Last Call For Wonks For Sale

Everything else is for sale in American politics to foreign countries with cash at the expense of US workers, why not think tanks and lobbyist firms?

More than a dozen prominent Washington research groups have received tens of millions of dollars from foreign governments in recent years while pushing United States government officials to adopt policies that often reflect the donors’ priorities, an investigation by The New York Times has found.

The money is increasingly transforming the once-staid think-tank world into a muscular arm of foreign governments’ lobbying in Washington. And it has set off troubling questions about intellectual freedom: Some scholars say they have been pressured to reach conclusions friendly to the government financing the research.

Here's the billion dollar question:  if unlimited money influencing politics by US billionaires and corporations is "protected free speech", what's unlimited money by foreign billionaires and corporations in US politics called?

The think tanks do not disclose the terms of the agreements they have reached with foreign governments. And they have not registered with the United States government as representatives of the donor countries, an omission that appears, in some cases, to be a violation of federal law, according to several legal specialists who examined the agreements at the request of The Times.

As a result, policy makers who rely on think tanks are often unaware of the role of foreign governments in funding the research.

The smartest policy wonks in the country didn't know who they were shilling for.  Let that sink in.

The arrangements involve Washington’s most influential think tanks, including the Brookings Institution, the Center for Strategic and International Studies, and the Atlantic Council. Each is a major recipient of overseas funds, producing policy papers, hosting forums and organizing private briefings for senior United States government officials that typically align with the foreign governments’ agendas.

Most of the money comes from countries in Europe, the Middle East and elsewhere in Asia, particularly the oil-producing nations of the United Arab Emirates, Qatar and Norway, and takes many forms. The United Arab Emirates, a major supporter of the Center for Strategic and International Studies, quietly provided a donation of more than $1 million to help build the center’s gleaming new glass and steel headquarters not far from the White House. Qatar, the small but wealthy Middle East nation, agreed last year to make a $14.8 million, four-year donation to Brookings, which has helped fund a Brookings affiliate in Qatar and a project on United States relations with the Islamic world.

Do you not think that other countries haven't noticed that our politics and politicians are on sale to the highest bidder?  Why should they be left out?  Just because it's against the law?  The Supreme Court "fixed" that in Citizens United for US corporations.  I'm sure they'll "fix" it for foreign powers too.

Meanwhile, In Egypt...

For all the loud complaints by the right about Obama the "dictator" and from the left that the administration is "chilling free speech" here's a story out of Egypt that puts both of those ridiculous accusations into perspective as three Al Jazeera journalists were each sentenced to seven years in prison by the new Sisi government for "terrorism" charges.

Three Al Jazeera journalists were jailed for seven years in Egypt on Monday after a court convicted them of helping a "terrorist organisation" by spreading lies, in a case that has raised questions about the country's respect for media freedom. 

The three, who all deny the charge, include Australian Peter Greste, Al Jazeera's Kenya-based correspondent, and Canadian-Egyptian national Mohamed Fahmy, Cairo bureau chief of Al Jazeera English. 

The third defendant, Egyptian producer Baher Mohamed, received an additional three-year jail sentence on a separate charge involving possession of ammunition.

There was a loud gasp in the courtroom as the verdicts were read out. Shaken and near tears, Greste's brother Michael said: "This is terribly devastating. I am stunned, dumbstruck. I've no other words."

This is what real suppression of freedom of speech by the government looks like.  This is what dictatorships do in order to maintain power over the people.  None of these are present in this administration, and comparing this administration to the regimes that are making free speech and adversarial journalism a crime is both insipid and a disservice.

The ruling came a day after U.S. Secretary of State John Kerry met newly elected Egyptian President Abdel Fattah al-Sisi in Cairo and discussed the political transition the country. 

"This is a deeply disappointing result. The Egyptian people have expressed over the past three years their wish for Egypt to be a democracy. Without freedom of the press there is no foundation for democracy" Britain's ambassador to Egypt, James Watt, told Reuters after the verdict. 

Australia's ambassador Ralph King also said his prime minister would make his disappointment clear after entreaties made by his government in recent days appeared to make little difference.

Egyptian officials have said the case is not linked to freedom of expression and that the journalists raised suspicions by operating without proper accreditation. The trial began on Feb. 20. The journalists, known in the Egyptian media as "The Marriott Cell" because they worked from a hotel of the U.S.-based chain, appeared in metal court cages.

This is a terrible verdict and I hope that Sisi will get his head out of his ass and fix this.  I wouldn't hold my breath however.

Last Call For A Qatar-ized Wound To FIFA

The current and growing scandal in the world's most popular sport this time?  Qatar's winning 2022 FIFA World Cup hosting bid got a boost from the outright bribery perpetrated by ex-FIFA official Mohamed bin Hammam, a guy so crooked he was banned from FIFA for -- now get this -- bribery.  Qatari officials have maintained bin Hammam was acting on his own accord.  New documents unearthed by the London Sunday Times says not only did Qatar's World Cup bid committee know what bin Hammam was up to, they're the ones who fronted him the $5 million he used for the bribes in the first place.

Deadspin's Sean Newell:

Bin Hammam, Qatar's top soccer official, was banned from world soccer in 2011 when he was caught trying to bribe his way into the FIFA presidency. The ban was later lifted on appeal, but he was not cleared of the charges. Qatar football has always maintained that he was not a member of the bid committee and was merely a rogue agent who, it turns out, just happened to be very helpful to the bid. The documents the Times received—which includes emails, faxes, bank statements—show a close tie between bin Hammam and the Qatar bid committee.

Following the money trail, it's easy to see how he hoped to gain favor for the 2022 bid.

Buying support across Africa was central to Bin Hammam's strategy because the members of CAF exerted collective influence over how its block of four Exco members should vote. Several of the officials he paid held seats on CAF's ruling executive committee and another nine currently sit on standing committees of the Fifa executive.
Bin Hammam was able to secure votes with "lavish junkets" and straight-up cash. According to the Times at least one of these junkets with money goodie-bags was actually paid for by the Qatar bid. In 2009 bin Hammam hosted three key voters, and 35 other soccer officials in Doha, all on Qatar's dime.

In addition to these junkets, Hammam also made payments totalling up to $200,000 to accounts "controlled by the presidents of 30 African football associations" who were key to securing a pro-Qatar vote. Payments were made from 10 slush funds and bin Hammam's daughter's account.

Needless to say, FIFA's got a massive problem on its hands now.  There's already talk of holding a re-vote if the allegations against bin Hammam and Qatar's World Cup bid committee are true, and that's completely beside the point that migrant workers building Qatar's World Cup facilities are dying by the hundreds in construction accidents and heat-related casualties.

Remember, the country Qatar beat out for the 2022 World Cup?

The United States.  Things just got real.

Russian Reset, Redux

Peter Baker at the NY Times gives us the account of the state of the Obama-Putin relationship and discovers at this point, there is none.

Even as the crisis in Ukraine continues to defy easy resolution, President Obama and his national security team are looking beyond the immediate conflict to forge a new long-term approach to Russia that applies an updated version of the Cold War strategy of containment.

Just as the United States resolved in the aftermath of World War II to counter the Soviet Union and its global ambitions, Mr. Obama is focused on isolating President Vladimir V. Putin’s Russia by cutting off its economic and political ties to the outside world, limiting its expansionist ambitions in its own neighborhood and effectively making it a pariah state.

Mr. Obama has concluded that even if there is a resolution to the current standoff over Crimea and eastern Ukraine, he will never have a constructive relationship with Mr. Putin, aides said. As a result, Mr. Obama will spend his final two and a half years in office trying to minimize the disruption Mr. Putin can cause, preserve whatever marginal cooperation can be saved and otherwise ignore the master of the Kremlin in favor of other foreign policy areas where progress remains possible.

No, this isn't good news.  "Minimizing the disruption" Putin can cause in a 20th century containment strategy is a massive step backwards.  Putin however seems to have not given President Obama much of a choice.

The manifestation of this thinking can be seen in Mr. Obama’s pending choice for the next ambassador to Moscow. While not officially final, the White House is preparing to nominate John F. Tefft, a career diplomat who previously served as ambassador to Ukraine, Georgia and Lithuania.

When the search began months ago, administration officials were leery of sending Mr. Tefft because of concern that his experience in former Soviet republics that have flouted Moscow’s influence would irritate Russia. Now, officials said, there is no reluctance to offend the Kremlin.

So yes, Russia is now our enemy and we're basically back to the Cold War.  We're to the point where we're now actively working to damage Russia's financial interests and political ones.  That's got to be something of a shock to the Millennials, who have always known Russia as our ally and frenemy at best.  Hell, it's a shock to us younger Gen X folks.  I was in middle school when the Berlin Wall fell, Germany reunited, and we had to get used to calling the Soviets "Russians" again.  For most of my life, the Russians have been "the guys we won over".

How things change.

Dear America

I really hate President Obama to the point of obsession, so despite this week's excellent diplomatic news involving Syria, Iran, Israel and the Palestinians, I'm going to find some unnamed diplomats from allied countries and have them complain about why Obama hasn't bombed the crap out of Syria, Iran, and the Palestinians yet.  It's so depressing, I may not finish my fourth Cosmo of the day.

--Peggy Noonan, Wall Street Journal

Bonus Verbatim Stupidity:

"In the past we have seen some America overreach," said the prime minister of a Western democracy, in a conversation. "Now I think we are seeing America underreach." He was referring not only to foreign policy but to economic policies, to the limits America has imposed on itself. He missed its old economic dynamism, its crazy, pioneering spirit toward wealth creation—the old belief that every American could invent something, get it to market, make a bundle, rise.

The world's Brahmans are disappointed.  They've never liked Obama as President.  I can't possibly imagine what makes his different from the other 43.

We're underreaching you know when we draw down from decade-long wars and refuse to start new ones.   We need new shiny wars, dammit.

Operation Cypriot Slip, Part 4

As I alluded to in this morning's StupidiNews, Cyprus got a last minute bailout deal from the ECB, but the cost is pretty steep.

The agreement came hours before a deadline to avert a collapse of the banking system in fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund.

Swiftly endorsed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".

Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalize Bank of Cyprus through a deposit/equity conversion.

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.

Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.

So, goodbye to the island's number 2 bank, and at least a 30% haircut through "unwinding" of Laiki on big Russian whale accounts, a clever maneuver that's not exactly a tax...oh yeah, and the loss of maybe half a percent of the nation's total jobs.  We'll see who signs off on the deal in the rest of Europe, because this deal is being done as a "bank restructuring" which the Cypriot parliament has already approved, they can't vote on this and sink it again.  Now, the rest of the EU however does have to sign off, and that's expected to happen.  After all, they're not going to burn over this, just Cyprus and Russia.

The Russians, I expect, will arrive for their payback quite soon.  Meanwhile, expect Cyprus to slip into a full-blown depression, as the Offshore Money Laundering industry was the island's major industry.  With that dead, yearly GDP contraction in the double digits isn't out of the question.  Big time depression coming here.  The real losers are the Cypriots themselves, who I expect will be in the riot stage before the end of the year, if not the end of spring.

Gotta love austerity.  In the end, the little people always pay.

Operation Cypriot Slip, Part 3

Cyprus, facing Monday's ECB deadline to pull the plug on their banking system, and a re-opening of banks that have seen their depositor's confidence shattered, is in a huge bind.  They called the ECB's bluff by voting down the first bank levy plan to tax all depositors.  The ECB responded with the Monday deadline which will lead to the country's economic collapse unless averted.  Cypriot leaders see they now have no choice other than to cough up cash by dropping a huge bank levy on only the island's biggest accounts, most of which are held by Russian oligarchs.

Cyprus is considering a levy of about 25 percent on bank deposits over 100,000 euros ($130,000) in the island's largest local lender, Bank of Cyprus, Finance Minister Michael Sarris said on Saturday.

Sarris told reporters that "significant progress" had been made in talks with officials from the European Union, European Central Bank and International Monetary Fund - the so-called 'troika' - and that the discussions may conclude on Saturday evening.

If that's true, the Russians are going to blow a gasket.  It also means that oligarchs in other EU countries are going to look at this in horror.  They know they're next.

Stay tuned.

Operation Cypriot Slip, Part 2

Cyprus is now on the clock again.  The country's parliament called the ECB out and totally shot down the deposit levy scheme.  The ECB responded with a "Monday or else" deadline that could lead to Cyprus being the first country to economically flunk out of the Eurozone, not to mention you know, trigger a new European debt crisis and collapse.

In a sign it was at least preparing for the worst, the Cypriot government sought powers on Thursday to impose capital controls to stem a flood of funds leaving the island if there is no deal before banks reopen following this week's shutdown.

Parliament will reconvene later on Friday to debate a raft of government crisis measures after lawmakers adjourned a late-Thursday sitting saying they needed more time for consultation.

Even those measures looked likely to fall short of a promised "Plan B" to raise the 5.8 billion euros demanded by the EU in return for a 10 billion euro lifeline from the EU and IMF.

The European Central Bank said it would cut off liquidity to Cypriot banks without a deal, and a senior EU official told Reuters the bloc was ready to see the island banished from the euro to contain damage to the wider European economy.

The problem is confidence.  If Cyprus burns, then the current PIIGS on the barbecue spit, Portugal, Ireland, Italy, Greece, and Spain, are looking like they'll be next.   Paul Krugman sums it up:

What can be done? First off, Cypriot banks cannot honor their debts, which unfortunately overwhelmingly take the form of deposits. So a default on deposits is inevitable.

As I now understand it, the initial screwup was a joint error of the Europeans and the Cypriots. Europe didn’t want an explicit bank resolution, which would among other things have given clear seniority to small insured deposits; instead, it wanted this essentially fictitious tax scheme. Meanwhile, the Cypriot government still has the illusion that its banking model can survive, and wanted to limit the hit to the big overseas depositors. Hence the debacle of the small-deposit tax.

In the end this probably comes, in some version, to what it should have been from the start — a big haircut on deposits over 100,000.

That's going to A) piss off the Russians and B) turn into a truly ugly week in Europe starting Monday, regardless of what happens now.   But with TV screens across Europe soon to be filling with bank runs and riots, I'm betting more than a few people start getting really nervous and moving their money out of other banks in Europe too.  That could get really nasty and quickly.

We'll see.  So far the ECB has been able to stomp out the fires when they pop up, but each round gets more and more costly.  If Cyprus is the bridge too far, then hold on to your seats.

Operation Cypriot Slip

The big Eurozone news this weekend is the long-anticipated decision on a bailout for the tiny nation of Cyprus has been made, and this time the EU is making no effort to hide who will pay for it through crippling austerity.  Cypriots are scheduled to pay for a healthy chunk of the bailout by having their bank savings taxed.  Felix Salmon:

I stuck my neck out in January, saying that Cyprus was “certain” to default. After all, the Europeans weren’t willing to come up with the €17 billion needed to bail the country out, and EU economics commissioner Olli Rehn told the WSJ’s Stephen Fidler that Cyprus would have to restructure its debt. But now the bailout has arrived, and — in something of a shocker — there’s no default. Instead, €5.8 billion of the bailout is going to come directly from depositors in Cyprus’s banks, in the form of what the EU is calling an “upfront one-off stability levy”.

Don’t for a minute believe that this decision is part of some deeply-considered long-term strategy which was worked out in constructive consultations between the EU, the IMF, and the new Cypriot government. Instead, it’s a last-resort desperation move, born of an unholy combination of procrastination, blackmail, and sleep-deprived gamesmanship.

The details aren’t entirely clear yet: we’re told that deposits of more than €100,000 are going to have to pay a tax of 9.9%, for instance, but it’s not obvious whether that applies to all of the large deposit or just to the amount over €100,000. And there’s still a real chance that the Cypriot parliament could scupper the whole deal. But for the time being, everybody’s going on the assumption that the deal will go through, that Cyprus will get its €10 billion bailout from the EU, and that everybody with a Cypriot bank account in Cyprus (a group which includes members of the UK military) will see their accounts taxed by at least 6.75%.

That's already leading to bank runs in Cyprus.  The trick is, will it lead to bank runs across Spain, Italy, Ireland, Portugal and Greece if they think taxing deposits in those nations are next?  Neil Irwin:

The European Central Bank will now be on high alert, monitoring activity in Greece, Spain and beyond for evidence that the Cyprus precedent will result in new runs on those nations’ banks. Expect a flood of central bank liquidity into those nations if there is any hint that depositors across Europe seem to be thinking that Cyprus is the new normal and that their seemingly safe bank deposits could be reduced 10 percent without warning.

The best the rest of the world can hope for is that Cyprus’s case is sufficiently unique that it won’t spark panic in Athens and Madrid (or in Lisbon, Dublin and Rome).

For the past six months, the global financial markets have become increasingly complacent, convinced that the euro-zone crisis is, for practical purposes, over. Cyprus is the test of whether that is correct, or whether the complacency was instead misplaced.

In other words, if there is going to be a new wave of crisis in Europe, historians will be able to trace its starting point back to today’s Cyprus bank bailout.

It's going to be an ugly week in Europe's markets.  Keep a close eye on things.

Peace Through Superior Building Power

Israel's response to Thursday's UN recognition vote granting Palestine "observer" status:  Kinda hard for you guys to have a country if we put our houses all over it.

Israel plans to build thousands of new homes for its settlers in the occupied West Bank and East Jerusalem, an Israeli official said on Friday, defying a U.N. vote that implicitly recognized Palestinian statehood there.

The official, speaking on condition of anonymity, said Prime Minister Benjamin Netanyahu's conservative government had authorized the construction of 3,000 housing units and ordered "preliminary zoning and planning work for thousands" more.

The official would not elaborate. But Israeli media said the government sought to hammer home its rejection of Thursday's upgrade, by the U.N. General Assembly, of the Palestinians to "non-member observer state" from "entity".

Hammer, nails, brick, mortar, drywall, concrete, bulldoze and shingle home that rejection, too.   Let's not forget the US has asked Israel before to chill with the settlement expansion in the West Bank, and that went nowhere fast as Netanyahu told President Obama to stick a 2 x 4 where the sun don't shine and Obama backed off.

Now after voting against the recognition of Palestine yesterday, it's not like the Obama administration can say a damn thing about this new and massive round of expansion, and the collective punishment of Palestinians continues unabated.

It's getting tiresome.

And Now For Something Completely Different

Because GOP rich assholes are probably boring you by now with just how rich and assholey they are, we're gonna switch gears and go with some From The Land Down Under.

The world’s most wealthy woman is warning that firms are in danger of having to abandon iron-ore mining in Australia if wages are not cut, pointing out that African miners are “willing to work for less than $2 per day.”

In a video recently posted on the Sydney Mining Club website, 58-year-old Gina Rinehart — who has amassed a $18 billion fortune through iron-ore prospecting — said that Australia could be more competitive by emulating Africa.

“We must be realistic, not just promote class warfare,” the billionaire explained. “Indeed, if we competed at the Olympic games as sluggishly as we compete economically, there would be an outcry.”

“The evidence is unarguable that Australia is indeed becoming too expensive and too uncompetitive to do export- orientated business,” she insisted, adding that “Africans want to work. Its workers are willing to work for less than $2 per day.”

Under current exchange rates, $2 a day in Australia is worth about $2.04 in U.S. dollars. 

Yeah, you know what would make America and Kentucky really competitive?  A maximum wage for coal miners of $2 a day.  I'm sure that would play GREAT here in Friends Of Coal country.  Well, for the owners.  Not so much the workers.

Of course, isn't this the "logical free market endpoint" according to Republicans of where the union-free American worker needs to go and should come to expect from his/her bosses in the future?  "Maximum competitiveness in a global economy?"

We already pay teachers, firefighters, cops, civil servants "too much".  We have to break those unions so we can reduce their wages down to where the rest of us are, stagnant in real terms for 40 years. With no unions, and no minimum wage laws, employers can hire for whatever they want.

Great idea, huh?

Greek Fire, Part 62

The unquenchable Greek Fire is burning through Europe, and in Greece itself, panic buying and bank runs are now accelerating.

Greeks pulled their cash out of the banks and stocked up with food ahead of a cliffhanger election on Sunday that many citizens fear will result in the country being forced out of the euro.

Bankers said up to 800 million euros ($1 billion) were leaving major banks daily and retailers said some of the money was being used to buy pasta and canned goods in case of shortages, as fears of returning to the drachma were fanned by rumors that a radical leftist leader may win the election.

The last published opinion polls showed the conservative New Democracy party, which backs the 130-billion-euro ($160 billion) bailout that is keeping Greece afloat, running neck-and-neck with the leftist SYRIZA party, which wants to cancel the rescue deal.

SYRIZA says if they win, they're nullifying the bailout, which means an almost certain forced exit from the Euro, a series of bank holidays, and the return to the drachma at a massive loss...to anyone keeping cash in the bank, that is.  The smart people are getting their euros out now, which is causing something of a self-fufilling meltdown.

And at a billion a day and rising, things are getting downright scary in Europe now.  Here's a hint:  Greek banks don't have a lot of actual physical cash on hand (like any fractional reserve banking system), so those who wait, lose.

This is getting ugly and fast, folks.

Greek Fire, Part 60

And we've reached the point where Spain has beaten Cyprus to the bailout window first as Madrid has asked the EU for something in the neighborhood of a hundred billion euros to solve their little bank implosion crisis.

Spain became the fourth euro member to seek a bailout since the start of the region’s debt crisis more than two years ago with a request for as much as 100 billion euros ($125 billion) to rescue its banks.

Prime Minister Mariano Rajoy, who as recently as May 28 said he wouldn’t seek a bailout, characterized the deal as a credit line for banks and an endorsement of his policies. He spoke to reporters today in Madrid before flying to Gdansk, Poland, for a soccer match between the national team and Italy.

Monday is going to be...ugly.  Ireland already wants to renegotiate its austerity-dependent bailout terms and Greece knows can push for that now too. 

If, as seems likely given the country’s size and therefore bargaining power, preferential terms are extended to the Spanish, the EU might find it has opened a Pandora’s box, beginning in Dublin.

A “European government source” told AFP that Ireland had highlighted “the need to ensure parity of the deal with Spain retroactively on its bailout".

AFP says a second European government source backs up this story. Apparently, Ireland intends to raise the issue during the next meeting of eurozone finance ministers on 21 June.

Ireland was known to be keen on renegotiating its bailout well before Spain agreed to request a loan, as a report in the Irish Examiner from June 5 suggests.

The even larger question is when Italy will follow Spain, considering everyone has been quietly propping up the Italians over the last five years, including the Spaniards.  When the Italians figure out they can now push for a deal like Spain got (and time would be of the essence in this case) it's going to get brutal.

And so, the Greek Fire has consumed Greece, Portugal and Ireland, and now Spain burns like a gasoline soaked torch in a napalm factory.  Four European countries down.  A whole lot of targets here could be next as the flames jump this latest Spanish firebreak, but if that next target is Rome as I suspect it will be,then the final act will be written.

We're into the beginning of the EU endgame now, folks.  Europe had its chance.  Spain's bailout means the last three years of half-measures, austerity, and musical chairs bank bailouts have now broken the back of the #5 economy in the region.  The difference with Spain is the size.  Greece is the #12 economy in Europe, Portugal #14, and Ireland #15.  Plenty of bigger countries that could help out with a bailout.  Not so with Spain.  The UK is #4.  Italy is #3.  When Italy goes, the game ends as they are too big for #2 France and #1 Germany to bail out by themselves.

So now we have not only a top 10 European country needing a bank bailout, but a top 5 one.  Now we're seeing the big boys fall.  And now things get deadly serious in Europe.

The Greek Fire now has taken a victim larger than the other three combined.  That's how bad this is, people.  Hold on to your crap.

Last Call

Super Mario Draghi, head of the European Central bank, is storming Europe this summer and apparently he's gone all Wario on us.  Ezra Klein doesn't pull his punches:

Do people understand that the European economy is being held hostage?

Mario Draghi is the president of the European Central Bank. He can print money. He can lower interest rates. He can fund banks. He can comfort investors. He is perhaps the only person on the planet who, with a few words, could mostly end the euro zone's crisis. But he refuses to say those words. And that's because he doesn't want to end the crisis. He wants to keep it going.

That's a hell of a charge to lay at Draghi's feet, but Ezra makes it for the following reason:

To be fair to Draghi, he's not just a sadist. His view is that if the ECB steps in to save the day, the euro zone won't make the structural reforms necessary for its future. Pain and terror are leverage to force member countries to make tough decisions, like handing more authority over their budgets to Brussels, or forming a banking union. Which is why, despite the fact that Europe is in vastly worse shape than the United States and facing a looming recession, Draghi refused to cut interest rates below one percent yesterday. He wants to keep the pressure on. 

In other words, Europe has to BURN TO THE GROUND before it can be repaved and rebuilt.  If the ECB actually fixes the problem, Europe won't learn nothin'.  Of course, millions of lives will be disrupted and billions lost in euros, but I guess some eggs have to be put into a railgun and fired into to sun in order to make some omelette du fromage.

Mario here could end this crisis at any time by cutting interest rates.  He won't.

Oh, here's the best part in relation to our own little economic quiche here:

There are some in our central bank who agree with this vision. Richard Fischer, the president of the Dallas Federal Reserve, argues that the Federal Reserve shouldn't be stimulating the economy and keeping interest rates so low because that takes pressure off of Congress to cut the deficit. If the Fed let interest rates rise, Fisher says, then Congress would better see the cost of its borrowing and choose to fix it.

Sure they will.  Of course, the deficit will immediately fail to matter should Romney take office.  You'll see a stimulus program in the trillions before next Easter.

Last Call

The UN special tribunal in The Hague, Netherlands has sentenced Liberia's former leader, Charles Taylor, to 50 years in prison for his role in aiding rebels in neighboring Sierra Leone.

The first former head of state to be convicted of war crimes since World War II was sentenced to 50 years in prison Wednesday by an international court in The Hague, Netherlands.

The court convicted Charles Taylor last month of aiding rebels in neighboring Sierra Leone in a campaign of terror, involving murder, rape, sexual slavery and the conscription children younger than 15.

The prosecution had asked the Special Court for Sierra Leone for a sentence of 80 years for Taylor, the president of Liberia from 1997 to 2003, but the judges found the recommendation "excessive" citing the "limited scope" of the conviction in some points.

There is no death penalty in international criminal law, and Taylor, 64, would serve out his sentence in a British prison.

Taylor's record of crimes against humanity was purely awful.  He literally tried to take over Sierra Leone by funding rebels and sending in troops and weapons across the border from Liberia to allow multiple massacres of women and children in an orchestrated attempt to topple the government there through bloody terrorism.  It was moderately successful, so much so that outside funding of rebel forces was immediately apparent and pinned on Taylor ten years ago.  It's taken this long for him to pay the price, but pay it he will, spending the rest of his life in prison.

Child soldiers, roving rape gangs, prostitution slavery rings, assassinations of enemies, Taylor did it all.  Fifty years is a million years too short of a sentence for this monster.

Greek Fire, Part 57

And as the problems in Spain are accelerating, the biggest risk of collapse right now in Europe remains Greece.  Spain's economic disintegration would be far worse, but Greece's is far more likely, measured now in possibly weeks, not months before the Troika has to step in yet again or risk eurozone meltdown...and a global crisis.

Greece's public finances could collapse as early as next month, leaving salaries and pensions unpaid unless a stable government emerges from the June 17 election, according to Lucas Papademos, the technocrat prime minister who left office after this month's inconclusive vote.

Mr Papademos warned that conditions were deteriorating faster than expected with cash flow likely to turn negative in early June amid a sharp fall in tax revenues and a loosening of spending controls during two back-to-back election campaigns.

Mounting anxiety that Greece is headed for further political instability and a possible exit from the euro has prompted many Greeks to postpone making tax payments, and has also accelerated outflows of deposits from local banks.

Athens bankers estimate that more than €3bn of cash withdrawn since the May 6 election has been stashed in safe-deposit boxes and under mattresses in case the country is forced to readopt the drachma.

That's terrifying news.  The slow-motion bank runs in Greece are well underway, and people are simply putting off tax payments with no real government in power right now.  There's no reason to believe June's elections will break the deadlock, either.  None.  The Greek Fire is now burning through the country's cash on hand reserves.  It's not going to be able to pay employees within weeks.  That's only going to increase the bank runs and delay more tax payments.

I don't see a way out of this now other than Yet Another Bailout.  And this time, I think Germany will say "nein".

On the other hand, Spain is in real trouble too:

Why has this piece of bad news terrified global elites? In the first place because it demonstrates that in addition to huge costs in bailing out its banking sector the insolvent Spanish central government is going to get hit with massive bills from not only Catalonia but its other regional governments. It is going to have to go to the financial markets hat in hand to borrow more money than expected — this is going to drive interest rates up in Spain (and probably in Italy and Belgium) just at the time when Europe’s financial markets were trembling on the brink of yet another panic. And it means that Spain is likely to come to the EU much sooner than expected with a much bigger bailout request than anybody thought.

It's a race as to which country will need that bailout first.   But Spain's day joining the rest of the PIIGS (Portugal, Ireland, Italy and Greece) in the Bailout Club is now a guarantee, folks.

It's getting scary.  Real bad.  And the Greek Fire is now picking up speed.

The Kroog Versus The Biggest Bubble In History

Paul Krugman goes down to his local economist watering hole, bellies up to the fiduciary bar and orders two fingers of macroeconomic schadenfreude to pour on the floor in memory of the austerity-plagued euro.

The story so far: When the euro came into existence, there was a great wave of optimism in Europe — and that, it turned out, was the worst thing that could have happened. Money poured into Spain and other nations, which were now seen as safe investments; this flood of capital fueled huge housing bubbles and huge trade deficits. Then, with the financial crisis of 2008, the flood dried up, causing severe slumps in the very nations that had boomed before. 

At that point, Europe’s lack of political union became a severe liability. Florida and Spain both had housing bubbles, but when Florida’s bubble burst, retirees could still count on getting their Social Security and Medicare checks from Washington. Spain receives no comparable support. So the burst bubble turned into a fiscal crisis, too. 

Europe’s answer has been austerity: savage spending cuts in an attempt to reassure bond markets. Yet as any sensible economist could have told you (and we did, we did), these cuts deepened the depression in Europe’s troubled economies, which both further undermined investor confidence and led to growing political instability. 

And now comes the moment of truth. 

Indeed, the last two weeks have been rather unkind to the European markets.  Spanish bond spreads in particular are rather nasty.   Once again Krugman notes that the timeframe here for the collapse of the euro currency would be a half-life measured in months, not years.

So now what? Right now, Greece is experiencing what’s being called a “bank jog” — a somewhat slow-motion bank run, as more and more depositors pull out their cash in anticipation of a possible Greek exit from the euro. Europe’s central bank is, in effect, financing this bank run by lending Greece the necessary euros; if and (probably) when the central bank decides it can lend no more, Greece will be forced to abandon the euro and issue its own currency again. 

This demonstration that the euro is, in fact, reversible would lead, in turn, to runs on Spanish and Italian banks. Once again the European Central Bank would have to choose whether to provide open-ended financing; if it were to say no, the euro as a whole would blow up. 

Yet financing isn’t enough. Italy and, in particular, Spain must be offered hope — an economic environment in which they have some reasonable prospect of emerging from austerity and depression. Realistically, the only way to provide such an environment would be for the central bank to drop its obsession with price stability, to accept and indeed encourage several years of 3 percent or 4 percent inflation in Europe (and more than that in Germany). 

Both the central bankers and the Germans hate this idea, but it’s the only plausible way the euro might be saved. For the past two-and-a-half years, European leaders have responded to crisis with half-measures that buy time, yet they have made no use of that time. Now time has run out. 

So eternal financing by the ECB is unsustainable.  And serious price inflation in Germany where the Merkel government is already in trouble?  Also not happening.  That leaves the whole "euro blowing up" thing.  I keep saying this is the biggest threat to President Obama's re-election, not Mitt Romney.  If the euro goes completely pear-shaped and takes the US with it, we're going to end up neck deep in austerity crazed Republicans and we'll get this same mess in Europe now all over again a year or two down the road here.

It's enough to drive a man to drink.

Only In America, Part 2

Earlier this week I talked about Facebook co-founder Eduardo Saverin, who has renounced his US citizenship presumably to avoid getting dinged with a huge tax bill when his share of Facebook puts him squarely in the billionaire category when the stock goes public.

Here's the problem:  there's laws involving that.  And the law in that case says "You can't return to the US at all if you pull this crap."  Josh Marshall:

Over the last few days I’ve been exchanging emails with TPM Reader PM, who notes that US immigration law does not look kindly on former citizens who renounce their citizenship to avoid US taxes. Specifically, it doesn’t look like Saverin should ever be able again to get a Visa to enter the United States.

Sec. 212. [8 U.S.C. 1182] details general classes of aliens ineligible to gain entrance into the United States. And the law specifically references people in Saverin’s category …

Former citizens who renounced citizenship to avoid taxation.-Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is excludable

The question PM and I have had was whether Saverin realized this was a consequence of his decision. And the latest from his lawyer suggests that he very much does. His lawyer is now attacking the “the false impression that tax was the reason behind Eduardo’s decision.”

In other words, if the AG (in this case Eric Holder) determines this is the case, Eduardo here is persona non grata if the Justics Department goes that route.  It'll be very interesting to see how this plays out if all this really does apply to the Saverin case.

I won't shed a tear for the guy.

Greek Fire, Part 56

And the Greeks fly too close to the firmament and get torched.  The good news is they've come up with the latest bailout payment and for now won't default.  The bad news is the government is no go, and that means more elections in a month and a huge question mark as to what happens next.

“The country is once again headed to elections in a few days under adverse conditions,” Evangelos Venizelos, the leader of the socialist Pasok party said. “The Greek people told us they didn’t want elections but a coalition government, that they want Greece in the euro.

I wouldn't bet a lot of money on that last part there.

Venizelos spoke after he and other party leaders met Papoulias today in Athens. A second election in less than two months threatens to extend the political gridlock that has left the country without a government since the last vote.

Greece’s political impasse means elections will probably be held next month, with polls showing that could boost the anti- bailout Syriza party to the top spot. The country may run out of money by early July.

The standoff has reignited concern the country will renege on pledges to cut spending as required by the terms of its two bailouts worth 240 billion euros ($306 billion) negotiated since May 2010, and, ultimately, leave the euro area. 

I wouldn't bet a lot of money on that last part there, either.   Greece is at this point facing the "Grexit" from the euro, and it's going to cause mass chaos in the rest of the eurozone.  Been talking about this for a long time now.  We're in the endgame now.

Last Call

The Kroog's possible worst-case endgame scenario for Greece/Spain/France doesn't exactly fill me with joy and happiness.  In fact, it scares the crap out of me.  The unquenchable Greek Fire, as I have been documenting here for years now, may finally consume the world economy.  It looks like this:

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

And we’re talking about months, not years, for this to play out.

Once we hit step one there on this road, the rest falls apart very, very quickly.   Massive bank runs in Spain and Italy will not be isolated to just those two countries, but Ireland, Portugal, and who know how many others.  The EU would have to step in and the result would be trying to stand athwart a flash flood of debt yelling "What's all this then?"  It's unknown if Greece will even be able to make its May 15th bond payment.  If Greece misses it, all bets are off.

Mass European chaos at the height of the US election season, in the July-October timeframe.  Our economy would not exactly remain unscathed.  The largest factor in the elections may be completely out of the President's control.

By the way, as Digby points out, California's economy is larger than that of Spain.  They're facing a $16 billion shortfall and the answer there will almost certainly be more crippling austerity.

A sobering thought indeed.  And it all starts with Greece.