Team 44 Looses 'State Secret'

Previously, a suit against Jeppesen Dataplan {2/10/09}for monetary damages by five detainees transported to a CIA "blacksite" for torture was dismissed by a lower federal court which accepted the Regime's argument that the claim should be disallowed to protect "state secrets" . Team 44 continued making the argument on appeal.  However, a Ninth Circuit three judge panel disagreed with the blanket invocation of protecting so-called state secrets, ruling that judges should make a case specific determination of whether national security could be breached.  The panel noted in a footnote that in the past the government had misused the legal concept to protect itself from embarrassment.  Team 44 has used the argument in two other cases involving NSA domestic spying, prompting criticism from Senator Finegold (D-WI).  Wackydoodle sez:  "Always read 'dem itty notes!"

Feeding the Bulls II

Can you really be in suspense about the results of the government's so-called "stress test" of the nineteen biggest banks in America?  The results are due to be released publicly on May 4th, but you can know now by reading this post. The Treasury will pass all nineteen. Does that result strain your credulity?  It should.  Professor William Black of economics and law at the University of Missouri, and a former Savings & Loan prosecutor, says the the stress tests are a "complete sham"[1].  Actual economic data for this quarter is worse than the worse case scenario used in the stress tests. The false assumptions make the test results little more than spin.  To compound the deceit, banks are using every legal accounting trick they can to deceive the public about their true financial condition--which is critical and actually getting worse, not better.  And the government officials in charge of the recovery programs-- former members of the Wall Street plutocracy--are complicit in the deceit[2].  Martin Weiss, investment expert, tells how Citigroup pulled off a first quarter profit in the midst of the meltdown:

• Toxic asset revaluation--the Financial Standards Accounting Board allowed banks to assign higher values to the worthless assets, wiping out billions in loses on April 3rd. Using this gimmick Citigroup was able to increase its after tax profits by $413 million;
• Reserve manipulation--Banks must set aside a reserve to protect against losses every quarter.  How a bank accounts for reserves is discretionary.  Citigroup put most of its current bad debt losses into last year's fourth quarter and underestimated likely losses for this quarter thereby improving its bottom line by $1 billion;
• Mark down of bank debt--the government allows banks to mark down their own debt to market value.  Bank debt is trading at huge discounts because of their precarious financial condition.  Citigroup marked down its own debt to create another $2.7 in bogus profits.

Citigroup reported a $1.6 billion profit for the first quarter, sparking a Wall Street rally, but the total of its accounting gimmicks is $4.1 billion for an actual loss of $2.5 billion.  The collusion between government regulators and the major banks according to Black may be the greatest financial scandal in history.  The government's refusal to close banks violates the prompt corrective action law instituted after the S&L crisis  requiring insolvent banks be placed in receivership {Free Market RIP, 3/24/08}.  The PIPP program violates the FDIC's charter which allows borrowing from the Treasury for deposit insurance purposes not in excess of $30 billion. Under PIPP, the FDIC will guarantee over $1 trillion in junk assets.  The PIPP program may become nothing more than a giant money laundering operation since regulators are open to allowing the bailed-out banks to buy each other's bad assets at inflated prices.  The eventual price tag for this feeding trough is $12.8 trillion. Apparently there are people in the Democratic party who want to maintain US dominance of global financial capitalism at any cost.  If 44 is willing to sacrifice his personal credibility with voters and ultimately the success of his presidency, to help political contributors on the Street of Broken Dreams[3], he is following the right script.

[1] see his Barron's interview, April 13, 2009:   http://online.barrons.com/article/SB123940701204709985.html, and his interview on PBS: www.pbs.org/moyers/journal/04032009/transcript1.html

[2] Treasury Secretary Geithner's chief of staff is Mark Patterson who was Goldman Sachs VP for government relations and a registered lobbyist before joining Team 44.  While a lobbyist Patterson worked against an Obama sponsored bill to limit executive compensation, HR 1257. Previously he was former Senator Tom Daschle's policy director where he worked on a broad range of finance and energy issues.  Because of his extensive lobbying activities, 44 had to grant him an exception to his ethic rules for administration members.

[3]according to the Center for Responsive Politics individual and PAC donations from Wall Street in 2007 and 2008 totaled $463.5 million.

Chart of the Week: Generations of Debt

The federal debt will be the largest since the Second World War when it peaked at 109% of GDP.  The conventional Chicago School solution to a recession is to increase money supply, but as Japan's experience amply demonstrates increasing public debt does not always lead to economic recovery. Their huge increase in government debt was a result of rescuing banks, insurance and other companies after their real estate bubble burst in 1988:source: Hoisington Investment Management Company via www.marketoracle.co.uk

Feeding the Bulls

President Obama recently answered critics who think failing banks should be liquidated by saying it would be "too expensive" a proposition and that the government should "first do no harm".  It is obvious that a great deal of harm has already been done to the nation's economy by the elite class of finance capitalists he is generously helping at taxpayer expense.  A systematic program to force banks to quickly ascertain worthless assets, write them down and raise private capital or face closure would remove the uncertainty that is crippling the credit markets. Banks taken into receivership could be stripped of their bad debt, bad management replaced, and the restructured banks offered for eventual resale to the private sector.  The toxic assets could be transferred to a "salvage yard"--a separate institution where whatever value remains could be realized for the taxpayer.  This is what the Resolution Trust Corporation did after the last major bank debacle--the S&L crisis of the 1980s.  Primarily because of the unhealthy class nexus between our political and financial elites, our economy is undergoing a death of a thousand cuts: a drawn out process of closed door, favorable deals for influential financial plutocrats.  The failing institutions will not on their own reveal the extent of their insolvency, and are simply hoping to survive on government life support until re-inflated asset prices allow them to conduct business as usual again.  In the meantime the government burdens the taxpayers it represents with the financial risks and generations of debt while taking a hands off approach to bank management responsible in part for the crisis.  Note that Wall Street paid out $18 billion in year end bonuses to its New York employees after the government gave it $243 billion in emergency aid.

The cost of restructuring the biggest banks would cost about $1.5 trillion according to the IMF [1]. That is chump change in comparison to what the government is already spending propping up the zombie banks.   Just considering assets purchases alone the Federal Reserve will spend up to $1 trillion in the Term Asset-Backed Securities Loan Facility (TALF), $1.8 trillion in the Commercial Paper Funding Facility; $540 billion in the Money Market Investor Funding Facility, and $1.45 trillion to buy debt from its bank stepchildren, Freddie, Fannie and Ginnie Mae.    The size of the favorable loans the Federal Reserve is giving to various parts of the crumbling finance establishment are simply staggering:  a total of up to $2 trillion[2]. Nevertheless, the IMF recently said more help would be needed.  So the answer to the question of why the zombie banks are not closed down is not in the cost of receivership, but is in the power relationships of American politics. 

[1] Simon Johnson, The Atlantic 5/09. 

[2] Timothy Lavin, The Atlantic 5/09

'Toontime: Arrrrgh!

[credit: Tim Goheen, McClatchy Tribune]

Wackydoodle sez:  I liked that Edward's scissor guy better.

Le Shorter: A Sad Ending

One of the top executives of Freddie Mac, the home mortgage institution seized by federal regulators, apparently hanged himself in the basement of his suburban Virginia mansion. His wife found the body in the early morning yesterday.  No note was left at the scene.  David Kellerman was supposed to receive an $850,000 retention bonus.  He is one of a series of suicides attributed to the credit crisis.

Protecting the Torture Six

Update: Obama has done a quick about face on the question of prosecuting former Regime officials for ordering torture. Rahm Emanuel's statement that former officials would not be prosecuted went over like a lead balloon, so his boss took the cue to reverse course. The latest revelations about the torture policy reveal high officials in the Regime hell bent on extracting information about an "Al Qaida connection" to the dictatorship of Saddam Hussein. They never found one, despite a litnany of torture techniques straight out of the Middle Ages.  The only way the United States will regain its tattered international reputation is if it investigates and prosecutes those leaders responsible for the most ill-considered foreign policy in our history as an independent nation.

{4/21/09}Team 44 has made it perfectly clear through its chief of staff Rahm Emanuel, that the Regime's Torture Six  {4/14/09} will not be prosecuted by the United States despite its international legal obligation to do so.  Under the UN Convention Against Torture, the United States has committed itself to investigate and prosecute all cases in which credible evidence of torture is found.  It will not be the first time the US has violated a treaty obligation. The indigenous people of America know full well the value of the US government's promises.   44 is scheduled to travel to the Langley, Virginia headquarters of the CIA to reassure nervous agents who relied on the Regime's questionable legal rational to justify torture of detainees that they will not be prosecuted for their actions.  The legal implication of the administration's de facto grant of immunity means that the US will in all likelihood ignore Spain's request for extradition should one be made.

Corking the 'Nucler' Genie

When US Person served in the Jimmy Carter administration, one of the solutions to the nuclear waste problem considered and rejected was the reprocessing of spent nuclear fuel.  President Carter was the commander of a nuclear submarine prior to entering politics. He was a peanut farmer who understood the nuclear fuel cycle.  Then, reprocessing was rejected as unfeasible primarily for security reasons since reprocessing extracts the 1% of nuclear fuel that is recyclable, plutonium[1].   Plutonium is a highly toxic nuclear fuel used in making weapons. Less than 20 pounds of plutonium is needed to make a nuclear weapon.  If plutonium were to get into the hands of terrorists or an unfriendly dictator, the United States would face a considerable security problem.   The previous administration recognized that a U.S. reprocessing program would add to the worldwide stockpile of plutonium. According to the Union of Concerned Scientists, roughly 240 metric tons is stored as of 2003.  That amount would increase by more than 500 metric tons if the U.S. reprocessed spent fuel generated to date (2006).  A plant big enough to handle the amount of spent fuel waste generated in the United States could cost between $7.5 billion to $30 billion to build. That estimate excludes annual operation costs.  A second facility would be needed to reprocess spent fuel over a period of some thirty years.[2]

Despite nuclear proliferation, cost and contamination concerns, an acting assistant secretary of the Department of Energy urged members of the nuclear industry at a recent meeting in Georgia to pursue irradiated fuel storage and reprocessing.  Whether this statement represents the official position of Team 44 is not yet clear.  If nuclear fuel reprocessing  is the policy of the current administration, then it ignores the unencouraging experience of other countries, notably France, which generates most of its electricity by nuclear power[3].  Contrary to claims, the reprocessing of spent nuclear fuel does not "close the nuclear fuel cycle",  but produces its own highly contaminated waste streams[4].  At its La Hague plant between 1976 and the end of 2006, France has reprocessed about 23,000 metric tons of light water reactor (LWR) fuel.  The state electric utility has a backlog of some 12,000 tons of spent fuel.  A 2001 economic report for the Prime Minister concluded that the decision to reprocess fuel instead of direct storage of fuel wastes for the entire French nuclear power program (58 pressurized water reactors as of 2007) would increase waste management costs by 85%.  The separation of plutonium and re-enrichment of uranium are both uneconomic activities even in France which has granted most favorable political and industrial conditions to the industry.  Despite no dramatic reduction in the radioactive waste stream--a major argument for reprocessing--France intends to continue reprocessing 850 tons of the 1200 tons produced annually at La Hague.  Commercial reprocessing ended in 1997 at the only other reprocessing facility, Marcoule.  La Hague has official permission to discharge very large amounts of radioactivity into the environment.  The plant is currently the largest man-made source of radioactivity releases to the global environment[5]. Theoretically, at current levels, La Hague will emit enough radioactive discharges over its remaining life to cause 3000 additional cancer deaths worldwide. Virtually all European nations have halted plans to reprocess nuclear fuel. The sole exception, the U.K., intends to end reprocessing within the next decade.  Nuclear proliferation is still a problem today and a valid reason to reject reprocessing.  The current administration claims it is seeking green solutions to America's foreign energy dependence and climate change, but reprocessing creates more problems than it solves.  More reasons to just say no.

[1]Attempts to recycle uranium during the Cold War resulted in catastrophic contamination of reprocessing equipment and workers 

www.washingtonpost.com/wp-srv/national/daily/sept99/paducah21.htm; see also www.fpif.org/fpiftxt/5351 

[2]/www.ucsusa.org/assets/documents/nuclear_power/nuclear-reprocessing-factsheet.pdf

[3] www.fissilematerials.org/ipfm/site_down/rr04.pdf

[4] According to the International Panel on Fissile Materials an independent group of arms-control and nonproliferation experts, reprocessing "definitely makes waste management more complex qualitatively".  There are the wastes of reprocessing itself --high level vitrified waste, intermediate structural wastes from LWR assemblies and intermediate process waste such as sludge from liquid effluent treatment--and new irradiated materials from fuel fabrication and uranium re-enrichment processes. Id.

[5] Id. at 41.

Tainted Waters

Update: Two US government agencies, EPA and US Geological Service are testing sewage from treatment plants that serve pharmaceutical companies by comparing the outflows from treatment plants that do not. Preliminary results from the USGS study show sewage from treatment plants serving drug manufacturing facilities have significantly higher medicine residues. EPA's results show a disproportionate amount of antibiotic in waste water at the time a Michigan factory was producing the substance.  Other researchers have also found medicines in waste water.  Codeine has been found in the Delaware River near where pharmaceutical companies manufacturer the drug. Warfarin, a blood thinner, has been found in Denver municipal waste water. Warfarin is also used as rat poison, pesticide and bilge cleaner.  AP conducted an investigation of the problem of pharmaceutical wastes and concludes that water contamination by drug residues is significant and consistently ignored by the federal government.  Research has found that even extremely diluted amounts of powerful drugs harm fish, frogs and other aquatic species.   AP estimates, because no government records are kept, that 250 million pounds of pharmaceuticals and contaminated packaging are disposed of by hospitals and hospices each year.  The study identified 22 compounds ranging from lithium to tetracycline hydrochloride that are monitored as industrial wastes released into the environment under federal pollution laws and are considered active pharmaceutical agents by the Food and Drug Administration.  

{4/7/09}Amphibians are disappearing from the planet at an alarming rate.  The unique organ through which they absorb water and nutrients, their skin, is particularly vulnerable to environmental pollution.  Scientists think that chronic exposure to pollution is contributing to their demise.   It makes sense that chronic exposure to man-made chemicals in the environment will eventually have an effect on larger organisms like homo sapiens.  The National Oceanic and Atmospheric Administration (NOAA) released a scientific report on April 1st with bad news. A nationwide sampling of coastal and fresh waters shows all are contaminated with flame retardant chemicals used in consumer products since the 1970s. PBDEs (polybrominated diphenyl esters) have been found in human blood, breast milk and body fat.   A growing body of evidence indicates that chronic exposure to PBDEs may produce detrimental effects in animals, including humans.   In animal studies, rats fed PBDE their entire lives developed liver tumors reports ENS.  Based on this evidence EPA has classified decabromodiphenyl ester as a possible human carcinogen.  Industrial areas such as New York's Hudson River estuary have the highest levels, but remote locations have also tested positive, evidence of atmospheric transport.

[image: psu.science.org]

Chart of the Week: The Next Tsunami

The vice president of a company which tracks foreclosures nationwide told the SF Chronicle that there are around 600,000 properties that have been repossessed but have not been placed on the market for sale.  Eighty thousand are thought to be in California which is already awash in foreclosures. Flooding the market with more repossessed homes would depress falling prices further and could be disastrous. Dr. Doom* predicts a 40% fall in US home prices when the market bottoms not before mid 2010. 

*Nouriel Rubini

Where Have All the Birds Gone?

Malheur National Wildlife Refuge is located in southeast Oregon's high desert, sometimes referred to as "Oregon's Outback".  It is a sparsely populated arid steppe-- farmed and ranched only in areas were there is irrigation or available surface water.  Sagebrush stretches to the basalt rimrock on the horizon and stunted juniper trees, twisted by the persistent wind stand sentinel atop volcanic lava domes [photo, left].  A place of wild horses and abandoned homesteads, a visitor can easily imagine the vaqueros holding hot iron while bending over calves struggling in the dust.

The Refuge was a century old in 2008.  Its predecessor, Lake Malheur Reservation, was created by President Theodore Roosevelt with public land surrounding Harney and Malheur Lakes. Malheur comes from the French "bad hour".   Early European explorers found the lakes' alkaline water unsuitable for drinking or watering stock, but it was the home of many native Americans whose record of occupation goes back thousands of years. They subsisted on the abundant wildlife, grains, and plants.  The local Paiute tribe took their name from a favorite wild tuber. In 1935 more land was purchased from a ranching empire that extended up the Donner und Blitzen River valley towards the source of water on Steen's Mountain, a tilted block of uplifted basalt. The purchase gave the Refuge its rough T shape, consisting of 187,000 acres (75,676 hectares) of which 120,000 is wetlands. The Refuge was created in response to the decimation of  birds for their feathers to be used in the ladies millinery trade at the turn of the last century. Audubon Society members in Portland publicized the destruction with photographs and lobbied vigorously to get the protection from market gunners the birds desperately needed.

Modern descriptions of Malheur inform of the thousands of migratory birds along the Pacific Flyway that stop to feed and rest.  Local residents attest that in their life time migratory waterfowl would darken the sky in flight. Those days are apparently past. Malheur still attracts birds in the thousands, however the lakes are now much smaller and the surrounding wetlands are drying out. Dead reeds form an impenetrable mat preventing birds from feeding on insects, new shoots, and aquatic life such as sago pondweed.  Part of the Donner und Blitzen River was channelized in the 1920s by the land owner to improve hay field drainage, but that modification has adversely impacted the wetlands and the aquatic habitat of the native Great Basin redband trout (Oncorhynchus mykiss newberrii).   Nothing has been done to return the river's course to a more natural meander.   Some lifetime human residents of Harney County blame the reduction in bird numbers on mismanagement of the Refuge's resources.  The geologic record shows the Harney basin has a cyclical water level.  In the past the lakes have been greatly reduced in size while in other years, notably 1980, the basin flooded with water. Water is a precious commodity in the desert.  Competition with agriculture and cattle ranching for a reliable fresh water supply is intense. Factors such as hunting and habitat loss in other parts of the birds' range are also at work reducing populations.  But April is supposed to be a prime month for viewing migrating waterfowl like the snow goose (Chen hyperborea) on their way to the arctic tundra.  Now, the snow geese and sandhill cranes (Grus canadensis) are seen outside the

Refuge boundaries resting and feeding in flooded fields near the town of Burns.  According to one Refuge worker, the geese even make use of a treated waste water holding pond behind the town drugstore.  This writer saw one flock of snow geese numbering not more than 200 huddled in the corner of a wet field. Hardly the thousands he was expecting. [photos, NFWS]

Admittedly, the runoff from Steen's has just begun in earnest due to a long, cold winter. The only part of the Refuge with abundant water is its southern end nearer Steen's.  At Benson Pond [photo, left] an idyllic riparian oasis fringed by large cottonwood trees, there was a goodvariety of ducks and a trumpeter swan (Olor buccinator).  The size of the swan compared to its entourage of pond ducks was quite impressive even at a distance.  Of the ducks the cinnamon teals and the black and white buffleheads (Bucephala albeola) were considered the most attractive. Coots, a marsh bird often confused with the only black adult duck in America, the common scoter, were numerous as were Canadian geese (Branta canadensis moffitti).  Yet for a large, protected and supposedly managed ecosystem the populations of wildlife seemed strangely depleted.

'Toontime: Land of the Free

[credit: Joel Pett, USA Today]

Wackydoodle sez:  Can't carry no concealed weapon, neither.

The Politics of Clean Energy

Interior Secretary Ken Salazar must have gotten an ear full at the first of several regional public meetings held in Atlantic City, New Jersey on Monday to discuss the future of offshore energy development. His Department and the Federal Energy Regulatory Commission settled their jurisdictional squabble concerning the licensing of  renewable power generation projects on the Outer Continental Shelf (OCS).  The Memorandum of Understanding clears regulatory hurdles for generating power from wind, waves and tides.  The FERC will be responsible for licensing, construction and operation of hydrokinetic facilities, while the Minerals Management Service will be responsible for leasing the OCS sites, and controlling the production, transmission and transportation of energy from solar and wind sources.  

Even New Jersey Republicans are supporting offshore alternative energy.  One Republican legislator told the hearing that he supports clean alternative energy after seeing the success of the Jersey Atlantic wind farm, a five turbine facility that powers about 2500 homes [photo courtesy NJ Board of Public Utilities].  Secretary Salazar toured the wind facility while in Atlantic City. Representative LoBiondo (R) said that as a life long resident of the state he would continue to oppose the leasing of the New Jersey coastline for oil and gas development. A Democratic legislator agreed that oil rigs off the coast are not wanted.  Nevertheless a representative from the petroleum industry urged all areas of a the OCS be opened to oil and gas development. The American Petroleum Institute said that the OCS produces one million barrels of oil a day and the industry spills less than the oil emerging from natural seeps.  Even with alternative energy development fossil fuels will continue to provide more than half our energy needs for decades according to the US Energy Information Administration.   Seventy-eight state lawmakers from Massachusetts submitted a letter at the hearing urging the Secretary to approve the Cape Wind offshore wind

farm in Nantucket Sound as soon as possible.  However Massachusetts' most influential politician, Senator Edward Kennedy, has expressed opposition to the siting of the wind turbines near his home on Martha's Vineyard.   In New York City, Verdant Power has been operating a prototype tidal power project in the East River between Roosevelt Island and Queens [photo courtesy Verdant Power].  It is the first major operational tidal power project in the United States.  The Department of Energy has awarded up to $7.3 million in research grants for hydrokinetic and wind energy projects or less than 5% of the money the US spends for one day of operations in  Iraq.  Secretary Salazar will hold another public hearing at Mission Bay, California tomorrow to receive public input on OCS power generation plans.  

WANTED: Leaders of the Regime

Update:  The Daily Beast reports that Spanish officials have informed the Obama Administration of their intention to proceed with the indictment of six members of the Regime including former Attorney General Alberto 'Gonzo' Gonzales for their role in developing and implementing a US torture policy as an integral part of their "global war on terror". Spanish officials including chief prosecutor Javier Zaragoza have met with US State Department representatives to inform them privately of the legal proceeding.  A formal announcement is expected today.  Prosecutors will ask Judge Baltazar Garzon to reassign the torture case since he also presides over the case bringing terrorist charges against five Spaniards previously detained at Guantanamo.  Spain is asserting universal jurisdiction under the UN convention against torture based on the alleged torture of these same Spanish nationals.  When Spanish prosecutors asked the State officials if the United States had any intention of launching an investigation of the Torture Six, they received no reply. 

{posted 3/29/09} Spain has initiated legal proceedings against six former officials of the 'Bushed' Regime. Subpoenas may issue within the next two weeks demanding the accused respond to charges of torturing detainees in violation of the 1984 UN Convention Against Torture.  Baltasar Garzon, who led the prosecution of General Augusto Pinochet former President of Chile, has referred the case to Spain's chief prosecutor before proceeding.  According to Gonzalo Boye one of the four lawyers who wrote the brief there is little choice but to approve the prosecution despite the damage it will do to US-Spain government relations.  Spain was once part of the "coalition of the willing" until public outrage at the 2004 bombing of a Madrid train station by muslim terrorists forced a change of government and withdrawal of Spanish troops from Iraq.  Only a similar prosecution in the United States would prevent Spain from exercising jurisdiction.  

According to the Guardian's Observer the lower level officials named in the case are Alberto Gonzales, former Attorney General, Douglas Feith former Undersecretary of Defense who headed the Pentagon office that forwarded selected raw intelligence justifying an invasion to the Vice President, David Addington, former chief of staff to the Vice President, William

Haynes, formerly Pentagon general counsel, John Yoo and Jay Bybee, former Department of Justice lawyers who authored the legal opinions allowing torture.  All are members of what they called "the war council" which "met almost weekly either in Gonzales' or Haynes' offices" alleges court documents. A November 2002 memo written by Haynes recommends Defense Secretary Rumsfeld give blanket approval to fifteen forms of "enhanced interrogation" techniques.  Rumsfeld approved the use of torture. His handwritten note ordering policy compliance was posted outside the interrogators' office at Abu Ghraib.  If Spain pursues the case aggressively it could result in the United States having to consider a highly embarrassing extradition request from a major western ally and member of the European Union. Administration officials have admitted they think torture was committed by the Regime.  The Senate Armed Services Committee found last year that torture of captives was a Regime policy not an aberration perpetrated by 'a few bad apples' acting on their own as portrayed to Congress by Donald Rumsfeld.  But if the President decides not to initiate US criminal proceedings for purely partisan reasons, then other authorities with international jurisdiction will undoubtedly decide to push ahead with prosecutions.  The Torture Convention, ratified by the US, requires signatory states to investigate allegations of torture committed by their nationals or extradite them for prosecution elsewhere.

[image: courtesy of www.withextravinyl.com] 

[lower photo: courtesy Alexander Cockburn]

Chart of the Week: Monetizing the Gap

source: www.contraryinvestor.com

The Federal Reserve will have to make up the deficit in purchases of US Treasuries (UST), because domestic purchases will not be enough to cover the upcoming huge issuances needed to finance the ballooning deficit ($1.8 trillion this year).  Foreign buyers, lead by the Chinese, have been purchasing over 50% of new Treasuries issues up to now.  Bluntly speaking, Fed purchases = printing greenbacks= devaluation of the dollar=inflation to come.  Economist Henry Liu says, "To restore the wealth lost in the current financial crisis, the Treasury would have to monetize some $30 trillion of toxic assets, almost 10 times what is currently contemplated, and twice the size of current US annual GDP".  As Iceland demonstrated last year, even a country can go bankrupt. 

It is crystal clear by now that Team 44 is protecting the Street's bubble makers by keeping toxic assets prices high[1] at the expense of the nation's long term financial health.  The plan is not only unjust; it is not working.  The shadow banking system is still frozen solid, with no new securitization deals since 2007 except where the Fed is the buyer according to the capitalist bible, The Wall Street Journal[2].   Securitization was the Street's off-book golden goose generating money in the form of credit with fewer and fewer slices of actual required capital. According to the Dallas Fed, 64% of household, non-financial corporate and non-farm business debt is based on securities markets compared to 33% in 1979. For the non-financial corporate sector alone the figure is 76%.  As Marx or any honest bourgeois economist would tell you, preserving the collapsed system is ultimately about preserving their enormous private economic power.  44 recently observed, "Credit is the economy's life-blood". He should have added, "And Wall Street controls the drip".  As if the residents of New Jack City, California did not already know.

[1] Professor Michael Hudson gives an example of how the rigged government auction of CDOs encourages banks to overbid.  It is no surprise that the most aggressive bidders are Bank of America and Citigroup, two banks heavily invested in the shadow banking system.  Nobel economist Joesph Stiglitz said PPIP "amounts to robbery of the American people".

[2]Barclays Capital reported one $500 million deal in October compared to $50.7B in deals made one year ago. 

'Toontime: Prize Winner

[credit: Kevin Siers, Charlotte Observer]

Wackydoodle sez:  He sez he was jis' growin 'maters!

Still Under the Gun

When the previous regime left office, wildlife conservationists breathed a collective sigh of relief thinking that the worst assault on wildlife since the 19th century had past.  We were soon disabused of our relaxation when the Department of Interior announced it was de-listing the grey wolf and allowing the states in the Northern Rockies to resume their wolf killing habit. Idaho and Wyoming state officials have stated they intend to kill up to 700 "predatory animals" reversing gains that have taken years and millions of dollars to achieve.  The decision could not come at a worse time as grey wolf populations are just beginning to recover from near extermination.  Despite twenty-six years of federal protection, the wolf is in a fragile state. Wolves in Yellowstone National Park have declined by 27% due to disease that takes a heavy toll on pups. One pack has lost all of its 24 pups.  If the federal protections are raised on May 4th newborn pups and their mothers outside the park will be killed.  Stock depredation cannot justify these "shoot on sight" policies.  Wolves preying on livestock is now unusual.  Only 43 taking permits have been issued by the US Fish & Wildlife Service allowing landowners to kill threatening animals.  Organizations such Defenders of Wildlife compensates ranchers for 100% of the value of livestock confirmed to be killed by wolves.  

The equally sad part of this story is that an administration that promised Americans it would base its environmental protection decisions on scientific evidence is endorsing a plan hatched by a regime uninterested in the health of wildlife.  Some 230 scientists have expressed their opinion that taking the grey wolf off the endangered species list would result in a severe reduction in numbers that increases the threat of  their extinction.  Wolves have been persecuted in this country since European settlement.  They once lived all over the continent, now they are restricted to five percent of their historic range.  Surely in the 21st century a species that loves its canine companions can reach a level of enlightenment that allows the remaining ancestral wolves to live in peace.  Call, write or send an e-mail to Secretary Ken Salazar requesting that the Department reconsider its decision to make a ghost of the grey wolf.

[photo courtesy of NRDC]

Deja Vu Again: Is Liquidity or Insolvency the Problem?

Two schools of economic thought have squared off in the current financial crisis over the nature of the problem.  A similar quandary faced the Hoover administration in 1932[1].   The Keynesians hold that the crisis is one of illiquidity in the credit market. Banks are unwilling to sell their CDOs--now innocently known as "legacy assets" within 44's administration--because the market is not fairly pricing the assets but subjecting them to distressed evaluations[2].  Their prescription is to flood the banks with money regardless of the long term inflationary effects and take the pressure off the banks.  When the crisis began Fed Chairman Bernacke said, "To ensure that adequate liquidity is available, consistent with the central bank's traditional role as the liquidity provider of last resort, the Federal Reserve has taken a number of extraordinary steps..."  This liquidity rationale for intervention was later echoed by the Treasury Department when it launched its Public-Private Investment Program (PPIP) to finance the purchase of toxic assets at public expense, "...there is evidence that current prices for some legacy assets embed substantial liquidity discounts...This program should facilitate price discovery and should help, over time, to reduce excessive liquidity discounts embedded in current legacy asset prices". 

The Austrian school thinks that the toxic assets are bad loans overpriced to begin with because of the speculative bubble in real estate. The market is now pricing them fairly given the risks of non-performance.  There is no liquidity problem, but a bank insolvency problem. Banks holding overpriced assets on their books refuse to sell them at low value because they are playing politics to get a better deal from sympathetic government officials.  Insolvent banks should be allowed to fail, not propped up by morally unjustified wealth transfers.  New theoretical analysis supports the Austrian school position.  The conclusion of the study authors, none of whom are identified with the Austrian school of economics, is that the market is correctly pricing the toxic assets held by the banks:  "The [mathematical] analysis of this paper suggests that recent credit market prices are actually highly consistent with fundamentals...correct prices in the secondary market for these assets essentially imply that many major US banks are now legitimately insolvent.  This insolvency can no longer be viewed as an artifact of bank assets being marked to artificially depressed prices coming out of an illiquid market."  The bottom line is that there is no equitable justification for transferring taxpayer wealth to these insolvent banks other than protecting their remaining owners, the bondholders[3].  As right-wingers are so fond of telling us, "the market works".  Someone should tell that to Timothy Geithner.

[1]  Hoover created the Reconstruction Finance Corporation in 1931 to make short term guaranteed loans to banks, railroads, and governments.  Of the $1.6B loaned, $1.3B went to banks.  But the loans did not solve the problems of unhealthy banks.  It became clear under the Roosevelt administration that solvency was the real issue.  A bank holiday was declared on March 3, 1933 and the Emergency Banking Act was signed on March 9th.  Healthy banks were allowed to reopen. Banks whose assets did not allow a full return to depositors and creditors were placed in receivership for reorganization or liquidation as bank examiners determined. Between 1930 and 1933 10.7% of commercial banks failed.  Depositors, investors, and bondholders all suffered losses totaling $2.5B or about 2.4% of GDP.  Too big to fail?  No, too big has failed. 

[2] The benchmark index of the market for securities backed by home loans shows the AAA tranches for 2007 are valued at about 23%.  Lower tranches (more risky) show losses greater than 97%.

[3] Shareholders participate in a company's assets.  An insolvent bank has liabilities in excess of assets.  The IMF reported in January that banks and insurers are facing losses on toxic assets of $2.2 trillion.  Those losses are expected to rise to $3.1 trillion next year.  The IMF said in its report, "Going forward, banks will need even more capital as expected capital losses continue to mount." Dr. Doom (Nouriel Roubini) estimates losses will reach $3.6T by the middle of next year, and he expects that figure to rise as bad debts from other sectors (credit card, commercial loans, and regular mortgages) are included.  The next bubble to burst will be the commercial real estate market. In New York, the home of expensive commercial reality, vacancy rates are up 12% and square foot leasing costs down 12.5% in the last three months.  The iconic Hancock Tower was sold recently for half what it sold for in 2006.  The US Treasury reports a decrease in commercial real estate commitments in contrast to a rising rate at the end of 2008.

Fair Use Rule

U.S. Person has heard rumblings among you that Persona Non Grata infringes copyrighted material from time to time.  Allow him to set the record straight.  As a lawyer and published author, he understands and respects copyright.   There is never an intentional misappropriation of copyrighted material in this blog.  All authors paraphrase sources or use short quotations without attribution.  It is the way transformative commentary is done, and is recognized as "fair use" under United States copyright law.  Here is an example from the 1962 work of historian Lerone Bennett, Jr.  See if  you can recognize a more recent use of his terminology: "The slaves...transcended their environment, creating a new structure of meaning and putting their oppressors in debt.  And no one can read the record of that transcendence without a sense of awe at the audacity of the slaves' hope."

 

U.S. Person makes a conscious attempt to give credit where credit is due.  The following types of uses are usually considered fair uses at law of copyrighted material:

• Criticism and comment--what is done here when paraphrasing, quoting or excerpting a work for purposes of illustration or comment;
• News reporting --summarizing an address or article, with brief quotations in a report
• Research & scholarship--quoting a short passage in a scholarly, scientific, or technical work for illustration or clarification of the author's observations;
• Nonprofit educational uses--photocopying of limited portions of written works for educational use;
• Parody--imitation of another work for humorous effect.
  

U.S. Person wants the readers of this blog, which is a totally non-profit undertaking, to benefit from its contents by increasing their awareness and understanding of current events and particularly conservation issues without concern for possible copyright infringement. Thank you for your continued interest in Persona Non Grata, where you can get the facts, straight.

The Last of His Breed

A necropsy performed by the Phoenix Zoo shows an old jaguar (15-16 years old) suffering from some pathologies, but in basically good shape. Although officials claimed that Macho B was euthanized because of  "irreversible kidney failure" after being captured, sedated and collared by Arizona Game and Fish officials, the necropsy concluded his kidneys were "pale and firm".  A tissue sample analyzed by the University of Arizona Veterinary Diagnostic Lab showed no sign of kidney disease but possible dehydration (a common symptom of stressed out felines) and pre-renal azotemia caused by inadequate flow of blood through the kidneys. The lab also found some dead and dying muscle cells in the ventricle of the heart "possibly due to stress".   Macho B was euthanized by Arizona State biologists late last month. Despite the claim that trapping one of the last wild jaguars in America was inadvertent, the Arizona Daily Star says the snare was baited with female jaguar scat provided by a consulting biologist.  Federal officials are investigating because the jaguar is an endangered species protected by human harassment and interference.  There is no recovery program for the cat because the animals show no signs of breeding in the United States after being exterminated by Southwestern ranchers. The last known resident female was killed in 2006.  Macho B was one of two male jaguars from Mexico known to conservationists from photos taken by remote trail cameras.  Its simple logic--no viable population, no protected habitat required.  A joint US-Mexico jaguar reintroduction program should be one of the first programs to be funded under the new Great Cats and Rare Canids Act.

[photo: Arizona Game & Fish Department]

The Maya Did the Math

Mark your calendars, people.  The winter solstice on December 21, 2012 is supposed to be the end of an age when drastic--some believe catastrophic--change will occur.   Those ancient star gazers, the Maya, developed a very accurate and extremely "long count" calendar.   The approximately 26,000 (modern value = 25,771.5) year precession or wobble of the earth on its axis is completed on that date. The Maya, without telescopes, calculated this cycle accurately.  They also invented the zero. The Earth and solstice sun will be aligned with the black hole at the center of our galaxy.  These future facts we can verify with modern scientific calculation.  But scientists discount the dire predictions associated with the end of the 13th b'ak'tun (5,125 years) issued by the legendary Chilam Balam. Or do they have their own version of these warnings?  

A report by the National Academy of Science issued in January, 2009 warns that at the autumn or spring equinox of 2012 the Earth may experience a coronal mass ejection of such magnitude that all of our telecommunications and electric grids will be knocked out by the electro-magnetic pulse not for days, but for months.  A coronal mass ejection is caused by a storm in the sun's corona region so violent that a massive glob of high energy plasma is thrown off towards Earth.  If the plasma mass hits our protective magnetic field all hell breaks loose. Massive induced direct currents are created that are channeled by our electric power grids which act as antennas.   Of course our electrical systems are not built to handle this surge from outer space.  Most vulnerable are the large step-up  and step down transformers that convert transported mega voltage into useful domestic voltages.  Basically a transformer melts when hit by a power surge of this magnitude.  This is what happened in Quebec in 1989 when six million people went without power for nine hours.  It could be much worse.  In a prolonged blackout when overwhelmed utility crews are struggling with thousands of damaged power lines, transformers, and shut down power plants, is not just electrical service we would loose, but all the interconnected support systems that make our modern life possible: water and sewage treatment, refrigeration and food distribution systems, financial markets, transportation systems, telephone service and life saving medical equipment.

The possibility of a fireball from the sky wrecking civilization is not just New Age mysticism. It 

happened once before on a small scale not that long ago.  The Carrington Event is named after the British astronomer who recorded a coronal eruption in 1859.  Besides producing astounding auroras from the North pole to the tropics, the electromagnetic pulse knocked out telegraph systems, magnetometers went off their scales, machines burst into flames, and operators were rendered unconscious by electric shock.   The magnetic storm lasted for eight days. Because the use of electricity was still in its infancy, societal damage was limited largely to the telegraph business.  That has all changed.   "Severe space weather" as it is now termed has the potential to cause serious long term outages to major portions of North America, and cause permanent damage to modern infrastructure. The regions outlined in the map (above) show the areas of system catastrophic collapse due to induced currents during a geomagnetic disturbance like the Carrington Event.  About 365 transformers would go off line according to Metatech Corp. which performed an analysis of the potential impacts of such an event for FEMA.  The August 14, 2003 Northeast blackout is estimated to have cost $4 to $10 billion.  Hurricane Katrina is estimated to have cost $82 billion to $125 billion.  A severe geomagnetic storm could inflict $1 trillion to $2 trillion in damage the first year, and full recovery could take as long as 4 to 10 years.  The greatest chance for coronal mass eruptions occur during solar maximums--the sun's most stormy season. When is the next solar maximum?  2012.

[calendar image: U of Texas]

[map: Metatech Corp.]

 

Lies, Lies and More Lies

Repugnants have an adversion to the truth.  The have no vision for America--one of their recent Presidents dismissed it as "the vision thang"--so they resort to trashing the other side's policy proposals with lies. Their latest mendacity is a whopper.  Several Repugnant legislators from the House Minority Leader [photo] down have been parading before the cameras spewing the Repugnant line that the administration's carbon cap and trade proposal is "a light switch tax" for every American household costing $3,128 a year.  The method by which they made this seemingly precise calculation is a textbook example of twisting the truth beyond recognition. An M.I.T report says that a similar cap and trade proposal would generate $366 billion per year in tax revenue.  Divide that figure by 117 million households and it equals the figure according to their staffers.  One big problem with that.   An author of the report, economist John Reilly, said the calculation is "wrong in so many ways that it is hard to begin".  And he told the inquiring staff people it was wrong when they called.  According to Reilly the tax burden for households would be more on the order of $340 per year starting in 2015.  But the truth does not stop legislators all out of ideas from making Fox Spews sound bites. Reilly has written a letter to House Minority Leader Boehner denouncing the blatant distortion.  In the letter he also says global warming "poses severe risks for the US and the world" and the solution involves "using cleaner energy sources that are more costly then [sic] conventional fossil fuels." If we could only harness the Repugnants' hot air.

'Toontime: Your Mileage May Vary

The Ohio driver of this hot seat wrecked his ride which he claims can reach 38mph.  He was cited for driving his bar stool under the influence.  Sweet!

Mountaintop Removal Continues

Update:  A federal judge in Charleston, West Virginia has issued an injunction against new mountain top removal permits issued by the Army Corps of Engineers reports ENS.  Judge Joseph Goodwin's ruling only applies to the Southern District of West Virginia. He noted in his decision the loss of "thousands of miles of streams in Appalachia over the past twenty years" due to this extreme form of open cast mining.  The Court found that the Corps did not have an adequate plan to monitor mitigation efforts or require corrective action in deciding for the NRDC and other conservation organizations. The Corps' claim that it could mitigate stream destruction by creating new streams elsewhere was found to be an "unsupported belief" and a "mere promise".    Two Senators, Cardin (D-MD) and Alexander (R-TN) introduced legislation to stop the dumping of mining waste into streams on March 25. The Appalachia Restoration Act would amend the Clean Water Act to prevent dumping. Keep the faith, baby, and go here to help!  

{posted 2/20/09}The rape of the Appalachians will continue the US Fourth Circuit Court of Appeals decided on Wednesday.  The appeals court reversed a federal district court ruling that limited the destructive open cast mining practice called mountaintop removal. Explosives are used to remove an entire mountain peak to expose coal seams.  The blasted earth is then dumped into steam beds.  Since mountaintop removal began in the 70s an estimated 1.5 million acres of hardwood forest has been destroyed and 1200 miles of streams buried.  The lower court had ruled that the Corp of Engineers violated the Clean Water Act when it issued permits to remove four mountain peaks.  But the appeals court said that the district court judge did not properly defer to the Corps' interpretation of its own regulations.   The lone dissenter in the 2-1 decision said the Corp had offered no basis on which to conclude that mitigated impacts of valley filling will be insignificant thus making the mitigation inadequate under the Clean Water Act and National Environmental Policy Act.   In December 2008 the Charlatan repealed a rule requiring buffer zones around streams where waste could not be dumped.  Environmentalists opposing the destruction say that the ruling will allow 90 more peaks to be removed.  The mining technique poisons water sources, lays waste to wildlife habitat, increases the risk of floods and destroys human communities.  Wackydoodle sez:  "Mr. Peabody's coal train done carried it away."

[photo: U. of Maine]

The Price of Empire

At a time when Congress is wringing its hands over the projected future cost of Social Security and proposed universal health care, it does little to stop the frittering away of taxpayer money at the Pentagon.  The Government Accountability Office said in a report released Monday that 70% of the 96 largest weapons programs were over budget last year, costing us a total of $296 billion more than estimated.  The GAO described the Pentagon's management of contracts as "poor" and cost overruns as "staggering".   Leading examples of the Pentagon's spendthrift weapons procurement process are the Air Force's F-22 Raptor, and the Navy's littoral combat ship, Freedom.

The F-22 fighter jet was originally projected to cost $88B for 648 planes in 2009 dollars.  Due to delays, changes and material price increases, the program is now expected to cost $73.7B for only 184 planes.  The previous Secretary of Defense tried to rein in the escalating costs of the

Raptor, but was defeated by a powerful Capital Hill combination of the USAF, builder Lockheed Martin, and Congress members whose constituents derive economic benefit from the program.   Critics of the technologically advanced fighter say it was overkill from the beginning since the United States' air superiority is unquestioned and the threat the Raptor was designed to counter, the Soviet Air Force, has changed.   The current Secretary is reviewing the program and some analysts think he will cancel or curtail the program according to the NYT.

The Navy's program to build a new class of small, fast warships designed to operate in shallow coastal waters and support land operations has run into similar cost escalation.  Also built by

Lockheed Martin, the cost of the Freedom more than doubled from the estimated $220M to $531M.  The unfinished ship was launched on September 23, 2006.  A larger trimaran prototype is being built by General Dynamics. This ship has also doubled in cost.  Part of the reason for cost over runs was the Navy's decision to adapt commercial ferry designs for warships as a way to reduce development costs.   Freedom was literally designed as it was being built.  There were nearly 600 significant engineering alterations affecting the construction.   Experts say its bulging price tag is an example of the Pentagon's procurement deficiencies reinforcing each other: changing design specifications, unrealistic manufacturer estimates and production schedules, an institutional preference for commercial products, a lack of in-house systems engineering expertise to manage sophisticated projects, and cost plus contracting in which the Navy agreed to reimburse the builder for cost overruns or government requested changes.   The Friends Committee on National Legislation calculates that Americans' spend 44.4% of their tax dollars on war and the military compared to 19.7% for health care.   Such profligate military spending is but one metric of the misguided attempt to create an American Empire {12/18/06} that requires global military operations to maintain.

[chart: Center for Arms Control & Non-Proliferation, 2/2008]

[images: New York Times, AP]

At Last, Universal Payer on the Table

Senator Bernie Sanders (I -VT) has put a single payer health plan proposal on the table in the Senate.  The House already has two versions of the moral solution to America's health care crisis. Seventy-two members have signed on to Rep. John Conyer's (D-MI) bill and there are other members supporting Rep. Jim McDermott's (D-WA) legislation.  This is the first Senate bill since the late Paul Wellstone (D-MN) re-introduced single payer in the mid-90s.  The politicos will have a hard time getting around the vocal support of health professionals for socially responsible legislation and not a business lobby sponsored kluge.  The latest surveys show more than half of US doctors support a single payer system.  Under the American Health Security Act of 2009 the funding is federal but the states will administer the program. Private health insurance will be replaced because the vaunted "invisible hand" of the market has failed to produce a viable system of private insurance. What it has created is a Frankenstein profit mechanism based on inequitable medical underwriting and administrative duplication.  Supporters of a universal, single payer plan estimate that a government insurance monopoly will be able to drive down costs and save $400 billion annually, enough to cover every American with good, comprehensive care independent of their employment status. Community health centers will be fully funded and additional medical personnel trained under the plan. Barrack Obama once supported single payer health insurance before he became the 'Obamanon'.  Let us hope he can still see the light through the glare of celebrity.