Saturday, November 27, 2010

In a manner of speaking

"News" and views from North Korea:

US-S. Korean Warmongers Contemplate More War Maneuvers
The U.S. imperialists and south Korean puppet war-like forces announced a plan to stage combined exercises in the West Sea of Korea from Nov. 28 to Dec. 1, according to south Korean Yonhap News.

The situation on the Korean Peninsula is inching closer to the brink of war due to the reckless plan of those trigger-happy elements to stage again the war exercises targeted against the DPRK in wake of the grave military provocation they perpetrated against the territorial waters of the DPRK side in the West Sea of Korea while staging the Hoguk war maneuvers for aggression against the DPRK.

Guambat reckons a more appropriate headline to that story might be "Inching to Incheon". See
Stratfor report, Is North Korea Moving Another 'Red Line'?:
"Pyongyang is attempting to move the real “red line” for conventional weapons engagements, just as it has managed to move the limit of “acceptable” behavior regarding its nuclear program."

Stratfor also provides a very helpful explanation of the red, yellow, NLL and MDL lines: Dispatch: Importance of the Koreas' Northern Limit Line
One of the elements to that is really to better understand what is the Northern Limit Line, why is it there and how do the North Koreans view this.

At the end of the Korean War, as the armistice was being discussed, there was a general agreement on where the DMZ — the demilitarized zone - would go between the two Koreas. However, there was no agreement on where the maritime border would go on the west coast.

The United Nations unilaterally drew the Northern Limit Line — putting it within three nautical miles of the North Korean coast, which was standard territory at the time. It also placed five islands just south of the NLL under South Korean or under U.N. control at the time.

And in many ways, that boxed in the North Koreans, and it protected the southern port at Incheon.

The North Koreans never recognized the NLL, and by the late 1950s they were already complaining about it.

They were suggesting the creation of what they called the MDL — the military demarcation line. This would have been a line that matches more along the 12 nautical miles and runs fairly diagonally between North Korea and South Korea in the West Sea.

For the North Koreans, this would give them access to Haeju, their southern deepwater port. It would also give them access to critical crab-fishing grounds in the area.

For the South Koreans however the shape of the MDL, from their perspective, would put Incheon at risk, and South Korea and the United Nations refused to change the line.

When we look at North Korea’s broad strategic behavior in trying to force negotiations over critical issues, we see them posturing, we see them raising crises so they can step back from them in return for talks and for negotiations.

But as we’ve seen in the issues of North Korea’s nuclear weapons and missiles, they’ve reached a point where it’s very hard now to create a crisis because they’ve already tested nuclear weapons; they’ve already launched long-range missiles. In general, any red line — real or imagined — has already been crossed.

We’re seeing now on the NLL that the North Koreans are having [to] step up even to a higher state of activity to be able to draw attention to the NLL.

So shelling into the water doesn’t do it, missile tests doesn’t do it, shooting between boats doesn’t necessarily do it, even the incident with the Chon An didn’t seem to bring this NLL issue back up onto the table. They’re now shelling South Korean islands.

But, back to North Korea and its more prosaic way of getting its message across.

CPRK Warns S. Korean Puppet Group Not to Do Rash Act
The south Korean puppet group is now getting hell-bent on the wholesale racket for confrontation with the DPRK while groundlessly taking issue with the army of the DPRK over its due punishment meted to the group for its reckless military provocation.

In this regard, a spokesman for the Committee for the Peaceful Reunification of Korea released a statement on Friday.

The recent military provocation by the puppet group is a product of the deliberate and premeditated plot hatched by it to save its smear confrontational campaign from total bankruptcy, tarnish the daily rising might of the DPRK, scuttle the efforts for improving the north-south relations and tide over the domestic and international isolation and crisis, it points out, and says:

The group perpetrated the recent provocation prompted by a sinister calculation that in case the DPRK did not make any reaction it would take it as "a tacit recognition" of the illegal "northern limit line" and make it a fait accompli and in case the DPRK took a military counter-action, it would use it as a pretext for kicking up anti-DPRK smear campaign.

This notwithstanding, the chief executive of south Korea did not bother to cry out for "much stronger punishment" while pulling up the DPRK. This is nothing but last-ditch efforts of those who were hit hard after making hasty provocation.

The prevailing situation clearly proves that the DPRK's warnings and domestic and foreign concerns that the seizure of power by the Lee Myung Bak group of conservatives would bedevil the inter-Korean relations and lead to a war were by no means for nothing.

If the puppet group insists on confrontation with the DPRK, the DPRK does not have any idea of dodging it at all.

It is the temperament of the DPRK to resolutely counter confrontation with confrontation and war with war.

The army and people of the DPRK are now greatly enraged at the provocation of the puppet group while getting fully ready to give a shower of dreadful fire and blow up the bulwark of the enemies if they dare to encroach again upon the DPRK's dignity and sovereignty even in the least.

The group should not run amuck, clearly understanding the will and mettle of the highly alerted army and people of the DPRK to wipe out the enemies.

Escalated confrontation would lead to a war and he who is fond of playing with fire is bound to perish therein.

Gone are the days when verbal warnings are served only.

We will respond to good faith in kind but punish the provocateurs encroaching upon our dignity and sovereignty with resolute and merciless counter-action.


Thursday, November 25, 2010

The prostitution of democracy

Some call it the "criminalization of politics". Guambat reckons it's the prostitution of democracy.

DeLay Undone by Effort to Consolidate GOP Power
During a 22-year career in the U.S. House, Tom DeLay helped build up the Republican Party's power — and, by extension, his own — through a combination of shrewd strategy and hardball tactics that earned him the nickname "The Hammer" and elevated him to the chamber's second-highest post.

DeLay was defiant Wednesday after a jury convicted him in what prosecutors alleged was a scheme to send more Republicans to Congress by funneling illegal corporate money to Texas legislative candidates in 2002.

Outside the courtroom, he complained about an "abuse of power" and "miscarriage of justice" from the jury in Austin, the most Democratic city in one of the most Republican states.

"I still maintain that I am innocent. The criminalization of politics undermines our very system...."

DeLay and his attorneys maintained the former congressman did nothing wrong as no corporate funds went to Texas candidates, the money swap was legal and prosecutors had failed to prove he had committed any crime as their case relied mostly on circumstantial evidence.

As he consoled his daughter Danielle after the verdict was read in the courtroom, DeLay whispered in her ear that he couldn't get a fair trial in Austin.

DeLay had contended the charges against him were a political vendetta....

Prosecutors said DeLay conspired with two associates, John Colyandro and Jim Ellis, to use his Texas-based political action committee to send $190,000 in corporate money to an arm of the Washington-based Republican National Committee. The RNC then sent the same amount to seven Texas statehouse candidates. Under Texas law, corporate money can't go directly to political campaigns.

Of course, that will change. The Supremes appointed by the Bushies have made sure that democracy in America is based on the one dollar, one vote premise, now that it has allowed corporations open slather on political spending.


In your Face, Dude

Let's face it, so-called proprietary ownership of common language has gone too far. Old McDonald should be turning over in his grave. This is nothing more than common thievery. Thievery of the commons.

Facebook Allowed to Trademark the Word 'Face'
Businesses thinking of including "face" in their name might want to reconsider. Facebook this week was granted a notice of allowance to trademark the word "face."

The effort to trademark "face" goes back to 2005 when CIS Internet Limited, a U.K.-based company, tried to trademark "face" for its site. Facebook bought the application from CIS in 2008.

Even without the official "face" trademark, Facebook has already gone after companies using "face" – as well as "book" – in their business names.

In August, the company sued Teachbook, arguing that "book" is a term associated with Facebook. Selecting "book" was a completely arbitrary choice and "pilfers a distinctive part of the Facebook," Facebook said. Travel site PlaceBook also changed its name to TripTrace after Facebook contacted the site and said its name was confusingly similar to its own.

In October, Facebook sued Faceporn, citing copyright infringement. Facebook said that Faceporn "blatantly copied the Facebook logo, site, and Wall trademark." Facebook was awarded a patent for its news feed in February.

More recently, Facebook has been in a battle with Lamebook, a parody site that makes fun of the ridiculous things posted to the social-networking site. Last week, Facebook filed a trademark infringement case against the site since Lamebook uses a logo and marks similar to Facebook's throughout its site. "The content and functionality that appears on the Lamebook site is essentially derived from the Facebook site," Facebook wrote in its suit, filed in California District Court.

Facebook later shut down the Lamebook fan page, though Facebook chief technology officer Bret Taylor later told TechCrunch that that was a mistake. "In the process of dealing with a routine trademark violation issue regarding some links posted to Facebook, we blocked all mentions of the phrase 'lamebook' on Facebook," Taylor said.

Lamebook later set up a legal assistance fund. "Facebook didn't get the joke. They've decided to pick on the little guys: small business owners who seem to be no match for a multi-billion dollar behemoth. But this is one Web site that's not going down without a fight" the company wrote. "With our first amendment rights under fire, we've made a daring legal move that we believe will help us defend ourselves under the law and keep this site up, allowing us to keep bringing you, your friends, your parents, and your creepy uncle the insanity that's had us in stitches since we started. Thing is, we need your support."

Guambat reckons it's about time we did an about face on this squatters rights of every day usage of our language.

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Tuesday, November 23, 2010

South Korea’s Yeonpyeong island

South Korea’s Yeonpyeong island

South Returns Fire on North After Shells Wound Troops
South Korea scrambled fighter jets and returned fire after North Korea lobbed dozens of shells into its waters and an island, injuring 14 soldiers according to the government and YTN reports.

Television footage showed smoke billowing from Yeonpyeong island off South Korea’s northwest coast, where the shelling set fire to houses, YTN said. South Korea’s Joint Chiefs of Staff confirmed in a statement on its website that North Korea fired “several” shells.

One South Korean marine was killed in the shelling KBS reported, without saying where it got the information. Four of 14 marines hurt were injured seriously, YTN said, also without elaborating. Two civilians were hurt, the TV channel said.

Yeonpyeong Island, 2 miles (3.2 kilometers) south from the border, was close to the site of two deadly naval skirmishes between the two nations in 1999 and 2002. North Korea last fired artillery near the island in August.

South Korean President Lee Myung Bak called an emergency meeting, his office said.

The military has been put on high alert and will “respond strongly” to further provocation, the defense official said, speaking on condition of anonymity because of departmental rules.

“What can South Korea do apart from a bit of chest beating?” Lankov said. “They are not going to start a war. I think they will try to play it down.”

President Barack Obama dispatched his envoy on the country, Stephen Bosworth, to Asia this week after reports by a U.S. scientist that North Korea had revealed to him a “stunning” new uranium-enrichment plant. Bosworth is in Beijing today, after visiting Tokyo and Seoul.

What would Jesus Israel do?


Sunday, November 21, 2010

Yonaguni Island

Ministry of Defense to station 100 GSDF members on island in Okinawa to observe China (Japanese news item originally published Nov 10, 2010)
The Ministry of Defense has finalized its decision to station around 100 Ground Self-Defense Force (GSDF) members on Yonaguni Island in Okinawa Prefecture to monitor the coast and the activity of Chinese ships.

The main objective of the forces will be using radar to monitor the movements of Chinese vessels, which have increased their activities in waters off the disputed Senkaku Islands and other areas of the East China Sea. The Defense Ministry is also considering in the near future stationing GSDF members on Ishigaki and Miyako islands, also in Okinawa Prefecture.

Currently GSDF members are not stationed any further west than the main island of Okinawa. Miyako has an Air Self-Defense Force radar site, but the area west of that is considered "a blind spot in national defense," according to a 2010 annual white paper released by the Defense Ministry.

Since early this year, there have been repeated instances of Chinese military ships sailing southward through international waters between the main island of Okinawa and Miyako Island. There was also a collision incident between a Chinese fishing vessel and Japanese patrol boats off Senkaku Islands in September.

The Defense Ministry plans to construct a camp on Yonaguni Island for the observation forces. Yonaguni, located around 110 kilometers from Taiwan and around 350 kilometers from the Chinese mainland, is considered one of the strategic buffer islands between Japan and its Asian neighbors.

Japan to send troops to remote isle over China fears: media (AFP, Nov 11)
Defence Minister Toshimi Kitazawa Thursday stressed the importance of boosting defence in island areas, including Yonaguni, to a security committee meeting at the House of Representatives, Jiji reported.

The defence ministry has applied for 30 million yen (365,000 dollars) from next year's budget for "preparatory research" on the issue, it said.

The Japanese military regularly sends patrol aircraft to the region but has no permanent monitoring facility on Yonaguni, a remote but populated rocky outcrop.

Taiwan to protest if Yonaguni troops affect security (Radio Taiwan, Nov 10)
Foreign minister Timothy Yang says Taiwan will lodge a protest if a Japanese plan to station troops on Yonaguni Island affects national security. He was speaking in Taiwan's legislature on Wednesday.

Foreign minister Yang also reiterated that Diaoyutai is a territory of the Republic of China on Taiwan. The Diaoyutai Islands are also claimed by Japan and China.

"Our stance has not changed. The area includes a place over which we claim sovereignty – that is, the Diaoyutai Islands. If the Yonaguni facilities [pose a potential threat to Taiwan's sovereignty], we will lodge a strong protest, and will not sit idly by," said Yang.

Taiwan must be stern with Japan on sovereignty dispute: lawmakers(Taiwan Focus News, 2010/11/08)
Taiwan will never bend on its territorial claim over the Tiaoyutai Islands or compromise over an airspace fracas with Japan, Taiwan's top envoy to Japan said at a legislative interpellation session Monday.

The sovereignty feud over the group of uninhabited islands that lie in the East China Sea about 180 kilometers off Taiwan's northeast tip has long been a sticking-point in relations between Japan, Taiwan, and China, all of which claim rights over the area.

John Feng, head of the Taiwan's de facto embassy in Japan, said that to protect the rights of Taiwan's fishery industry, the government will not waver on its claim of sovereignty over the disputed islands.

Taiwan is determined to resolve the longstanding quagmire in a "peaceful and rational" manner without any cooperation with China, he said.

Japan's unilateral decision in June to expand its Air Defense Identification Zone (ADIZ) is another factor that has caused a rift in bilateral ties.

According to Taiwan, the expansion has encroached upon its airspace.

Drawn by the U.S. military just after World War II, the original ADIZ demarcation between Taiwan and Japan lay along longitude 123 degrees east and splits the airspace over Japan's Yonaguni Island in half. The division entitles Japan to the airspace east of the line while the area west of the line falls under Taiwan's jurisdiction.

The new ADIZ drawn up by the Japanese Ministry of Defense extends 22 km from the baseline, with an additional 3.7 km as a buffer zone. The redrawn zone creates an overlap with Taiwanese airspace.

The Foreign Ministry immediately released a statement to emphasize Taiwan's refusal to accept Japan's version of the ADIZ and called upon Tokyo to establish a channel of communication to resolve the matter based on aviation control and security.

Japan Set to Monitor Chinese Naval Operations (South Korean new item published Nov 12.)
Japanese defense officials said Thursday that up to 200 troops would be deployed on Yonaguni island so they could conduct radar surveillance of Chinese naval operations. The island is Japan's westernmost point, about 100 kilometers east of Taiwan.

With increased Chinese naval activity in the region, Japanese officials have concluded that the lack of a monitoring station leaves it vulnerable. Japanese air forces watch the waters but currently Japan has no permanent monitoring station on Yonaguni.

The Asian powers both claim ownership of disputed islands in the East China Sea, with Japan calling them Senkaku and China, Diaoyu. In an incident in April, a Chinese flotilla approached the islands and sent out a helicopter to buzz Japanese naval ships monitoring their movements.

More recently, relations between the two countries soured after a September incident in which a Chinese fishing trawler collided with two Japanese patrol boats and Japan detained the Chinese captain for 17 days before releasing him.

A leaked Japanese Coast Guard video of the incident shows the Chinese trawler turning directly into one of the patrol boats, but China says Japan acted illegally in the dispute.

It might be noted that the same paper ran this story in September:

China Working to Counter U.S. Naval Power in the Pacific
China was ramping up investment in nuclear weapons, long-range missiles, submarines, aircraft carriers and cyber warfare, and building up a force that could strike as far as the U.S. territory of Guam. The U.S. and other countries have questioned Beijing's need for either a carrier or new missiles because, they say, there currently are no real threats to China's interests. But Wu says there is also one basic reason for doing so now -- money.

Wu says it was not possible for China to build an aircraft carrier before, but now China's economic boom has given the country the means to work on one.

China's neighbors, including Southeast Asian nations that dispute Beijing's claims to scores of small, uninhabited islands in the South China Sea, have quietly expressed concern about its military buildup.

At the same time, Beijing has grown increasingly vocal in recent months in demanding that U.S. ships stay away from wide areas of ocean -- covering much of the Yellow [West], East and South China seas -- where it claims sovereignty.

Report: Japan plans to send troops to islands Washington Post article Nov 21:
Japan currently does not have troops on Yonaguni and placing them on an island that is closer to China, Taiwan and the disputed islands could become a contentious issue.

Japan plans troop deployment near disputed islands - Nikkei Reuters, Nov 21:
The plan is to send 100 troops to Yonaguni, about 110 km east of Taiwan and 160 km southwest of disputed East China Sea islets called Diaoyu in China and Senkaku in Japan.

But it wouldn't take effect until 2014 at the earliest, the newspaper said without giving an explanation.


It's all the same to me

Once upon a time, investing in the stock market involved choices, selections, discrimination. Buying a stock was like planning a vacation.

That was then. Now, it's all the same to me.

Now stock selection is Fast Money. And Lightening Rounds of Mad Money.

Now all markets are linked tighter than the threads in fine hotel-count sheets. Liquidity, and liquidity alone matters. The rising tide of liquidity has unloosed tsunami-defined market movements. Tsunamis are, after all, just liquidity events.

Now, it is a rather quaint idea to buy "a" stock. The stock pickers gave way to mutual funds, which gave way to WTF ETFs, and all of them are bound up in aggravating algorithms, whose main purpose is to make sure money runs with the pack.

Jason Zweig writes The Intelligent Investor every Saturday for The Wall Street Journal. A couple of his recent columns touch on this development.

Are ETFs a Menace—or Just Misunderstood?
A report released this week produced by researchers at the Kauffman Foundation, the Kansas City, Mo.-based institute that supports research on entrepreneurship, argues that ETFs are "radically changing the markets," raising the prospect of a "panic-driven market meltdown." ETFs are funds that hold all the securities in an index and themselves trade like a stock.

The proliferation of ETFs, the report contends, raises at least three worries. First, these funds have overconcentrated the ownership of thinly traded stocks. Second, they have led to an escalating number of trading failures. Third, ETFs could trigger another massive market swing like the May 6 "flash crash."

Let's start with concentration. According to the report, a single ETF, the iShares Russell 2000 Index Fund, is among the 10 largest holders of 1,737 stocks—many of which also are held by other iShares ETFs.

Yet ETFs aren't traditional mutual funds. At an ETF, the manager's job isn't to make judgments on single stocks, but merely to keep the portfolio as close to its index as possible. And, in contrast to a mutual fund, "no one stock represents a large portion of the typical ETF," says Gus Sauter, chief investment officer at Vanguard Group.

Since ETFs must buy the stocks in the index they track, regardless of price, it is legitimate to wonder whether values aren't getting out of whack as ETFs come to dominate the market.

Why Your Stock Portfolio Is Acting Like a Commodity Basket
In the past few years, many investors have concluded that commodities like oil, corn and gold offer independent returns that can diversify away the risks of stocks. But the correlations between stocks and commodities—the extent to which their prices move together—are in many cases the highest they have been in nearly 30 years.

This year, about 40% of the weekly movements in the S&P 500 index can be explained by weekly fluctuations in energy prices, says Michele Gambera, head of quantitative analysis at UBS Global Asset Management. That is twice the level of similarity over the past five years and roughly 20 times the level of the past two decades.

Some of the linkages between stocks and commodities are looking bizarre. This Thursday, the monthly correlation between sugar futures and the S&P 500 hit 67%, more than 10 times its level just six days earlier, says Howard Simons, strategist at Bianco Research. That is the third time this year that the linkage between sugar and stock prices surged above 60%—much higher than their long-term average of under 20%.

How on earth did sugar and stock prices get stuck together? Sugar, says Mr. Simons, is now both an "energy commodity" and a "growth story," since much of the Brazilian crop is used to produce ethanol. That gasoline additive is linked to crude-oil prices, which in turn are sensitive to monetary policy and global economic growth—the same factors driving stock prices.

Of course, correlation isn't causation; this could be a coincidence.

But there is another, less visible force at work, Mr. Simons says. Algorithmic trading programs, or "algos," automatically buy and sell a wide variety of assets based on mathematical models.

An algo doesn't know or care why two assets are moving together; it merely is programmed to recognize that they are doing so. As soon as a computer places bets that such a linkage in prices will persist, other traders—computers and humans alike—tend to take note and follow suit. That can be true, Mr. Simons says, whether or not a correlation is driven by fundamental economic factors.

"We've gotten to the Frankenstein point where algos are self-programming, and they evolve to chase these relationships," Mr. Simons says. "That's created a sheer wall of money that is forcing other people's behavior into the same pattern."

What's more, quantitative easing—the massive purchase of bonds by the Federal Reserve—and the global recovery have been bullish for just about every asset. But at past economic turning points, the correlation between stocks and commodities were lower than they are today.

For the foreseeable future, there will be plenty of periods in which diversification will seem to fail as tidal waves of money crash in and out of all assets at once.

As Guambat wrote back in 2006, just as stock markets began to go parabolic and then alcoholic,
A black box is not some fatcat in a pin-striped suit and a big cigar. It is a streak of cyberdata, a stateless, motherless virus hellbent to ambush, arbitrage and retreat faster than a ninja.

And they are everywhere, in to everything. Their bytes permeate every conceivable market, like a monstrous whale seiving the nutirients and little, bottom-of-the-food-chain investors and small players from the oceans of cash that trade the world's goods.

They derive their gains from diverse derivatives of incalculable numbers and varieties, trading the shadows of what used to be a currency or a commodity or a stock or a bond, but now come under the most obtuse and arcane of names that only financial rocket scientists can understand. Their trade is in ideas and concepts and notions and algorithms, not things and companies.

Back when stock picking became more treacherous, due in no small part to the huge and creative gaps in GAAP reporting, Enron accounting and Swiss bank/tax haven black holes, Guambat gave up stock picking and took up nose picking. Didn't make any more money, but didn't lose any, either.

Then, for reasons not really very well rationalized, Guambat got into trading the Australian stock market futures contract. It went well for a short while, but around about the time he wrote the words quoted above, he began to be overwhelmed with market moves that utterly made no sense to him, as tsunamis often take us by surprise.

So he's been beached for a while now, and with the regular tides now turning into a series of tsunamis, with tsunami sized ebbs and flows, he has no desire to go back in the water. It's just too treacherous, too rigged, and plays by games too fantastically contrived to offer the likes of Guambat any latitude for entertainment, let alone success.

If Las Vegas treated its gamblers the same way the stock markets now treat the casual punter, it would be in worse shape than it already is. Markets are simply a no-go zone for hobby traders any more.

If Wall Street wants to entice the likes of Guambat back to its markets, its going to have to build a better sandbox, and leave the concrete mixers to the big guys.

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Saturday, November 20, 2010

Think Afghanistan. Think tanks.

We had nothing to do with Al Qaeda's 9/11 attacks, Afghan Taliban claim
The Afghan Taliban on Monday denied they were mixed up in Al Qaeda's 9/11 plot - or that they would ever target the U.S. homeland.

The bizarre denial came in a letter to "the members of the American Congress" nine years after the attacks were hatched by one-eyed Taliban leader Mullah Mohammed Omar.

Ahmadi said the Afghanistan war "began on the basis of an event which is a mystery" and claimed the U.S. still is motivated by 9/11.

Read more:

Think tank: 92% of Afghans never heard of 9/11
A report (PDF) from the International Council on Security and Development (ICOS) shows that 92 percent of those surveyed had never heard of the coordinated multiple attacks on US soil on September 11, 2001. It also shows that four in 10 Afghans believe the US is on their soil in order to "destroy Islam or occupy Afghanistan."

The survey also suggests that Afghans are skeptical of their own government's ability to protect them, and have little regard for the fledgling democratic institutions the country is building. Fully 43 percent could not name one positive aspect of democracy, and nearly two-thirds -- 61 percent -- said they didn't think Afghan forces would be able to keep up the fight against the Taliban if and when Western forces withdrew.

“We need to explain to the Afghan people why we are here, and both show and convince them that their future is better with us than with the Taliban,” ICOS lead field researcher Norine MacDonald said in a statement.

Military to deploy heavily armoured tanks to Afghanistan for the first time as the US escalates its assault on the Taliban
The US is escalating its assault on the Taliban with a sharp rise in bombing and missile raids, more relaxed rules on the destruction of civilian property and the deployment of heavily armoured M1 Abrams tanks to Afghanistan for the first time.

The Americans say they plan to deploy a company of M1 Abrams tanks, considered among the most lethal of US military vehicles with an ability to destroy buildings more than a mile away. The fast 68-tonne tanks will be used by US marines in Helmand province where the Americans say the Taliban are equipped with weapons such as rocket propelled grenades.

Under Petraeus's predecessor, General Stanley McChrystal, who was sacked by the White House over criticism of his civilian superiors, the US counter-insurgency strategy laid a heavy emphasis on separating and protecting Afghan civilians from the Taliban.

Although that is not being formally abandoned, Petraeus has decided to take the fight to the insurgents and American forces have taken a more aggressive stance.

McChrystal's emphasis on protecting civilian lives did not sit well with many in the military, including front line troops who were prevented, for example, from destroying houses that might be used to hide roadside bombs or provide shelter for attack. American troops now routinely destroy houses they believe to be a threat. But the shift has angered Karzai who has argued that night raids by special forces and other tactics are fuelling support for the Taliban.

The number of "special operations" missions targeted at Taliban leaders has more than tripled since General David Petraeus took over as Nato commander in Afghanistan in July. Nato planes dropped about 1,000 bombs and missiles last month, more than at any time since the early stages of the war in 2001.

One US official told the Washington Post that the new strategy is forcing back the Taliban.

"We've taken the gloves off, and it has had huge impact," the official said.


Bernanke: Yes we Keynes

Guambat has been critical of QE2, not necessarily because of what it is, but because of what it is not. It is not fiscal policy, and Guambat fears that monetary policy has shot its wad.

As was said in Saving whose asset ?,
Keynes may not have been entirely right. At least, it may be that not all Keynesian follower's ideas have all worked out as planned.

But Guambat is now pretty sure that a busted economy needs real productive growth that comes with real spending on the ground that creates jobs and demand and tangible production.

Particularly in these circumstances, monetary policy in the main or on its own, cheap currency and artificially inflated asset prices is nothing but a bunch of fairy floss, peddled by people who know exactly what they're doing and grabbed up by people who don't know what's good for them.

And, at some point after the sugar rush, look out for the big let down.

Bernanke has finally, it seems, also accepted publicly the limitations of monetary policy. In a speech on November 19, he said,
In sum, on its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years. As a society, we should find that outcome unacceptable.

Monetary policy is working in support of both economic recovery and price stability, but there are limits to what can be achieved by the central bank alone. The Federal Reserve is nonpartisan and does not make recommendations regarding specific tax and spending programs.

However, in general terms, a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve.

That may not go down real well with the "don't tax, don't spend" Tea Party and other conservative members of Congress.


Wednesday, November 17, 2010

World class corruption

Jack Abramoff and his Ring of collaborators are mere corruption pikers.

They could all take a few clues from Gayus Tambunan.

Gayus Tambunan is, or at least has been, an Indonesian tax collector. His position paid A$1400 per month.

Before benefits.

With benefits, he amassed a tidy $3.2 million fortune from his position.

His misdeeds made him infamous.

Back in March of this year, a crack squad of Anti-Judicial Corruption Task Force officers meticulously tracked him down in Singapore and hauled him off back to jail in Indonesia.

Well sort of. This is how that was reported by Antara News:
Gayus Tambunan, a tax official wanted for corruption and money laundering, had been arrested at Mandarin Hotel-Meritus, Orchard Road, Singapore. He and his family were dining at an Asian food stall at Lucky Plaza.

Anti-Judicial Corruption Task Force Secretary Denny Indrayana and Mas Ahmad Santosa, member of the Task Force, happened to have dinner at the same restaurant.

"Seeing Gayus Tambunan, we immediately call Chief of the Indonesian police detective unit Commissioner General Ito Sumardi to inform him on Tambunan`s whereabouts," he said.

At the meeting with the suspect, the task force and other Indonesian police officers asked him to become cooperative and willing to return to Indonesia to stand trial, Indrayana said.

After two hours of negotiations , Tambunan eventually decided to return to Indonesia.

It seems that Mr Tambunan's apprehension caused greater apprehension in some quarters who knew him from his cooperative tax collection activities.

What makes it seem that way is that he was "mysteriously" acquitted of corruption charges, then later arrested again, and then later again took the liberty of spending only so much time in jail as he wanted.

This turn of events is reported in the Sydney Morning Herald:
He came to national attention when he was mysteriously acquitted of corruption charges in March. It later emerged he had paid the judges, prosecutors and police more than $2 million to get the charge reduced to a minor embezzlement offence, which was then dismissed.

Gayus was promptly arrested, along with, curiously, the man who alerted the public to the affair, a senior police officer, Susno Duadji. Mr Susno was pinged for another alleged corrupt deal involving a fish farm, although it was widely viewed as payback for his whistleblowing.

But, not deterred with twice being caught making corrupt payments, or by the fact he is one of the most high-profile prisoners in Indonesia, Gayus confessed on Monday that he had paid more than $40,000 to be allowed to walk out of prison, reportedly on 68 occasions.

He was not absconding from any old prison either, but one in the middle of the headquarters of the elite mobile brigade police just outside Jakarta.

It was an admission that was slow in coming, prompted when a man resembling Gayus in a wig and glasses was photographed by The Jakarta Globe newspaper at the Tournament of Champions in Bali almost two weeks ago.

Suggestions it was Gayus were dismissed by the police as "totally groundless".

However, on Monday, Gayus came clean, breaking down in tears before a panel of judges at his reconvened court case.

"To put an end to this polemic, I admit that the man in Bali was me," he said.

"I have been so stressed since being detained, and I thought I would take a little vacation because I also saw that several other high-profile detainees were allowed to leave."

The trip to Bali included a three-night stay at the luxury Westin Hotel in Nusa Dua for Gayus, his wife and son.

'It's just the tip of the iceberg," said Donal Fariz from Indonesian Corruption Watch, adding that most of the large companies, senior police and prosecutors that have been identified by Gayus as bribing him have not been prosecuted.

"We are concerned that his trip to Bali was an attempt to stop Gayus from naming more names in court," he said.

Despite its endemic graft, Indonesia is the co-chair of the G20's working committee on anti-corruption.


Teaparty does a Tyson?

As ESPN told the story back then,
As Tyson spits out the chunk of Holyfield's ear, a bewildered and perplexed Holyfield pushes Tyson away, then hops up and down in a frenzied pain, and spins around in a circle in stinging agony.

As the WSJ tells the other story now,
In a swift victory for tea-party activists, the Senate's top Republican agreed Monday to a plan to ban GOP members from proposing earmarks for spending bills

The development came as Sen. Mitch McConnell, the Senate Republican leader, reversed his longstanding support for the practice and said the public would no longer accept it.

Some senior Republicans still defend earmarks, saying, among other things, that the Constitution gave Congress the power of the purse

Mr. McConnell was a leading defender until Monday, creating tensions within the party and in particular with Sen. Jim DeMint (R., S.C.), a big figure in the tea party. But in his first speech on the Senate floor since the election, Mr. McConnell capitulated.

"I know the good that has come from the projects I have helped support throughout my state," said Mr. McConnell, a Kentuckian. "I don't apologize for them.


Pulling, not pushing, on strings

RBA expected rates top-up: borrowing costs
The minutes show policymakers expected banks to move by more than the official hike, and that they will factor borrowing costs for households in future decisions.
Of course the RBA did. Whose hand is up whose puppet?

The Four Pillar policy was enacted, so we are told, to keep the existing Big Four from devouring each other and thereby lessen competition. See the discussion of The 'four pillars' policy in this Senate report.

But they've worked so conveniently together that it has ended up as a bulwark against new entrants, especially foreign ones, with the typical moral hazard consequence. The feared duopoly is now the fearsome oligopoly of four.

Survey calls banks' bluff on rates rises
Analysis of regulatory figures by the Australia Institute has found banks' interest expenses have risen less than the RBA's interest rate rises over the last 12 months.

Banks have claimed that their costs have been rising by more than the official rate increases, saying they have had to lift rates above the official moves to recoup those higher costs.

A senior research fellow at the institute, David Richardson, says it has not found any evidence to support their claim.

"Their profits unambiguously have gone up, there's no doubt about that, and it looks like they've been exploiting the lack of competition as a result of the GFC," he said.

But the Australian Bankers' Association says the research is completely fabricated.

ABA chief executive Stephen Munchenberg says the RBA debunked the claim yesterday when it released minutes saying the banks' cost of funding was rising.

Why Australian Banks Need More Competition by Kris Sayce on 10 March 2009
It is taking a very long bow to suggest that because Australia maintained a ‘Four Pillars’ banking policy that has somehow saved the local banks from oblivion. In the world of cause and effect ‘Four Pillars’ is nowhere to be seen. It is a mere coincidence.

What the ‘Four Pillars’ policy has ensured is that customers are subjected to a government mandated banking cartel. This cartel has allowed them to get away with charging customers high fees. We don’t have a problem if a bank wants to charge fees, in fact we would have a problem if the government tried to legislate against it.

That is why a completely free market is necessary to make sure that companies do not have the opportunity to take advantage of a distorted market. In a market without distortions, customers would have more competition and would have greater choice to move to a bank that didn’t charge high fees. Now, there is very little choice.

So, if the ‘Four Pillars’ policy was abandoned, what effect would it have on the Australian banking industry.

For a start, they would compete with each other for customers. Would this necessarily mean the banks would take more risks? Mr. Macfarlane clearly believes the two are connected. Why competition in the banking system should be treated differently to competition in any other industry is hard to fathom.

Guambat remembers when, in the 1990's, the Australian Big Four, despite the Pillar Policy, were on their knees.

Westpac in particular was doomed, which was when Mr Packer came a courtin' and scooped it up on the cheap, then years later, doing another Bondy, he sold it back to the market.

The Four Pillars did nothing to prevent bank instability then and it is only a coincidence that it existed side by side with the Australian economy's dodge of the banking crisis bullet more recently.

It was not stable banking that saved the Australian economy over the last couple of years, it was a stable of earthly assets that China needed. Which is also why the Australian housing market does not resemble the US or London residential markets:

(Image via Barry)

Aussie banks too big to flail

Australia play bait and switch; no pillar talk

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Sunday, November 14, 2010

Foreign corrupt practices? It's negotiable.

At one time long ago, there was an advertisement, for a cigarette as Guambat vaguely recalls, whose theme was "I'd rather fight than switch".

The theme of this post is that, when it comes to foreign corrupt practices, big corporations would rather not fight, but don't really want to switch too much, either.

It pisses them off to get caught in the "no-fly" zones of the foreign corrupt practices law (FCPA), so they are arguing the law should be renegotiated so it won't catch so many of them with hands near, if not exactly, maybe, in the cookie jar.

It's the thin end of the wedge of a plan to gut the law. The better option is to test it.

Swiss Shipper Finds Resistance Futile in U.S. Bribery Probe
The U.S. and 37 other countries are fighting transnational bribery through the Paris-based Organization for Economic Cooperation and Development.

FCPA enforcement is a rising priority at the Justice Department, where about 30 to 40 lawyers might work at any time on FCPA cases, including 15 who are full-time. The SEC has assigned more than 30 lawyers to FCPA cases, and the Federal Bureau of Investigation has an entire squad of agents on foreign anti-bribery cases.

The Sarbanes-Oxley Act, passed in 2002, added to the burden with tougher standards for internal controls. Companies also faced more exposure to FCPA charges as businesses expanded internationally.

More than 50 people were charged with FCPA-related crimes in the past two years. A married couple who worked as Hollywood film executives were convicted at trial last year of violating the FCPA, and another man was convicted in a separate case of conspiring to violate the anti-bribery law.

Former U.S. Congressman William Jefferson was convicted of soliciting bribes, racketeering and conspiring to violate the FCPA. In January, the U.S. charged 22 people after an FBI undercover operation that focused on the military and law- enforcement products industry.

Panalpina World Transport Holding Ltd., like Siemens AG and others before it, faced potentially crippling penalties when U.S. prosecutors began investigating the bribes it paid to government officials around the world.

In December 2008, Siemens, Europe’s largest engineering company, agreed to pay $800 million to the U.S. and $814 million to German authorities. The company said it spent another $1 billion on lawyers and accountants and on strengthening internal controls.

In three other settlements, joint venture partners who built liquefied natural gas facilities in Nigeria admitted using agents to funnel $182 million in bribes to government officials for $6 billion in contracts. The partners agreed to pay a total of $1.28 billion, with Houston-based Kellogg Brown & Root LLC settling last year, and Paris-based Technip SA and Amsterdam- based Snamprogetti Netherlands BV reaching accords this year.

In the Panalpina case, the company admitted bribing government officials in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan. The bribes from 2002 to 2007 let its clients, most in the oil and oil-services business, avoid the customs process, pass off phony documents or smuggle contraband including medicines and explosives, Panalpina said in a statement of facts.

Settlements this year involved BAE Systems Plc, Europe’s largest defense company, which agreed to pay $400 million; Daimler AG, maker of Mercedes-Benz cars, which will pay $185 million; and Royal Dutch Shell Plc, Europe’s largest oil company, which agreed Nov. 4 to pay $48.1 million.

The U.S. Chamber of Commerce’s Institute for Legal Reform said the Justice Department and the U.S. Securities and Exchange Commission, which has civil authority in FCPA cases, “almost exclusively” define gray areas of the law without judicial oversight.

Congress should clarify ambiguities in the law that “have had a chilling effect” on U.S. businesses, some of which have “ceased foreign operations rather than face the uncertainties of FCPA enforcement,” the institute said in a paper last month.

Michael Koehler, an assistant professor of business law at Butler University in Indiana, assails settlements reached without judges having input on questions such as whether employees of state-owned companies are foreign officials. Many instances of “clear-cut bribery,” as in Siemens, are resolved through lesser books-and-records or internal controls charges, he said.

“The most egregious cases are not being resolved under the FCPA’s anti-bribery provisions,” said Koehler, who writes the FCPA Professor blog. “These untested and dubious legal theories have increased the compliance burden on companies.”

“Prosecutors know from the outset that they hold the upper hand because companies have to find terms to which they can agree,” said George Terwilliger III, a lawyer at White & Case LLP.

Surrender by companies such as Panalpina and Siemens is now the norm under the 33-year-old Foreign Corrupt Practices Act.

No company has risked an FCPA court fight in two decades out of fear that a conviction could lead to a loss of public contracts and higher penalties, lawyers said.

“Publicly traded companies cooperate in FCPA matters because they can’t afford the potential consequences of fighting with the government,” said Kirk Ogrosky, a partner at Arnold & Porter LLP who supervised Justice Department fraud cases.

Denis McInerney, chief of the US DOJ’s fraud section,said any company is free to defend itself in court.

“The courts are available to companies if they dispute the department’s interpretation of the law,” McInerney said.

Professor Mike Koehler, in his FCPA Professor blawg, puts the FCPA actions under his legal microscope and sees scope for misuse of the FCPA enforcement powers, accusing the government of asserting uncontested but contestable areas of law, particularly the nuanced or border-line factual issues that are critical to some of the definitions that make a "foreign corrupt practice". That is what was meant by the "no-fly" characterization above.

In a November 5 post, he described the latest round of enforcement actions.

Major Shipment - Customs Cases Bring In $236.5 Million
The pipeline that contains pending FCPA enforcement actions burst yesterday as the DOJ and SEC announced enforcement actions against 13 separate entities.

In enforcement actions that have long been anticipated, Panalpina entities, as well as several others, settled DOJ and SEC enforcement actions principally focused on customs and related payments in Nigeria, but also including alleged improper conduct in Angola, Brazil, Russia, Kazakhstan, Venezuela, India, Mexico, Saudi Arabia, the Republic of Congo, Libya, Azerbaijan, Turkmenistan, Gabon and Equatorial Guinea.

The combined DOJ/SEC settlement amounts total $236.5 million.

Your FCPA scorecard thus shows that since June 28th, the U.S. government has brought FCPA enforcement actions totaling approximately $1.1 billion. With numbers like these, aggressive FCPA enforcement based on, often times, dubious legal theories (more on that later) seems like the most profitable government program ever conceived.
That post, and the many other posts in the Professor's blawg, provide the kind of detail that put real flesh to the bones of MSM reports.

The Professor may be on to something with his observation/characterization that enforcement is "based on, often times, dubious legal theories", but his blawg also clearly reveals that, often times, actions taken upon which enforcement is undertaken, sail pretty close to the wind, and for the most part seems to be a pretty clear business calculation as to the cost of the action taken compared to the expected benefits.

For instance, he spends several posts explaining the various actions taken against companies who provide rigs for oil services, in actions he terms "CustomsGate". The circumstances are that some countries charge a tax for importing these rigs, which is not assessed if they are only imported temporarily. To make it temporary, the imported rig must be exported within a certain amount of time, then it is free to come back in, again, temporarily.

The companies, evidently, pay a local customs agent to fill out some paper work that suggests the rig is temporarily exported, which it isn't, and to file the paper, along with some other script, with the right persons or bodies who give their stamp of approval.

In the legal language used to describe this transaction:
According to the Statement of Facts, "whenever a TIP (and related TIP extensions) expired for a rig in Nigeria, the Nigerian Customs Agent, with the knowledge of Noble Nigeria, engaged in a process of submitting false paperwork on Noble Nigeria's behalf to avoid the time, cost, and risk associated with exporting the rig and reimporting it into Nigerian waters" - the so called "paper process" or a "paper move."

The Statement of Facts further assert that the "Nigeria Customs Agent, with the knowledge of Noble Nigeria, created and caused to be presented to the [Nigeria Customs Service] NCS documents that reflected that the rig had been physically exported and reimported, when, in fact, the rig had remained in Nigeria."

According to the Statement of Facts, the Nigeria Customs Agent included a line item in its invoices for "special handling charges" and "Noble Nigeria personnel were informed by the Nigerian Customs Agent that all or part of the 'special handling charges' would be paid by the Nigeria Customs Agents to NCS officials."

Further, the Statement of Facts assert that "Noble Nigeria personnel approved the payments to the Nigerian Customs Agent with the knowledge that some or all of the payments would be paid to NCS officials."

"Manager A" (a U.S. citizen and a former manager in Noble's Internal Audit Department) "interviewed several Noble-Nigeria employees who explained that false paperwork had been created and submitted to NCS officials through the Nigeria Customs Agent in connection with the process of securing TIPs" and that Manager A "also learned that the Nigeria Customs Agent in the past had charged a fee of approximately $75,000 per TIP to secure the TIPS."

Manager A provided a written summary to Executive A (a U.S. citizen, an officer of Noble, and Head of Internal Audit).

Executive A discussed Manager A's findings with Executive B (a U.S. citizen, an officer of Noble, and the Vice President-Eastern Hemisphere with management responsibility for Nigerian operations). Executive A then informed the Senior Executive (a U.S. citizen, an officer of Noble, and the former Chief Financial Officer).

Corrective action was contemplated, such as permanently importing rigs or moving them to a free trade zone, but Manager A and Executive B "decided that due to the time, cost, and risk of permanently importing or moving the rigs, the paper process would be used for three rigs for which TIPs had expired."
There's much more, but you get the idea, and if not or remain curious, please spend some time in the Professor's excellent blawg.

Professor Koehler has written an article recently, abstracted in his blawg, which claims FCPA enforcement action is a facade:
Against the backdrop of aggressive enforcement and the resulting multi-million dollar fines and penalties is the undeniable fact that, in most instances, there is no judicial scrutiny of the FCPA enforcement theories.

FCPA defendants are nudged to accept resolution vehicles notwithstanding the enforcement agencies’ untested and dubious enforcement theories or the existence of valid and legitimate defenses.

The end result is often the facade of FCPA enforcement.

in the absence of substantive FCPA case law, these privately negotiated resolution vehicles have come to represent de facto FCPA case law. The facade of FCPA enforcement also breeds inefficient overcompliance by risk averse business actors fearful of enterprise–threatening liability because of the enforcement agencies’ untested and dubious theories.

This article does not argue, or even suggest, that every FCPA enforcement action is unwarranted or that no company or individual has ever violated the FCPA.

Rather, this article demonstrates that a significant majority of recent FCPA enforcement actions are a facade—including those that allege clear instances of corporate bribery—yet are resolved without FCPA anti-bribery charges.

This article exposes the facade of FCPA enforcement, argues that addressing the facade and subjecting FCPA enforcement actions to greater judicial scrutiny is in the public interest, and encourages more FCPA defendants to challenge the enforcement agencies and further expose the facade of FCPA enforcement.

Guambat wholeheartedly agrees.

Much better a proper open legal forum than sending the American Chamber of Commerce off to the halls of Congress to do some deal and pull some string behind some locked door, which, Guambat must reckon, does not run foul of FCPA.

Cases, such as the CustomsGate cases, ought to be "vigorously contested". These are actions that cry out for judicial inquiry, both as to the facts and the law. Those companies should stop rolling over. Stop the shake-downs. Stand up and defend those actions!

Like that one hero the Professor mentions in this post, a US citizen representing a US corporation in Haiti (actually, it involved quite a few US individuals and corporations): Esquenazi Challenges DOJ's "Foreign Official" Interpretation.

The charges in the case include purposefully concealed payments of bribes of several hundred thousand dollars and other things, such as a Rolex watch, in return for lowered telephone rates, in breach of the FCPA.

Well, gosh darn it, however corrupt that may be, the FCPA charges are baseless if the Professor knows his peas, in this case, is a state-owned corporation employee a "foreign government official". As he put it,
Joel Esquenazi allegedly violated the FCPA's anti-bribery provisions by providing something of value, not to a foreign government official, but to an employee of an alleged state-owned or state-controlled enteprise ("SOE").
He also noted,
an interesting twist is that Haiti Teleco is currently 60% owned by Viettel, a telecommunications company run by Vietnam's military

Yes, yes, but all that aside, assuming the allegations to be true, is that a violation of the FCPA? Or does the DOJ have some luft in its sails.

Maybe that's why there are additional charges in the complaint for money laundering and conspiracy as well. There is usually some other basis on which to indict, and the argument is not whether the girl is pregnant, but how pregnant?

And maybe that is one reason why, when the DOJ holds up its mighty finger and says J'accuse!, companies would rather switch than fight.

Where there's (cigarette) smoke, there's usually fire.

The long arm of the law of procurement fraud

Detecting a climate of procurement fraud

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Wednesday, November 10, 2010

And would you like fries with that?

QE2= a mere $600 billion dollars, right?

McDonalds sells 75 hamburgers per second.

They sell at least 6,480,000 hamburgers per day, per this.

Suppose'n one burger at Macca's sold for a dollar.

Guambat remembers when you could one for 29¢. And 5 fishburgers for a buck on meatless Fridays.

He even remembers when keyboards had a ¢ symbol on them. Where has that gone?

How long would it take the world to eat through a QE2 pile of burgers?

Guambat reckons about 254 years.

And they better get crackin'.

'Cause it's going to be a hard thing to swallow.

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Tuesday, November 09, 2010

Strange bedfellows doth economics make, QE2 edition

Here, we have Fox News backing Obama (that's backing, not bagging), and Sarah Palin bagging the US Federal Reserve Chairman (that's bagging, not backing). And other sorts joining in higgledy-piggledy.

Fox News: Obama Cranks Up Currency Heat on China as Gold, Oil Prices Soar
President Obama found himself in India Monday on the defensive over the Federal Reserve's decision last week to print more money -- a move Fed Chairman Ben Bernanke insists will stimulate an economy stuck in neutral.

Obama's comments came in the face of stepped up criticism from China, Russia and Germany over the Fed's decision. "We can't continue to sustain a situation in which some countries are maintaining massive [trade] surpluses, others massive deficits, and there never is the kind of adjustments with respect to currency that would lead to a more balanced growth pattern."

And here's Sarah, in The Guardian: Palin takes potshot at $600bn QE2
Tea Party darling Sarah Palin joins Chinese and Germans in criticising resumption of quantitative easing, telling Fed chairman Ben Bernanke to 'cease and desist'

"If it doesn't work, what do we do then? Print even more money? What's the end-game here? Where will all this money printing on an unprecedented scale take us? ... All this pump-priming will come at a serious price," Palin will say, according to snippets of the speech obtained by National Review.

"Everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump-priming would push them even higher," Palin adds.

The Wall Street Journal, which has mainly appreciated the Fed's lift of "asset prices", is even starting to feel a little less robust, but still pugnacious, in its endorsement: Fed Global Backlash Grows
China and Russia Join Germany in Scolding; Obama Defends Move as Pro-Growth

The Fed is independent, and the White House by longstanding tradition has strained to avoid any appearance of collusion or conflict. Mr. Obama said the administration doesn't comment on particular actions of the U.S. central bank, before adding: "I will say that the Fed's mandate, my mandate, is to grow our economy. And that's not just good for the United States, that's good for the world as a whole."

The prospects of the Fed flooding the financial system with money helped drive gold above $1,400 an ounce on Monday.

Other assets, such as U.S. stocks and oil, drifted back slightly on Monday after getting a big boost from the Fed's announcement last week.

Underpinning the debate is a growing sense that the international currency system, which has been based on floating exchange rates for most players for more than 30 years, is wearing out. China's policy of keeping its currency artificially low has long caused tensions that have increased of late, as other countries try to export their economies back to health. Now critics are lumping the Fed's policy, known as quantitative easing, into the same category.

In his first public comments since Mr. Schäuble's outburst, Mr. Obama seemed set to keep the heat on both Germany and China. "We can't continue to sustain a situation in which some countries are maintaining massive [trade] surpluses, others massive deficits, and there never is the kind of adjustments with respect to currency that would lead to a more balanced growth pattern."

Meanwhile, some sleeping in the big featherbed at the Fed are starting to toss and turn.

Fed Governor Warsh Slams QE: "The Federal Reserve Is Not A Repair Shop"
Excerpts from his speech:
The Fed's increased presence in the market for long-term Treasury securities poses nontrivial risks. The Treasury market is special. It plays a unique role in the global financial system. It is a corollary to the dollar's role as the world's reserve currency.

The prices assigned to Treasury securities--the risk-free rate--are the foundation from which the price of virtually every asset in the world is calculated.

As the Fed's balance sheet expands, it becomes more of a price maker than a price taker in the Treasury market. And if market participants come to doubt these prices--or their reliance on these prices proves fleeting--risk premiums across asset classes and geographies could move unexpectedly. The shock that hit the financial markets in 2008 upon the imminent failures of Fannie Mae and Freddie Mac gives some indication of the harm that can be done when assets perceived to be relatively riskless turn out not to be.

In the United States, the Fed's expanded participation in the long-term Treasury market also runs the more subtle risk of obfuscating price signals about total U.S. indebtedness. Long-term economic growth necessitates putting the U.S. fiscal trajectory on a sounder footing. The fiscal authorities need as clear an early warning system as possible, not a handy excuse to delay.

And overseas--as a consequence of more-expansive U.S. monetary policy and distortions in the international monetary system--we see an increasing tendency by policymakers to intervene in currency markets, administer unilateral measures, institute ad hoc capital controls, and resort to protectionist policies. Extraordinary measures tend to beget extraordinary countermeasures. Second-order effects can have first-order consequences. Heightened tensions in currency and capital markets could result in a more protracted and difficult global recovery. These, too, are developments that the FOMC must monitor carefully.

The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies. Given what ails us, additional monetary policy measures are, at best, poor substitutes for more powerful pro-growth policies. The Fed can lose its hard-earned credibility--and monetary policy can lose its considerable sway--if its policies overpromise or underdeliver. We should be leery of drawing inapt lessons from the crisis to the current policy conjuncture. Lender-of-last-resort authority cannot readily be converted into fighter-of-first resort power.

By my way of thinking, the risk-reward ratio for Fed action peaks in times of crisis when it has a full toolbox and markets are functioning poorly. But when non-traditional tools are needed to loosen policy and markets are functioning more or less normally--even with output and employment below trend--the risk-reward ratio for policy action is decidedly less favorable. In my view, these risks increase with the size of the Federal Reserve's balance sheet.

I am less optimistic than some that additional asset purchases will have significant, durable benefits for the real economy. Of course, benefits may well be more substantial than I anticipate. Lower risk-free rates and higher equity prices--if sustained--could strengthen household and business balance sheets, and raise confidence in the strength of the economy. Modestly higher rates of inflation could increase nominal growth, and ostensibly place the economy on a stronger trajectory.

But, expanding the Fed's balance sheet is not a free option. There are significant risks that bear careful monitoring by the FOMC. If the recent weakness in the dollar, run-up in commodity prices, and other forward-looking indicators are sustained and passed along into final prices, the Fed's price stability objective might no longer be a compelling policy rationale. In such a case--even with the unemployment rate still high--the FOMC would have cause to consider the path of policy.

And the Pollyanna (or disingenuous) headline of the day goes to the NYT: Fed Action Gets an Unexpected Endorsement From India
“A strong, robust, fast-growing United States is in the interests of the world,” said Prime Minister Manmohan Singh. “And therefore, anything that would stimulate the underlying growth and policies of entrepreneurship in the United States would help the cause of global prosperity.”

Mr. Singh, an economist by training, made his comments during a joint news conference here with President Barack Obama. The prime minister’s support could help the United States deflect criticism of Washington’s economic policies at the upcoming Group of 20 meeting in Seoul later this week, which both Mr. Obama and Mr. Singh will attend.



Consider this story in Time: Obama Plays Well in India. What Will He Get in Return?
U.S. President Barack Obama and Indian Prime Minister Manmohan Singh have met seven times since March 2009, and they seem to be getting comfortable. On Sunday in Mumbai, Obama tried his hand at Indian folk dancing during a Diwali celebration at a local school. The usually sober, scripted Singh, meanwhile, jauntily fielded questions at a joint news conference on Monday. "We're not afraid of the K word," he said in response to a question about Kashmir. And he bluntly defended his country's much-maligned outsourcing industry: "India is not in the business of stealing jobs from the United States of America."

A few hours after Singh's Yankee plainspokenness, Obama delivered a speech to India's Parliament with a subtlety and political skill worthy of the nation's great statesmen. Obama flattered India's pride in its past, recalling Swami Vivekananda's visit to Chicago in 1893; he showed Gandhian humility, saying, "I might not be standing here before you today" had it not been for Mohandas Karamchand Gandhi's influence on the U.S. civil rights movement.

Obama then exceeded the Indian government's expectations for the trip and delivered the two most important items on India's wish list: he endorsed India's bid for a permanent seat on the U.N. Security Council and used strong language toward Pakistan, saying he would "insist to Pakistan's leaders that terrorist safe havens within their borders are unacceptable."

Read more:,8599,2030114,00.html#ixzz14kmRldHX
The article then went on to discuss several items of "what the U.S. can look for in return". It was not complete. It did not include an "unexpected" endorsement of QE2.

Still, it is an interesting piece, and includes links to some really touching photos, like this one:


How much runway does an aircraft carrier need?

Moscow is taking an interest in the US military's renewed interest in things Guam.

In Moscow's case, either they need some better analysts, or better interpreters. Don't know.

US to built super base on Pacific island of Guam
The USA is building an 8 billion super military base on the Island of Guam. The work is currently being done on the U.S. Air Force Base in Guam to build docks for aircraft carriers....

Naturally, Americans do not say officially that this base is being created to contain China’s military build-up. But if we look at the map and compare the military potential of the countries surrounding the Pacific Ocean, it won’t be difficult for us to understand that, most likely, China is exactly the key factor, which is taken into consideration here.

However, there’s reason to believe that China’s answer to the on-going construction will be a new increase in assignments for the development of its navy. Because the Chinese fear that U.S. domination of the northern part of the Pacific Ocean may hamper China’s efforts in the settlement of the Taiwan issue.

If we compare the military might of China and the USA, we’ll see that China has to work much to catch up with the USA, the Russian expert says. We can say nothing about China’s parity or its ability to resist the USA on the high seas either. However, the dynamism of the development of the Chinese naval forces is an object of concern for the Pentagon strategists. There’s an opinion that if this tendency remains and if the USA fails to increase considerably the budget of its naval forces, in 15 to 20 years China will pose a serious threat to the U.S. interests in the Asia-Pacific Region.

There’re many American military facilities in the northern part of the Pacific Ocean, Kortunov says. They are scattered over a large territory north of Alaska across Okinawa and as far as the Hawaiian Islands, where, traditionally, the U.S. Navy has a stronghold. Which means that there’re many U.S. military facilities there, which form an arc and which must guarantee America’s hegemony in the Pacific Ocean.

As Americans say, these facilities have been set up to guarantee the security of commercial communications in the region, including the security of oil supplies from the Persian Gulf area to the western coast of the USA. But taking into account the current tendencies, this infrastructure is regarded by many people in Beijing as one that is aimed against China.

Asked whether the new super base will infringe on Russia’s interests, the head of the New Eurasia Foundation said that, as it appears, it would be beneficial for Russia to distance itself from the current arms race.

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Will US go all Irish on deficit, too?

We're sunk: Ireland's top economist says bank losses make bankruptcy 'inevitable'
Professor Morgan Kelly predicted that Ireland would follow Greece in seeking a humilating bail-out from the European Union due to a £60.3billion (€70billion) blackhole in its financial system.

But Prof Kelly, an economics professor at University College, Dublin, believes that Brussels will force Dublin to pay such a high price that it will 'inevitably' default on its loans.

'Our debt will rise faster than our means of servicing it and we will inevitably face a State bankruptcy that will destroy what few shreds of out international reputation that still remain,' he argued.

Unless Irish finance minister Brian Lenihan can deliver a credible plan to slash a further €6billion from public spending, Ireland could be frozen when it next tries to raise loans in the New Year, economists fear.

That would leave Dublin without the means to pay for essential public services.

Prof Kelly, who is known as ‘Doctor Doom’ for his prescient prediction in 2006 that Irish house prices would collapse, believes that Mr Lenihan’s austerity measures will ultimately prove futile.

'What is the point of re-arranging the spending deckchair when the iceberg of bank losses is going to sink us all?' he asked.

Ireland’s profligate banks have not fully faced up to the vast losses on their mortgage books, he said. As a result, the cost of cleaning up the banking system will be some £17.2billion (€20billion) higher than the government’s own £43.1billion (€50billion) estimate, Prof Kelly warned.

The eye-watering cost of purging Ireland’s crippled financial system - equivalent to nearly £13,400 for every Irish citizen - is the legacy of a decade-long property boom that imploded spectacularly in 2007.

Ireland’s budget deficit is set to rocket to an alarming 32 per cent of national output this year and more than one in eight workers cannot find a job.

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Australia play bait and switch; no pillar talk

The usual suspects are all out talking around the real issue of bank oligopoly written into the 4 pillar policy.

They believe that if you can just tweak a fee or two here or there, they'll have you bouncing from pillar to post, with no real damage done to their bulwark. Fees are easy to adjust here or there. But competition: now that's a curly one.

So toss a few exit fees on the barby, and she'll be right, mate.

Terry McCrann: Bank shopping beware
It looks so obvious. And easy. Abolish, reduce or limit so-called 'exit fees'. What you pay to terminate your mortgage early. But usually payable, only very early, like in the first four years of a mortgage.

So if there's only a low exit fee, or better still no exit fee, people will be -- literally -- free to move.

First little problem. If there are no longer exit fees, there will be -- or should be -- entry fees. Because that's exactly what an exit fee is -- a deferred entry fee.

In the good old days, you paid up-front when you got your home loan for the costs of establishing -- and yes, there are costs to a bank in agreeing to a home loan and setting up -- a mortgage.

Then along came the non-banks, and as a competitive lure, they offered low or zero establishment charges, which would be recouped in the interest paid each year over the life of the loan.

Except if a borrower paid the loan out early: hence very big exit fees. Which the banks then followed in order to remain competitive. [Yes, he said "competitive". Guambat can't believe it. Oligopolistic, really.]

So if you abolish exit fees, you might well undermine the very competition that this whole exercise is supposed to be trying to achieve.

There's not much point doing it, if you enable people to switch from one big bank only to another big bank.

Yes the CBA has just made $6 billion. But that's on $666 billion of assets. It and indeed all the banks make less than 1 of profit on every dollar of assets.

They don't have a lot of margin for error. The one thing worse than a bank making too much profit is one making not enough.

Crucially, it's not just about the banks. The tougher we make it for the banks, the even tougher we would make it for the non-banks.

So the tougher we make it for the big banks, we are likely to create less competition from the non-banks and even the few remaining smaller banks.

This is a much bigger and more complicated issue than simply attacking bank fees and charges. Which is why we need a much broader inquiry into banks and the financial system.

In particular, how to take costs out of the system. How to create real competition.

But wait -- Did Guambat just hear a call for real competition??

Naw, g'wan. Couldn't na bin. He just wants to take costs out of the system. Like pay and perks and what. Never happen. Tell 'em he's dreamin'.

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Sunday, November 07, 2010

Unemployment Static-stistics

You know the old saw: lies, damned lies, and statistics. It is rarely more true than describing employment data.

Despite Jobs Added, Unemployment Rate Stuck
The October jobs report was the best in a long time. The unemployment rate remains painfully high, but employers are starting to add jobs. The Labor Department says the private sector added 159,000 last month -- much more than expected.

A Few Thoughts on the Employment Numbers By Dr. Lacy Hunt, Hoisington Investment Mgt. Co from John Mauldin's Thoughts From the Frontline:
The October employment situation was dramatically weaker than the headline 159k increase in the payroll employment measure. The broader household employment fell 330k. The only reason that the unemployment rate held steady is that 254k dropped out of the labor force. The civilian labor force participation rate fell to a new low of 64.5%, indicating that people do not believe that jobs are available, but this serves to hold the unemployment rate down. In addition, the employment-to-population ratio fell to 58.3%, the lowest level in nearly 30 years.

The most distressing aspect of this report is that the US economy lost another 124K full-time jobs, thus bringing the five-month loss to 1.1 million in this most critical of all employment categories. In an even more significant sign, the level of full-time employment in October was at the same level that was reached originally in December 1999, almost 11 years ago (see attached chart). An economy cannot generate income growth by continuing to substitute part-time work for full-time employment.

The weakness in real income is probably lost in an environment in which the Fed is touting the gain in stock prices and consumer wealth resulting from the latest quantitative easing (QE), but QE has unintended negative consequences for real household income. Due to higher prices of energy and food commodities, QE may result in less funds for discretionary spending for consumers whose incomes are stagnant. Also, with five-year yields falling below 1%, rates on CDs and other types of short-term bank deposits will decline, also cutting into household income. At the end of the day these effects will be more powerful than any stock-price boost in consumer spending, which, as always, will be very small and slow to materialize.

Unemployment payouts push California deeper into debt
With one in every eight workers out of a job, the state is borrowing billions of dollars from the federal government to pay benefits at the rate of $40 million a day.

The debt, now at $8.6 billion, is expected to reach $10.3 billion for the year, two-thirds greater than last year. Worse, the deficit is projected to hit $13.4 billion by the end of next year and $16 billion in 2012, according to the California Employment Development Department, which runs the program.

Interest on that debt will soon start piling up, forcing the state to come up with a $362-million payment to Washington by the end of next September.

That's money that otherwise would go into the state's general fund, where it could be spent to hire new teachers, provide healthcare to children and beef up law enforcement.

Continued borrowing, meanwhile, means that employers face an automatic hike in their federal unemployment insurance taxes, pushing up annual payroll costs $21 a year for each worker.

Those costs are expected to more than double over the next five years if California continues to borrow from the federal government.

Economist: RI recovery will lag behind US
An economist says Rhode Island will lag behind the country as it recovers from the economic downturn. Moody's Analytics senior economist Andres Carbacho-Burgos told the state's top budget officials Friday that the target date is 2015 for the United States to make a "full recovery" and return to a "normal" unemployment rate of 5.5 percent.

He said the target date for a full recovery in Rhode Island is 2015 or 2016.

Carbacho-Burgos said his analysis is based on the last three months of unemployment data in Rhode Island, where the unemployment rate is 11.5 percent, according to the most recent numbers.

State of Indiana prepares to reduce unemployment benefits
The state of Indiana is preparing to curb unemployment benefits in what may become a more common occurrence as states wrestle with growing debt related to providing jobless benefits to its citizens.

Indiana owes nearly $1.9 billion to the federal government which it borrowed to pay jobless benefits.

At a news conference Thursday morning, Indiana Gov. Mitch Daniels said that cutting unemployment benefits will be a primary push in the months to come.

Daniels told reporters that he wants to raise the premiums on businesses and cut benefits for recipients, contending that it's the only way to bring the unemployment deficit under control.

Unemployment benefits, which pay a maximum of $415 a week in Indiana, could be cut by up to half, which gives rise to speculation as to the reason why Indiana has announced it will be adding armed guards to its unemployment centers.

Michigan currently owes the federal government $3.8 billion for funds it borrowed to pay unemployment benefits. The state will have to begin paying the interest on that debt — $151 million worth — next year. It's unclear how the state will afford to pay it without either raising taxes on business or cutting benefits as they are proposing in Indiana.

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