Monday, April 6, 2009

The Sum Of All Fears On Pakistan

When one of America's top counter-insurgency analysts says that Pakistan could collapse in six months to an Islamic coup, it's best to pay attention.
Strengthening Pakistan’s weak civilian institutions, updating political parties rooted in feudal loyalties and recasting a military fixated on yesterday’s enemy, and stuck in the traditions of conventional warfare, are generational challenges. But Pakistan may not have the luxury of the long term to meet them.

Some analysts here and in Washington are already putting forward apocalyptic timetables for the country. “We are running out of time to help Pakistan change its present course toward increasing economic and political instability, and even ultimate failure,” said a recent report by a task force of the Atlantic Council that was led by former Senator Chuck Hagel of Nebraska and Senator John Kerry of Massachusetts. The report, released in February, gave the Pakistani government 6 to 12 months before things went from bad to dangerous.

A specialist in guerrilla warfare, David Kilcullen, who advised Gen. David H. Petraeus when General Petraeus was the American commander in Iraq, offered a more dire assessment. Pakistan could be facing internal collapse within six months, he said.

General Petraeus, in Congressional testimony last week, called the insurgency one that could “take down” the country, which is home to Qaeda militants and has nuclear arms.

Even before the insurgency has been fully engaged, however, many Pakistanis have concluded that reaching an accommodation with the militants is preferable to fighting them. Some, including mid-ranking soldiers, choose to see the militants not as the enemy, but as fellow Muslims who are deserving of greater sympathy than are the American aims.
Folks, a collapse of the Pakistani government is pretty much worst-case scenario. Pakistan has nuclear weapons. India will not stand by and allow the Pakistani nukes to come under extremist control. They will move with decisive military action. Should that happen, the US will have to act quickly to prevent a nuclear exchange, and doing so will almost certainly destabilize the rest of the Middle East, not to mention draw China and Russia into the fray.

From there, we get a Tom Clancy novel where the bad guys have a very good chance of winning. Millions of lives could be at stake in a very grim scenario.

Pray Obama's up to it. After all, sending repeated drone attacks into Pakistan isn't helping stabilize the government too much.

Global No-Confidence Vote: Failing The Test

It's looking more and more like Timmy sold us up the river, folks. You know those bank stress tests everyone keeps talking about as the key for saving the financial system from itself? Turns out there's ample evidence to believe that the tests are at best, a complete ruse that will deliver no useful information about the true state of the banks, and at worst they are completely rigged.

Nobody could have predicted, etc...
The bank stress tests currently underway are “a complete sham,” says William Black, a former senior bank regulator and S&L prosecutor, and currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City. “It’s a Potemkin model. Built to fool people.” Like many others, Black believes the “worst case scenario” used in the stress test don’t go far enough.

He detailed these and related concerns in a recent interview with Naked Capitalism. But Black, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis, says the program's failings go way beyond such technical issues. “There is no real purpose [of the stress test] other than to fool us. To make us chumps,” Black says. Noting policymakers have long stated the problem is a lack of confidence, Black says Treasury Secretary Tim Geithner is now essentially saying: “’If we lie and they believe us, all will be well.’ It’s Orwellian."

The former regulator is extremely critical of Geithner, calling him a “failed regulator” now “adding to failed policy” by not allowing “banks that really need desperately to be closed” to fail. (On Saturday, Geithner said on Face the Nation, if banks need "exceptional assistance" in the future "then we'll make sure that assistance comes with conditions," including potentially changing management and the board, but did not say they'd be shut down.)

Black says the stress test must also be viewed in the context of Geithner’s toxic debt plan, which he calls “an enormous taxpayer subsidy for people who caused the problem.” The fact bank stocks have been rising since Geithner unveiled his plan is “bad news for taxpayers,” he says. “It’s the subsidy of all history."

Any scenario for fixing the banks is 100% dependent on the stress tests objectively and accurately determining which banks are solvent and which banks are effectively insolvent. If the tests are rigged as Black says, then there's no way to save the banks or the financial system, in effect, the system will be doomed to collapse.

The stress tests being a way to magically pass all the banks as "A-OK" when they are insolvent is basically the absolute worst case scenario, where banks will be allowed to operate as zombies ad infinitum on the taxpayer dime, funded by Helicopter Ben's Magic Printing Press.

The resulting hyper-inflation as the taxpayer has to continually fund trillions in bad loans and toxic crap basically wipes out the US economy and the world with it. Game, set, match.

If William Black is right, the Obama administration will end up doing more damage to the economy than Bush did, and that kind of admission from myself is downright terrifying.

Do read that Naked Capitalism link. The details of what a true stress test should be, and what Geithner is proposing, should make you ill. I know it does me.

I also asked him about the fact that bank examiners examine banks (duh) and would not have much (any?) experience in the capital markets operations or sophisticated products that the big investment bank, now banks, participated in. Goldman and Morgan Stanley ought to be subject to these exams; Citi, JP Morgan, and Bank of America have large capital markets operations. These firms are where the biggest risks and exposures lie. Do the examiners what to look for in a even the low-risk operations, like repo desks, much the less derivatives and proprietary trading books? He agreed (as presented below) that it was a near certainty that this was beyond their skill level.

Now this begs the question: why has the Treasury Secretary set in motion an obviously bogus process? It suggests the result is pre-ordained.
As AG would say, "The fix is in, folks." And this time, the fix has fixed us but good. A hundred regulators versus the entire financial system when Geithner and Obama have every single reason to lie to us about the results, to pass the banks off as "improving", and hope the Toxic Asset Three-Card Monte game is enough to fool all of the people, all of the time.

Bottom line is there's nothing Timmy can do to save the economy that won't wipe out the standard of living of your average American, but this way Treasury gets to claim due diligence while all hell breaks loose. It's either face the truth and assure a collapse now, or hyper-inflation and collapse later. As a politician, what would you do? Tell the truth?

The lifeboats on the S.S. Titanic are being quietly filled while we're busy below decks listening to the captain's recorded announcements that everything is fine. It's not. Obama can't save us. All he can do is try to control the damage from the collision. Telling us the truth would cause mass panic. Lying to us until the banksters and the bigwigs can get the lifeboats launched is the way to go.
But even the designation of "sick but not ready to be hospitalized" carries with it risk to the Administration. If the banks get sicker than anticipated, how can they explain it? They can't say, "oh, things got worse than we contemplated". The whole point of a stress test is to anticipate worst case scenarios. And it is pretty certain a fair number of the big banks will be on such large-scale life support by year end that it will be hard to make a case not to put them in receivership.
And by the time things get that bad, receivership may not be a viable option anymore...not without Helicopter Ben's Magic Printing Press going at full speed. This is a brutal scenario, one where Obama has determined he has no choice but to prepare America for a collision with an iceberg.

First quarter 2009 was bad. You will refer to them as "the good times" before long.

Be prepared.

Zandar's Thought Of The Day

Why is it that the same people that rightfully remind us that policework is a dangerous job and that cops can get killed...
A madman shot five officers, killing three, in Pittsburgh. These men did protect and serve. The gunman was taken into custody, too late to save three of the officers.
... are the same ones who criticize the police for putting the safety of their officers first?
Wrote Steyn: “If you ever have to call 911, it may be worth requesting that kind of service rather than the world’s most heavily armed and lavished equipped yellow-tape installers.”

That’s cold, but it appears to be fitting. I wonder if anyone in New York state will dare hold the Binghamton Police accountable for their inaction in the face of danger.

If the police cannot serve and protect, let’s get rid of them.

So which is it, Don Surber? Should officers be concerned about their safety when they are facing people armed with guns in a job where they can get killed themselves or get others killed, or are they negligent for allowing people to die when trying to safely operate in a clearly dangerous environment?

It's a difficult job and way the hell too easy to criticize in hindsight when the bullets aren't flying, man. It's even worse when you use that to score political points.

The Nuclear Option

Over at the Daily Beast, Scott Horton reveals that Senate Republicans appear to be playing hardball on the issue of torture and Justice Department nominees (emphasis mine):
Senate Republicans are now privately threatening to derail the confirmation of key Obama administration nominees for top legal positions by linking the votes to suppressing critical torture memos from the Bush era. A reliable Justice Department source advises me that Senate Republicans are planning to “go nuclear” over the nominations of Dawn Johnsen as chief of the Office of Legal Counsel in the Department of Justice and Yale Law School Dean Harold Koh as State Department legal counsel if the torture documents are made public. The source says these threats are the principal reason for the Obama administration’s abrupt pullback last week from a commitment to release some of the documents. A Republican Senate source confirms the strategy. It now appears that Republicans are seeking an Obama commitment to safeguard the Bush administration’s darkest secrets in exchange for letting these nominations go forward.
Bottom line, if the Obama administration releases those John Yoo torture memos, Republicans will scuttle the nominations of the people who are most likely to prosecute the offenses these memos entail.

It very much is blackmail if that is the case, and Obama should immediately release the memos and bury the GOP if they try to block Dawn Johnsen and Harold Koh. I say pull the trigger and make the bastards pay. Scuttle the Republicans. If they block the rest of Obama's appointments, then they'll never shake the Party of No label.

If Obama caves on this one, then we've lost ourselves as a country.

Congratulations Are In Order

Because Shelly Bachmann has finally crossed over into Godwin's Law territory with her stupidity, thus earning her my eternal scorn and a tag for future derisive snark.
The launching point of Bachmann's remarks was the widely popular and bipartisan Edward M. Kennedy Serve America Act, which would expand national community service programs from 75,000 positions to 250,000.

"It's under the guise of -- quote -- volunteerism. But it's not volunteers at all. It's paying people to do work on behalf of government," said the Minnesota Republican. "I believe that there is a very strong chance that we will see that young people will be put into mandatory service. And the real concerns is that there are provisions for what I would call re-education camps for young people, where young people have to go and get trained in a philosophy that the government puts forward and then they have to go to work in some of these politically correct forums."

The Obama White House did not immediately return request for reaction. The Kennedy Serve America Act passed the House of Representatives by a vote of 275 to 149 and the Senate, by a vote of 79 to 19.

Needless to say, new tag for the Distinguished Nutbar From Minnesota: Bachmanniac.

The woman's persecution complex could power Minneapoils for days on end.

[UPDATE] And pray she doesn't see this article, either. Actually, I hope she does. The freak-out should be impressive.

Some Real High School Garbage Going On

Greg Sargent picks up on the GOP eating its own over the weekend, particularly stabbing current House Minority Leader John Boehner in the back and pumping up the stock of current GOP Whip Eric Cantor.
You know there’s serious disarray afoot among a party’s Congressional leaders when the principals and their staffs start leaking damaging info about each other, and that now seems to be happening among House GOP leaders.

Check out this nugget from Ben Pershing’s piece on increasing tensions among House Republicans. It appears that someone is trying to pin the blame for the House GOP’s politically-disastrous, numbers-free budget on John Boehner:

Privately, Cantor and the lawmaker tasked with writing the GOP budget, Rep. Paul D. Ryan, had urged the party to hold off going public until it could produce a finished product. Both men wanted a more detailed proposal with dollar figures that would make it a more defensible document. Boehner and House Republican Conference Chairman Mike Pence disagreed, hoping to counter as quickly as possible Democrats’ charge that Republicans are “the Party of No.” The result was a botched rollout and bad press.

And someone wants to shift the blame for the botched budget rollout away from Eric Cantor.

Boehner survived one attempt on his job after the election, but it's looking like Cantor's crew has declared "Game on!" and aren't waiting for 2010. Then again, if the contest if between the GOP as the Party of No and the GOP as the Party of Stupid Ideas, does it matter who wins?

Leading The Witness, Your Honor

Steve Benen has more on that zany North Korean missile poll from Rasmussen that just seems to be full of complete insanity.
The key question was worded, "If North Korea launches a long-range missile, should the United States take military action to eliminate North Korea's ability to launch missiles?" In response, according to Rasmussen, 57% said, "Yes."

I can only assume those 57% haven't thought this through. If the U.S. were to "eliminate" North Korea's ability to launch missiles through military action, that would instigate a rather dramatic regional conflict, involving South Korea, Japan, China, and Russia. A majority of Americans really prepared to jump into this over a launch that, by some measures, was a failure?

In the meantime, Newt Gingrich believes the Obama administration should launch a pre-emptive strike against North Korea, and use "lasers" to take out the country's missile capabilities. Gingrich added that Obama has a "dangerous ... fantasy foreign policy."

Yes, the guy who wants to shoot frickin' lasers at North Korea believes the president's foreign policy is the stuff of fantasy. Got it.

And people wonder why nobody takes Republicans (or Rasmussen) seriously.

Stopped Clock Is Right Alert

Today's Wingnut Stopped Clock Is Right Alert goes to "Cap'n" Ed Morrissey of The Malkinvania Reserve Squad Hot Air, who rightfully points out that Obama's statement this weekend that "We're not at war with Islam" is something Bush said on a number of occasions first.
Yes, because George Bush spent the last seven years blaming the entire Muslim world for the 9/11 attacks, right? Right? Er, no, as this collection of Bush quotes regarding Islam makes excruciatingly clear. In fact, Bush emphasized friendship with Muslims from the very start of the war:
  • “I’ve made it clear, Madam President, that the war against terrorism is not a war against Muslims, nor is it a war against Arabs. It’s a war against evil people who conduct crimes against innocent people.” — Remarks by President George W. Bush and President Megawati of Indonesia The Oval Office, Washington, D.C. September 19, 2001
  • “The face of terror is not the true faith of Islam. That’s not what Islam is all about. Islam is peace. These terrorists don’t represent peace. They represent evil and war.” — Remarks by the President at Islamic Center of Washington, D.C. Washington, D.C. September 17, 2001
  • “All of us here today understand this: We do not fight Islam, we fight against evil.” — Remarks by President George W. Bush to the Warsaw Conference on Combating Terrorism November 6, 2001
  • “I have assured His Majesty that our war is against evil, not against Islam. There are thousands of Muslims who proudly call themselves Americans, and they know what I know — that the Muslim faith is based upon peace and love and compassion. The exact opposite of the teachings of the al Qaeda organization, which is based upon evil and hate and destruction.” — Remarks by President George W. Bush and His Majesty King Abdullah of Jordan The Oval Office, Washington, D.C. September 28, 2001
  • “Islam is a vibrant faith. Millions of our fellow citizens are Muslim. We respect the faith. We honor its traditions. Our enemy does not. Our enemy doesn’t follow the great traditions of Islam. They’ve hijacked a great religion.” – Remarks by President George W. Bush on U.S. Humanitarian Aid to Afghanistan Presidential Hall, Dwight David Eisenhower Executive Office Building, Washington, D.C. October 11, 2002

And so on; there are plenty of examples to make the point. Obama spoke in the tradition established by Bush over the last seven-plus years of emphasizing that America did not declare war on Islam. That’s been obvious through our partnership with Islamic nations, such as Iraq, Turkey, Afghanistan, Jordan, and Saudi Arabia, just to name a few. And he’s right; the last thing we would want to do would be to declare war on a billion people just on the basis of their religion. The more we can keep the Muslims on the sidelines, the better off we are in fighting against the radicals.

And that's the one thing even I have to admit Bush did correctly, he resisted the calls from the right to turn this into a crusade and did go out of his way to make partnerships with Muslim countries.

Those partnerships however are in various states of disarray (especially in Turkey) which is why Obama is out there trying to fix them. Bush may have not declared war on Islam, but there's a pretty large gap between all out war and best friends forever, and Bush did leave many of those relationships in the dirt.

The Worst Kind Of Bubble

A pretty good opinion piece in today's WSJ from economists Vernon Smith and Steven Gjerstad explaining the bubble economics of the last several decades and how this crash keeps looking more and more like 1929. (emphasis mine)
The events of the past 10 years have an eerie similarity to the period leading up to the Great Depression. Total mortgage debt outstanding increased from $9.35 billion in 1920 to $29.44 billion in 1929. In 1920, residential mortgage debt was 10.2% of household wealth; by 1929, it was 27.2% of household wealth.

The Great Depression has been attributed to excessive speculation on Wall Street, especially between the spring of 1927 and the fall of 1929. Had the difficulties of the banking system been caused by losses on brokers' loans for margin purchases in 1929, the results should have been felt in the banks immediately after the stock market crash. But the banking system did not show serious strains until the fall of 1930.

Bank earnings reached a record $729 million in 1929. Yet bank exposures to real estate were substantial; as the decline in real estate prices accelerated, foreclosures wiped out banks by the thousands. Had the mounting difficulties of the banks and the final collapse of the banking system in the "Bank Holiday" in March 1933 been caused by contraction of the money supply, as Milton Friedman and Anna Schwartz argued, then the massive injections of liquidity over the past 18 months should have averted the collapse of the financial market during this current crisis.

The causes of the Great Depression need more study, but the claims that losses on stock-market speculation and a monetary contraction caused the decline of the banking system both seem inadequate. It appears that both the Great Depression and the current crisis had their origins in excessive consumer debt -- especially mortgage debt -- that was transmitted into the financial sector during a sharp downturn.

What we've offered in our discussion of this crisis is the back story to Mr. Bernanke's analysis of the Depression. Why does one crash cause minimal damage to the financial system, so that the economy can pick itself up quickly, while another crash leaves a devastated financial sector in the wreckage? The hypothesis we propose is that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system. It appears that we're witnessing the second great consumer debt crash, the end of a massive consumption binge.

Translation: the easiest way to screw any capitalist financial system is a massive increase in mortgage debt. Once again, we learn that in the end, it all comes back to the housing depression. As long as that continues unabated, our entire system is at stake.

And considering housing and commercial real estate prices are expected to continue to fall for another year or more, it may be enough debt strain to shatter the system.

In Which Zandar Answers Your Burning Questions

Time's Michael Schuman asks:
Is the Dollar Doomed?
Four words for you.

Helicopter Ben's printing press.

Control Freaks

A new Senate bill would give the President the power to declare a national cyberspace emergency, shut down the internet in the US, and monitor all internet communications without need for a warrant.
Should President Obama have the power to shut down domestic Internet traffic during a state of emergency?

Senators John Rockefeller (D-W. Va.) and Olympia Snowe (R-Maine) think so. On Wednesday they introduced a bill to establish the Office of the National Cybersecurity Advisor—an arm of the executive branch that would have vast power to monitor and control Internet traffic to protect against threats to critical cyber infrastructure. That broad power is rattling some civil libertarians.

The Cybersecurity Act of 2009 (PDF) gives the president the ability to "declare a cybersecurity emergency" and shut down or limit Internet traffic in any "critical" information network "in the interest of national security." The bill does not define a critical information network or a cybersecurity emergency. That definition would be left to the president.

The bill does not only add to the power of the president. It also grants the Secretary of Commerce "access to all relevant data concerning [critical] networks without regard to any provision of law, regulation, rule, or policy restricting such access." This means he or she can monitor or access any data on private or public networks without regard to privacy laws.

Rockefeller made cybersecurity one of his key issues as a member of the Senate intelligence committee, which he chaired until last year. He now heads the Committee on Commerce, Science and Transportation, which will take up this bill.

"We must protect our critical infrastructure at all costs—from our water to our electricity, to banking, traffic lights and electronic health records—the list goes on," Rockefeller said in a statement. Snowe echoed her colleague, saying, "if we fail to take swift action, we, regrettably, risk a cyber-Katrina."

We already know Bush abused wiretapping power. Now we're tempting Obama with the same power, plus the ability to define anything to be an emergency and have the Commerce Department check all internet traffic.

At least the British are honest about their efforts to snoop on all of its ctizens' communications.


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