Category Archives: Politics

Germany and the European Commission’s €315 Billion Infrastructure “New Deal” is Yet More Smoke and Mirrors

I have to confess I had not taken the announcement of a €315 billion infrastructure spending program by the European Commission all that seriously, despite the fact that this on the surface represented a very serious departure from the Troika’s antipathy for anything resembling fiscal spending. It was so out of character that something had to be wrong with the picture, particularly given the absence of any evidence of Pauline conversions from the Germans. And that’s before you get to the fact that while €315 billion sounds impressive, given that the spending is likely to be spread out over time, the size of the shot, even if it worked as advertised, is less impressive than it might seem.

In fact, the history of post-crisis interventions in the Eurozone has been that of sleight-of-hand over substance, except as far as austerity program are concerned. Ambrose Evans-Pritchard peels away the dissimulation in the latest effort at confidence building, with emphasis on the con.

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“I Hate That Oil’s Dropping”: Why Mississippi Governor Phil Bryant Wants High Oil Prices for Fracking

Yves here. We posted yesterday on how, despite falling oil prices having a ricochet effect across the entire energy complex, so far shale oil well shutdowns didn’t appear to be proceeding at the expected pace. John Dizard of the Financial Times attributed continuing cash-flow-negative exploration and development to continued access to super-cheap funding. He also noted that even when fracking operators were cut off from their money pipeline, a new wave of speculators was likely to sweep in and try bottom-fishing among distressed companies. That meant that normal market discipline would be circumvented, meaning production levels could remain at uneconomically high levels, keeping prices low.

A second danger for the aspiring fracking-industrial complex is that prevailing production forecasts show the US having production well in excess of its domestic consumption levels in a few years. Production of needed export infrastructure would need to ramp up rapidly for so much shale output to be moved overseas. But not only are there “will the transport systems be in place” doubts, there’s also a reason to question whether this investment will pay off. On current trajectories, fracking output peaks in 2020 and falls gradually over the next decade, and declines more rapidly after that. 12 to 15 years of decent utilization is very short for specialized facilities.

Third, some readers, presented with the scenario above, said, basically, “No problem, production will focus on the lowest-cost areas like Marcellus.” As the article below points out, there are parts of the country that have gotten a nice boost from the energy boomlet and will suffer if they aren’t in the most competitive areas cost-wise. And their lenders are also at risk.

Finally, current cost forecasts don’t allow for the possibility of production delays or additions expenditures due to local protests and/or higher environmental standards put in place. Before you pooh-pooh the idea that anything might stand in the way of energy barons, consider the industry they are damaging: real estate, which is another powerful and politically connected industry. If fracking water contamination or fracking-induced earthquakes start affecting higher population density areas (suburbs, cities), we may have a Godzilla versus Mothra battle between competing elites in our future.

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A Truce In The Holy Oil War?

Yves here. This development, of Qatar potentially falling in line with Saudi Arabia, would represent a meaningful shift in Middle Eastern dynamics. But whether this is the beginning of the end of ISIS, or of the “holy oil war,” is another matter. ISIS started out as Prince Bandar’s private army, and it is not hard to imagine that the Saudis wield considerable influence. Among other things, the Saudis remain mighty unhappy over the fact that the US did not escalate in Syria in 2013, and has refused (in a rare show of wisdom) to attack Iran.

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Paul Martin, A Regulator Who Said No to Banks

Paul Martin, who was Canada’s finance minister before he became prime minister, is widely seen as implementing the policies that led Canada to get through the crisis virtually unscathed. This is the summary of Martin’s key actions as finance minister from INET: In general, Martin has received justifiable plaudits but often for the wrong thing. […]

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Why Congress Should Not Get Out of the Way of the Postal Service

Yves here. One of the slow-motion looting projects underway is effort to shut down the Postal Service or shrink it into uncompetitiveness. This post gives an update on the state of play in Congress as a particularly vocal Republican opponent, Ron Johnson, is set to become head of the Congressional committee responsible for Postal Service oversight.

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Five Bedrock Washington Assumptions That Perpetuate Our Middle East Policy Train Wreck

Yves here. As much as I consider myself to be reasonably jaded, I was nevertheless gobsmacked to read Andrew Bacevich’s list of “Washington assumptions” that underlie US policy-making in the Middle East. They aren’t just detached from reality, they are so wildly at odds with reality as to look deranged. I’d really like to believe that Bacevich is simply describing the all-too-common syndrome of coming to believe your own PR. But as he tells it, these “Washington assumptions” aren’t simply the undergirding talking points for key domestic and foreign constituencies; they really are policy drivers.

This thinking underlying these “Washington assumptions” is not just arrogant but has a rigidity that is almost religious in nature. The neocon vision, that the US has the right to remake the world, combined with how confidence in US virtue and exceptionalism seems to be rising even as our policy initiatives looks more and more mendacious and destructive even to our close allies (well, save the UK).

You can see another set of Washington assumptions at work in the TransPacific Partnership negotiations: that no prospective treaty member will ever question the benefits of free trade (as in they’ll never look at the fine print of what the deal is really about), that they will also want to ally themselves with the US as the better hegemon than China (if nothing else, the US is willing to act as the consumer of the last resort, a role China is not keen to assume, since that is tantamount to exporting jobs).

So this post also serves to demonstrate why Kissinger in his recent public pronouncements looks vastly more responsible than the crew in charge of our foreign affairs. As much as the deservedly-derided doctor was far too willing to team up with unsavory types to achieve what he considered to be American ends, his notion of “realpolitik” explicitly took morality out of the picture. Watching the US manage to devise even worse policies out of a warped, ideologically-driven notion of virtue is both perverse and chilling, like watching someone with a mental illness play out their delusions. And although mad leaders are sadly common in history, it’s another matter completely to see a technocratic class taking that role.

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Elizabeth Warren Blasts New York Fed President William Dudley

This Elizabeth Warren grilling of New York Fed William Dudley over the revelations in tapes made by ex-New York Fed employee Carmen Segarra, is a bit more Socratic than her normal approach, presumably because she has more than the typical five minutes for questions. Don’t be deceived by her pacing.

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Obama Pretends to Put Immigration Reform in Play

I’m reluctant to write about immigration reform, given that when the topic of illegal aliens comes up in posts on labor policy, too often there’s an upsurge of xenophobic, even racist, comments and a dearth of thoughtful discussion. So let this introduction serve as a warning: I’d like to use this piece to serve as a point of departure for discussing what a good immigration reform policy would look like, so we can have benchmarks for measuring what comes out of Obama’s promise that he would move immigration reform reform forward in an address Thursday evening.

But bear in mind that Obama’s speech and proposal for immigration reform is almost all public relations to cover up an action that is hard to swallow: making a bad situation worse by suspending deportations for illegal immigrants. Of course, cynics might argue that we’ve had flagrant non-enforcement of the law as far as elite bankers were concerned; why not extend that privilege to the other end of the food chain?

Obama’s pretext is that this action is a forcing device to get the Republicans to pass a “responsible” immigration reform bill. But the real political calculus is all too obvious.

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Russia Can Survive An Oil Price War

Yves here. This article is an important sanity check on the impact of the current oil price war on Russia. We’ve seen similarly skewed conventional wisdom on the Saudis: “No, they can’t make it on a fiscal budget basis at below $90 a barrel,” completely ignoring the fact that the Saudis clearly believe it is in their long-term interest to suffer some costs to inflict pain on some of their enemies, and render some (a lot) of shale oil and alternative energy development uneconomical, which increases their ability to extract more in the long term from their oil asset.

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New York Fed, Goldman in Criminal Investigation for Sharing Confidential Information

A New York Times story manages to bury the lead, even given the salacious material, in an important story that provides more evidence of the overly-cozy relationship between the New York Fed and its favored large banks, particularly Goldman. The issue is sensitive in the wake of former New York Fed staffer Carmen Segarra releasing hours of tape recordings that show undue deference by the Fed employees towards Goldman. One particularly troubling incident was the Fed allowing Goldman to pretend it had gotten Fed approval for a derivatives deal designed to snooker Spanish banking regulators. Another was Goldman’s lack of a conflicts of interest policy (see former regulator Justin Fox’s discussion of why this is a serious matter).

What is striking about the New York Times expose is how tortuous the writing is, and how it takes (and I am not exaggerating) three times as many words as necessary to finally describe what happened. For instance, it isn’t until the 9th paragraph that the article mentions that this sharing of confidential information can be a crime and the authorities are giving a serious look into that very question.

But the really damaging part is it looks as if Goldman waited to take action on its having obtained impermissible information until the Carmen Segarra story with secret tapes of how the New York Fed toadied to Goldman broke when they could finally see how damaging it actually was. And Goldman and the Fed clearly knew that story was coming weeks in advance.

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Elizabeth Warren Blasts FHFA’s Mel Watt: “You Haven’t Helped a Single Family”

Elizabeth Warren tore into FHFA director Mel Watt over his failure to develop a program for Fannie and Freddie to provide principal modifications to underwater borrowers at risk of foreclosure. She also got in a dig for his failure to stop the agencies from pursuing deficiency judgments. That means going after former homeowners when the sale of the house they lost didn’t recoup enough to cover the mortgage balance. In the stone ages, when banks kept the mortgage loans they made, they never pursued deficiency judgements. They knew there was no point in trying to get blood from a turnip. Not surprisingly, the sadistic Fannie/Freddie policy has also proven to be spectacularly unproductive in financial terms. An FHFA inspector general study found that recoveries were less than 1/4 of 1% of the amount sought. Moreover, since those mortgage balances were often inflated by junk fees and other dubious costs, and mortgage servicers have done a poor job of maintain properties (they are too often stripped of copper and appliances, or get mold), any deficiency might be significantly or entirely the servicer’s fault.

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Michael Hudson, Other Experts Discuss America, China and Russia Jockeying in G20 and APEC Summits

Yves here. This is an intriguing exchange among Michael Hudson, John Weeks, professor emeritus of development economics at the University of Long and Colin Bradford of Brookings. The points of difference between Hudson and Bradford are sharp, with Bradford admitting to giving a Washington point of view that Obama scored important gains at the APEC summit, with Hudson contending that both confabs exposed America’s declining role and lack of foreign buy-in for its neoliberal economic policies.

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