Russell Lee Tracy, California. Gasoline filling station 1942
“It would be as if Delaware brought down the United States economy. That would be the fault of the U.S., not Delaware.”
• In Greek Debt Puzzle, the Game Theorists Have It (NY Times)
That Yanis Varoufakis, the rakish Greek finance minister, would meet with senior European officials wearing a leather motorcycle jacket and open-collar shirt would probably have fascinated John F. Nash Jr., the Nobel prize -winning mathematician, game theorist and Princeton professor who was thrown from a taxi and killed last month. Is Mr. Varoufakis really a radical, or simply acting like one to increase Greece’s negotiating leverage — what game theorists mean when they say it can be rational to behave irrationally? Mr. Varoufakis is himself a noted game theorist, co-author of the textbook “Game Theory: a Critical Introduction” and a longtime admirer of Dr. Nash. The two met in Athens in June 2000 after Dr. Nash delivered a lecture on money.
After learning of Dr. Nash’s death, Mr. Varoufakis wrote on Twitter: “Reading your work was inspirational. Meeting you, and spending time together, was an unearned bonus, Farewell John Nash Jr.” The intense and hard-fought negotiations between Greece and its creditors, which have roiled global financial markets for months and appear to be nearing a climax, are the sort of high-stakes game that fascinated Dr. Nash, who won the Nobel in economic science, and lend themselves to the analysis he pioneered. On Thursday, markets were rattled when Greece deferred a payment to the IMF as it continued to seek a new debt deal. “It’s exactly the kind of game that Nash had in mind,” said Sylvia Nasar, author of the definitive Nash biography “A Beautiful Mind,” which was the basis for the Academy Award-winning movie. “There are more than two players. They have common as well as opposing interests. Not making a deal leaves everybody worse off.”
Unfortunately for the financial markets and the future of the European Union, that’s no guarantee that Greece and its creditors will reach a deal that averts the doomsday scenario — a debt default by Greece that could cause it to lose its membership in Europe’s currency union and set off another crisis. I asked Mr. Varoufakis this week how it felt to have the fate of the global economy to a large extent resting on him. “I don’t really feel the weight of the world economy,” he said. “I feel the weight of the Greek people resting on my shoulders. If little Greece, in order to survive, brings down the financial world, it can’t be our fault. It would be as if Delaware brought down the United States economy. That would be the fault of the U.S., not Delaware.”
Virtually everyone agrees that a default by Greece is the least desirable outcome for both Greece and its creditors — among them Germany and France; the European Central Bank; and the I.M.F. Yet one of Dr. Nash’s critical insights is that there may be many possible outcomes — so-called Nash equilibriums — that produce suboptimal results. A Nash equilibrium exists when each side’s strategy is optimal given what they believe to be the others’ strategy. For example, if Germany and other creditors don’t believe Greece’s threat to default, and underestimate the severity of such an outcome, they might see their optimal strategy as remaining firm in their demands for Greek fiscal austerity and structural reforms. If, on the other hand, Germany believes Mr. Varoufakis to be ideologically motivated to reject further austerity, it might well cave to Greek demands for leniency.
“In a strange way we are all breathing a sigh of relief. We were afraid of a bad deal that would split the party but this is so atrocious it makes life easier. None of us can accept it..”
• Greece Misses IMF Payment In Warning Shot, Showdown With Europe Escalates (AEP)
Greece is to take the drastic step of skipping a €300m payment to the IMF on Friday, invoking an obscure mechanism in abeyance since the 1970s to bundle all debts due in June and pay them at the end of the month. It is the first time that a developed country has ever missed a payment to the IMF since the creation of the Bretton Woods institutions at the end of the Second World War. The news broke after the Athens stock exchange had closed but a bloodbath is feared when the bourse opens on Friday. Yields on two-year Greek bonds spiked 63 basis points to 21.8pc amid mounting fears of a deposit run on Greek banks and the imposition of capital controls as soon as this weekend. The IMF said it had been notified by the Greek authorities that they would pay the entire €1.6bn due this month on June 30, dusting down a procedure last used by Zambia in the 1980s.
The shock move came as leaders of the ruling Syriza movement were locked in a series of emergency meetings to vent their fury over the latest austerity demands by the European creditor powers. Senior figures in the party lined up to denounce the “ultimatum” from Brussels as another wasted moment after four months of acrimonious talks. “It cannot form the basis of an agreement,” said Tassos Koronakis, the party secretary. Alexis Mitropoulos, the deputy speaker of parliament, called it “the most vulgar and murderous plan” that shattered hopes of a deal just as everybody was expecting a breakthrough. Others daubed their war paint and vowed angrily that there would be no “surrender”.
The skipped payment is the clearest sign to date that the crisis is escalating to a dangerous level as Syriza refuses to buckle. It will not be resolved without European statesmanship of a high order, so far lacking. While the authorities sought to play down the Greek decision, it was clearly intended as a warning shot. Syriza had the money at hand. It chose not to pay as a conscious political choice. The Greeks accuse the IMF of violating its own rules by colluding in an EMU-led policy that leaves the country with unsustainable debts. Athens is implicity threatening to escalate the situation all the way to a full default to the IMF, setting off a grave institutional and political crisis within the Fund itself.
Syriza leaders say they are unwilling to burn any more of the country’s dwindling cash reserves to pay creditors until there is a credible offer on the table, insisting that their priority is to pay pensions and salaries and avoid default to their own people. One cabinet minister told The Telegraph that the proposals by creditors seemed designed to bring about a deliberate rupture. “They want to force us into a position where we can’t sign,” he said. “In a strange way we are all breathing a sigh of relief. We were afraid of a bad deal that would split the party but this is so atrocious it makes life easier. None of us can accept it,” he said.
“..once President Harry Truman’s administration decided to rehabilitate Germany, there was no turning back.”
• A Speech of Hope for Greece (Yanis Varoufakis)
On September 6, 1946 US Secretary of State James F. Byrnes traveled to Stuttgart to deliver his historic “Speech of Hope.” Byrnes’ address marked America’s post-war change of heart vis-à-vis Germany and gave a fallen nation a chance to imagine recovery, growth, and a return to normalcy. Seven decades later, it is my country, Greece, that needs such a chance. Until Byrnes’ “Speech of Hope,” the Allies were committed to converting “…Germany into a country primarily agricultural and pastoral in character.” That was the express intention of the Morgenthau Plan, devised by US Treasury Secretary Henry Morgenthau Jr. and co-signed by the United States and Britain two years earlier, in September 1944.
Indeed, when the US, the Soviet Union, and the United Kingdom signed the Potsdam Agreement in August 1945, they agreed on the “reduction or destruction of all civilian heavy-industry with war potential” and on “restructuring the German economy toward agriculture and light industry.” By 1946, the Allies had reduced Germany’s steel output to 75% of its pre-war level. Car production plummeted to around 10% of pre-war output. By the end of the decade, 706 industrial plants were destroyed. Byrnes’ speech signaled to the German people a reversal of that punitive de-industrialization drive. Of course, Germany owes its post-war recovery and wealth to its people and their hard work, innovation, and devotion to a united, democratic Europe. But Germans could not have staged their magnificent post-war renaissance without the support signified by the “Speech of Hope.”
Prior to Byrnes’ speech, and for a while afterwards, America’s allies were not keen to restore hope to the defeated Germans. But once President Harry Truman’s administration decided to rehabilitate Germany, there was no turning back. Its rebirth was underway, facilitated by the Marshall Plan, the US-sponsored 1953 debt write-down, and by the infusion of migrant labor from Italy, Yugoslavia, and Greece. Europe could not have united in peace and democracy without that sea change. Someone had to put aside moralistic objections and look dispassionately at a country locked in a set of circumstances that would only reproduce discord and fragmentation across the continent. The US, having emerged from the war as the only creditor country, did precisely that.
Insane demands that they know will not be accepted: “..increasing value-added tax to 11% (from 6%) for items including drugs and 23% for items including electricity.”
• EU/IMF Lenders Demand Asset Sales, Pension Cuts In Greek Proposal (Reuters)
Greece’s EU/IMF lenders have asked Athens to commit to sell off state assets, enforce pension cuts and press on with labour reforms, two sources familiar with the plan said on Thursday, demands that would cross the Greek government’s “red lines”. If Greece were to accept the plan, lenders would aim to unlock €10.9 billion in unused bank bailout funds that were returned to the European Financial Stability Fund. This would enable Greece to cover its financial needs through July and August, the sources said. Meanwhile, a debate regarding progress of ongoing negotiations with Greece’s lenders would take place in Greek Parliament on Friday at 6 p.m. following a decision by premier Alexis Tsipras, it emerged on Thursday.
In a five-page proposal presented to Tsipras in Brussels on Wednesday, EU/IMF lenders asked Athens to reduce spending on pensions by 1% of gross domestic product and promise not to reverse any legislated reforms, the sources said. They also demanded Athens raise €1.8 billion – or 1% of GDP – by increasing value-added tax to 11% for items including drugs and 23% for items including electricity, the sources told Reuters. They want Greece to scrap a benefit for low income pensioners, called EKAS, to save €800 million by 2016 – a move that if accepted, would force Tsipras to violate his pledge to avoid any new pension cuts. The proposal also calls for a hike in healthcare contributions by Greeks and a cut in the fuel subsidy.
The lenders have also demanded Tsipras not make any unilateral move to restore collective bargaining rights and raise minimum wage level to pre-crisis levels – pledges he made before coming to power in January. The proposal also asks Athens to commit to privatising Grid operator ADMIE, Greece’s major ports in Piraeus and Thessaloniki, the former airport complex of Hellenikon, Greece’s biggest oil refinery Hellenic Petroleum and Greek telecoms operator OTE. Some of the asset sales mentioned – like ADMIE and Hellenikon – have been staunchly opposed by Tsipras’s Syriza party. The proposal does not make any mention of offering debt relief to Athens .
People have strange views. As soon as the IMF said Greece had the permission to delay, it was clear that they would unless a deal had been made. It doesn’t matter if they announce it at the last moment.
• Greece’s IMF Repayment Delay Smacks Of Both Desperation And Defiance (Guardian)
You could almost hear the gritted teeth through which the IMF issued its terse statement acknowledging that Athens planned to miss Friday’s deadline for making a €300m debt repayment. The Washington-based lender, which was always wary about being dragged into Europe’s debt crisis, didn’t condemn Greece’s actions, let alone suggest that deferring the payment was tantamount to default. It simply restated that in a little-known loophole adopted in the late 1970s, “country members can ask to bundle together multiple principal payments falling due in a calendar month”. But it was clear that the IMF had received little warning of Greece’s plans.
Yanis Varofakis, the country’s pugnacious finance minister, has long argued that the end of June, when the four-month extension to the country’s bailout programme the Syriza government won in February expires, is the real deadline for reaching an agreement. But the lastminute decision to delay the payment, just hours after IMF managing director, Christine Lagarde, said she fully expected it to arrive, smacked of both desperation and defiance. Greece’s stance is likely to infuriate the IMF, which doesn’t want to shoulder the blame for pushing Greece into default, but reportedly believes current plans for tackling its debt burden remain unrealistic.
Even with the rest of the month now apparently available to secure a deal, the distance between Greece and its creditors remains considerable, as leaked negotiating texts from both sides suggested on Thursday. Meanwhile, both the prime minister, Alexis Tsipras, who faces an uphill struggle selling any deal to his party, and Varoufakis, who has been sidelined from the talks but remains finance minister, have continued to make pungent public statements about the sacrifices of the Greek people.
In parliament. Wonder what the next step will be.
• Greek Finance Ministry: German WWII Debt €280 To €340 Billion (Kathimerini)
Members of a special committee at the Finance Ministry’s General Accounting Office told the parliamentary inquiry into Germany’s unpaid reparations to Greece that Athens is owed between €280 and €340 billion by Berlin. Five officials from the General Accounting Office appeared before the committee, which is chaired by Parliament Speaker Zoe Constantopoulou. The head of the Finance Ministry panel that investigated Germany’s war debt, Panayiotis Karakousis, said that his team found no evidence that Greece had waived its right to claim Second World War reparations. On a visit to Berlin earlier this year, Prime Minister Alexis Tsipras told German Chancellor Angela Merkel that her country had a moral duty to settle the matter but he did not refer to any specific figures.
Absolutely. Thar she blows.
• Stay Out Of Harm’s Way – The Casino Is Fixing To Blow (David Stockman)
Shock waves have been rumbling through the global bond market in the last few days. On April 17 the yield on the 10-year German bund pierced through the 5bps level, but yesterday it tagged 100bps. That amounted to a 20X move in 39 trading days. It also amounted to total annihilation if you were front running Mario Draghi’s bond buying campaign on 95% repo leverage and didn’t hit the sell button fast enough. And there were a lot of sell buttons to hit. The Italian 10-year yield has soared from a low of 1.03% in late March to 2.21% last night, and the yield on the Spanish bond has doubled in a similar manner. Needless to say, this is not by way of a lamentation in behalf of the euro-bond speculators who have had their heads handed to them in recent days.
After harvesting hundreds of billions of windfall gains since Draghi’s mid-2012 “whatever it takes ukase” they were overdue to get slapped around good and hard. Instead, what we have here is just one more striking demonstration that financial markets are utterly broken. The notion of honest price discovery might as well be relegated to the museum of financial history. The exact catalyst for yesterday’s panicked global bond sell-off, apparently, was Draghi’s public confession that although the ECB would stay the course on its $1.3 trillion QE program, it cannot prevent short-run “volatility” in the trading pits.
Why that should be a surprise to anyone is hard to fathom, but it does crystalize the “look ma, no hands” essence of today’s markets. The trading herd goes in the direction enabled by the central banks until a few dare devils finally fall off their bikes, causing an unexpected pile-up and inducing the pack to temporarily reverse direction. Thus, it is not surprising that a few traders got caught flat-footed in recent days. In the case of the insanely over-valued Italian 10 year bond, for instance, the price went straight up (and the yield straight down) for nearly 33 months.
Creating an even dumber generation.
• The Lawsuit Machine Going After Student Debtors (Bloomberg)
Student loans have eclipsed credit cards to become the second-largest source of outstanding debt in the U.S., after mortgages. Since 2007 the federal student loan balance has more than doubled, to almost $1.2 trillion from $516 billion. The Consumer Financial Protection Bureau estimates that students, former students, and their parents owe an additional $150 billion in loans from banks and other private lenders. With defaults climbing, lenders have turned to the courts to collect. Many of their suits are marred by missing documents and procedural errors, say consumer advocates and lawyers defending debtors. “Our office is seeing an uptick in abusive loan debt-collection tactics that leave no room for relief,” wrote Massachusetts Attorney General Maura Healey.
The paperwork problems echo the “robosigning” scandals that followed the housing bust. Like mortgages, student loans were bundled into packages and sold to investors. “This is robosigning 2.0 with student loans,” says Robyn Smith, a lawyer with the National Consumer Law Center, a nonprofit advocacy group. “You have securitized loans in these large pools; you have the sloppy record keeping,” as in the mortgage crisis.
“.. it might as well propose taxing churches to pay for sex reassignment surgeries on a moon base.”
• Bernie Sanders: Let’s Spend $5.5 Billion to Employ 1 Million Young People (BBG)
The Employ Young Americans Now Act is the sort of legislation that would have struggled even in a Democratic Congress. In a Capitol controlled by Republicans, it might as well propose taxing churches to pay for sex reassignment surgeries on a moon base. The legislation, introduced by Michigan Representative John Conyers, would create a $5.5 billion fund, $4 billion earmarked for the employment of people between 16 and 24, $1.5 billion for job training grants. There are no pay-fors. It would ask a Congress that is dead-set against “big government” to employ people, with the help of big government.
Yet the bill’s Senate sponsor is Vermont’s Bernie Sanders. That matters quite a lot in June 2015. On Thursday morning, Sanders joined Conyers on a visit to the H.O.P.E. Project in southeast Washington. The presidential candidate toured a small but busy office, located above a strip mall, that had successfully trained 375 people in the IT field, and seen 315 of those people get jobs that paid an average of $42,000—far above the median income locally. Ninety-three% of graduates were African-American, and when Sanders entered a computer room—pausing to greet every student—the only white faces belonged to journalists and staffers. The room was crowded with TV cameras and iPhones, some pointed at four words on the wall: “HARVARD OF THE HOOD.”
“In America now we spend nearly $200 billion on public safety, including $70 billion on correctional facilities each and every year,” said Sanders from the front of the room. “So, let me be very clear: in my view it makes a lot more sense to invest in jobs, in job training, and in education than spending incredible amounts of money on jails and law enforcement.”
And the rating agencies.
• Housing Bubble Was Built By JP Morgan, Barclays (MarketWatch)
If I had to depend on Wall Street or Washington for an explanation of what ails the U.S. financial economy, I’d probably pick neither one. My choice would be John Griffin, a cowboy boots-wearing University of Texas financial professor, who has been on something of a roll. Six years before Standard & Poor’s agreed to pay $1.4 billion to settle state and federal government lawsuits alleging it inflated credit ratings on securitized mortgage debt, Griffin revealed—with mathematical precision—how S&P degraded its own analytical model to issue puffed-up grades. Seven months before J.P. Morgan Chase agreed to pay $13 billion to resolve state and federal claims that it misled investors on toxic mortgage securities—the largest financial settlement with a single entity in U.S. history—Griffin showed how the bank had originated a disproportionate share of securitized mortgages flawed by undisclosed second liens (among other reporting problems).
Today, Griffin is advancing a new argument: that housing prices were more inflated—and the crash even more violent—in markets where lenders who misreported mortgages held concentrated market shares. He concludes that big banks with bad practices drove the credit bubble, and the misreporting deepened it. “I just want to know the truth,” says Griffin, 45, who grew up playing high school football in Texas and today delivers some of his hardest hits on Wall Street. In his latest forensic work, Griffin and co-author Gonzalo Maturana, an assistant professor of finance at Emory University in Atlanta, combed through 3.1 million mortgages originated between 2002 and the end of 2007. More than one-quarter of these loans subsequently defaulted.
While looking for inconsistencies in appraisal values and owner-occupancy status, the most interesting part of the investigation exposes how some mortgage securities were riddled with undisclosed second liens. These hidden debts reduced the borrowers’ incentive to repay their obligations. Griffin and Maturana found the gaps by comparing bank securities documents to county courthouse records. No fewer than 10.2% of the securitized mortgages in their sample contained an undisclosed second lien. Some lenders, such as Barclays and J.P. Morgan, produced nearly double the overall number of missing debts. This is startling for two reasons: first, loans with an unreported lien were 97% more likely to become seriously delinquent than were correctly reported loans; and second, the same lender originated both liens more than two-thirds of the time.
• The Real Reason Why There Is No Bond Market Liquidity Left (Zero Hedge)
Back in the summer of 2013, we first commented on what we called “Phantom Markets” – displayed quotes and prices, in not only equities, FX and commodities but increasingly in government bonds, without any underlying liquidity. The problem, which we first addressed in 2012, had gotten so bad, even the all important Treasury Borrowing Advisory Committee to the US Treasury had just sounded an alarm on the topic. Since then we have sat back and watched as our prediction was borne out, as bond market liquidity slowly devolved then sharply and dramatically collapsed recently to a level that is so unprecedented, not even we though possible, leading first to the October 15 bond flash crash and countless “VaR shock” events ever since.
And while we urge those few carbon-based life forms who still trade for a living to catch up on our numerous posts on market “liquidity” and lack thereof, here is a quick and dirty primer on just why there is virtually no bond market left, courtesy of the man who, weeks ahead of the Lehman collapse when nobody had any idea what is going on, laid out precisely what happens in 2008 and onward in his seminal note “Are the Brokers Broken?”, Citigroup’s Matt King. Here is the gist of his recent note on the liquidity paradox which is a must read for everyone who trades anything and certainly bonds, while for the TL/DR crowd here is the 5 word summary: blame central bankers and HFTs.
The more liquidity central banks add, the less there is in markets
• Water, water, everywhere — On many metrics, liquidity across markets seems abundant. Bid-offers are tight, if not always back to pre-crisis levels. Notional traded volumes in credit and rates have reached all-time highs. The rise of e-trading is helping to match buyers and sellers of securities more efficiently than ever before.
• Nor any drop to drink — And yet almost every institutional investor, in almost every market, seems worried about liquidity. Even if it’s here today, they fear it will be gone tomorrow. They say that e-trading contributes much volume, but little depth for those who need to trade in size. The growing frequency of “flash crashes” and “air pockets” – often without obvious cause – adds weight to their fears.
• Yes, street regulation has played a role — The most frequently cited explanation is that increased regulation has driven up the cost of balance sheet and reduced the street’s appetite for risk, and hence ability to act as a warehouser between buyers and sellers.
• But so too have the central banks — And yet this fails to explain why even markets like FX and equities, which do not consume dealers’ balance sheets, have been subject to problems. We argue that in addition to regulations, central banks’ distortion of markets has reduced the heterogeneity of the investor base, forcing them to be the “same way round” over the past four years to a greater extent than ever previously. This creates markets which trend strongly, but are then prone to sudden corrections. It also leaves investors more focused on central banks than ever before – and is liable to make it impossible for the central banks to make a smooth exit.
Record low productivity.
• US Workers Ask: Where’s My Raise? (WSJ)
The unemployment rate in metropolitan regions across the U.S. is below where it was when the financial crisis blew a hole in the U.S. economy in 2008. Now, many American workers are asking: Where’s my raise? Questions about the slow pace of wage growth aren’t only stumping workers, but also economists and policy makers at the Federal Reserve—with the answers weighing on households and the larger U.S. economy. When U.S. unemployment rates fall, conventional notions of supply and demand predict wages will go up as firms bid for increasingly scarce workers, and there are signs of that, for example, in building trades and restaurants.
“Basic economics hasn’t gone out the window,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said in an interview. “When employment grows, wages will start to grow.” But a Wall Street Journal analysis of Labor Department data points to persistent constraints on worker pay, even as the economy approaches full employment. The Journal found 33 U.S. metropolitan areas—from the small to the sizable—where unemployment rates and nonfarm payrolls last year returned to prerecession levels. In two-thirds of those cities—including Columbus; Houston; Oklahoma City; Minneapolis-St. Paul, Minn.; and Topeka, Kan.—wage growth trailed the prerecession pace. Among the reasons:
• Companies tapping pools of workers who have disappeared from the U.S. unemployment tallies, creating what economists describe as hidden slack in the economy. Until this invisible labor supply is spent, these men and women, including part-timers, temporary workers and discouraged labor-market dropouts, could hold wages down.
• The blunt force of overseas competition makes companies reluctant to raise pay over fears they will lose sales to cheaper-priced foreign firms.
• Lingering psychological scars of a recession long past. Robert Gordon, an economics professor at Northwestern University, said his research found that wages and inflation were subject to inertia. That means unemployment could drop well below 5.5% for years before wages go up much.
• Meager growth in productivity, which limits the incentive of companies to offer raises.
What the recovery looks like.
• Levels Of UK Household Debt At Record High (Independent)
Levels of household debt have soared to record highs and a new way of lending aimed at the poor is needed, according to a new released report by the Centre for Social Justice (CSJ). The right wing think tank, founded by Iain Duncan Smith, the work and pensions secretary, warns that household debt has risen by more than £34 billion in less than three years and is £1.47 trillion – the highest ever. Some 8.8 million people are “over-indebted.” And borrowing on credit cards, bank overdrafts, and pay day loans amounts to more than £170 billion – the highest in four years. Fifteen million Britons are going into debt just to cover their bills, says the report – based on research commissioned by JPMorgan Chase Foundation.
It argues that those on low incomes should have financial services and products specifically aimed at their needs. Writing in the preface, Dr Alex Burghart, policy director at the CSJ, says: “Without access to financial services that meet their needs, families are forced to take out expensive loans that they then struggle to pay off.” He argues that while more needs to be done to create jobs and improve pay, “there is also a need for financial services that serve the needs of low-income families.” Dr Burghart adds: “By helping to develop a new marketplace for socially responsible Alternative Financial Institutions (AFIs) we can build a new generation of financial services specifically tailored to meet the needs of low-income families.”
So the foreigners come in just as the facade topples over?!
• There’s a Big Decision Looming for Chinese Stocks (Bloomberg)
A New York-based company is getting ready to make a call on China that will determine whether billions of dollars flow into the nation’s world-beating stock market. The June 9 decision by MSCI Inc. on the possible inclusion of China’s locally traded shares in the index-provider’s equity benchmarks comes after a year of consultation with banks and funds. MSCI is faced with a situation where it’s getting harder to ignore the Chinese equity market, already the world’s second-largest with a total value of more than $9 trillion. Yet for most international investors, mainland-listed stocks remain out of reach due to limitations on their tradability.
Foreigners own only 5.9% of the yuan-denominated A shares because of regulatory restrictions even as the government moves to open up access to the exchanges in Shanghai and Shenzhen. MSCI, whose emerging-market gauge is tracked by $1.7 trillion of funds, could help change that. “It’s a big deal,” Sebastien Lieblich, Global Head of Index Management Research at MSCI, said by phone from Geneva. China’s market is “relatively untapped,” and an inclusion would suggest it be “elevated to be part of the major radar screen of international institutional investors,” he said. Being added to MSCI’s indexes would mark the integration of China’s locally traded stocks into the world’s financial markets after being largely off limits to foreigners until recently.
Patrick Smith and truth to power.
• We Are The Propagandists: US Turns Truth In Ukraine On Its Head (Salon)
A couple of weeks ago, this column guardedly suggested that John Kerry’s day-long talks in Sochi with Vladimir Putin and his foreign minister, Sergei Lavrov, looked like a break in the clouds on numerous questions, primarily the Ukraine crisis. I saw no evidence that President Obama’s secretary of state had suddenly developed a sensible, post-imperium foreign strategy consonant with a new era. It was force of circumstance. It was the 21st century doing its work. This work will get done, cleanly and peaceably or otherwise. Sochi, an unexpected development, suggested the prospect of cleanliness and peace. But events since suggest that otherwise is more likely to prove the case. It is hard to say because it is hard to see, but our policy cliques may be gradually wading into very deep water in Ukraine.
Ever since the 2001 attacks on New York and Washington, reality itself has come to seem up for grabs. Karl Rove, a diabolically competent political infighter but of no discernible intellectual weight, may have been prescient when he told us to forget our pedestrian notions of reality—real live reality. Empires create their own, he said, and we’re an empire now. The Ukraine crisis reminds us that the pathology is not limited to the peculiar dreamers who made policy during the Bush II administration, whose idea of reality was idealist beyond all logic. It is a late-imperial phenomenon that extends across the board. “Unprecedented” is considered a dangerous word in journalism, but it may describe the Obama administration’s furious efforts to manufacture a Ukraine narrative and our media’s incessant reproduction of all its fallacies.
At this point it is only sensible to turn everything that is said or shown in our media upside down and consider it a second time. Who could want to live in a world this much like Orwell’s or Huxley’s—the one obliterating reality by destroying language, the other by making historical reference a transgression? Language and history: As argued several times in this space, these are the weapons we are not supposed to have. Ukraine now gives us two fearsome examples of what I mean by inverted reason. One, it has been raining reports of Russia’s renewed military presence in eastern Ukraine lately. One puts them down and asks, What does Washington have on the story board now, an escalation of American military involvement? A covert op? Let us watch.
And we all pretend this is normal.
• Kiev Allows Foreign Armed Forces, ‘Potential Carriers Of Nukes’ In Ukraine (RT)
The Ukrainian parliament has adopted amendments to state law allowing “admission of the armed forces of other states on the territory of Ukraine.” The possible hosting of foreign weapons of mass destruction is also mentioned in the documents. Amendments to Ukrainian law were adopted on Thursday by the Verkhovna Rada, receiving a majority of 240 votes (the required minimum being 226). The bill was submitted to the parliament in May by PM Arseny Yatsenyuk. It focuses on the provision of “international peacekeeping and security” assistance to Ukraine at its request. Peacekeeping missions are to be deployed “on the basis of decision of the UN and/or the EU,” the bill published on the parliament’s official website says.
Previously, the presence of any international military forces on the territory of Ukraine not specifically sanctioned by state law was only possible by adopting a special law initiated by the president. Implementation of the new amendments “will create necessary conditions for deployment on the territory of Ukraine international peacekeeping and security” missions without the need for additional legal authorization, the explanatory note to the draft bill said. The presence of such armed forces in Ukraine “should ensure an early normalization of situation” in Donbass, the note added, saying that they would help “restore law and order and life, constitutional rights and freedoms of citizens” in the Donetsk and Lugansk regions.
In a comparative table, published among the accompanying documents to the bill, “potential carriers of nuclear and other types of weapons of mass destruction are permitted under international agreement with Ukraine for short-term accommodation,” with Kiev providing proper control during the period that such forces were stationed there.
• US Knowingly Conceals Ceasefire Violations By Kiev (RT)
The US and its Western allies are well aware of all the ceasefire violations in eastern Ukraine but, deliberately turn a blind eye to Kiev’s actions, hackers said after obtaining the emails of top Ukrainian official overseeing the truce. The anti-Kiev hacktivist group, CyberBerkut, claims to have hacked the emails of Major-General Andrey Taran, Chief of the Joint Centre for Ceasefire Control and Coordination in Ukraine. The correspondence contained satellite images proving multiple violations of the Minsk peace agreements between Kiev and the rebels by the Ukrainian military, they said. The pictures, dating March, April and May 2015, showed Kiev’s heavy artillery stationed in the immediate vicinity of the borders of the Donetsk and Lugansk People’s Republics.
Ukrainian 100-millimeter field artillery guns, 122-millimeter D-30 and 2S1 Gvozdika howitzers, 152-millimeter Hyacinth-S howitzers and Grad multiple rocket launchers were placed less than 20 kilometers away from the contact line, CyberBerkut said. According to the Minsk ceasefire agreement signed in February, both sides were to pull-out of all heavy weapons and create a security zone from 50 to 140 kilometers, depending on the range of the guns. The hacktivists stressed that Washington knew of the violations by Kiev as the hacked emails came from a staff member of the US Embassy in Ukraine, Tetyana Podobinska-Shtyk.
“[I am] sending you pictures which can become a serious problem for you! Think about how you can explain them, if the [OSCE] monitoring mission obtains them. Consult the team leader and think about a possible action plan, how you can justify them or present them as fake,” Podobinska-Shtyk wrote in a hacked email.
The end of EU quota slams New Zealand. Which shouldn’t have all those cows to begin with.
• Global Dairy Costs Drop to 5-Year Low on Record Milk Output (Bloomberg)
An abundance of milk from New Zealand to Europe is driving global dairy costs to the lowest in five years. Prices have plunged almost 40% from a record in February 2014 as farmers ramped up production and Chinese demand slowed, according to a United Nations measure of dairy products. Global production of milk, cheese and butter will rise to records this year, according to the U.S. Department of Agriculture. European farmers are increasing output after the government ended production limits in April, while supply from New Zealand, the biggest milk powder exporter, has been better-than-expected during a drought, according to INTL FCStone, a commodities brokerage.
Average prices on New Zealand’s GlobalDairyTrade auction, the global benchmark, fell to $2,412 a metric ton on Tuesday, the lowest since August 2009. “Supply is relatively strong,” John Lancaster, a dairy analyst at FCStone in Dublin, said by phone Thursday. “With the quotas gone, there’s no restriction on farmers.” At the same time, there are signs of weaker demand. China may reduce purchases of whole milk powder this year, while imports of non-fat milk powder will grow at a slower rate than previous years, according to the USDA. China, which uses milk powder in infant formula, has been a driver of global demand in the past. The EU is also exporting less whole milk powder and cheese after Russia banned food imports from the region in retaliation for sanctions related to its policies in Ukraine.
Milk was 20% cheaper in April than a year ago, according to data released last week from the Dutch Federation of Agriculture and Horticulture, known as LTO. The FAO’s gauge of global dairy costs fell to 167.5 points in May, the lowest since October 2009. Milk futures in Chicago have dropped 22% in the past 12 months. Lower prices may pinch farmer profits, leading to less production later this year, Lancaster said. While they’ve benefited from lower feed costs, adverse weather, such as too much or too little rain, would hurt pasture growth and result in less milk production, he said. “If milk prices come down further in Europe, we’d expect to see some kind of a response from production side,” he said. “We could see more culling from herds, depending on how low prices go and potential cash flow issues.”
What a waste it would be if they don’t seize the opportunity to start growing their own food instead.
• Californians Urged To Rip Out Their Lawns (Guardian)
Would you rather give up your lawn or your shower habit? Can you deal with spray-painting your parched garden green? Can you see the beauty in a front yard filled with cacti and rocks? Low-flushing lavatories and recycled wastewater may not be subject matters you would usually associate with a generally more glamorous and decisively sexier California, but as the reality of drought hits urban areas, these are the questions millions of Californians are having to ask. On 1 April, following the announcement of a fourth year of drought, Governor Jerry Brown issued an executive order demanding a 25% reduction of water usage in urban areas statewide beginning 1 June. That meant that from Monday, around 90% of Californians were faced with reducing their water consumption by a quarter compared to 2013 levels.
In high-consumption areas, water companies have been given targets as high as 36%. Customers have been told they must reconsider their entire way of life. But how to achieve such a feat? Rules have been devised by local water boards, ranging from carrots (discounts on high-efficiency lavatories and washing machines) to sticks (fines for watering your lawn more than twice a week, or for watering the pavement). Residents have taken to drought-shaming one another, reporting water wasters to the authorities or on social media. In places like Sacramento, such finger-pointing has been encouraged – to great effect. But above all else, there is pressure to take things one step further and turn to lawns. More precisely, to the ripping out of them.
In his executive order, Brown called for the replacement of 50m sq ft of lawns with “drought-tolerant landscapes”, a goal to be achieved with the help of local subsidies and partial funding from the state’s water department. “Over 50% of household water usage is outdoors,” said Stephanie Pincetl, a professor and director of the California Center for Sustainable Communities at University of California, Los Angeles.
Nice Monbiot-supported plan, but what difference will it make?
• The Rewilding Plan That Would Return Britain To Nature (BBC)
Britain once looked very different. In place of sheep-strewn fields and treeless uplands, there were vast natural forests, glades and wild spaces. Within them, wolves, bears and lynx roamed the land. The first Britons lived alongside woolly mammoths, great auks and wild cows called aurochs. All that is now gone. Humans chopped down the trees to make space for farms, and hunted the large animals to extinction, leaving plant-eaters to decimate the country’s flora. Britain is now one of the few countries in the world that doesn’t have top predators. No matter how much we may think England’s green and pleasant countryside is “natural”, it is a pale shadow of what once was – and what could be again. If some conservationists have their way, parts of the UK could be restored to a truly wild state.
This “rewilding” would bring back animals and plants that have been lost, and allow them to roam freely. In these new wild spaces, people could reconnect with animals and plants in a way no park or zoo could ever manage. But it’s also a hugely controversial idea. There are various interpretations of rewilding. The word was coined in 1990 by an American environmentalist named Dave Foreman, who went on to found the Rewilding Institute. Then in 1998, Michael Soulé and Reed Noss set out the core ideas in an article for Wild Earth magazine. The key to rewilding is creating large protected areas in which animals and plants are left to their own devices. The new wildernesses have to be large to support top predators like wolves, which need space and lots of prey.
The top predators are crucial, because they keep down the populations of their prey. These are normally plant-eating animals like deer, which would otherwise run riot and decimate trees and other plant life – and in turn destroy the habitats for many other animals. By keeping plant-eaters in check, top predators allow many more species to flourish. These ripple effects are called “trophic cascades”. Soulé and Noss argued that ecosystems cannot function as they should without top predators or carnivores.
It’ll take horrible disasters for Brussels to act.
• Number of Migrants Trying to Reach Europe via Greece Has Surged by 500% (Vice)
The number of migrants and refugees crossing the Aegean Sea from Turkey to Greece has increased by 500% since last year, according to European border control agency Frontex. In comparison, the number of migrants attempting the perilous journey across of the Mediterranean to Italy has gone up just 5%, Frontex executive director Fabrice Leggeri said Wednesday. “When you close off a migration route, another one opens up elsewhere,” Thibaut Jaulin, a research fellow at the Center for International Studies and Research (CERI) at Sciences Po in Paris, told VICE News. European authorities have beefed up surveillance along the Libya-Italy migrant route in an effort to prevent the recurring tragedies in the Mediterranean.
In April, naval border monitoring operation Triton saw its budget tripled from €3 million to €9 million a month. The European Council is also considering launching a military operation in Libyan waters to destroy boats used by Libyan people smugglers. The EU is due to vote on the issue on June 22. The move will also need to be approved by Libya or by the UN Security Council. According to Frontex, the “Eastern Mediterranean Route” – described as “the passage used by migrants crossing through Turkey to the European Union via Greece, southern Bulgaria or Cyprus” – is not a new path for migrants. Since 2008, the route has become the second biggest “migratory hot spot” in the EU, and it was Europe’s “second largest area for detections of illegal border-crossings” in 2014.
Leggeri told French daily Les Échos on Wednesday that some 37,000 migrants had arrived on Europe’s shores through Italy since the beginning of 2015, versus 40,000 through Greece.
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