Politics and Legislation
Rep. Black’s healthcare prescription doesn’t include the government
Rep. Diane Black (R-Tenn.) is a woman of firsts.
She was the first member of her family to receive a degree in higher education, an A.D. in nursing from Anne Arundel Community College in 1971.
She was the first freshman member of the 112th Congress to have a bill become law, and she was one of only two freshmen appointed to the House Ways and Means Committee.
There’s one thing she’s already experienced ahead of many others, though, that she has no desire to see again: universal healthcare.
Black got into politics because of her opposition to TennCare, a statewide pilot program for universal coverage that was launched in 1994 as the Clinton White House was pushing for healthcare reform.
Its goal was to expand coverage to Tennesseans who were uninsured and those who had preexisting conditions. It was also supposed to help rein in the Tennessee Medicaid budget.
The program, still in existence today, covers approximately 1.2 million Tennesseans under a budget of $8 billion, according to the TennCare website.
But Black, who worked as a full-time nurse until her election to the Tennessee state Senate, says that the system has been plagued with issues like overuse since its launch.
One of her biggest issues with TennCare was its lack of limitations.
The program’s initial 3-tier structure provided coverage for those eligible for Medicaid, for the uninsured, and for uninsurable people with preexisting conditions. Almost exactly one year after TennCare went into effect, the second tier was temporarily closed off to new enrollees because of massive enrollment.
Black says she saw the problems firsthand in her nursing work.
“People would consistently use an emergency room when they could have gone to either a walk-in clinic or waited to see a family practice doctor for minor things [such as] a sore throat, which really clogs up an emergency room,” she said.
“I’d say, ‘You know, you maybe don’t need to be in the emergency room. You could see your doctor tomorrow about this.’ And they [would say], ‘Well I got to work tomorrow,’ or ‘I got somewhere to go tomorrow so I really need to be seen today.’
“If you don’t have skin in the game, then those are the kind of [decisions] you will make.”
Unnecessary emergency room visits weren’t the only problems that Black had with TennCare.
Scalia: Future cases could establish new ‘limitations’ on guns
Justice Antonin Scalia said there “are some limitations that can be imposed” on the purchase of guns but would not say whether a legislature could ban semi-automatic weapons or 100-round magazines.
“We’ll see,” the Supreme Court justice said Sunday when asked in an interview on Fox News whether a legislature could restrict the purchase of those items in the wake of the movie massacre in Aurora, Colo.
Scalia authored the high court’s 2008 opinion in District of Columbia v. Heller, which ruled that the Second Amendment protects an individual right to bear arms and invalidated a D.C. ban on handguns.
Scalia noted that as to more specific restrictions on gun purchases, his opinion said those will have to be decided “in future cases.”
“Some undoubtedly are [permissible], because there were some that were acknowledged at the time” of the writing of the Constitution, he said on “Fox News Sunday.” “So yes, there are some limitations that can be imposed. What they are will depend on what the society understood were reasonable limitations at the time.”
Scalia pointed out that the Second Amendment did not apply to “arms that cannot be hand-carried,” such as cannons.
The conservative justice described, as he has many times before, his “textual” approach to interpreting the Constitution, which requires that its provisions be read according to their meaning at the time of its drafting. New gun restrictions, he said, would be weighed “very carefully.”
“My starting point and probably my ending point will be what limitations are within the understood limitations that the society had at the time,” he said. “They had some limitations on the nature of arms that could be bought. So we’ll see what those limitations are as applied to modern weapons.”
In the wide-ranging interview, Scalia defended his view that “there’s simply no way to interpret” the individual mandate at the center of the 2010 healthcare law as a tax – the finding by Chief Justice John Roberts Jr. that prevented the law from being overturned.
“You don’t interpret a penalty to be a pig. It can’t be a pig,” Scalia said of the ruling. “You cannot give the text a meaning it will not bear.”
He would not describe the internal deliberations of the Supreme Court on the landmark case and demurred when asked if Roberts changed his mind on the decisions, as has been reported.
“I don’t know. You’ll have to ask him,” Scalia said. “I don’t talk about internal court proceedings. Never ever.”
He did say that not only had he changed his own mind on certain decisions after the initial deliberation but that he had even changed his mind on majority opinions that he was assigned to write.
Opinion: Capitalism works in the Capitol
There are three Senate office buildings.
They stretch up Constitution Avenue running away from the Capitol itself.
It is a considerable distance from the farthest office building, the Hart building, to the actual Capitol. This distance can be covered either by walking outside when the weather is nice, or by taking a tramcar that runs between the buildings.
If you prefer, you can walk underground through a labyrinth of tunnels and hallways.
In one of these hallways, across from the Senate barbershop, is a little coffee and sandwich shop called “Cups.”
For years the Senate food service — which was run and owned by the Senate at the time — attempted to operate this coffee shop.
It lost money. It served lousy coffee, and few people went there.
Someone in the Senate management, to their credit and the benefit of the American taxpayer, decided to lease the location.
Kathy and Charlie Chung won the contract, and have been running the business since 2001. They are first-generation immigrants from Korea who had run another coffee shop on Capitol Hill, but not as part of the Capitol complex.
“Cups” is difficult to find. It is in the middle of one of the endless basement corridors, which weave through the Senate office buildings — somewhere in the Russell building — and it has no significant signage or easy accessibility.
Still, Charlie and Kathy have managed to take a place that had lost money when it was run by the Senate and turn it around.
It is a successful and, one presumes, rather profitable business.
Kathy is irrepressibly friendly and upbeat — and there all the time.
Charlie, who has a degree in architecture, works incessantly to make sure the coffee shop is supplying what customers want, for food and atmosphere.
Sometimes, but not often, Kathy lets Charlie take a day off and go fishing.
He has never caught anything, at least according to Kathy. Wives say things like that.
They have two very talented children. Their son went to Johns Hopkins and is becoming a lawyer. Their daughter went to Virginia Tech.
It is a simple coffee shop in the basement of the Russell Senate Office building.
It is also a definitive statement that President Obama, when he says small business-people do not create their success, when he says government does, is wrong.
Two Democratic lawmakers on Monday will announce new legislation to regulate the online and mail-order sale of ammunition.
Sen. Frank Lautenberg (N.J.) and Rep. Carolyn McCarthy (N.Y.) said the new law would make the sale of ammunition “safer for law-abiding Americans who are sick and tired of the ease with which criminals can now anonymously stockpile for mass murder,” in a statement released Saturday.
The lawmakers cite the recent movie massacre in Aurora, Colo. for spurring their bill.
“The shooter who killed 12 and injured 58 in an Aurora, Colorado movie theater this month had purchased over 6,000 rounds of ammunition anonymously on the Internet shortly before going on his killing spree, according to law enforcement officials,” the statement reads. “The shooter used a civilian version of the military’s M-16 rifle with a 100-round drum magazine, a shotgun and two .40-caliber semi-automatic handguns commonly used by police officers.”
Lautenberg and McCarthy, who will unveil their new proposal at New York’s City Hall say they intend to “make it harder for criminals to anonymously stockpile ammunition through the Internet.”
Lautenberg and McCarthy are two high profile advocates of gun control legislation, but they face an uphill struggle in Congress.
Senate Majority Leader Harry Reid (D-Nev.) said last week that he does not intend to bring gun control legislation to the floor and President Obama has been reluctant to press lawmakers to act on the issue in an election year.
Democratic senators though have offered an amendment to the cybersecurity bill that would limit the purchase of high capacity magazines by some consumers. Sen. Charles Schumer (D-N.Y.) defended it last Thursday as a “reasonable” gun control measure.
The amendment is identical to a separate bill proposed in January 2011 by Lautenberg also banning the sale of high capacity ammunition magazines.
After the shootings in Colorado, the New Jersey senator urged lawmakers to reconsider his bill.
“We need to start today on efforts to prevent the next attack,” he said in a statement. “We should begin by passing my legislation to ban the sale of high-capacity gun magazines. No sportsman needs 100 rounds to shoot a duck, but allowing high-capacity magazines in the hands of killers like James Holmes and Jared Loughner puts law enforcement at a disadvantage and innocent lives at risk.”
Loughner, the gunman charged in the shooting of former Rep. Gabrielle Giffords (R-Ariz.) and Holmes, who is the lone suspect in the Aurora theater shootings are both believed to have used high-capacity magazines.
Pentagon warns sequester cuts will lead to ‘unready, hollow’ force
A top Pentagon official warned Congress on Wednesday that sequestration would be a “major step” to creating “an unready, hollow” military force, as lawmakers and the Obama administration spar over a plan to avert the looming automatic spending cuts.
Testifying at a long-awaited House Armed Services Committee hearing on sequestration cuts, Deputy Defense Secretary Ash Carter began laying out some of the impacts of the $55 billion cut facing the Pentagon in 2013 if the sequestration cuts are not reversed.
Carter said the across-the-board cuts would require the Pentagon to “substantially modify and scale back the new defense strategy,” which was crafted last year as the Defense Department prepared for $487 billion in budget reductions already scheduled for the next decade.
Carter and acting Office of Management and Budget (OMB) Director Jeffrey Zients told the committee Wednesday that sequestration would be devastating and should never go into effect, bluntly telling Congress to fix the cuts before they hit on Jan. 2, 2013.
Republicans have been critical of the Obama administration, accusing them of not preparing for the impending cuts, part of what prompted Wednesday’s hearing.
House Armed Services Committee Chairman Buck McKeon (R-Calif.) said in his opening statement that failing to plan for sequestration would “make a terrible situation worse.”
Zients pushed back, however, chiding Republicans in Congress for not proposing realistic solutions to find alternate deficit reduction.
“The root cause of the problem here is the Republican refusal to acknowledge that the top 2 percent have to pay their fair share,” Zients said, repeating a common Democratic argument for higher taxes on the wealthy to pay for defense and other programs.
But Republicans challenged President Obama to share his own plan to actually avert sequestration.
“I want to commend you on your broken record of partisanship with respect to your fiction of the fact that this administration has a budget or a plan,” said Rep. Michael Turner (R-Ohio).
In a committee that prides itself on its bipartisanship, there were numerous testy exchanges between Republicans and Zients, with the two sides often speaking over each other.
During one exchange between Turner and Zients, ranking member Adam Smith (D-Wash.) angrily interrupted Turner and accused him of badgering the witness.
The hearing was reflective of the deep divide between Democrats and Republicans over how to solve sequestration — even if all sides agree that it would be devastating for the cuts to actually go into effect.
Ethics Committee finds Rep. Laura Richardson guilty on seven counts
The House Ethics Committee issued a blistering report on Wednesday finding Rep. Laura Richardson guilty of improperly pressuring her official staff to campaign for her, destroying evidence and tampering with witness testimony.
In an unusually scathing 16-page report, the Ethics panel depicted the California Democrat as acting with “utter disdain” for the secretive committee, which Richardson has accused of evincing racist overtones in its investigation of black members.
The Ethics Committee recommended that the House adopt its report and approve a formal reprimand of Richardson, who agreed to pay a fine of $10,000 within four months and require staffers who work on her campaign to sign a waiver stating that they haven’t been pressured to do so.
The punishment comes just three months before Richardson faces off against fellow Democratic Rep. Janice Hahn (Calif.) in one of the toughest member-versus-member elections this year.
Many of Richardson’s staffers painted a “horrendous picture” when speaking of their employment experience, which was fraught with “attempts to intimidate them on a regular basis,” according to the committee’s report, issued by Chairman Jo Bonner (R-Ala.) and ranking member Linda Sanchez (D-Calif.).
A 22-page objection that Richardson recently delivered to the committee, in which she contends that the Ethics Committee acted in a prejudicial manner against her, was also made public on Wednesday.
In it, Richardson said she agreed to resolve the ethics allegations with a fine and a reprimand, because the alternative — an adjudicatory hearing, also known as an ethics trial — would waste taxpayer dollars and take up too much time.
But the panel rebuffed her submission, stating that her arguments were “without merit,” lacked remorse and were pointless because she had already admitted to her wrongdoings. “Richardson’s views weave an elaborate fabrication out of threads of decontextualized evidence and outright prevarication, in an absurd attempt to rebut the majority of the tremendous evidence against her,” the report states.
“[Richardson’s statement of views conveys] an utter absence of true remorse for her misuse of official resources and, equally as significant, for what she has put her staff through, as well as a near-total deflection of responsibility for this matter.”
Richardson argued that investigators with the committee “improperly influenced witnesses” by suggesting that an investigative subcommittee was likely, even though it was one year before that decision would eventually be reached.
This “clearly [signaled] that the Ethics Committee staff at least already believed that Rep. Richardson was guilty of misconduct,” stated Richardson in her response to the committee’s charges.
The Richardson ethics probe began in 2010 when several of her official staffers complained to the committee that they were being forced to work on her campaign. After probing the matter for more than a year, an investigative subcommittee was launched in November 2011, to look more seriously at the charges.
In one instance, Richardson’s communications director, Makeda Scott, told the committee that she took comments her boss made “as a threat.” Richardson allegedly told Scott that she felt “uncomfortable” working with her because Scott hadn’t volunteered on Richardson’s campaign.
“If you don’t volunteer on my campaign, you are not going to continue working here; that is how I took it,” said Scott in an interview with the Ethics panel.
After delaying her interview with the committee because of the timing of her primary race, Richardson finally agreed to sit down with panel investigators in June and answer their questions.
But Richardson soon began complaining about how long the interview was taking and “ultimately demanded that it end so she could participate in an annual congressional softball game,” according to the report. Richardson never rescheduled a follow-up interview with the committee.
House votes to extend current tax rates after shooting down Obama plan
The House on Wednesday evening rejected a proposal to allow tax cuts on the wealthy to expire, instead passing an alternative bill to preserve existing tax rates for a year, an act of political theater setting up a contentious post-election fight.
The Republican-controlled House voted 256 to 171 to preserve current tax rates, which were first enacted by President George W. Bush in 2001 and later extended in 2010 for another two years with President Barack Obama’s support.
In a separate vote, the House shot down, 170 to 257, a Democratic bill to extend current tax rates past the end of this year only for households earning less than $250,000 per year and individuals earning less than $200,000 per year. This plan has the current backing of the president, and was approved last week by the Senate. Nineteen Democrats joined a unanimous GOP conference on the vote.
The vote virtually ensures that the fate of the expiring tax cuts won’t be decided until after the election. Though House GOP leaders wrote Senate Democratic Majority Leader Harry Reid on Wednesday to say they “stand ready to bring the House back into session for the purpose of enacting solutions” as it relates to taxes or the automatic defense cuts set for Jan. 1, leaders in both parties have conceded that a truce unlikely.
The House is set to break for recess after Thursday’s votes, leaving few legislative days left on the calendar before the election.
Rather, leaders in both parties have generally acknowledged that the fate of the tax cuts are likely to be determined as an outgrowth of the election. That factor has only heightened the political positioning of these votes, which were orchestrated more as a messaging instrument than as a legislative solution.
To that end, the result in the House was the reverse of what happened last week in the Senate, which approved a version of the Democratic bill and rejected the Republican alternative to extend all the expiring tax cuts for a year and require Congress to work on tax reform in the meanwhile.
Ayotte: Dems using military as ‘bargaining chip’ in fight over cuts
A freshman Republican senator accused the White House and congressional Democrats of using the military as a bargaining chip in a debate over spending cuts.
“It makes me sick that some in Washington, particularly some of the Senate Democrats want to play, and even our president unfortunately, want to use our military as a bargaining chip,” said Sen. Kelly Ayotte (R-N.H.) told CNN’s “State of the Union” on Sunday.
Ayotte said House and Senate GOP leaders have asked President Obama to come to the table to figure out how to resolve the issue of sequestration, a plan passed by Congress a year ago that would cut $1 trillion in spending over 10 years, including $500 billion from defense.
Lawmakers have expressed concern over the volatile mix of spending and tax hikes that could put the U.S. economy over the so-called “fiscal cliff.”
Republicans and Democrats are also at odds on the expiring Bush-era tax rates, with Democrats and the White House looking to extend the lower rates for those couples making below $250,000 a year. Republicans however want the rates extended across the board, a move the White House has threatened to veto to force the wealthier to pay higher rates to offset cuts.
Ayotte, who has been named as a possible vice presidential nominee for GOP presidential candidate Mitt Romney, said the choice is not between whether to extend tax breaks for those earning at least $250,000 a year or slashing defense spending.
“That’s not the choice and where is our commander-and-chief on this,” she said.
“Why isn’t he right now at the table with members of both sides of the aisle resolving this. He could lead this effort and he has been AWOL on this.”
Waiting until after the election would be “undermining our national security and cost nearly 1 million jobs,” she said.
Fed Signals More Steps to Spur Economy Amid Slower Growth
The Federal Reserve said it will pump fresh stimulus if necessary into the weakening economic expansion to boost growth and reduce an unemployment rate that’s been stuck at 8 percent or higher for more than three years.
Federal Reserve Chairman Ben Bernanke on Capitol Hill. Photographer: Luke Sharrett/The New York Times via Redux
The Federal Open Market Committee “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” it said today in a statement at the end of a two-day meeting in Washington. “Economic activity decelerated somewhat over the first half of this year.”
Stocks fell on disappointment Fed Chairman Ben S. Bernanke refrained from taking action even as consumer spending flagged, job growth slackened and manufacturing cooled. Before its next meeting Sept. 12-13, the FOMC will assess unemployment reports for July and August, and the European Central Bank may take steps to ease Europe’s debt crisis at a meeting tomorrow.
“They were as blunt as you can get without actually pulling the trigger,” said Dan Greenhaus, chief global strategist at BTIG LLC in New York. “They’re saying, ‘Hey, things are not good and we’re an inch away from easing.’”
The Standard & Poor’s 500 Index (SPX) erased gains after the statement, falling 0.3 percent to 1,375.32. The yield on the 10- year Treasury note rose to 1.52 percent from 1.47 percent yesterday. Gold futures for December delivery slid 0.7 percent to $1,603.10 an ounce in electronic trading at 4:47 p.m. in New York. The dollar rallied 0.7 percent to $1.2226 per euro.
“The best news we got is the Fed doing nothing and the market accepting that,” Michael Shaoul, the chairman of New York-based Marketfield Asset Management, whose $2.29 billion Marketfield Fund has outperformed 96 percent of rivals in the past five years. “It shows that the market is more resilient than we would have expected going into today.”
The FOMC said in today’s statement that “household spending has been rising at a somewhat slower pace than earlier in the year.”
The Fed said it will continue swapping $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist. The central bank will also continue reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.
The Fed left unchanged its statement that economic conditions would likely warrant holding the benchmark Fed funds rate near zero “at least through late 2014.” The committee said it “will closely monitor incoming information on economic and financial developments.”
Under former Fed Chairman Alan Greenspan the phrase “closely monitor” was sometimes used before the Fed took action between its regular schedule of meetings, according to Eric Green, head of global foreign exchange and rates research at TD Securities in New York, and a former New York Fed economist.
“We still have to think the odds are low for intermeeting ease, they’re just higher than they otherwise would be,” said Green. “What would get the Fed to move I think is if conditions deteriorate in Europe to the point that stocks begin to get hit hard.”
Policy makers said inflation would run “at or below” their goal of 2 percent for the personal consumption expenditures index, the same as in the last statement.
Consumer prices in June rose 1.5 percent from a year earlier, the Commerce Department reported yesterday. Excluding food and energy, prices increased 1.8 percent.
Richmond Fed President Jeffrey Lacker dissented for the fifth consecutive meeting, saying he preferred to omit the 2014 time horizon. Lacker opposed the FOMC’s June decision to extend Operation Twist through the end of the year and has said he expects interest rates will need to be raised in 2013.
Twelve percent of economists surveyed by Bloomberg News predicted that the FOMC would announce a new round of large scale asset purchases today, while 48 percent forecast such purchases would be announced at the Fed’s Sept. 12-13 meeting.
At the September meeting, policy makers will update their forecasts for growth, unemployment, inflation and interest rates before Bernanke holds a press conference. He doesn’t plan a press conference today.
Bernanke in congressional testimony last month said the central bank may ease further should U.S. employment fail to steadily improve. A Labor Department report on Aug. 3 will probably show that the economy added 100,000 jobs in July, while the jobless rate was unchanged at 8.2 percent, according to the median estimate in a Bloomberg News survey of economists.
“It’s very important that we see sustained progress in the labor market and avoid deflation risk,” Bernanke said in July. “Those are the things we’ll be looking at as the committee meets later this month and later this summer.”
The Fed is also watching “two main sources of risk,” Bernanke said. The first is the so-called fiscal cliff, about $600 billion of spending cuts and tax increases that will go into force in January and impair growth unless Congress acts.
Congressional leaders said yesterday they will vote in September on a $1.047 trillion, six-month stopgap measure that would keep the government operating after the start of the fiscal year on Oct. 1. The extension would give lawmakers more time to debate how to avoid the fiscal cliff.
The second risk is that the European debt crisis will create turmoil in global financial markets, Bernanke said.
ECB President Mario Draghi is attempting to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before policy makers convene tomorrow. Also tomorrow, the Bank of England in a statement will probably maintain its bond purchase program.
Draghi sparked a global market rally last week with a pledge to do “whatever it takes to preserve the euro.” Last month, the ECB cut its benchmark interest rate to a record low of 0.75 percent.
U.S. stocks rose before today on speculation the Fed will continue to add stimulus and as corporate earnings have beaten estimates. The S&P 500 has rallied 9.4 percent this year and remains near a three-month closing high of 1,385.97 on July 27. All 10 industry groups have advanced.
The U.S. two-year interest-rate swap spread, a measure of stress in bond markets, traded today at about 20.25 basis points, about the lowest in a year and down from 2012’s high of almost 60 basis points in October. The gauge, which dropped 4.4 basis points in July for the second straight monthly decline, widens when investors seek the perceived safety of government securities and narrows when they favor assets such as corporate bonds.
Splitting the Financial Giants It’s Time To Break Up Massive Banks!
The banks are blackmailing us, Sigmar Gabriel, the head of Germany’s center-left Social Democratic Party wrote in a position paper for his party. But with the fuss over Gabriel’s partly justified and partly exaggerated claim, one hopes that the most important words spoken last week will not get lost in the noise.
Those words were from Sandy Weill, who for eight years was the decisive figure at Citibank, the major American bank. This is the same Sandy Weill who forged a financial empire and successfully fought against just about every regulation that has been thrown at the banking sector. His messagetoday? Split up the massive banks.
What Weill is calling for is a return to rules that already once served the world well. They were conceived during the 1930s financial crisis and then disposed of during the liberalization frenzy of the 1990s.
The Glass-Steagall Act is the name of the law that divided the banking world into two categories.
The first is banks that are dedicated to the classic business of managing customer deposits and issuing loans making them systemically relevant. These banks must be protected and, in an emergency, rescued by the state.
The second is investment banks, which too often have no problem at all with any risky business that comes its way as long as it promises to deliver profits. Weill believes that if things go awry at the investment banks that no one should be too quick to bail them out. These banks would be smaller and no longer the financial Goliaths that they are today. What is deemed too big to fail, would be deemed too large to even be allowed to exist in the future.
America, as well as the entire financial world, is discussing Weill’s proposal.
And not without reason, either — after all, the US banker was one of the people who pushed Bill Clinton in 1999 to repeal Glass-Steagall. He even has a plaque in his office celebrating himself as “The Shatterer of Glass-Steagall.”
The proposal still doesn’t have enough backing, despite support in many quarters including those in a number of Germany’s top boardrooms, such as reinsurance giant Munich Re, whose chairman, Nikolaus von Bromhard, also wants to eliminate the design flaw. The SPD’s Sigmar Gabriel wants to as well.
Begging for the Bazooka Europe’s Dangerous Dream of Unlimited Money
An Analyisis by David Böcking
The bazooka isn’t just the name of a portable American antitank weapon. Recently it has also become the synonym for a financial super weapon that is supposed to end the euro crisis once and for all. There also used to be a chewing gum called Bazooka that was sold in German supermarkets until the 1980s. Once the pink stuff got stuck somewhere, it was hard to get rid of — not unlike the current discussion about a euro crisis bazooka.
The bazooka debate heated up after a suggestion from some countries, including Italy and France, that the permanent euro rescue fund, the European Stability Mechanism (ESM), should be equipped with “unlimited firepower” through a banking license. In concrete terms, it would enable the ESM to borrow unlimited amounts of money from the European Central Bankand use it to shore up euro-zone member states threatening to buckle under the weight of the crisis.
Given that billions of euros have already been deployed in the euro crisis, the idea of unlimited credit seems risky to say the very least. Not surprisingly, the reactions have been intense. “A banking license for the ESM would mean firing up the money printing machine, which means inflation and nearly unlimited liabilities,” Patrick Döring, the general secretaty of the business-friendly Free Democratic Party, the junior partner in Chancellor Angela Merkel’s government coalition, told SPIEGEL ONLINE. “That is why the FDP cannot and will not allow a banking license to be issued.”
So how is it that the supporters of a bazooka have come upon their demands? Ultimately, it goes back to the basic problem of the euro crisis: Countries like Spain and Italy are suffering from mounting debt and worsening economic prospects. To borrow fresh money they have to offer investors higher interest rates to buy their bonds. That further increases their debt and uncertainty over the future, which in turn continues to increase the risk premium they must pay to investors.
For two and half years now, euro-zone countries have tried to break this vicious cycle. First they created rescue plans such as the European Financial Stability Facility and its successor, the ESM, which are intended to provide countries like Greece and Portugal with loans until they are able to borrow money independently on the markets again. To prevent the need for further emergency bailouts, the European Central Bank has also sprung into action several times. It bought large quantities of bonds from distressed euro-zone countries to place downward pressure on interest rates. In addition, the central bank made loans of more than €1 trillion ($1.23 trillion) available to European banks in the hope that the institutions would in turn invest at least part of that sum in government bonds.
But all of these efforts have been met with limited success — and interest costs have risen sharply recently, especially in Spain. The reason is that many investors are worried that the bailout funds will prove to be too small if other euro-zone countries ultimately need to be rescued. Spain and Italy alone could require around €1 trillion if they have to seek a bailout, estimates Bantleon, a fund company that specializes in bonds. Currently, however, the euro bailout funds are only capable of providing a total of €750 billion.
Switzerland Leads the Way
Supporters of the bazooka solution say that pressure on euro-zone countries won’t relent as long as a concrete number is affixed to the scope of the bailout funds. Regardless whether the view comes from genuine conviction or pure speculation, the idea is that time and time again investors might decide that support is insufficient and thus drive interest costs up again. Only a safety net with unlimited scope — at least so it is hoped — would put an end to that kind of speculation.
Most recently, the Swiss national bank proved that such a deterrence strategy can work. After the Swiss franc rose sharply as a result of the crisis, monetary authorities pledged to defend the franc at a rate of 1.20 francs to the euro through unlimited foreign exchange purchases. They were largely successful with the strategy.
An ESM that has greater leeway could also mean freeing the ECB from a Catch 22. The central bankers’ work should actually be limited to price stability because they are forbidden from financing states. With its euro-zone relief efforts, however, the ECB has moved into a legal gray area that is threatening its very independence. It would therefore make sense for the ESM to take over government bond purchases in the future.
Nevertheless, the newly introduced plan would not truly limit the ECB’s liability given that it would allow the ESM to submit its newly purchased sovereign bonds as collatoral to the ECB in exhange for additional loans. The ESM could use that credit to support crisis countries with loans or further bond purchases. In other words, the ESM would be nothing more than an intermediary for state financing through the ECB.
Egypt’s new Prime Minister Hisham Qandil will hold a meeting with members of his government on Saturday to discuss the next steps on seeking an International Monetary Fund loan, Qandil said.
An IMF deal would help Egypt stave off a budget and balance of payments crisis and add credibility to economic reforms needed to restore the confidence of investors who fled the country after a popular uprising last year.
“We will have a meeting on Saturday headed by me to look into our next steps,” Qandil told reporters in Cairo on Thursday.
BRUSSELS – The European Central Bank (ECB) board is meeting on Thursday (2 August) in Frankfurt amid high hopes from investors that it will deliver on what its chief suggested last week: a forceful intervention to help out Italy and Spain.
But Germany’s central bank is against the move.
ECB chief Mario Draghi last week said the bank would do “whatever it takes” to support the euro, adding “Believe me, it will be enough.”
He specifically mentioned a controversial bond buying programme that last year helped bring down Spain and Italy’s borrowing costs.
Both countries are again struggling to sell government bonds, as their interest rates are too high to be considered “sustainable,” meaning investors are asking extra premiums for fear the countries may default.
Jens Weidemann, the head of Germany’s central bank who also sits in the ECB governing council comprising of all central bankers from the 17 euro countries, is fiercely against such a move, however.
The ECB should not “overstep its own mandate” he said in an interview published on the Bundesbank website on Wednesday, just after the German banker met Draghi. Weidemann also underlined that the Bundesbank is “the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks.”
Last week, the Bundesbank also stressed it opposes bond purchases because they are an indirect way of helping governments, something that is forbidden under ECB rules.
A compromise solution may be found, however. Sueddeutsche Zeitung on Thursday reported that a majority of the board members are in favour of resuming the bond purchasing programme, which so far has put more than €200 billion into acquiring distressed government bonds.
The German paper said a plan may be put forward for a co-ordinated bond purchasing action of the ECB and the upcoming bailout fund (ESM) in September, after Germany’s constitutional court rules on challenges brought against the ESM.
“He will really disappoint if he doesn’t deliver,” Carsten Brzeski, a senior economist with ING Bank told this website.
He noted that Draghi had raised expectations several times before and came out with much smaller moves than expected.
“It will probably be a collection of smaller things hinting at bigger moves between the lines. They could resume buying bonds like it was done last year, when ECB chief Jean-Claude Trichet said ‘I never said the programme stopped’ and at the same time the ECB was active on the markets,” the economist recalled.
One of the “big moves” pushed forward by Italian Prime Minister Mario Monti is to give the ESM bailout fund a ‘banking licence,’ meaning unlimited borrowing from the ECB.
Speaking in Finland on Wednesday, Monti said he was confident such a move would “help” countries. “I think this will in due course occur,” he said.
But Germany also opposes the big-bang option.
“A banking license for the ESM rescue fund is absolutely not our way,” German deputy government spokesman Georg Streiter told reporters on Wednesday.
BRUSSELS – An escalating dispute between Madrid and Spain’s regional authorities risks undoing its austerity pledge to EU authorities.
The conflict erupted on Tuesday (31 July) when Jose Antonio Grinan, the President of the Andalucia region, walked out of a meeting of Madrid’s Council of Fiscal and Financial Policy when it told him to cut another €3 billion from his 2012 budget.
Catalonia boycotted the meeting in the first place, saying it already cannot pay some hospital, child-care and elderly-care centre workers.
Asturias and the Canary Islands voted against the council’s demands. The Basque region also raised heckles.
Regional spending was the main reason why Spain last year missed its deficit targets under EU rules: Andalucia and Catalonia between them have a GDP of €346 billion, or 32 percent of the country’s total economy.
Andalucia’s Grinan renewed his attack on the government on Wednesday.
He said at a press conference in Seville, the Andalucian capital, that he would challenge Madrid’s demands in Spain’s Constitutional Court if need be.
The Socialist also fired a political broadside against conservative Prime Minister Mariano Rajoy.
“This [the proposed cuts] could close 19 hospitals, all of the Andalucian health service, or get rid of 60,000 public workers, one in four of the local governments workforce,” he said at the press event, according to local news agency Europa Press.
“We are taking resources away from health care and education to save the banks, that is intolerable.”
The rebellion comes at a sensitive moment for Spain, which is trying to convince markets that it can stick to a debt limit of 3 percent of GDP by 2014 and avoid asking for a full-blown state bailout.
The government is to auction €3 billion of bonds maturing between 2014 and 2022 on Thursday.
The sale is to take place a few hours before a European Central Bank (ECB) meeting in Frankfurt in order to capitalise on pre-meeting optimism.
The ECB is expected to say whether or not it will buy more Spanish bonds in future, but German opposition to the move hinges on lack of faith in southern countries’ austerity promises.
Investors in any case are voting with their feet: the Bank of Spain noted capital flight of €41.3 billion in May, compared to €9.2 billion the same month last year.
For their part, ratings agency S&P and US bank Citibank in separate notes published on Wednesday said Spanish regions pose a threat to solvency.
S&P said its outlook will “be influenced by any large and persistent budgetary deviations by the regions … as these deviations would increase net general government debt.”
Citibank said Spain’s “recently passed Budgetary Stability Law looks formidable on paper, but has yet to prove effective.”
It added: “Political tensions between the centre and the regions may make the application of the Budgetary Stability Law more difficult, particularly in regions with strong regional identities, such as Catalonia.”
State oil giant Saudi Aramco unexpectedly shut a secondary unit at its 305,000 barrels-per-day joint venture refinery in Jubail, which caused the refiner to offer a rare high sulphur gasoil cargo, industry sources said on Wednesday.
The Saudi Aramco Shell Refinery Company (SASREF) in Jubail shut its hydrotreater unit about two or three days ago due to a “glitch” two sources familiar with the matter said. But details of the hydrotreater’s capacity or the reason for the shutdown were not clear.
Hydrotreaters are used to remove sulphur from high sulphur gasoil to make it a more environmentally friendly fuel.
Saudi Aramco offered about 60,000 tonnes of 0.5 percent sulphur gasoil from the Jubail refinery for loading over August 18-20 through private negotiations, traders said.
Bids for the cargo have to be submitted by Wednesday, they added.
Saudi Arabia is a net importer of lower sulphur diesel during summer when the fuel is used for power generation. The country has bought at least 750,000 tonnes for the whole of June and July this year.
SASREF, which is a joint venture between Saudi Aramco and Shell Saudi Arabia Refining Ltd., last shut a hydrocracker unit at the Jubail refinery in late June-early July for a couple of days, traders have said earlier.
Iraq’s semi-autonomous region of Kurdistan plans to halt oil exports on Aug. 31 if the central government does not make all outstanding payments, which could mean the proposed increase in Iraq’s overall shipments to world markets will be brief.
Kurdistan said on Wednesday it would restart exports this week in a bid to end the payments dispute with Baghdad. The Kurdistan Regional Government says the central government has withheld payment of $1.5 billion.
Natural Resources Minister Ashti Hawrami made the statement giving the end-August deadline in a letter posted on the KRG’s website and addressed to oil companies DNO, Genel Energy and Kar Group.
“What I have in mind is to restart the oil export for only one month, i.e. for all of the August period,” Hawrami wrote in the letter, dated July 28.
“If the payments are not released by the end of this period, then we agree to halt all the export at the midnight of 31st August.”
The Kurdistan Regional Government (KRG) and Baghdad are locked in a long-running feud over oil and land rights that have shut in exports for the past four months from the oilfields being tapped by foreign oil companies in the northern region.
Letters released on the KRG website show the companies were initially reluctant to go along with the export restart.
Genel Chief Executive Tony Hayward said in a letter to Hawrami the company had not been paid for the majority of oil exported in 2009 and 2011. “This has had a very significant impact on our operations,” the letter said.
The KRG statement on Wednesday said exports would remain at 100,000 barrels per day (bpd) for a month and if payments were forthcoming, could move swiftly up to 200,000 bpd.
Under Iraq’s budget, the KRG is to supply 175,000 bpd of crude for export, but the KRG halted the trade in early April, saying Baghdad owed it a backlog of payments.
The central government is required to route 50 percent of the KRG’s export earnings to Kurdistan to cover producing companies’ previous costs. Baghdad issued two payments in 2011, totaling $514 million; the KRG said it is owed $1.5 billion.
Crude produced in Kurdistan is fed into Iraq’s Kirkuk export stream and sold onto world markets via the Turkish Mediterranean port of Ceyhan. The KRG export halt had cut Kirkuk shipments by a quarter to below 300,000 bpd.
Iraq is boosting oil sales from its southern ports following an increase in export capacity earlier this year. Adding another 100,000 bpd to northern exports would bring Iraq’s overall shipments to around 2.6 million bpd, a postwar record.
Iraq’s oil dispute with Kurdistan has escalated after Baghdad threatened to cancel a contract with France’s Total for signing Kurdish deals and a unit of Russia’s Gazprom also entered the autonomous area.
Total and Gazprom followed U.S. majors Exxon and Chevron in signing oil accords with Kurdistan.
Wars and Rumors of War
by Finian Cunningham
When Serbian nationalist Gavrilo Princip fatally shot the heir to the Austro-Hungarian throne, archduke Franz Ferdinand, in Sarajevo on 28 June 1914, the assassination is seen as the event that ushered in the First World War. Within a month, the Great Powers of Europe would become embroiled in a four-year war owing to a web of alliances and treaties: Russia, France, Britain on the one hand; Germany, Italy, and the Austro-Hungarian and Ottoman Empires on the other. The US would eventually enter the maelstrom in April 1917 on the side of Britain and the Entente allies against the Central Powers.
The eventual death toll was between 10 and 16 million, making it one of the biggest cataclysms in human history. The war was, of course, not the consequence of a mere single act on that fateful day in Sarajevo. It was the culmination over many years of diplomatic and political skirmishing stemming from economic rivalry between the European capitalist powers. Although some later historians dispute the role of economics as the determinant, it is hard not to conclude as many others have done that the First World War was the classic outcome of imperialist rivalry.
In particular, the then top European power Britain had long seen the rising star of Germany as its nemesis for the control of markets and resources. For its part, the newly formed German Empire arising from the unification of Prussia in 1871 felt that its economic development was being unfairly thwarted by London.
This latent conflict over resources was underscored by several concomitant trends at the turn of the 20th century: the economic decline of Britain compared with the technological powerhouse of Germany; the “scramble for African colonies”; the encroachment of German industrialists upon newly discovered Persian oil fields; and the perceived threat to the eastward trade routes with India – the jewel in the crown of Britain’s Empire.
The First World War can thus be seen as proof of the maxim conceived by military theorist Carl von Clausewitz (1780-1831) that “war is but the continuation of politics by other means”. The political and economic rivalry between Britain and Germany was in that way a powder keg that exploded into war upon a Serbian spark.
Turning to the present world situation and potential for conflict, it is likewise incumbent to see the bigger picture beyond immediate tensions and events. We need to see beyond the trees and branches in order to survey the entire forest; and not only the forest, but the historical road that leads up to the forest.
It is also critical for the appreciation of the scope for war in the present day to accept the premise that the capitalist economic system is at root “wired for war”. Or as Karl Marx put it: “War is inherent in capitalism”.
This premise of war as an integral part of capitalism holds because, under the iron law of the profit motive, nations will always be driven by an intense demand for natural resources and markets beyond national boundaries. As a result, nation states will always be thrown into competition for the control of resources and dominance in markets. This tendency towards conflict and eventually war may be held off for some time under conditions of quasi “peace” by international trade pacts and regulations, but eventually the do-or-die imperative of securing economic advantage will over-ride all supposedly civilised constraints.
The political and economic slide towards the headlong collision of the First World War is proof of that dynamic. By way of further proof, only 20 years after “the war to end all wars”, following even deeper economic turmoil between nations, the world was plunged into the even greater conflagration of the Second World War, which involved for the first time the deployment of nuclear weapons and a death toll exceeding 50 million.
Of utmost concern is that the contradiction between national antagonisms in the realm of international relations as dictated by capitalist economics is still far from resolved.
Granted, under the process of globalisation, nation state capitalism has expanded over recent decades to take on, increasingly, a transnational character and function. This has resulted in networks of global capital in the form of multinational banks and corporations. In that way, nation states can appear to be cooperating seamlessly in the function of global capital. The US can be seen as the executive power in the world capitalist system that also appears to seamlessly benefit Britain, France, Germany, Japan, China among others. Also because of historic institutional ties some nations are closer than others in the functioning of the capitalist order. Washington and London, for example, are closely aligned in the sphere of finance capitalism and consequently share overlapping national interests.
Nevertheless, despite the global character of capital, there is still a powerful demarcation of and competition between national interests among the capitalist powers.
One constant factor in the source of rivalry between nations is the control of oil, the lifeblood of the capitalist system. Indeed, the control of oil has become an even greater determinant today for international hegemony. This was well understood by US planners in the aftermath of the Second World War. With less that five per cent of the world’s population, but consuming more than 25 per cent of the world’s oil production, US planners have long been aware of the crucial importance of controlling global oil production for the preservation of America’s economic power. This vital national interest far outweighs any much-vaunted American ideals of democratic values.
With more than 60 per cent of the world’s proven oil and gas reserves located in the Middle East, this region is the ultimate key to continuing US global power. It was for this reason that the former US secretary of state James Baker candidly revealed in an interview on America’s PBS Frontline programme in mid-October 2001 that Washington would always be ready and willing, as a matter of national security, to go to war in order to protect its ally Saudi Arabia and the other oil-rich Arab allies. The despotic, dictatorial nature of these regimes is a virtue, not a vice, for guaranteed American oil supply and the continued dominance of the US dollar as the world’s reserve currency.
This is why today Washington remains silent on the crackdown by the House of Saud against pro-democracy protests in Saudi Arabia and Bahrain. It is also the reason why Washington is allied with the Sunni dictatorships of Saudi Arabia and Qatar in the covert campaign for regime change against perceived recalcitrant governments in Syria and Iran, as it did in Libya with the overthrow and murder of Muammar Gaddafi.
At around the same time that Baker gave his interview outlining the unconditional support by Washington for the oil sheikhdoms, the Pentagon had then concocted a plan for redrawing the political map of the Middle East region and beyond, as the former NATO commander Wesley Clark was to later disclose. Over the ensuing years from late 2001, the Pentagon had designated regime change for seven countries: Iraq, Libya, Syria, Iran, Lebanon, Sudan and Somalia.
Subsequent events and interventions by Washington and its allies in these aforementioned countries – albeit under a guise of defending democracy, human rights and international law – indicates that the Pentagon’s plan is being implemented methodically. The plan evidently holds whether the US president is a Republican or a Democrat, which points up the secret elite nature of government in Washington for which elections are mere window dressing.
A large military convoy was passing by the town and as the troops moved past, the rebels opened fire. Now the city is paying for it, bodies lining the streets. On Wednesday, President Obama signed an order that allows mostly clandestine forces to support the rebels in Syria. NBC’s Richard Engel reports.
President Barack Obama has signed a so-called “intelligence finding” authorizing covert aid to the Syrian rebels seeking to depose Syrian President Bashar al-Assad and his government , NBC News has confirmed.
White House and intelligence officials declined to comment on a Reuters report about the aid.
A U.S. official also said that while Secretary of State Hillary Clinton has said the U.S., is providing non-lethal aid and communications to the rebels, the presidential finding provides more intelligence resources than had been previously known.
The administration has been under constant criticism for months from Sen. John McCain, R-Ariz., and others who say the administration should be arming the rebels.
Obama’s order, approved earlier this year, broadly permits the CIA and other U.S. agencies to provide support that could help the rebels oust Assad, Reuters reported.
People resisting the army of President Bashar al-Assad in northern Syria cope with loss and prepare for fighting.
This and other developments signal a shift toward growing, albeit still circumscribed, support for Assad’s armed opponents — a shift that intensified following last month’s failure of the U.N. Security Council to agree on tougher sanctions against the Damascus government, Reuters reported.
The White House is for now apparently stopping short of giving the rebels lethal weapons, even as some U.S. allies do that, Reuters said.
But U.S. and European officials have said that there have been noticeable improvements in the coherence and effectiveness of Syrian rebel groups in the past few weeks. That represents a significant change in assessments of the rebels by Western officials, who previously characterized Assad’s opponents as a disorganized, almost chaotic, rabble, Reuters reported.
Precisely when Obama signed the secret intelligence authorization, an action not previously reported, could not be determined, Reuters said.
The full extent of clandestine support that agencies like the CIA might be providing also is unclear, Reuters said.
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Saudis mum on aid center in Turkey for Syrian rebels
The Syrian foreign minister while visiting Iran Sunday said the Syrian rebels are part of an Israeli plot, but in northern Syria, people support the opposition to the current regime. NBC’s Richard Engel reports.
Updated at 5:30p.m. ET: Saudi Arabia said Syrians should be enabled to protect themselves against government attacks but declined direct comment on a report that it had helped set up a secret liaison center in Turkey to aid a rebellion against President Bashar al-Assad.
Assad on Sunday claimed victory in a hard-fought battle for Syria’s capital, Damascus, and pounded rebels who control of parts of its largest city, Aleppo.
U.S. Defense Secretary Leon Panetta said on Sunday that the attacks on Aleppo are putting the nail in the coffin of Assad’s government.
Gulf sources told Reuters on Friday that Saudi Arabia, Turkey and Qatar had established a center in Adana, southeastern Turkey, to help the rebel Free Syrian Army with communications and weaponry as it battles in major cities against forces loyal to Assad.
A Free Syrian Army member walks past the body of an alleged member of Syrian President Bashar al-Assad’s shabiha militia at Aleppo’s disctrict of al-Sukkari.
“The very well-known position of the kingdom of Saudi Arabia is to extend to the Syrian people financial and humanitarian assistance, as well as calling upon the international community to enable them to protect themselves at the very least if the international community is not able to do so,” a foreign ministry spokesman said by text message on Saturday, answering a Reuters query about the base.
“The Syrian regime is importing and using all kinds of weapons to fight and oppress its own people in a fierce war as if it’s launched toward a foreign enemy — not against its disarmed population”, the spokesman added.
The Gulf sources had also said the Adana center, which is near the Syrian border and a U.S. Air Force base at Incirlik, was set up at the suggestion of Saudi Deputy Foreign Minister Prince Abdulaziz bin Abdullah during a trip to Turkey.
When Sunni officer Fahed al-Freij was promoted to replace Syria’s defense minister, slain in a bomb attack two weeks ago, few people paid much attention and rebels dismissed him as inconsequential.
But Lebanese officials close to the Syrian government said his appointment was a clear indication that President Bashar al-Assad, taken aback by the assassination of four of his top security officials, had decided to respond savagely.
They said Freij, a staunch Assad supporter, was known for brutality and shoot-to-kill tactics.
Upon his appointment he gave orders to “wipe out” the rebels. “Even if it is my father who is carrying weapons against Syria, treat him as a traitor and kill him,” pro-Assad websites quoted him as telling soldiers on the night of his appointment.
Freij, born in 1950, comes from the Hadeedy tribe from a village in Hama province, which saw the worst violence under Bashar’s father, President Hafez al-Assad, who sent troops in the 1980s to crush an armed Islamist revolt against his rule.
In his appointment speech hours after the bombing, Freij looked determined to fight back. Instead of ceremonial uniform he wore dark green fighting colours and a frown on his face, vowing to go on the offensive as he mourned the slain officials.
Unlike his late predecessor Daoud Rajha, who kept a low profile, Freij has issued several statements urging the soldiers to fight.
“Brothers in arms and doctrine, the Syrian people have put their trust in you and it is well deserved … Your battle is the battle of right against wrong,” he said in his latest speech on Wednesday, Syria’s armed forces day.
“Terminate them (the rebels) wherever you find them.”
Soon after his appointment, rebels were celebrating the capture of several districts in the capital, part of an operation they called ‘Damascus volcano’, and parts of Aleppo and border crossings with Turkey and Iraq.
But Freij turned the tables. Right after he took over, the Syrian army launched a major offensive in Damascus, recapturing the central Midan district from rebels before moving to other rebel strongholds like Hajar al-Aswad.
For the first time since the 17-month-old revolt against Assad started, the military used fighter jets to strafe rebel areas in Rastan, Deraa and Aleppo.
On Sunday the government declared victory in a hard-fought battle for Syria’s capital, and pounded rebels who control parts of its largest city Aleppo. Government forces are now massing around Aleppo for another “decisive battle.”
Rebels seems to have changed their opinion of Freij.
“We did not know who he was at first. We have checked now. He is a Bedouin from Hama, commander of the operations (to crush opposition in) Deraa and Homs during the revolution,” said a rebel commander in Damascus.
“He is a military officer one hundred percent. He is…known to be savage. He is known since he was a student in the military college as tough and firm,” he added.
Last year the army crushed Deraa, the cradle of revolt against Assad and a major attack on Homs left the city in in ruins and almost empty.
A Lebanese security source described Freij as solid with a ruthless personality.
“Before when a bullet was fired (by rebels) the orders were given to cut the electricity from that area and go after the rebels but with this man the orders are different – burn them,” said a Lebanese official close to the Syrian government.
But the rebels are now better equipped and determined to fight back. A group of gunmen posted a Youtube video after his appointment saying that his tribe disavow him and that he will be their target.
“We inform him that he will be our coming target..we tell him that victory is coming. God is Greatest.”
Articles of Interest
The Obama White House: in apology mode
The Obama presidency is fond of issuing apologies for America on the world stage, but very rarely makes them at home to Americans. White House Communications Director Dan Pfeiffer has just issued one to Washington Post columnist and Fox News contributor Charles Krauthammer, who last week wrote an op-ed berating the Obama administration for removing a bust of Sir Winston Churchill from the Oval Office when it came to power. Pfeiffer had issued a stinging attack on Krauthammer, alleging that his Churchill bust reference was “100 percent false.” Krauthammer was of course 100 percent correct, and the British Embassy in Washington even issued a statement contradicting Pfeifer’s remarks.
Here is the full text of Pfeiffer’s mea culpa, published on the White House blog in the form of an open letter to Mr. Krauthammer:
I take your criticism seriously and you are correct that you are owed an apology. There was clearly an internal confusion about the two busts and there was no intention to deceive. I clearly overshot the runway in my post. The point I was trying to make – under the belief that the Bust in the residence was the one previously in the Oval Office– was that this oft repeated talking point about the bust being a symbol of President Obama’s failure to appreciate the special relationship is false. The bust that was returned was returned as a matter of course with all the other artwork that had been loaned to President Bush for display in his Oval Office and not something that President Obama or his Administration chose to do. I still think this is an important point and one I wish I had communicated better.
A better understanding of the facts on my part and a couple of deep breaths at the outset would have prevented this situation. Having said all that, barring a miracle comeback from the Phillies I would like to see the Nats win a world series even if it comes after my apology
It is good to see Mr. Pfeiffer finally issue a formal apology, after his juvenile and remarkably ignorant rebuttal of Mr. Krauthammer’s Post column generated a media storm. But this does not by any means end the controversy over the decision by the White House to return the Churchill bust. There is still an air of defiance in Pfeiffer’s words, and he categorically claims that the bust was sent back “as a matter of course,” and its return to the British government was “not something that President Obama or his Administration chose to do.”
As I noted in my previous blog on the subject, however, both The Sunday Telegraph and The Times of London ran major articles back in early 2009 revealing that British officials had made it clear to the White House that President Obama could keep the Churchill bust in the Oval Office. In other words, it was the White House’s firm decision to return the bust, and no request was made by the British to have it back. This looks awfully like a deliberate snub of America’s closest friend and ally, and it would be good for the White House to acknowledge the truth, rather than continue to spin a blatantly false and misleading line.
The Cartel Behind the Scenes in the Libor Interest Rate Scandal
Eduard Pomeranz and Rolf Majcen are small fish in the shark tank of international high finance. Their hedge fund, FTC Capital, is headquartered in tranquil Vienna and manages only €150 million ($189 million) in assets. But now Pomeranz, the founder, and Majcen, the head of the legal department, have been able to strike fear in the hearts of the big fish.
“The Libor manipulation is presumably the biggest financial scandal ever,” says Majcen, a man with slightly disheveled-looking hair and Viennese sarcasm. Yes, he says, it did shock him that something like this was even possible, namely that a group of international banks had been manipulating interest rates for years. But Majcen takes a matter-of-fact approach to it all. As a financial professional, he is only one of many who want to get back the money that they feel they’ve been cheated out of.
At the end of June, British and American regulators imposed a $500 million fine on Barclays, the major British bank, and forced its CEO Bob Diamond to resign. Since then, a war of sorts has erupted in the financial sector. Investigators are attacking presumed offenders, banks that are involved are denouncing others in the hope of mitigating their own penalties, and small investors like Majcen are inundating Libor banks with lawsuits.
Deutsche Bank and more than a dozen other financial giants have come under sharp criticism due to the alleged manipulation of the Libor ( London Interbank Offered Rate), a benchmark interest rate. Some are even referring to the banks that are instrumental in calculating that rate a cartel, the sort of vocabulary not normally associated with the financial industry.
Regulators are using terms like “organized fraud.” European Justice Commissioner Viviane Reding has suggested that bankers ought to be called “banksters.” But in the case of some agencies, especially in New York and London, the outcry is also convenient; it diverts attention away from their own failures. For years, regulators overlooked what was happening right in front of their eyes.
Now that the authorities have woken up, they are aggressively pursuing the offenders — and are reaching all the way up to the boardrooms. More than half a dozen government agencies, from Canada to Japan, are investigating the case.
German authorities are also involved. A dozen employees of Germany’s central bank, the Bundesbank, have paid several visits to Deutsche Bank in recent weeks. They work for BaFin, the German federal financial supervisory authority, which has ordered a special audit, and are poking around the bank’s headquarters in Frankfurt, traveling to London, where its money market traders are based, and flying to Tokyo. Even the bank’s two new co-CEOs, Anshu Jain and Jürgen Fitschen, are expected to sit down for a question and answer session with the auditors. This is particularly unpleasant for Jain, who, as head of the investment banking division during the period in question, was ultimately responsible for money market transactions.
Libor, Anchor of the Financial World
The Libor and Euribor (Euro Interbank Offered Rate) are used worldwide as the benchmark rates for financial transactions worth hundreds of trillions of euros. When a savings bank issues a loan to a business at a variable interest rate, the loan agreement is based on the Euribor. “In many cases, the Euribor is even the key guideline for the structuring of call money,” says Falko Fecht, a professor at the Frankfurt School of Finance, referring to overnight and other such short-term loans. In Spain, in particular, tens of thousands of construction loans are based on the Euribor, while millions of mortgage loans in the United States are pegged to the Libor rate.
But the bankers in the cartel initially had their sights set on a completely different business. They wanted to influence the giant market for interest rate and foreign currency derivatives in their favor. The volume of outstanding transactions in this area amounted to €567 trillion at the end of 2011 alone. Changes of as little as 0.01 percentage points can translate into hundreds of millions in profit or loss for some banks. This makes the lax approach to the calculation of rates taken for years by banks and regulators alike seem all the more astonishing.
A total of no more than 18 banks, including Deutsche Bank, are involved in the calculation of the Libor. Every morning, they submit estimates of the costs at which they believe they could borrow money on the markets without collateral. Using the resulting data, financial services provider Thomson Reuters calculates averages — for 10 different currencies and 15 different borrowing periods.
A similar method is used to calculate the Euribor, except that there significantly more banks — 43 — involved in the process.
Nevertheless, it is hardly a rigorous calculation. The averages are based on rule-of-thumb estimates; the market supposedly reflected in the data sent to Thomson Reuters has been dead since the financial crisis. Only very few banks can borrow money today without furnishing collateral.
Furthermore, neither bank executives nor regulators have shown much interest in how the important benchmark rate is determined. Inputting the data was often left to ordinary money market traders, who had serious conflicts of interest and acquired a dangerous amount of influence on the financial world. “The Libor interest rate was practically an invitation to manipulate,” says BaFin head Elke König.
The Cartel Emerges
In 2005, a young trader with Moroccan roots came to Barclays: Philippe Moryoussef, who is now 44. For him, it was only one station of many: Société Générale, Barclays, Royal Bank of Scotland, Morgan Stanley and, finally, Nomura. The Japanese had let him go when it became clear what role Moryoussef allegedly played in the interest-rate cartel.
In the London financial district, Moryoussef was seen as cool and unassuming. He liked diving, read books and didn’t put on airs in public, even when he moved into a £2.5-million ($3.9 million) apartment in London’s St. John’s Wood neighborhood with his wife and two children.
Moryoussef traded in interest rate derivatives during his time at Barclays. He and his fellow traders knew exactly how much money they stood to lose or gain if the Libor or Euribor changed by only a fraction of a percentage point in one direction or the other.
And they apparently did everything they could to eliminate happenstance. Moryoussef communicated by phone or email with colleagues inside and outside the bank almost daily to steer interest rates in the right direction. To do so, they sent inquiries to the people who were responsible for inputting the Libor rates: the money market traders.
In the glitzy world of investment banking, money market traders were at the bottom of the pecking order before the financial crisis. They were not involved in major deals, and they could only dream of the kinds of bonuses stock and bond traders received. “They were always at the bottom of the food chain,” says a former investment banker.
It was a conspiratorial group of underdogs who worked for various banks and met at least once a month for a beer or a mojito in New York, London or Frankfurt. By the middle of the last decade, when there seemed to be a surplus of money at the banks, they all had the same problem: They were derided or, worse yet, ignored by their colleagues in the trading rooms of major banks.
But what if it were possible to know where interest rates were headed at the end of the day, or even in the next hour? What if a few traders could manipulate the ups and downs of interest rates?
By 2005 at the latest, the traders would seem to have begun realizing just how much power they had were they able to collaborate within their small group. There was no need for formal contracts between large institutions, merely agreements among friends. A pointer here, a few traders meeting for lunch there, and soon the group had formed a global cartel that, according to investigators, reached from Japan to Europe to Canada.
“Come on over; I’ll open a bottle of Bollinger,” a trader, inebriated with his success, wrote to a colleague after the Libor rate had been set. Adair Turner of the British regulatory agency quotes the email as evidence of “a culture of cynical greed in the trading rooms.”
The Organized Fraud
“If the rate remains unchanged, I’m a dead man,” a trader emailed to a colleague who was responsible for Libor in October 2006. The traders sent at least 173 inquiries of this nature between 2005 and May 2009 for the dollar Libor alone. They were often successful.
Moryoussef, listed in the files of Britain’s Financial Services Authority (FSA) as “Trader E,” specialized in the Euribor. He reportedly bet €30 billion on certain movements of the interest rate, a normal dimension in the fast-paced money market. “The trick is that you can’t do it alone,” he bragged to outside colleagues at HSBC, Société Générale and Deutsche Bank, who allegedly cooperated with him.
While the traders were initially out to increase their bonuses, the manipulation took on a different dimension during the crisis. When the first banks began to wobble in 2007, it became more difficult for many financial companies to borrow money — a problem that would normally be reflected in higher Libor rates.
Now even top managers at Barclays, alarmed by media reports, were instructing the Libor men to input lower rates. In October 2008, the manipulation became a question of survival for Barclays. On Oct. 29, a concerned Paul Tucker, now the deputy governor of the Bank of England, contacted Barclays CEO Diamond. Tucker wanted to know why the bank was consistently inputting such high interest rates into the daily Libor report.
Diamond told a parliamentary committee that Tucker had suggested to report lower interest rates for the Libor, which Tucker staunchly denies. Diamond, for his part, prepared a transcript of the telephone conversation he had had with Tucker on that day, in which he had mentioned political pressure. After that, his chief operating officer spoke with the money market traders. The underdogs were suddenly being heard on the executive board, and had become the bank’s potential saviors.
Barclays wasn’t the only bank that was having trouble gaining access to money in the fall of 2008. UBS, Citigroup and the Royal Bank of Scotland, now prime suspects in addition to Barclays, had to be bailed out by their respective governments. Germany’s WestLB, which was involved in the Libor calculation at the time, was also seen as a problem case, although this wasn’t reflected in the Libor rates it was reporting.
As early as the fall of 2011, Deutsche Bank’s chief risk officer at the time, Hugo Bänziger, ordered an internal audit. Millions of emails had to be reviewed and chat minutes read. Bänziger hired an outside auditing firm, and soon there were 50 people on the team responsible for the scandal. But it was a deeply frustrating task for the auditors; they didn’t even know where to begin.
Only when British investigators released the names of two suspicious traders was the audit team able to report success to then CEO Josef Ackermann. Seemingly sensing what was in store for his bank, he inquired about the progress of the audit on a weekly basis. Two traders were fired.
Since the departures of Ackermann, Bänziger and former Supervisory Board Chairman Clemens Börsig, Börsig’s successor Paul Achleitner has managed the bank’s handling of the Libor scandal. He is reportedly firmly convinced that the bank never tried to push down the Libor to improve its own position. Financing problems? Not at Deutsche Bank, says Achleitner. He also notes that there are no indications that executive board members, or even Anshu Jain, were directly involved in the scandal.
But is it possible that only two wayward traders took part in the cartel? Why were no supervisors and no compliance officers aware of their activities? Deutsche Bank prides itself on being a world leader in the trade in foreign currencies and interest rates. It is part of all panels involved in determining the Libor. And yet Deutsche Bank merely sees itself as a bit player in the Libor-fixing scandal.
But why then was Alan Cloete, thought to have been responsible for the money market business and other areas during the wild Libor years, unaware of the manipulation? And why did Jain promote the stocky South African to the expanded executive board in March, while the investigations and internal audits in the Libor matter were already underway? There are those associated with the bank who think this is odd, while others see it as proof that Cloete is blameless in the Libor case.
The Failure of the Regulators
On April 11, 2008, a member of the Barclays money market team called Fabiola Ravazzolo, an employee of the Federal Reserve Bank of New York.
Barclays employee: “LIBORs do not reflect where the market is trading, which is, you know, the same as a lot of other people have said.”
Ravazzolo: “Mm hmm.”
A few moments later, the Barclays man, according to the transcript of the conversation released by the bank, said: “We’re not posting, um, an honest Libor.”
Barclays-Mann: “We are doing it, because, um, if we didn’t do it it draws, um, unwanted attention on ourselves.”
There was no sense of outrage, nor did Ravazzolo question the Barclays employee about the details. A similar conversation transpired with another Fed employee a few months later.
These are transcripts of failure. Barclays employees also contacted British regulators 13 times to report possible misconduct among the competition in determining the Libor, FSA chief Adair Turner admitted in a hearing before the British investigative committee. No one sounded the alarm.
In the United States, the issue ultimately did make it further up the ladder, reaching the desk of Timothy Geithner, who was chairman of the New York Fed at the time before becoming US treasury secretary. At the end of May, he sent an email on the subject of the Libor to the governor of the Bank of England, writing: “We would welcome a chance to discuss these and would be grateful if you would give us some sense of what changes are possible.” Attached to the message were two pages of “Recommendations for Enhancing the Credibility of LIBOR”. It was anything but a warning about manipulations.
At first, there was no reaction from the other side of the Atlantic, and Geithner’s office had to send a reminder email on June 1. Two days later, Bank of England Governor Mervyn King finally responded, writing that the recommendations seemed “sensible” and that he would be happy to discuss the matter further with Geithner.
But nothing further happened in the ensuing months. The financial crisis was coming to a head with the bankruptcy of investment bank Lehman Brothers. The central bankers had other worries. This remains the regulators’ line of defense today. If the world hadn’t happened to be on the edge of an abyss, they say, the Libor scandal would certainly not have slipped through their fingers as easily.
Meanwhile, the US Commodities Futures Trading Commission (CFTC) had been investigating the issue since 2008, and its efforts eventually led to a worldwide investigation.
By Al Arabiya
A video shown on an Egyptian satellite channel revealed the establishment of the first Shiite school in Egypt, amid doubts about the authenticity of the news and denial on the part of the owner of the place.
The video, aired Tuesday on one of the Egyptian talk shows on Dream TV, showed that the new school has students from different Arab and foreign countries, on top of which were Algeria, Qatar, Iran, and the United States.
An Algerian girl said in the video that she had come from Algeria especially to attend the new school in which, according to her, students practice the Shiite rituals and perform the chants related to Shiite beliefs.
For Walid Ismail, member of the Muslim Coalition for the Defense of the Prophet’s Companions and Offspring and researcher in Islamic affairs, the new school is part of a plan to divide Egypt along sectarian lines.
“If this school continues, it will be the biggest threat Egypt could face in the coming phase,” he said.
The school, he added, took advantage of the security vacuum in Egypt as well as post-revolution rifts between several factions to promote the Shiite faith.
Islamic researcher Alaa al-Said expressed his surprise at the establishment of the school for logistic reasons.
“How can the school start classes without obtaining the necessary approvals from the Ministry of Education and other relevant bodies?” he said.
On the other hand, Shawki Ahmed, a Shiite who was hosted in the same show that aired the video, denied reports about the establishment of a Shiite school.
“The place shown in the video is my house and I do receive students there, but it’s not a school and their number does not usually exceed 15.”
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