naked capitalism

The Most Anticipated Products & Technologies of 2011 PCMagazine

Georgia Prisoners End Protest, But Continue Demands ColorLines (hat tip reader essy). This is from two weeks back. but is relevant because I linked to a story that discussed the strike and never put a link to one on how it played out.

Doctors Getting Rich With Fusion Surgery Debunked by Studies Bloomberg. Back surgery is arguably the most abused type of surgery, but there are also a lot of knee procedures that have low efficacy rates.

Former NIH Director Spins Through Revolving Door, Ends Up at Sanofi-Aventis Health Care Renewal (hat tip reader Francois T)

Pricing Fracas Leads to Coal Shortage Caixin

Alter’s ‘The Promise’ Epilogue: Obama Team’s Dysfunction Prompted Lack Of Focus On Jobs; Bill Clinton Annoyed At White House Huffington Post (hat tip reader Tim S). Ahem, I think this infighting story is still too kind to Obama. This is a corporatist team, and any plan from the principals, even if any one had had free rein, would have amounted to rearranging the deck chairs on the Titanic. In addition, Obama has shown repeatedly that he is more interested in being able to claim he got a deal/policy done rather than having said deal/policy make an iota of sense.

Manhattanites Seek Luxury Rentals as Cost Beats Buying Bloomberg

Curiously Weak Consumer Confidence Tim Duy

Rattner to Pay $10 Million in Settlement With Cuomo New York Times

Why Can’t Europe Avoid Another Crisis? Why Can’t the U.S.? Simon Johnson

Retailers Swipe at Credit-Card Plan Wall Street Journal

Commercial property loans pose new threat Gillian Tett, Financial Times. Not new news, but a reminder of how central banks have painted themselves in a corner with super low interest rates.

Biggest Surprise of Last Two Years: Bad at Losing Mike Konczal

Noncompliance with HAMP Guidelines as an Affirmative Foreclosure Defense? Adam Levitin, Credit Slips

Why the Rich Are Getting Richer Foreign Affairs (hat tip reader May S). Today’s must read.

Antidote du jour:

How, may you ask, can a woman who has been dead since 1995 sign documents more than a decade later? Normally, one would hazard to guess that stamps with her signature on them were still in use (this is more common than you would think in foreclosure land). That would be plenty troubling.

But this little account comes from the debt collection realm, a cesspool of bad practices. Here, the credit card company Providian (acquired by WaMu in 2005) had employees signing affidavits in the name of Martha Kunkle for over a decade. Debt collection agencies continued to use these bogus affidavits. From the Wall Street Journal:

In 2008, Judy Montoya, an employee at Portfolio Recovery Associates, testified in a debt-collection suit filed by the company that its “legal specialists” sign as many as 200 affidavits a day. The company’s spokeswoman said such employees sign an average of 100 affidavits a day and are guided by “a very rigorous set of policies and procedures.” Ms. Montoya couldn’t be reached to comment.

Questions about Martha Kunkle first popped up in 2008 after her name appeared in thousands of affidavits generated by a unit of Providian National Corp. The credit-card issuer sold an undisclosed number of delinquent account balances to Portfolio Recovery Associates and other debt collectors, which then sued the borrowers to collect the debt…..

Concerns about Ms. Kunkle’s affidavits were raised in 2008 by lawyers for Jeanie Cole, one of thousands of Montana residents sued by Portfolio Recovery Associates to collect debts. After failing to locate Ms. Kunkle, lawyers for Ms. Cole interviewed her daughter, who worked at Providian in a document-processing division.

The daughter testified in a deposition that other Providian employees used the name Martha Kunkle when signing affidavits. Along with other employees, the daughter was responsible for signing affidavits. After countersuing Portfolio Recovery Associates for alleged violations of the Fair Debt Collection Practices Act, Ms. Cole was the lead plaintiff in a 2008 federal-court suit in Montana alleging the company targeted 16,000 borrowers using “false and misleading” affidavits.

Last year, Portfolio Recovery Associates agreed to settle the Montana suit. Terms of the deal weren’t disclosed, but the company’s spokeswoman said it admitted no wrongdoing. She wouldn’t say how many borrowers were sued using documents signed by Martha Kunkle.

And it is not clear that this practice has stopped:

After being sued for fraud, Portfolio Recovery Associates decided in early 2008 that any documents bearing Ms. Kunkle’s name had “defects” and shouldn’t be used when trying to collect debts, a company spokeswoman said.

Last July, though, lawyers for Portfolio Recovery Associates sought a court judgment in a lawsuit against a Seattle woman for $2,892.10 in credit-card debt and interest that she allegedly owed. It was a cookie-cutter case, except for one thing: To vouch for the debt’s validity, the Norfolk, Va., company included an affidavit signed by Martha Kunkle.

The wording is ambiguous, but I would assume the affidavit is dated 2010, which means at best the continued use of Kunkle’s signature has not been fully eradicated.

How much of this sort of thing has not even come to light? Some people ignore debt collection letters to their peril, assuming if it is from a creditor they don’t recognize, or an obligation they paid off, that they can ignore it. The use of robo signers is an abuse precisely because someone with actual knowledge of situation is supposed to affirm in the affidavit that the plaintiff’s records really do show that the debt is owed and the amount listed is accurate. So the robo signers allow financial firms to skip a step that also served as a quality control on their procedures. That throws the cost of correcting mistakes and malfeasance on borrowers and the court system, in effect socializing the collateral damage of cost cutting run wild.

The fact that the perps themselves are not mortified to have been caught out demonstrates how much this country is in thrall of “might makes right” rather than the rule of law.

Aargh, can someone please acquaint economists with the economics of banking? Consider the embarrassing premise of a piece by Floyd Norris of the New York Times:

If big banks start failing again, what will replace them?

In the United States and Europe, that is a question with unsatisfactory answers in the aftermath of the financial crisis.

To put it in sports terms, there was nobody on the bench waiting for a chance to become a star. One result is that even after a crisis in which it was every country for itself, banking is becoming more internationalized than ever….

When barriers to interstate banking fell, there were many players able to grow into major institutions…

But there is one lesson that has been overlooked: Just as big league baseball teams need a farm system to provide replacements for players who age or are injured, a banking system needs a second tier of institutions that can step in and become major league banks if necessary.

The message is that big international banks are desirable, and that little banks should properly grow up to be bigger banks.

Hogwash.

Big banks are LESS efficient on a cost basis than small banks. Every study of banking ever done in the US has found that once a certain, not all that large size threshold has been achieved, banks exhibit an increasing cost curve, which means they are more expensive to operate per dollar of assets.

So why do banks strive to get bigger? It’s VERY simple. Bank CEO pay is strongly correlated with the size of the bank. So bank leaders find gobbling up other banks to be a very attractive activity. And the selling bank’s cooperation is assured because the sale triggers payouts to the top brass.

But don’t banks get rid of a lot of costs when they buy another bank? Go revisit the increasing cost curve. Any expenses taken out of the combined bank could have been taken out of each bank separately. The merger just provided a convenient excuse for a bit of bloodletting.

But what about funding costs? Surely big banks can borrow on the markets more cheaply that little banks. Yes, but even so, they STILL exhibit an increasing cost curve. Moreover, for the biggest banks, their cheap borrowing costs are not due to the fact that the market thinks really big banks are a swell idea, but because it knows they are government backstopped. Per Andrew Haldane of the Bank of England:

One such measure is provided by the (often implicit) fiscal subsidy provided to banks by the state to safeguard stability. Those implicit subsidies are easier to describe than measure. But one particularly simple proxy is provided by the rating agencies, a number of whom provide both “support” and “standalone” credit ratings for the banks. The difference in these ratings encompasses the agencies’ judgement of the expected government support to banks…

Unsurprisingly, the average rating difference is consistently higher for large than for small banks. The average ratings difference for large banks is up to 5 notches, for small banks up to 3 notches. This is pretty tangible evidence of a second recurring phenomenon in the financial system – the “too big to fail” problem….

First, standalone ratings are materially below support ratings, by between 1.5 and 4 notches over the sample for UK and global banks. In other words, rating agencies explicitly factor in material government support to banks.

It is possible to go one step further and translate these average ratings differences into a monetary measure of the implied fiscal subsidy to banks. This is done by mapping from ratings to the yields paid on banks’ bonds; and by then scaling the yield difference by the value of each banks’ ratings-sensitive liabilities. The resulting money amount is an estimate of the reduction in banks’ funding costs which arises from the perceived government subsidy.

Table 4 shows the estimated value of that subsidy for the same sample of UK and global banks, again between 2007 and 2009. For UK banks, the average annual subsidy for the top five banks over these years was over £50 billion – roughly equal to UK banks’ annual profits prior to the crisis. At the height of the crisis, the subsidy was larger still. For the sample of global banks, the average annual subsidy for the top five banks was just less than $60 billion per year. These are not small sums.

So the cheaper borrowing rates that really big banks enjoy is in part due to the fact that the markets see them, correctly, as having more state support than smaller banks.

But aren’t big banks necessary to serve customers well? Don’t big international companies want really big international banks?

In a word, no. There are some activities that require international reach, such as cash management and payments processing. But big multinational companies in the 1980s, when banks were smaller and even the biggest had a narrower span of activities, were not complaining that they found it onerous to deal with different banks in different countries. Corporate treasures spread out their business among a lot of banks and are very much in the “horses for courses” business.

Unfortunately, a lot of people who ought to know better continue to promote a bloated financial system, both on the individual bank level and in aggregate, as necessary and desirable. I suppose I should not be surprised that the victors are succeeding in rewriting history.

Trained Monkeys Proving Trusty Companions for Those in Need Der Spiegel (hat tip reader Paul S)

Tiger team marks 20 years of conflict resolution BBC

3D Games Can Ruin Children’s Eyes, Nintendo Warns FoxNews

Solar Storms Could Bring Northern Lights South International Business Times

A stunning year in climate science reveals that human civilization is on the precipice Climate Progress (hat tip reader Francois T)

Pew Research News IQ Quiz Pew Research. Yes, I did take it. Please look at the distribution of results.

Wired’s refusal to release or comment on the Manning chat logs Glenn Greenwald

Sarah Palin’s popularity rating takes a dive Telegraph

Future shock? Welcome to the new Middle Ages Parag Khanna, Financial Times

The Consequence of a Shattered Safety Net: Return to the Poorhouse? David Daye, FireDogLake

Revealed: The classified maps that show Afghanistan is becoming more dangerous… with number of high risk areas spreading Daily Mail

Expect some answers from the eurozone Wolfgang Münchau, Financial Times

Can The Bank Just Change The Locks On My Home? Matt Weidner

Bank Failures at Highest Level Since 1992 Wall Street Journal

Antidote du jour:

Enjoy!

→ Washington’s Blog

The following experts have – at some point during the last 2 years – said that the economic crisis could be worse than the Great Depression:

• Fed Chairman Ben Bernanke

• Former Fed Chairman Alan Greenspan (and see this and this)

• Former Fed Chairman Paul Volcker

• Economics scholar and former Federal Reserve Governor Frederic Mishkin

• The head of the Bank of England Mervyn King

• Nobel prize winning economist Joseph Stiglitz

• Nobel prize winning economist Paul Krugman

• Former Goldman Sachs chairman John Whitehead

• Economics professors Barry Eichengreen and and Kevin H. O’Rourke (updated here)

• Investment advisor, risk expert and “Black Swan” author Nassim Nicholas Taleb

• Well-known PhD economist Marc Faber

• Morgan Stanley’s UK equity strategist Graham Secker

• Former chief credit officer at Fannie Mae Edward J. Pinto

• Billionaire investor George Soros

• Senior British minister Ed Balls

How could that possibly be, when the stock market has largely recovered? (Let’s forget for a moment that the stock market rallied after 1929, but then crashed in a double dip).

To find out, we’ll look at a couple of comparisons to get an idea of what is going on in the rest of the economy. And then we’ll compare the government’s efforts in the 1930s to today.

Housing Crisis Rivals Great Depression

As I noted last month, the current real estate slump rivals the Great Depression:

Zillow’s Stan Humphries said:

The length and depth of the current housing recession is rivaling the Great Depression’s real estate downturn, and, with encouraging signs fading, will easily eclipse it in the coming months.

During the Great Depression, home prices fell 25.9 percent in five years. The U.S. housing market is now down around 25 percent from its peak in 2006.

As housing price expert Robert Shiller pointed out in September 2008:

Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s [i.e. over a 10-year period]. With prices already down almost 20%, it’s not a stretch to think we might exceed that drop this time around.

As I wrote in December 2008:

In the greatest financial crash of all time – the crash of the 1340s in Italy …. real estate prices fell by 50 percent by 1349 in Florence when boom became bust.How does that compare to 2001-2007? The price of Southern California homes is already down 41% [that was before the first-time homebuyer credit, Hamp and other governmental programs temporarily boosted prices]. Southern California hasn’t fallen as fast as some other areas, and we’re nowhere near the bottom of the market.

Moreover, the bubble was not confined to the U.S. There was a worldwide bubble in real estate.

Indeed, the Economist magazine wrote in 2005 that the worldwide boom in residential real estate prices in this decade was “the biggest bubble in history“. The Economist noted that – at that time – the total value of residential property in developed countries rose by more than $30 trillion, to $70 trillion, over the past five years – an increase equal to the combined GDPs of those nations.

Housing bubbles are now bursting in China, France, Spain, Ireland, the United Kingdom, Eastern Europe, and many other regions.

And the bubble in commercial real estate is also bursting world-wide. See this.

In addition, the percentage of Americans who owned houses during the 1930s was much lower than today, which means that a larger portion of the public is being hurt from falling home prices today as compared to the Great Depression.

Meredith Whitney, Nouriel Roubini (and here), Zillow, Case-Shiller and even S&P have been calling a double dip in housing.

States and Cities In Worst Shape Since the Great Depression

States and cities are in dire financial straits, and many may default in 2011.

California is issuing IOUs for only the second time since the Great Depression.

Things haven’t been this bad for state and local governments since the 30s.

Loan Loss Rate Higher than During the Great Depression

In October 2009, I reported:

In May, analyst Mike Mayo predicted that the bank loan loss rate would be higher than during the Great Depression.

In a new report, Moody’s has just confirmed (as summarized by Zero Hedge):

The most recent rate of bank charge offs, which hit $45 billion in the past quarter, and have now reached a total of $116 billion, is at 3.4%, which is substantially higher than the 2.25% hit in 1932, before peaking at at 3.4% rate by 1934.

And see this.

Here’s a chart summarizing the findings:

(click here for full chart).

Indeed, top economists such as Anna Schwartz, James Galbraith, Nouriel Roubini and others have pointed out that while banks faced a liquidity crisis during the Great Depression, today they are wholly insolvent. See this, this, this and this. Insolvency is much more severe than a shortage of liquidity.

Unemployment at or Near Depression Levels

USA Today reports today:

So many Americans have been jobless for so long that the government is changing how it records long-term unemployment.

Citing what it calls “an unprecedented rise” in long-term unemployment, the federal Bureau of Labor Statistics (BLS), beginning Saturday, will raise from two years to five years the upper limit on how long someone can be listed as having been jobless.

***

The change is a sign that bureau officials “are afraid that a cap of two years may be ‘understating the true average duration’ — but they won’t know by how much until they raise the upper limit,” says Linda Barrington, an economist who directs the Institute for Compensation Studies at Cornell University’s School of Industrial and Labor Relations.

***

“The BLS doesn’t make such changes lightly,” Barrington says. Stacey Standish, a bureau assistant press officer, says the two-year limit has been used for 33 years.

***

Although “this feels like something we’ve not experienced” since the Great Depression, she says, economists need more information to be sure.

The following chart from Calculated Risk shows that this is not a normal spike in unemployment:

As does this chart from Clusterstock:

As I noted in October:

It is difficult to compare current unemployment with that during the Great Depression. In the Depression, unemployment numbers weren’t tracked very consistently, and the U-3 and U-6 statistics we use today weren’t used back then. And statistical “adjustments” such as the “birth-death model” are being used today that weren’t used in the 1930s.

But let’s discuss the facts we do know.

The Wall Street Journal noted in July 2009:

The average length of unemployment is higher than it’s been since government began tracking the data in 1948.

***

The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

The Christian Science Monitor wrote an article in June entitled, “Length of unemployment reaches Great Depression levels“.

60 Minutes – in a must-watch segment – notes that our current situation tops the Great Depression in one respect: never have we had a recession this deep with a recovery this flat. 60 Minutes points out that unemployment has been at 9.5% or above for 14 months.

Pulitzer Prize-winning historian David M. Kennedy notes in Freedom From Fear: The American People in Depression and War, 1929-1945 (Oxford, 1999) that – during Herbert Hoover’s presidency, more than 13 million Americans lost their jobs. Of those, 62% found themselves out of work for longer than a year; 44% longer than two years; 24% longer than three years; and 11% longer than four years.

Blytic calculates that the current average duration of unemployment is some 32 weeks, the median duration is around 20 weeks, and there are approximately 6 million people unemployed for 27 weeks or longer.

Moreover, employers are discriminating against job applicants who are currently unemployed, which will almost certainly prolong the duration of joblessness.

As I noted in January 2009:

In 1930, there were 123 million Americans.

At the height of the Depression in 1933, 24.9% of the total work force or 11,385,000 people, were unemployed.

Will unemployment reach 25% during this current crisis?

I don’t know. But the number of people unemployed will be higher than during the Depression.

Specifically, there are currently some 300 million Americans, 154.4 million of whom are in the work force.

Unemployment is expected to exceed 10% by many economists, and Obama “has warned that the unemployment rate will explode to at least 10% in 2009″.

10 percent of 154 million is 15 million people out of work – more than during the Great Depression.

Given that the broader U-6 measure of unemployment is currently around 17% (ShadowStats.com puts the figure at 22%, and some put it even higher), the current numbers are that much worse.

But it is important to look at some details.

For example, official Bureau of Labor Statistics numbers put U-6 above 20% in several states:

• California: 21.9

• Nevada: 21.5

• Michigan 21.6

• Oregon 20.1

In the past year, unemployment has grown the fastest in the mountain West.

And certain races and age groups have gotten hit hard.

According to Congress’ Joint Economic Committee:

By February 2010, the U-6 rate for African Americans rose to 24.9 percent.

34.5% of young African American men were unemployed in October 2009.As the Center for Immigration Studies noted last December:

Unemployment rates for less-educated and younger workers:

• As of the third quarter of 2009, the overall unemployment rate for native-born Americans is 9.5 percent; the U-6 measure shows it as 15.9 percent.
• The unemployment rate for natives with a high school degree or less is 13.1 percent. Their U-6 measure is 21.9 percent.
• The unemployment rate for natives with less than a high school education is 20.5 percent. Their U-6 measure is 32.4 percent.
• The unemployment rate for young native-born Americans (18-29) who have only a high school education is 19 percent. Their U-6 measure is 31.2 percent.
• The unemployment rate for native-born blacks with less than a high school education is 28.8 percent. Their U-6 measure is 42.2 percent.
• The unemployment rate for young native-born blacks (18-29) with only a high school education is 27.1 percent. Their U-6 measure is 39.8 percent.
• The unemployment rate for native-born Hispanics with less than a high school education is 23.2 percent. Their U-6 measure is 35.6 percent.
• The unemployment rate for young native-born Hispanics (18-29) with only a high school degree is 20.9 percent. Their U-6 measure is 33.9 percent.

No wonder Chris Tilly – director of the Institute for Research on Labor and Employment at UCLA – says that African-Americans and high school dropouts are experiencing depression-level unemployment.

And as I have previously noted, unemployment for those who earn $150,000 or more is only 3%, while unemployment for the poor is 31%.

The bottom line is that it is difficult to compare current unemployment with what occurred during the Great Depression. In some ways things seem better now. In other ways, they don’t.

Factors like where you live, race, income and age greatly effect one’s experience of the severity of unemployment in America.

In addition, wages have plummeted for those who are employed. As Pulitzer Prize-winning tax reporter David Cay Johnston notes:

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined ….

And see this, this, and this.

Food Stamps Replace Soup Kitchens

1 out of every 7 Americans now rely on food stamps.

While we don’t see soup kitchens, it may only be because so many Americans are receiving food stamps.

Indeed, despite the dramatic photographs we’ve all seen of the 1930s, the 43 million Americans relying on food stamps to get by may actually be much greater than the number who relied on soup kitchens during the Great Depression.

Inequality Worse than During the Great Depression

I recently reported that inequality is worse than it’s been since 1917:

Most mainstream economists do not believe there is a causal connection between inequality and severe downturns.But recent studies by Emmanuel Saez and Thomas Piketty are waking up more and more economists to the possibility that there may be a connection.

Specifically, economics professors Saez (UC Berkeley) and Piketty (Paris School of Economics) show that the percentage of wealth held by the richest 1% of Americans peaked in 1928 and 2007 – right before each crash:

As the Washington Post’s Ezra Klein wrote in June:

***

Krugman says that he used to dismiss talk that inequality contributed to crises, but then we reached Great Depression-era levels of inequality in 2007 and promptly had a crisis, so now he takes it a bit more seriously…

Robert Reich has theorized for some time that there are 3 causal connections between inequality and crashes ….

Reuters wrote an excellent piece on the issue of inequality and crashes (discussing the first three factors) last month:

Economists are only beginning to study the parallels between the 1920s and the most recent decade to try to understand why both periods ended in financial disaster. Their early findings suggest inequality may not directly cause crises, but it can be a contributing factor.

***

Inequality is actually worse now than it’s been since 1917.

The War Isn’t Working

Given the above facts, it would seem that the government hasn’t been doing much. But the scary thing is that the government has done more than during the Great Depression, but the economy is still stuck a pit.

Specifically, many economists credit World War II with getting us out of the Depression. (I disagree, but that’s another story).

This time, we’ve been at war in both Iraq and Afghanistan far longer than we were in World War II. But our economy is still stuck in a rut.

Moreover, the amount spent in emergency bailouts, loans and subsidies during this financial crisis arguably dwarfs the amount which the government spent during the New Deal.

For example, Casey Research wrote in 2008:

Paulson and Bernanke have embarked on the largest bailout program ever conceived …. a program which so far will cost taxpayers $8.5 trillion.

[The updated, exact number can be disputed. But as shown below, the exact number of trillions of dollars is not that important.]

So how does $8.5 trillion dollars compare with the cost of some of the major conflicts and programs initiated by the US government since its inception? To try and grasp the enormity of this figure, let’s look at some other financial commitments undertaken by our government in the past:

As illustrated above, one can see that in today’s dollar, we have already committed to spending levels that surpass the cumulative cost of all of the major wars and government initiatives since the American Revolution.

Recently, the Congressional Research Service estimated the cost of all of the major wars our country has fought in 2008 dollars. The chart above shows that the entire cost of WWII over four to five years was less than half the current pledges made by Paulson and Bernanke in the last three months!

In spite of years of conflict, the Vietnam and the Iraq wars have each cost less than the bailout package that was approved by Congress in two weeks. The Civil War that devastated our country had a total price tag (for both the Union and Confederacy) of $60.4 billion, while the Revolutionary War was fought for a mere $1.8 billion.

In its fifty or so years of existence, NASA has only managed to spend $885 billion – a figure which got us to the moon and beyond.

The New Deal had a price tag of only $500 billion. The Marshall Plan that enabled the reconstruction of Europe following WWII for $13 billion, comes out to approximately $125 billion in 2008 dollars. The cost of fixing the S&L crisis was $235 billion.

CNBC confirms that the New Deal cost about $500 billion (and the S&L crisis cost around $256 billion) in inflation adjusted dollars.

So even though the government’s spending on the “war” on the economic crisis dwarfs the amount spent on the New Deal, our economy is still stuck in the mud.

Given that the government has done so much, but we are still mired in a situation which in many ways is comparable to the Great Depression, it is not a very radical statement to say that the government is doing the wrong things to address the downturn.

I hope that the economy recovers. But the above comparisons are worrisome, indeed.

Note: Happy talk cannot fix the economy. If it could, I would write with a more optimistic spin.

Dear readers, I hardly feel entitled to mention my comparatively mild travel hassles today (getting in a bit over four hours late) given the real problems some of you have encountered. But the delay means no proper new posts from me until tomorrow night.

Neanderthals ‘cooked vegetables’ BBC

A Pinpoint Beam Strays Invisibly, Harming Instead of Healing New York Times

Passenger Outrage Rises as Storm Snarls U.S. Travel Bloomberg. Dunno why this story features American as the bad actor in the customer access category when Delta was worse (not providing any information on its website on Monday nor taking calls on its 800 number).

Amazon Mistakenly Reveals Kindle Sales Figures? Beyond Black Friday (hat tip reader David C)

China cuts rare earth export quotas Los Angeles Times (hat tip reader James S)

Chinese missile shifts power in Pacific Financial Times

America’s cracked political system Guardian (hat tip reader May S)

Derivatives Clearing Group Decides Against Registration New York Times

2011 Will Bring More De facto Decriminalization of Elite Financial Fraud Bill Black, New Deal 2.0

Antidote du jour:

Perry Mehrling is a professor of economics at Barnard College

The Financial Times devoted an entire article this week to the fact that foreign banks borrowed more than half the funds deployed under the Federal Reserve’s first emergency program, the Term Auction Facility.

Why is this a surprise?

We know that, after the collapse of Lehman and AIG in September 2008, the Fed’s liquidity swap facility with other central banks swelled quickly to about $600 billion. The whole point of that facility was to provide dollar funding to non-US banks. The foreign central banks simply served to channel the funds.

We also know that, as early as Fall 2007, non-US banks were bidding strongly for dollar funding in the Eurodollar market, driving the spread between LIBOR and the Fed Funds rate to unprecedented levels. The non-US banks, just like the US banks, had made lending dollar funding commitments that were being called in, and they were scrambling to find the funds. At this stage, however, the source of the funds was their US correspondents, not the Fed.

In Fall 2007, the Fed was not lending much, but it was encouraging the lending by backstopping the Fed Funds market, driving the target Fed Funds rate down from 5% to 2%, using daily intervention in the Treasury repo market to keep the Fed Funds rate from being bid up along with the Eurodollar rate.

Now comes the news that the Term Auction Facility, created in December 2007 as a kind of anonymous discount window, lent on a fully collateralized basis directly to non-US banks. Personally, I did not know this until the disclosure, but I am not surprised. I had thought that TAF was lending only to the New York correspondents, who were marking it up and on-lending the money to the non-US banks. So it was new information for me, but not surprising information.

In other words, anyone who was paying attention knew quite well that the Fed was lending indirectly to non-US banks, using domestic banks and then foreign central banks as conduits. It could hardly be otherwise. The Fed is lender of last resort for the domestic dollar funding markets; inevitably it serves also as lender of last resort to the international dollar funding market.

Critics will probably contend that the Fed has taken an unduly expansive view of its role. They might do well to ascertain how far the central bank sees its responsibility for dollar markets extending and how it reconciles that with acting as the primarily regulator only of domestic banks.

This post first appeared on July 13, 2008

For those looking for some concrete action (which was what many market participants hoped for), Paulson issued a statement that amounts to hand waving. Full text from Bloomberg:

Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.

GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure. In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately.

First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.

Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.

Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer. Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator’s process for setting capital requirements and other prudential standards.

I look forward to working closely with the Congressional leaders to enact this legislation as soon as possible, as one complete package.

One can assume that the per the bouquet to Congress, the Treasury ascertained that it lacks statutory authority to go beyond the support it is permitted to offer the GSEs established in their charters (credit lines of $2.25 billion, which in the late 1960s was real money). As jck at Alea points out:

So the original, 40 year old, credit line was 2.25/15 = 15% of outstanding debt, to go back to that ratio requires $231 billion for fannie and freddie…

Probably more important is that the Fed has opened the discount window to the GSEs, but this again looks like symbolism rather than substance, since accessing the discount window is seen as a sign of weakness (that was one of the reasons for the establishment of the Term Auction Facility, which accepts the same types of collateral on the same terms as the discount window, but provides longer-dated loans and most important, the identity of borrowers is not disclosed).

I have been a skeptic of whether the so-called Plunge Protection Team exists (or more accurately, whether it engages in active market support operations as the conspiracy minded believe).

Given the weakness of the steps taken so far, tomorrow has the potential to reveal footprints if such activities take place.

One thing I do expect to happen is that the powers that be will lean on various financial institutions to bid at the $3 billion Fannie sale of short-dated bonds tomorrow. That is a no-brainer and treads on the margin of what one might consider PPT type manipulation.

Firmer evidence would come via odd trading patterns in the S&P. On January 22, the Dow fell nearly 400 points on open, and the S&P also tanked, I don’t have access to detailed historical charts of intraday pricing, but the S&P looked as if there was a massive support bid (if I recall right, at 1255). It wasn’t spiky, which is what you’d expect from normal bottom fishing buys.

That was only one data point, and there may have been some bizarre technical trigger for bids at that level. But it looked very unnatural. If we see a similar pattern, Monday, my suspicions will increase.

Update 8:50 PM: Asian markets save Australia have opened up and the dollar has rallied a tad, so the cheery words and hand waving may have worked for now.

Just a few links, rather heavy on banks.

The ‘Subsidy’: How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm ProPublica. Traders sticking it to another department of their own bank is nothing new, but the impudent nihilism of the looting here is impressive. They didn’t have to look very far afield to find the fool in the market. With Iceland, Ireland (and maybe others to come) in mind, look out for variations of this article in due course, with different bank names, and ‘Country’ instead of ‘Firm’ in the title.

To make up for no post from me on the latest regulatory iterations (I felt my life force ebbing away as I contemplated yet another bunch of slowly-changing and presumably flawed regulatory docs last week, definitely a 2010 theme, that, and promising to stretch out until about 2020; lovely), here are some variations on the “Basel III/Dodd Frank no good” idea.

Basel liquidity rules, going neo-medieval FT Alphaville. Zero risk weights hobby horse, but this time, applied to liquidity rules, not capital rules.

The privatisation of liquidity ops FT Alphaville. A dubious looking liquidity enhancement mechanism, via insurers. Basel III is already outpaced by innovation, and it won’t “go live” for another 8 years.

Gaming The Bank Regulation System: A Primer CNBC. Sketch of a mechanism that migrates bank credit exposure to the shadows, and how Basel III makes no difference. All it needs is a pliant or deluded insurer (again); they are admittedly a little thinner on the ground after the demise of the monolines and AIGFP, so incentives might be needed. Aha! Devised by ProPublica’s ex-Merrill people perhaps?

Floored (homophonically) Deus Ex Macchiato. A goofy piece of Dodd-Frank rule making that requires two capital computations to be performed, but ensures that only one of them, and always the same one, applies.

Zombie banks FT. Lex wondering about those toxic bank balance sheets.

The Curious Incident of Financial Theft in the Broad Daylight Modeled Behavior puzzling about how banks actually “socialize the losses”.

Stop Servicer Scams, 1: Why You Should Care and Stop Servicer Scams, 2: Dissecting the Letter and Its Requests. Mike Konczal explicating this political campaign.

The Limits to Racketeering Attempter’s take on the endgame, from a much wider perspective than banking.

By Richard Smith

Dublin, by way of the proudly-named International Financial Services Centre, a sparkling new development in the old docks, is “home to more than half of the world’s top 50 financial institutions”. But as the Irish financial crisis wears on, this glitter invites unpleasing comparisons: it simply looks meretricious. What Dublin and, let’s say, Bangkok, a favoured destination for paedophilic sex tourists, have in common, is a service offering based on activities forbidden overseas. Where they differ is in the amount of money involved, but each capital makes some money out of predatory or adventurous incomers, and needs slack local laws, slack local law enforcement, and pimps and procurers (or their analogues). That’s not so very different from the business plan for the City of London after Big Bang, to be honest, or a dozen offshore financial centres, but in Ireland this variant of mercantilism been pursued with a great deal of energy and rigour, to disastrous effect, as this latest story attests, once again.

Back in September 2007 Unicredit Bank Ireland’s risk manager resigned. Firing or losing risk managers can be a very bad sign, indeed: here is another sighting at Merrill Lynch ($50Bn of CDO losses, taken over by Bank of America) and another at HBOS (losses 2008-9: £17.1Bn, part nationalised). Those two firms were train wrecks, urged to destruction by utterly reckless top management. At Unicredit, the resignation matter was a bit more technical : massive breaches of liquidity requirements (banks are required to ensure that cash inflows equal at least 90 per cent of cash outflows forecast over the relevant period). Over to Ireland’s Village magazine for the details:

In late July or early August 2007, an experienced financial risk-manager, says he discovered his employer bank – the Irish subsidiary of the giant UniCredit Bank of Italy - had been dramatically breaching the liquidity ratio. The risk-manager maintains he was specifically warned by senior personnel at the Irish subsidiary not to report the matter to the financial regulator in Ireland. On one occasion he reported a ratio of only 70% to the regulator (and obtained a receipt). In fact he says “I was getting 75%, even 65%, not occasionally but day in, day out. Banks are obliged by law to maintain all daily records for at least five years so there must be written evidence of this.  At the time, I thought: ‘Is it my fault?’  Then I asked questions and I was told ‘it’s a system error’ or ‘a trader forgot to book a deal’ or ‘it’s complicated.  Give it a bit more time and you’ll understand.  It will be fine’”. In any event, even if taken at face value, such failures would attract penalties under Sections 3.4 and 10 of the regulator’s Requirements for Management of Liquidity Risk, 2006, which seem to impose fairly strict liability. Ascertaining the liquidity ratio is a complex task and eventually the risk-manager turned to a consulting company in London for help, affording it access to UniCredit’s systems.  That company – a company which continues to provide such services for some of Ireland’s most well-known banks – calculated the liquidity ratio at an extraordinary 50% when a ratio of 89% would in normal circumstances be deemed problematic. The risk-manager resigned, in part fearful of the draconian penalties that applied for breach of the law.

Routine, in 2007’s wacky world, so far. Then the regulator made a scheduled inspection, and unsurprisingly “all hell then broke loose”. Next there’s a twist – no follow up at all once the breach had been discovered, no curiosity from the regulator whatsoever about the resignation of the risk manager, apparently no tip-off to Italian or EU regulators, either; and what appears to be a clumsy attempt to disguise the fact that there had been a regulatory breach at all:

In June 2009 the regulator issued a revision of regulations for liquidity ratios without making any reference at all to the fact that the regulations had been revised to achieve precisely this ‘new’ effect in 2006.  This served deceptively to imply that the regulations had not been in force at the time of the breaches by UniCredit (and by all the other banks whose liquidity imploded illegally, though without media recognition of the illegality, around the time of the bank guarantee). The text of the 2006 document [section 9.4] which specified that the new requirements had taken effect on 1 July 2007 disappeared from the 2009 document.

Great, now the regulator’s faking his own document chain.

Questions were asked about l’affaire Unicredit in the Irish Senate back in February, meeting a stone wall.

Oh, by “all the other banks”, Village means, most particularly, Depfa (which destroyed its acquirer HRE, creating a EUR300Billion black hole), and SachsenBank, (which blew EUR17Bn at its Irish subsidiary on CDOs). And that gives a clue as to a possible motive for the possible cover up:

…if it can be shown that the regulator systematically allowed breaches of liquidity ratios, indeed still does not recognise those breaches, it could trigger litigation against Ireland by the likes of HRE (Hypo Real Estate).

HRE, was bailed out for €140bn in loans and guarantees in September 2008 by the German government, after HRE had hastily bought – heedless to its underlying liquidity problems – IFSC-based DEPFA.  DEPFA’s directors then included pillars of Ireland’s economic sector including Francis Ruane, director of the ESRI, and Maurice O’Connell, former governor of the Central Bank.

If HRE had not bought DEPFA, so transferring the relevant headquarters from Ireland to Germany, Ireland would have been responsible for this colossal bailout.  It is perhaps reflective of the lack of seriousness of the debate here for so long that this lucky escape from the consequences of our lackadaisical regulation, was not more widely recognised as far back as 2008.

If your foreign banks take ridiculously massive losses, or your well-heeled johns all get STDs, it gets ugly. That seems to be the story: Irish politicians as hugely embarrassed brothel-keepers. One key difference is: johns don’t sue, but banks do. So there is possibility of hundreds of billions more financial liabilities being contested in court, once some German lawyers are up to speed. That would pile a good extra chunk of uncertainty onto the already fraught Irish economic situation. Of course, potential plaintiffs would first have to conclude that someone in Ireland was actually worth suing for another EUR100Bn+.

Naturally one wonders if there are still more badly behaved banks at the IFSC…

Now a rueful footnote from me. Village remarks:

Interestingly, UniCredit in Milan has emphatically denied, to the Süddeutsche Zeitung and more recently the Sunday Business Post, that it is the bank to which Norris was referring in the Seanad.

Well, I have news for Unicredit’s rather out of touch management, in that case: since I’ve been following the story since it started, I can confirm that Unicredit is definitely the bank in question. The former risk manager first shows up in comments on a story in The Guardian on 17^th November, then in a now-deleted comment to another Ireland story by the WSJ a couple of weeks later, which didn’t name the bank, but included enough detail (from memory: Italian bank with German connections, US East coast asset management sub) to identify Unicredit Ireland, unambiguously. But that sleuthing, and much of my subsequent digging into Unicredit, is moot now, since I have been scooped. I was far too slow, so here I am, adorning Village’s excellent piece. Go and read it; there is tons more on Unicredit and on the Irish financial services scene.

What’s more, the whistleblowing risk manager now even has his own blog. It also looks as if he will be accumulating related links there , so you will be able to track the story as it develops, which I think it will.

By Richard Smith

These are things I’m keeping an eye on, or trying to find out more about. That isn’t a prediction that any of them will blow up, nor that nothing else will, just a round-up of the bees in my bonnet. If you’ve been following Naked Capitalism you are up to speed on most of this. There are one or two gaps to fill in, though, and I certainly owe readers some more about Unicredit. I touch on one part of that sprawling bank today, and when I have puzzled out a way through its convolutions, I will have a go at more.

Still, the big financial news, for me anyway, is still old news: massive bank insolvency, nicely recalled to mind in two posts by Ed Harrison. First, this, from a week or two ago, where Mervyn King’s blunt analysis of March 2008 finally surfaces, courtesy of Wikileaks:

Systemic Insolvency Is Now The Problem

2. (C/NF) King said that liquidity is necessary but not sufficient in the current market crisis because the global banking system is undercapitalized due to being over leveraged. He said it is hard to look at the big four UK banks (Royal Bank of Scotland, Barclays, HSBC, and Lloyds TSB) and not think they need more capital. A coordinated effort among central banks and finance ministers may be needed to develop a plan to recapitalize the banking system.

Unblocking Illiquid Mortgage-Backed Securities

3. (C/NF) King said it is also imperative to find a way for banks to sell off unwanted illiquid securities, including mortgage backed securities, without resorting to sales at distressed valuations. He said sales at distressed values only serve to lower the floor to which banks must mark down their assets (mark to market), thereby forcing unwarranted additional write downs.

And secondly, see this, from 2009, where $16.3Trillion of toxic European bank assets (44% of total bank assets!) very surprisingly disappear from a news item, by the mechanism of a quick but incomplete edit, post-publication, and are never heard from again. If only balance sheets were as easy to sort out as news stories and mark-to-market accounting.

There’s a chance that 2011 will be the year when the needed loss recognition starts happening in earnest,  though not necessarily in a controlled manner, unfortunately; hence my list of hot spots.

Lastly, here’s Chris Whalen on the warpath in the US.

*Update* Looking at the Wikileaks thread, you are all on a streak. If you think I have missed something, mention it in the comments!

This post first appeared on July 15, 2008

The time has come to announce the formation of the Banana Republic Club. Membership is open, with the sole requirement being that nominees correctly discern behaviors in advanced economies that resemble those of corrupt developing countries, which for sake of convenience are referred to as banana republics. Members are eligible to receive a Carmen Miranda hat, although they are not required to wear it.

Brad DeLong has his Ancient and Hermetic Order of the Shrill. Why should he have all the fun?

We broached this line of thought in a post last year, “America: Banana Republic Watch.” Today we have two well regarded economists pick up the same theme, so it seemed time to commemorate this trend.

Readers are encouraged to nominate other candidates.

Since the US of A is likely to get a disproportionate number of citations, some readers may consider comparing America to, say, Argentina, to be disloyal. We refer them to Frederick Douglass:

A true patriot is a lover of his country who rebukes and does not excuse its sins

Put it another way, if someone is obese, we think we are doing them a favor to tell them that throwing out the scale and getting a fun house skinny mirror is no solution.

Now to the nominees. Willem Buiter adopts a take-no-prisoners stance in his post, “The rescue of Fannie and Freddie by Hankie and Feddie.” Buiter has been a frequent and highly vocal critic of the Fed’s response to the financial crisis (including a less than charitable assessment at a Fed-sponsored conference in New York this May).

But the rescue (if one can call it that, since little concrete has happened) of Fannie and Freddie elicits a new level of scorn:

The bail-out of Fannie Mae and Freddie Mac by the combined forces of the US Treasury and the Federal Reserve Board is the ugliest exercise of its kind I have ever observed outside early transition economies and mature banana republics….

The Treasury has taken another big step on the road to Utter Fiscal Obfuscation. It is doing everything it can to disguise the fact that it is entering in commitments that create potentially massive contingent liabilities for the US tax payer. Even if the purpose served by this increase in contingent liabilities is worth the cost, the manner in which it is done is designed to avoid fiscal accountability. This is as welcome to the Executive as it is to the Congress.

The continuing corruption of the Fed’s mission through its growing use as a quasi-fiscal agent of the US government is deeply worrying. Admittedly, this latest extension of list of eligible counterparties at the primary discount window is small beer when compared to the creation in March 2008 of the off-balance sheet vehicle/SPV in Delaware which houses $30 bn of Bear Stearns’ most toxic assets, all but the first $ 1billion of which represent a contingent exposure of the Fed. If, as I expect will happen, the range of eligible collateral Fannie and Freddie can offer at the discount window is widened in the future, and if the maturity of the loans available to them at the discount window is extended, this latest enhancement of the Fed’s role as a lender of resort will be a further step on the road to the Fed as quasi-fiscal recapitaliser of first resort.

Since 1997, the Fed has long been the least operationally independent central bank in the industrial world. This latest episode suggests its main current purpose is to be an unaccountable quasi-fiscal agent for the US Treasury. If that is correct, the Fed’s capacity to deliver price stability in the future may have been fatally impaired.

Note that the post discussed alternatives for coping with the Freddie/Fannie crisis at some length.

While Buiter enjoys throwing thunderbolts from Olympus, El-Erian, co-president of bond giant Pimco and respected investor and academic who writes from time to time for the Financial Times, typically strives for a cool-headed, analytical tone, and provides sophisticated, nuanced discussions of markets, economic trends, and policies.

However, El-Erian’s previous comment at the Financial Times, a mere week ago, by the standards of his dispassionate style, was positively alarmed, although it did contain a bracing “Fortune favors the brave” speech. This week, in “Crisis and coherence: finance remains vulnerable,” the concern was even more palpable, the mention of opportunity in risk absent, and the comparison to unseemly third-world behavior a noteworthy departure from his normal anodyne stance:

In a few years, we shall look back at this time as one that redefined the landscape of the US financial system and, by association, the workings of global capital markets. The process is inevitably chaotic as it is driven by “crisis management” reactions…. Yet it is possible to make specific predictions.

The financial system is at a crossroads. At current market prices, the system remains under-capitalised despite some $350bn (€220bn, £176bn) of capital-raising over the past 12 months. More over, given the collapse in their equity prices, a growing number of institutions, including such behemoths as Freddie Mac and Fannie Mae, the mortgage agencies, are essentially un able to raise capital without government help. The longer this situation prevails, the higher the risk the financial system will face difficulties in raising other financing critical to day-to-day operations. This would accelerate forced sales of assets into illiquid markets, leading to another downward leg in an already vicious negative spiral.

This realisation drove the recent emergency policy statements from Washington. It is the second time this year that such dramatic announcements were made on a Sunday – a phenomenon historically reserved for developing countries rather than industrial ones. It reflects the understandable eagerness to minimise forced and disorderly deleveraging in a part of the economy that is deeply interlinked with virtually everything else. The financial system is like the oil in your car. Without the oil, it no longer matters whether you have a solid engine, good brakes or fancy safety features. The car will not function….

Accordingly, look for the official sector to encourage further capital-raising and work even harder to isolate the most vulnerable financial institutions and limit the negative spillover effects…

This is a practical approach aimed at striking that delicate balance between laisser-faire and government control. Yet it has important limitations. It does not work for large institutions such as Freddie and Fannie – thus the need for Sunday’s announcement of contingent equity and debt financing from the authorities. Also it cannot handle a large number of institutions facing difficulties. It is likely that additional steps will be needed, lest these limitations end up transforming the current economic and financial dislocations into something even more sinister.

Over the next few months, look for the Federal Reserve to face additional pressure to strengthen the emergency liquidity windows for systemically important institutions. Look for Congress to be asked to appropriate funds to support Freddie and Fannie more directly. Look for innovative mechanisms to raise additional capital for the financial sector through public-private partnerships. And look for other fiscal stimulus measures to counter the increasingly vicious spiral in housing and, soon, consumer demand.

Many of these steps involve distortions to the efficient functioning of markets over the longer term. Implementation is difficult and, in the absence of strong leadership, may not be timely enough. Yet the cost of doing nothing may be even higher. The key is whether all the ad hoc crisis management steps eventually evolve into a coherent and sustainable policy outcome. The jury is still out on this.

In other words, brace yourself for the officialdom making things up as they go along and hope they go to the trouble of cleaning it up later.

Quote-mining by Richard Smith

Conservative Republican Mitch McConnell (Googling +”Mitch McConnell” +Assange, 415,000 hits) takes a Republican conservative position:

I think the man is a high-tech terrorist.

Democrat Joe Biden (Googling +”Joe Biden” +Assange, 929,000 hits) initially finesses the principle question, on 18^th December:

I don’t think there’s any substantive damage.

…but just after that statement is issued, it seems that someone gives Democrat Joe Biden a good talking-to, and he starts to sidle towards the Republican conservative position, getting just over half way there, by 19^th December:

Asked if he saw Assange as closer to a hi-tech terrorist than the whistleblower who released the Pentagon papers in the 1970s, which disclosed the lie on which US involvement in Vietnam was based, Biden replied: “I would argue it is closer to being a hi-tech terrorist than the Pentagon papers. But, look, this guy has done things that have damaged and put in jeopardy the lives and occupations of people in other parts of the world.

“He’s made it more difficult for us to conduct our business with our allies and our friends. For example, in my meetings – you know I meet with most of these world leaders – there is a desire now to meet with me alone, rather than have staff in the room. It makes things more cumbersome – so it has done damage.”

Tea Partier and libertarian Sarah Palin (Googling +”Sarah Palin” +Assange, 10,700,000 hits) takes a Republican conservative position:

“His [Assange's] past posting of classified documents revealed the identity of more than 100 Afghan sources to the Taliban. Why was he not pursued with the same urgency we pursue al-Qaeda and Taliban leaders?”

“First and foremost, what steps were taken to stop WikiLeaks director Julian Assange from distributing this highly sensitive classified material especially after he had already published material not once but twice in the previous months?” she wrote.

Assange is not a ‘journalist’ any more than the ‘editor’ of al-Qaeda’s new English-language magazine Inspire is a ‘journalist’,” said Palin. “He is an anti-American operative with blood on his hands.

Fox News Leftist Bob Beckel (Googling +”Bob Beckel” +Assange, 45,800 hits) takes a Republican conservative position, spelling out what “Assange is a terrorist” and “pursuing with urgency” really mean, if you couldn’t work it out:

“A dead man can’t leak stuff,” Beckel said. “This guy’s a traitor, he’s treasonous, and he has broken every law of the United States. And I’m not for the death penalty, so…there’s only one way to do it: illegally shoot the son of a bitch.”

Libertarian Ron Paul (Googling +”Ron Paul” +Assange, 1,320,000 hits) takes a libertarian position:

Number 1: Do the America People deserve know the truth regarding the ongoing wars in Iraq, Afghanistan, Pakistan and Yemen?

Number 2: Could a larger question be: how can an army private access so much secret information?

Number 3: Why is the hostility directed at Assange, the publisher, and not at our government’s failure to protect classified information?

Number 4: Are we getting our money’s worth of the 80 Billion dollars per year spent on intelligence gathering?

Number 5: Which has resulted in the greatest number of deaths: lying us into war, or Wikileaks revelations, or the release of the Pentagon Papers?

Number 6: If Assange can be convicted of a crime for publishing information that he did not steal, what does this say about the future of the first amendment and the independence of the internet?

Number 7: Could it be that the real reason for the near universal attacks on Wikileaks is more about secretly maintaining a seriously flawed foreign policy of empire than it is about national security?

Number 8: Is there not a huge difference between releasing secret information to help the enemy in a time of declared war, which is treason, and the releasing of information to expose our government lies that promote secret wars, death and corruption?

Number 9: Was it not once considered patriotic to stand up to our government when it is wrong?

Well, I am not a local, so none of this makes any sense to me. Set me straight in the comments, ladies and gentlemen:

• Is the First Amendment relevant to Wikileaks?
• If so, which political party is the best custodian of it?
• What, if anything, do you make of the Google counts?