

On the other hand, if the American people stood up for our sovereignty and demanded that the financial giants be reined in, it would be easy to fix the WTO agreements which the U.S. has already signed. Public Citizen notes, "as a legal matter, these problems are easy to remedy ..."

Will the American people stand up and demand that the WTO deregulatory scheme be rolled back?

Or will we continue to let the financial giants destroy our country through buying and selling politicians (with the help of the Supreme Court) and forcing us into more and more draconian WTO treaties which destroy our sovereignty altogether?

Many people assume that they just have to hang in there until things improve. But the powers-that-be are grabbing more and more power and - unless we stand up to them - they will take it all.

As highly-regarded economist (Michael Hudson, Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research, and who is a former Wall Street economist at Chase Manhattan Bank who helped establish the world’s first sovereign debt fund) said:
"You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards, it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite."
And Foreign Policy magazine ran an article entitled "The Next Big Thing: Neomedievalism", arguing that the power of nations is declining, and being replaced by corporations, wealthy individuals, the sovereign wealth funds of monarchs, and city-regions.

We either stand up, or we slip back into a darker age.
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Friday, February 5, 2010

U.S. Counterterrorism Officials Insisted that Crotch Bomber Be Let Into Country


Undersecretary for management at the State Department, Patrick F. Kennedy, told Congress that the State Department wanted to keep crotch bomber Umar Farouk Abdulmutallab out of the U.S., but that intelligence agencies insisted that Abdulmutallab be let into the country.

Specifically, on January 27th, Kennedy told the House Committee on Homeland Security that intelligence agencies blocked revocation of Abdulmutallab's visa because it would have foiled a "larger investigation" into Al Qaeda.

As noted by The Detroit News:
The State Department didn't revoke the visa of foiled terrorism suspect Umar Farouk Abdulmutallab because federal counterterrorism officials had begged off revocation, a top State Department official revealed Wednesday.

Patrick F. Kennedy, an undersecretary for management at the State Department, said Abdulmutallab's visa wasn't taken away because intelligence officials asked his agency not to deny a visa to the suspected terrorist over concerns that a denial would've foiled a larger investigation into al-Qaida threats against the United States.

"Revocation action would've disclosed what they were doing," Kennedy said in testimony before the House Committee on Homeland Security. Allowing Adbulmutallab to keep the visa increased chances federal investigators would be able to get closer to apprehending the terror network he is accused of working with, "rather than simply knocking out one solider in that effort."

This is eerily similar to 9/11:

  • One of al-Qaeda’s top trainers in terrorism and how to hijack airplanes, who was a very close associate of Bin Laden, was an American citizen who was an operative for the FBI, the CIA, and the Army (see this article from the San Francisco Chronicle and this article from the Globe and Mail). Indeed, while he was acting as an FBI informant, he smuggled Bin Laden in and out of Afghanistan, helped plan the attacks on US embassies in Africa, and apparently played a pivotal role in planning 9/11.
According to a 1995 Boston Globe report, his entry into the country was made possible by “clandestine CIA sponsorship.” According to West Point's Combatting Terrorism Center, the terrorist was:
Given a visa waiver under a “little known visa waiver program that allows the CIA and other security agencies to bring valuable agents into the country, bypassing the usual immigration formalities.” While perhaps “little known,” this authority was granted to the Director of National Intelligence by the Central Intelligence Agency Act of 1949 and codified in 50 U.S.C. §403h, which states that if “the admission of a particular alien into the United States for permanent residence is in the interest of national security or essential to the furtherance of the national intelligence mission, such alien and his immediate family shall be admitted to the United States for permanent residence without regard to their inadmissibility under the immigration or any other laws and regulations….”

Indeed:

  • An Al Qaeda operative very close to one of the top Al Qaeda leaders was a CIA informant

And U.S. and allied intelligence services had penetrated the highest levels of Al Qaeda prior to 9/11. For example:

In addition, U.S. and allied intelligence services followed the hijacker's every move:
Moreover, the U.S. intercepted many high-level Al Qaeda phone calls:
Moreover, the financiers for Al Qaeda were not mysterious and unknown before 9/11:
Other facts point towards penetration of the highest levels of Al Qaeda:
Did 9/11 - like the crotch bombing - also involve U.S. intelligence services letting smaller terrorists into the U.S. so that they could catch the "big fish"?

If so, this would be ironic, since the U.S. could have killed Bin Laden in 2001 and again in 2007, but chose not to do so.
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