Failed Bank No Big Deal?

I was surprised that the failure of Netbank in the US, coming on the heels of the run on Northern Rock bank in England, did not attract more attention. It failed during the day on Friday, and the stock market seemed not to notice. It apparently has been in trouble for a while, but its failure seems to be linked to the sub-prime mortgage mess. So, doesn't that indicate that there are some pretty shaky things out there?

We're approaching the 20th anniversary of the 1987 stock market meltdown, not that that means anything. The stock market seems very happy with its .5% rate cut; maybe that means they expect the Fed to bail them out of any problems, like failed banks, not to mention failed hedge funds.

US Promotes Speculation and Debt

In an earlier post, I noted that John Stewart had pointed out that the Fed's .5% rate cut had helped stock market investors, a.k.a. speculators, and had hurt ordinary savers with interest bearing savings accounts. I omitted one other class, borrowers or debtors, whose interest rates will also be cut.

So, the Fed action aided speculators, hurt savers, and aided debtors. So, it's encouraging borrowing money to speculate in the stock market. That's definitely the behavior we want to encourage -- NOT!

Worry About Inflation

FT columnist Martin Wolf argues that the Fed can't ignore the risk of inflation as it fights recession. It says:

To critics it is now the "Bernanke put" - the belief that, as under Alan Greenspan, the US Federal Reserve will always ride to the rescue of Wall Street. The jubilant response of traders to the Fed's 50 basis point cut in the short-term interest rate might justify this suspicion. But saving Wall Street from its follies is not the Fed's objective. It is an (unfortunate) by-product of the attempt to do its job.

The "unfortunate by-product" reference is similar to Alan Greenspan's reply to Jon Stewart on the Daily Show. Stewart asked Greenspan why it was that the Fed 50 basis point interest rate cut sent the stock market up over 300 point, thus benefitting the rich, while it meant that banks would pay less interest to the ordinary people who had savings accounts in banks, rather than stock market investments. Greenspan responded that this was an "unintended effect."

I agree with Wolf that one inflationary risk the US runs is that the dollar's value will decline against other currencies (as it has already), thus making everything imported more expensive. However, inflation is the easiest way for debtor nations to try to get out from under their debts; as the dollar's value decreases, the absolute value of the debt decreases, too. So, you pay off your debt in cheaper dollars. This is usually only attempted by pariah states, currently Zimbabwe comes to mind, but George Bush has such contempt for the international community that it is not beyond possibility that he will try it. He may think it will help him pay off his Iraq War debt. As Wolf describes the situation:

Externally, the US is a huge net debtor. A large dollar devaluation is then a far less painful way to turn it into a net creditor than running current account surpluses, since its liabilities are denominated in dollars.

Given these facts, it is going to be an enduring struggle for the Fed to convince those who have put their faith in the dollar that it is safe. This is not some remote danger. In financial markets, the future is now. If holders of the dollar conclude it is no longer a secure store of value they will dump both the currency and assets dependent on its future value. If that were to happen, the Fed would confront a dreadful dilemma - whether or not to cut rates as the dollar plunged and long-term interest rates soared. Its freedom of manoeuvre would be gone, as in 1979, when Paul Volcker became chairman.

In retrospect it looks as if Volker may have been a better Fed chairman than Greenspan, if only because Volker had more difficult issues to deal with.

Chinese Buy Rothschild Jewish Conspiracy Theory

The Financial Times reports on a best selling book in China, Currency Wars, which claims that the Rothschild banking dynasty controls money issuance. According to the article:

...the US Federal Reserve remains a puppet of private banks, which also ultimately owe their allegiance to the ubiquitous Rothschilds.

The thing that most shocked [the author, Song Hongbing], he says, was his “discovery” that the Fed is a privately owned and run bank. “I just never imagined a central bank could be a private body,” he says.

The Fed does describe itself “as an unusual mixture of public and private elements”. While its seven governors are all appointed by the US president, private banks do hold shares in its 12 regional reserve banks.

But Mr Song ignores the government’s role and argues that the Fed’s key functions are ultimately controlled by five private banks, such as Citibank, all of which have maintained a “close relationship” with the Rothschilds.

Mr Song is defensive about his focus on the Rothschilds and what the book depicts as their Jewish clannishness.

“The Chinese people think that the Jews are smart and rich, so we should learn from them,” he says. “Even me, I think they are really smart, maybe the smartest people on earth.”

No New York Candidates Please

All the fuss over Ahmadinejad's visit to the UN in New York has reinforced my dislike of any Presidential candidate from New York, and there are at least two and one-half of them: Hillary, Rudy and Mike Bloomberg (the 1/2).

I was inclined to dislike New York anyway because:

1. The families of New Yorkers killed on 9/11 got millions in compensation from the US government, while those killed in the Oklahoma City bombing got nothing. It might show the power of the New York congressional delegation, but more likely it shows the greed of New Yorkers, compared to regular people who live in Oklahoma.
2. Wall Street's stock market continued to go up during the worst of the Iraq War, which according to at least one explanation (0f many given by Bush), was in response to 9/11. I saw no gratitude on the part of New Yorkers for the sacrifices that young people from middle America, including Oklahoma, were making for New York when they died or were injured in Iraq.
3. Now with the Ahmadinejad visit, New Yorkers have shown their contempt for the Constitutional guarantee of free speech, not to mention the fact that they should be grateful that their city is the site of the UN which must invite all types of world leaders if it is to advance the cause of world peace. New Yorkers reviled the assertion that if Hitler were invited, he should be allowed to talk. But wouldn't that talk have been worthwhile if it could have avoided the Holocaust, not to mention the tens of millions of gentiles who died in WW II. One problem in the lead up to World War II was that the League of Nations had ceased functioning.

There are lots of other candidates not from New York. Why not choose one of them. Of the New Yorkers, the least objectionable is probably Bloomberg, not least because he is fondly spoken of by Senator Chuck Hagel, whom I respect.

Ahmadinejad and the New York Jews

The conduct of Columbia University's President Bollinger while introducing Iranian President Ahmadinejad was reprehensible. It made him and the university look foolish. Why did he do it? I don't know, but I would guess it was for money, in particular money from New York Jews, who have a lot of it. Bollinger probably got a message from some big Jewish donors that his invitation to Ahmadinejad put their future contributions to Columbia in jeopardy. So, Bollinger decided that if he insulted Ahmadinejad sufficiently while introducing him, he might keep his donors under control.

The New York Times' report on the incident closed by saying:

It remains unclear whether Columbia’s leaders were able to mollify critics through their critical treatment of Mr. Ahmadinejad. But they made some headway: the American Israel Public Affairs Committee sent out an e-mail message shortly after the speech with the subject line, “A Must Read: Columbia University President’s Intro of Iran’s Ahmadinejad today.”

Inside was a transcript of Mr. Bollinger’s introduction.

My Letter to Condi Rice

I am concerned about the State Department’s use of Blackwater Security to protect State Department officers in Iraq.

As a US Army veteran of the Vietnam War and a retired Foreign Service Officer, I believe that it is important for the United States to hold the moral high ground. Recent revelations about Blackwater’s activities in Iraq raise questions about whether the State Department is undermining its honor and credibility by continuing to employ Blackwater. How can we call on Iraq to adhere to the rule of law when our own contractors flout the rule of law in Iraq? It certainly does not help us overcome our image, in Iraq and around the world, created by Abu Ghraib and other atrocities.

In addition, I do not like the fact that the State Department is promoting the use of mercenary soldiers by the US Government. As an Army veteran, it offends me that the State Department refuses to rely on the US military to protect it. The State Department and the Marine Corps have a long tradition of Marine Security Guards protecting American embassies overseas. Yet, when there is a real security threat, the State Department says, “We don’t trust the Marines to protect us.” It’s ironic that Ambassador Crocker appeared before Congress with General Petraeus to praise the performance of the American military in Iraq, but Ambassador Crocker says by his actions, “I don’t trust the US military to protect me personally.”

Do Republicans Read Books?

Did anybody in the administration or the Pentagon read Tom Friedman's book From Beirut to Jerusalem? It might have given them some clue about what to prepare for when they invaded Iraq. Chapter 4, "Hama Rules," says that "politics in the Middle East is a combination of three different political traditions all operating at the same time."

One is "tribe-like politics." "You had to make sure that if someone violated you in any way -- even the smallest way -- you would not only punish them but punish them in a manner that signaled to all the other families, clans, or tribes around that this is what happens to anyone who tampers with me."

Two is "authoritarianism -- the concentration of power in a single ruler or elite not bound by any constitutional framework." It comes in two flavors: gentle and brutal. The Ottoman Turkish empire was gentle. Two examples of the brutal variety were Hafez Assad of Syria and Saddam Hussein. They survived "not only because they have been brutal (many of their predecessors were just as brutal), but because they have been brutal and smart. They have no friends, only agents and enemies...."

Three is the modern nation-state imposed by Westerners. "What happened in the twentieth century when these new nation-states were created was that in each one a particular tribe-like group either seized power or was ensconced in power by the British and French -- and then tried to dominate all the others."

So, after the invasion of Iraq, one would have thought that someone would have thought it important to suppress tribal rivalries and to assert authority when looting broke out after the fall of Baghdad, for example. By the Middle Eastern standards listed by Friedman, the US looked woefully weak the morning after.

US Suffers Decline in Prestige under Bush

The Financial Times reports that the US has suffered a significant loss of power and prestige under Bush. The International Institute for Strategic Studies survey found:

• Failure in Iraq meant the Bush administration had reduced power domestically and internationally, for example the failure to pass an immigration bill in the US, and "scant regard paid to US efforts to influence Israeli-Palestinian developments";
• Adversaries of the US believe "they will prevail if they manage to draw the US into a prolonged engagement";
• Iran is flexing its muscles in the Middle East;
• Iraq has caused the US to fail to focus as much as it should on other parts of the world.

Bush Abandoned by Oil Patch

Bush has been abandoned by his Texas oil patch buddies. Hunt Oil has signed an agreement with the Kurds that ignores the central Iraqi government in Baghdad, according to the Wall Street Journal. So, Texas oilmen have no confidence in George Bush's ability to get an oil law through the Iraq parliament that would put the federal government in charge and require sharing of resources. Right on cue, the New York Times reports the Iraqi compromise on the oil law is collapsing.

So, Bush's old buddies in the oil patch correctly have no confidence in, or respect for, him.

Abe Resigns. Bush Destroys Another Ally

As I predicted, another one bites the dust. Linking up with Bush is the kiss of death for foreign leaders. Reuters reports Abe resigns.

America and Rome

The head of the GAO, David Walker, has been writing and speaking about how American risks repeating the fate of the Roman republic. I think it's an important insight. Just for the record, here's an article in the FT, and here's a transcript of a talk he gave.

Among the points he makes in the FT article:

• While short-term federal deficits are coming down, they are still too high, and
• Longer-term, the Medicare prescription drug benefit has increased Social Security and Medicare liabiities from about $20,000 billion to $50,000 billion.

Like Rome, in the US:

• There has been a decline in moral values and political civility;
• The military is overextended; and
• There is fiscal irresponsibility.

George Washington said that we should avoid "ungenerously throwing upon posterity the burdens that we ourselves ought to bear."

Iraq's Army & the Nazis

The NYT op-ed by Jerry Bremer on how he did not personally make the decision to dismantle Iraq's army rings true. What happened is about historical perspective. Other than Bush and Cheney, the main proponents of war with Iraq were Jews, who have always been critical of the US and the other allied victors for being too lenient in dealing with some of the Nazis after World War II, allowing them to escape or remain in low profile positions in Germany. Thus the American Jews who ousted Saddamn Hussein were determined to get rid of all traces of his Baathist party colleagues. They did not want to repeat what they saw as the mistakes of the US after World War II. Bremer specifically mentions coordinating his de-Baathification strategy with Paul Wolfowitz and Doug Feith, both Jews. They of course had a large Jewish back-up network including Richard Perle, William Kristol, Ken Adelman, et al., who were well plugged into this administration's defense policy machinery.

He also says he coordinated it with Jay Garner, his predecessor, who in interviews in Woodward's State of Denial claims that he did not like the de-Baathification proposal, but I suspect that at least some of Garner's comments are self-serving, made after the strategy had begun to fail. Garner was himself very close to the Israelis, which is why I thought he was chosen for the job before he lost it to Bremer.

I don't know why Bremer got the job. At the State Department, I remember him mainly as being the ultimate staff assistant, the head of S/S, the Secretary of State's secretariat, who made sure all the briefings, decision memos, etc., were properly prepared on time. He went on to be an ambassador, a reward for his staff work, but I don't think that's how he made his mark. Ironically, maybe he was chosen because he was known to be a staffer who would not go off on his own, but would do a good job of implementing the policies of his bosses.

Petraeus Political Spokesman for Bush

Republicans have had a fit about Move-On.org's ad changing Petraeus to Betray-us, but Bush put him in this position. The criticism may not be correct, but the Right has no justification for criticizing it because Petraeus is wearing a uniform. He's not appearing as a soldier; he's appearing as a spokesman for the administration, and thus must be open to criticism. He and Crocker are Bush's shills. They deserve to be suspect and must support their testimony with facts. They have been somewhat, but not totally successful. But they have been a lot more successful than would have been Secretary of Defense Gates and Secretary of State Rice, who in an honest world would have been the witnesses. Gates still has some credibility, but Rice has none; she's been around Bush too long.

Can Abe Survive Bush?

Japanese prime minister Shinzo Abe has staked his job on passage by the Japanese Diet of the continuation of a law that allows Japanese ships to continue to refuel American ships on their way to Afghanistan, according to the Financial Times. He's doing this for George Bush. Friendship with Bush has often been the kiss of death for foreign leaders, e.g., Tony Blair. It will be interesting to see if Abe survives friendship with Bush.

Petraeus Can't Speak to Congress

How ironic that after many introductory speeches by Congressmen pro and con the war, depending on whether they are Republicans or Democrats, General Petraeus was unable to speak because his microphone did not work. Time for the most anticipated testimony in years, and the microphone did not work! Congress in general, and Chairman Ike Skelton in particular, are incompetent, worthless fools! Throw the bums out! They hate America! But they love to hear themselves talk.

It is more than coincidence that Petraeus and Crocker will be testifying to Congress on 9/11. The Bush administration has clearly scheduled the testimony to link the Iraq war to the 9/11 attacks, although there is no connection, except in Bush's mind. The Republicans, in their pre-testimony remarks, criticized Move-On.org for the Petraeus/Betray-us ad in the NYT, with some justification, but the Republicans started the dispute by turning to the military to give a political justification for the war. The Republicans have politicized the military, while they send thousands to die in Iraq. The Republicans, under the leadership of Sen. John Warner among others, are destroying the military establishment, both in terms of fighting capability and intellectually.

Rep. Duncan Hunter's comments before the testimony were particularly interesting because he praised Gen. MacArthur, who was fired by Pres. Truman because MacArthur failed to obey civilian direction during the Korean War. It's odd that a civilian Congressman would hint to a general that the general should not obey civilian orders.

Improper Use of Military

On HBO's Bill Maher show, Col. Larry Wilkerson, Gen. Colin Powell's aide when he was Secretary of State, talked about the dangers of Bush's use of the military. Wilkerson cited a column by Bruce Ackerman in the September 5 Financial Times.

Ackerman says "nobody is noticing the threat to civilian control" of the military. "Despite the president's grandiose pretentions as commander-in-chief, the future of the Iraq war is up to Gen. Patraeus." As a contrast, Ackerman cites Harry Truman, who fired Gen. MacArthur, rather than have McArthur decide how the Korean War would be fought. He says that as Bush sends Petraeus up to Congress on the 9/11 anniversary, "it is now up to a military man to defend the principle of civilian control."

If you are cynical, you think:
1) Bush is too cowardly to face Congress himself and call for continuing the war; so, he sends Patraeus, dressed in his uniform, like Reagan sent up Ollie North to defend Iran-Contra; and
2) Bush has chosen Patraeus because he can manipulate Patraeus like he and Rumsfeld did Chairmen of the Joint Chiefs Myers and Pace.

It's a real problem as Maher may have unintentionally illustrated by one of his questions to Col. Wilkerson: "Why is the military so loyal to Bush?" Think of the alternative! What if the military were not loyal to Bush? Would we have a coup? We had better hope the military is loyal, but that is one reason why they should be insulated from the politics of declaring war.

Incompetence Run Amok

I just finished reading Woodward's State of Denial, and he stresses the incompetence of the Bush White House, particularly Rumsfeld. Woodward talks about how hard Andy Card, who was obviously a somewhat self-serving source, tried to get rid of Rumsfeld as the war went more and more badly, but Bush stuck by him.

Interestingly, the NYT just ran an long article on Condi Rice's failure as Secretary of State. Josh Bolten, Card's replacement, was just on the PBS News Hour tonight saying that Condi would stay through the end of Bush's administration.

You can be pretty sure that nothing major is going to happen in the Middle East, or anywhere else. Condi's supposed to be a Russian expert, but relations with Russia are going down the tubes. North Korea is somewhat of a success, but mainly because she got rid of John Bolton and let Chris Hill do his thing.

The military has been pretty much tarred by the Iraq campaign. Bush keeps talking about how great they are, but they're losing. Part of the problem is that Rumsfeld put cowardly yes-men like Richard Myers and Peter Pace in senior positions. In general, peacetime conditions breed a military that's not much good for fighting. When a war comes, somebody like General George Marshall has to put some fighting generals in charge. In Iraq, nobody ever did this.

There Was No Civil War Under Saddam

With all the talk about what to do in Iraq after Gen. Petraeus makes his report, there is a lot of discussion about Iraq descending into civil war. I think that's likely, although today on ABC, Zakaria said that the civil war is basically over; the ethnic cleansing has already taken place. I don't think so, or otherwise things in Iraq would be quieting down. A US departure could well escalate a civil war into a regional war where the Iranians and the Saudis (to whom we are selling $20 million in military equipment to prepare) fight each other in support of their Shiite and Sunni proxies. Maybe some other neighbors will join in.

In any case, before the US invasion, there was no civil war in Iraq. After we defeated Saddam for his invasion of Kuwait, things were relatively quiet. The no fly zone and other limitations kept Saddam in his box. It was a successful containment (a la the cold war) on a small scale. So if Saddam could prevent civil war among the Iraqi populace, the US should also be able to, but it would require many more resources that we are willing to put in.

We should go back to square one: re-occupy the country with something like 1,000,000 men, and mete out something close to Western justice (not Abu Ghraib justice) to Iraqis who do anything wrong, from stealing hubcaps to insurrection. The US occupation failed when looting broke out after we entered Baghdad, and we did nothing to stop it.

Saddam kept order by terror; we could keep order by establishing a real occupation with real justice, but we won't do it.

Kurds & Ethnic Cleansing

In recent NYT columns, Tom Friedman has praised the Kurds, and David Brooks has a "center last" process of bringing peace to Iraq.

Tom Friedman talks about how well things are going in Iraqi Kurdistan. It sounds as if the Kurds have long been one of the motivations for the Iraq war. Bush 1 basically abandoned them to Saddam's treachery after the first Iraq war. Then according to one of the Iraq war books --
Fiasco, Cobra II, State of Denial -- a lot of the people who pushed for the war liked, visited, and helped the Kurds, including Wolfowitz, some of the military men, and Jay Garner, who was originally designated for the job to head the Iraq occupation that Jerry Bremer ended up getting. I don't know exactly what the connection is, but Jews seem to like the Kurds, perhaps they see the Kurds as less threatening Muslims than the Arabs. In any case, I think the Jews that wanted the Iraq war -- Wolfowitz, Perle, Adelman, Feith, Kristol, et. al -- were motivated in part by their impressions of Kurds and Kurdistan. This may also include Jay Garner, who as a general before he retired had close connections with Israel, which may have been carried over to his retirement as some kind of armaments dealer. So, it's not surprising that Tom Friedman would find Kurdistan is wonderful. Maybe it is, but Jews love of Kurds helped get us into a horrible war in the rest of Iraq.

David Brooks' column on how the tribes are going to bring democracy to Baghdad probably has some merit. But there is also the possibility that success at the tribal level is as much about ethnic cleansing as about democracy. The test will be whether tribes from other regions, sects, etc., Kurds and Sunnis, or Sunnis and Shiites will be willing to work together. I'm not so sure. They want security for their tribes. They don't care that much about Iraq as a country.

Fed Rate Cut & Fiscal Policy

It seems like when I studied economics in college, they talked about monetary and fiscal policy. Today it's only about monetary policy. Everybody on Wall Street wants the Fed to cut interest rates. They want Bernanke to reinstate the "Greenspan put" to shield traders from their losses. I oppose the "Greenspan put" but that's not my main point.

My question is, "What happened to FISCAL policy?" Basically, with the Bush tax cuts and deficit spending, fiscal policy is based on a perception of the economic climate as, "Oh my God, we're all going to die!" The government has to spend and encourage businessmen with tax breaks as if we were in a deep depression and there was no tomorrow. Of course, that is not the case. It's just that businessmen like you better if you give them money; so, Bush and his cronies have given them tons of money. And he has a 27% approval rating to show for it.

But that puts Bernanke and Treasury Secretary Paulson is a tough spot, because half of their tools -- the fiscal policies -- are gone. Dick Cheney has already shot his friend in the face and doesn't have any ammunition left. So, it's all on Bernanke, who so far seems to be taking his job seriously, much more seriously than Congress, Tony Snow, or George Bush. Bernanke may actually care about this country. If so, hooray for him! But he should not have to fight this battle alone. (Somehow, he, unlike Tony Snow, can live on a government salary.)

Tony Snow & Average Americans

Tony Snow said he is leaving as spokesman for the White House because he can't live on a salary of $168,000 per year, according to the Washington Post. If the average salary is something like $50,000 per year, what does this say to average people? Inflation is crazy out of control; people in hedge funds and private equity are making thousands of times more than average people, according to the Kansas City Star. Salaries in wealthy sectors are going up so fast that the government can't hope to keep up, especially when taxes on the rich people making these obscene salaries are going down instead of up.

And what does Tony Snow's resignation say about government service. For Snow, working for $168,000 a year was a tremendous sacrifice that he wouldn't continue. What about an enlisted man serving in Iraq? I don't know what he makes, but it's a lot less than $168,000 per year. Of course the deep pockets Republican sector is hiring the best special forces soldiers away from the military at something like Tony Snow's government salary to serve in the private security services in Iraq, such as Blackwater, Triple Canopy and their ilk.

It's pretty clear that Republicans and maybe most Americans of any political persuasion, love money more than they love their country.