Yearly Archives: 2014

Saudis Tell Shale Industry It Will Break Them, Plans to Keep Pumping Even at $20 a Barrel

When the Saudis announced their intention not to support oil prices when they were sliding towards $90 and plunged quickly through that level, we deemed the move to be a masterstroke. It served to damage both economic and political enemies. On the economic front, the casualties would include renewables, Canadian tar sands, and the US shale gas industry. On the geopolitical front, the casualties would include Iran, Syria, Russia…. and the US.

Even though Riyadh is nominally still an ally, relations with the US are fraught. The Saudis are mighty unhappy with America over its failure to get rid of Assad, its refusal to indulge Saudi demands of attacking Iran (our leaders may be drunk on power, but they haven’t quite gone over the deep end) and or indirectly working with Iran against ISIS (which started out as Prince Bandar’s private army and may still have the kingdom as a stealth patron). So the Saudis are not at all unhappy if the US suffers as a result of the whackage of its energy industry. First, that’s an inevitable outcome if the Saudis are to succeed in maximizing the value of their oil assets, which is a survival issue for the royal family. Second, since relations between the US and Riyadh are frayed right now, it is an opportune time to show that the kingdom is not to be treated casually.

Yesterday, the Saudis made it even more clear that they are not pulling out of their game of chicken with other energy producing nations. The Saudis will keep pumping and by implication, will force production cuts on others.

Links 12/23/14

New York’s Benjamin Lawsky Forces Resignation of CEO of Mortgage Servicer Ocwen Over Wrongful Foreclosures, Shoddy Records and Systems

New York State Superintendent of Financial Services Benjamin Lawsky has forced the resignation of the chairman and CEO of a mortgage servicer, Ocwen over a range of borrower abuses in violation of a previous settlement agreement, including wrongful foreclosures, excessive fees, robosigning, sending out back-dated letters, and maintaining inaccurate records. Lawsky slapped the servicer with other penalties, including $150 million of payments to homeowners and homeowner-assistance program, being subject to extensive oversight by a monitor, changes to the board, and being required to give past and present borrowers access to loan files for free. The latter will prove to be fertile ground for private lawsuits. In addition, the ex-chairman William Erbey, was ordered to quit his chairman post at four related companies over conflicts of interest.

The Ocwen consent order shows Lawksy yet again making good use of his office while other financial services industry regulators are too captured or craven to enforce the law. Unlike other bank settlements, investors saw the Ocwen consent order as serious punishment. Ocwen’s stock price had already fallen by over 60% this year as a result of this probe and unfavorable findings by the national mortgage settlement monitor, Joseph Smith. Ocwen’s shares closed down another 27% on Monday. And that hurts Erbey. From the Wall Street Journal:

Combatting Eurozone Deflation: QE for the People

Yves here. This post describes why having the ECB give money directly to citizens would do a better job of fighting Eurozone deflation than the US version. The author starts from the premise that QE worked in the US, when there is ample reason to believe it worked only for financial institutions and a small portion of the population. Here, the ECB would engage in what amounts to a fiscal operation, which also would have dome more to stimulate the economy than the Fed’s QEs.

2:00PM Water Cooler 12/22/14

Today’s Water Cooler: Selling volatility, widening effects of New York cop shooting, Corruption Fest, psychiatry and cateogories, Coca-Cola ends voice mail.

Links 12/22/14

Christie Allies Offer Dubious Defenses for Payments Made to His Wife’s Firm

Increasingly defensive responses from the Christie administration and friendly media outlets show that David Sirota’s relentless reporting on pension fund improprieties is starting to draw blood.

The New York Times ran a story last week that recapped (and cited) the Sirota’s reporting on a new Garden State impropriety: that of Christie’s wife, Mary Pat, being hired by hedge fund Angelo Gordon after the firm had been told by the state to liquidate a $150 million custom fund. That should be uncontroversial except Angelo Gordon has failed to sell a portion of the fund after three years, meaning it is still generating fees from New Jersey even as Christie’s wife works there. This relationship looks to run afoul of New Jersey’s strict pay-to-play rules, which state officials from “being involved” in “any official manner” in which they have direct or indirect personal or financial interest.

The Newark Star Ledger also wrote up the story, with the addendum that Tom Bruno, chairman of the state’s largest pension fund, called for an ethics investigation.

The day after the Times story appeared in print, the Newark Star Ledger in an editorial tried to depict the accounts as off base. The timing of the response, coming so quickly on the heels of the Times’ account, strongly suggests that it was planted. An all-too-consistent feature of the rebuttals to Sirota’s charges is that they play fast and loose with facts. The bone of contention is that the state is still paying fees to Angelo Gordon, when by all normal standards payments should have ceased years ago.

The War to Start All Wars: The 25th Anniversary of the Forgotten Invasion of Panama

Yves here. Why is war becoming a dominant line of business for a soi-disant democracy? In the 19th century, the consensus among the capitalist classes was that armed conflict was bad for business. Europe had a nearly 100 year of peace, with only short-lived conflicts as punctuation.

The rationale for America’s militaristic foreign policy was that spreading democracy would promote peace, since as conventional wisdom had it, democracies don’t go to war with other democracies. But the more accurate statement might be that many democracies (Russia and most countries in South America being noteworthy exceptions) have accepted the US security umbrella and are no longer capable of defending themselves (for instance, Mathew D. Rose noted that “much of the German military hardware is dysfunctional due to austerity and endemic corruption“). But the promise of a Pax Americana in the wake of the fall of the USSR has instead morphed into the US running ongoing wars and counterinsurgencies, even as our troops are strained to the breaking point. And it’s clear that these campaigns are more about looting than about making America and its allies safer. The classic Military Misfortunes: The Anatomy of Failure in War has an afterword which discusses the failed Iraq peace, pointing out that it was absurd to expect the Iraqi army to be able to stand up against foreign attack (this years before it collapsed when ISIS looked cross-eyed at it). Similarly, that a big part of the failure to reconstruct the country was due to the use of US contractors. Not only did they cost ridiculously more, but the failure to employ local firms and hire locals meant little of the spending went into the Iraq economy. Rebuilding would also have given young men meaningful and well-paid work. The absence of that made them good raw material for the opposition.

In other words, America has turned long-standing commercial logic on its head. Yet there has been perilous little in the way of complaint from the business community. Is it because one of America’s recent growth engined, the tech industry, gets far too much in the way of goodies from defense-related R&D to challenge this equation? Or that US multinationals believe, rightly or wrongly, that the safety of their extended supply chains depends on military might, and so they see their interests as aligned with US adventurism? Or is it simply that the US has gotten to be very good at propaganda (see Alex Carey, Taking the Risk out of Democracy, for a long-form treatment), with the result that many people operate from assumptions that would not stand up to scrutiny?

Putin: Battered, Bruised But Not Broken

Yves here. The triumphalism among Western commentators as the ruble plunged last week is more than a little cringe-making. We’re not yet in Two Minute Hate territory yet, but this feels like a warmup. Robert Parry provides an insanity check:

Official Washington’s “group think” on the Ukraine crisis now has a totalitarian feel to it as “everyone who matters” joins in the ritualistic stoning of Russian President Putin and takes joy in Russia’s economic pain, with liberal economist Paul Krugman the latest to hoist a rock…

Indeed, much of what Krugman finds so offensive about Putin’s Russia actually stemmed from the Yeltsin era following the collapse of the Soviet Union in 1991 when the so-called Harvard Boys flew to Moscow to apply free-market “shock therapy” which translated into a small number of well-connected thieves plundering Russia’s industry and resources, making themselves billionaires while leaving average Russians near starvation.

The piece goes on to debunk in considerable detail the caricature of Putin presented in America, the most important element being the charge that Putin was the aggressor in Ukraine and is therefore getting what he deserved. Mind you, Putin is still an authoritarian, but we don’t find that objectionable in many of our putative allies, starting with the Saudis.

Links 12/21/14

“I Am The Very Model of a Democratic Strategist”

Here’s a little Saturday night / Sunday morning fun….

Ilargi: Drilling Our Way Into Oblivion

Lambert here: So the fracking companies have purchased “risk insurance.” I wonder what happens when they all file their claims at the same time. What could go wrong? By Raúl Ilargi Meijer, editor-in-chief of The Automatic Earth. Originally published at Automatic Earth. Oh, that sweet black gold won’t leave us alone, will it? West Texas […]

Links 12/20/14