accountability Archives - The Automatic Earth

If It’s A Boeing I’m Not Going

Oct 302019

October 30, 2019 Posted by Raúl Ilargi Meijer at 1:52 pm Finance Tagged with: accountability, Airbus, Boeing, buybacks, hearing, Muilenburg, Senate, whistleblower 13 Responses »

Rembrandt van Rijn Portrait of Rembrandt with gorget 1629

During the Senate hearing into Boeing on October 29, Senator Jon Tester told the company’s CEO Dennis Muilenburg: “I would walk before I would get on a 737 MAX. I would walk.” He added: “There is no way … You shouldn’t be cutting corners and I see corners being cut.”

That’s all fine and well, but the hearing, which continues today, Wednesday, lays bare a giant gap in US law: that of accountability. Muilenburg is the “ultimately responsible” in a chain of command that is responsible for killing 346 people. But he is still the CEO, even if he was demoted from the chairman of the board position. Which was taken over by another -10 year- veteran of the company by the way. Fresh insights galore.

If you are employed by a large company, you can sign off on such decisions, the ones that kill people, and walk away unscathed. It reminds one of Monsanto/Bayer, which just annnounced that the number of Roundup lawsuits against it went from 18,000 in July to 43,000 today. Bayer at the same time announced that its turnover rose by 6% in Q3. 43,000 lawsuits and they’re doing fine, thank you.

In that same vein, Boeing shares rose 2.4% last night after the hearing (“a sign investors were relieved.”) What the “investors” buying those shares may have missed is that India’s budget carrier IndiGo ordered 300 new aircraft from Airbus, at an initial cost of $33 billion -which will be subject to a juicy discount, but still-.

Now, Boeing is America’s biggest exporter. It’s also one of the cornerstones of Pentagon policy, a huge provider for the US military. So one can only expect the Senate to be lenient, to appear to be tough but let things more or less go. Still, the fact remains that Muilenburg et al made cost-cutting and other decisions that killed 346 people. But CNCB still labeled this a “brutal Senate hearing”. Yeah. Define ‘brutal’.

Maybe the thing is that those deaths were not in the US, but in Indonesia and Ethiopia. Think maybe the Senate is influenced by that? What do you think would have happened if two 737 MAX’s had fallen out of the sky in the US, even if only in deplorables’ territory? We can sort of imagine, can’t we?

And no, it’s not an all black and white picture, some people involved made some sense (via Seattle Times):

Boeing 737 MAX Should Be Grounded Until Certification Process Is ‘Reformed’ – Senator

..at least one member of the Senate committee that grilled Muilenburg on Tuesday suggested the troubled aircraft shouldn’t be flying again until a much-maligned Federal Aviation Administration (FAA) oversight program retreats from its practice of delegating authority to Boeing and other aerospace manufacturers.

Sen. Richard Blumenthal — citing revelations in recent news reports of a Boeing engineer’s claims that the MAX’s safety was compromised by cost and schedule considerations, and that the company pushed to undercut regulatory oversight — pushed back against findings that the FAA’s practice of delegating more safety certification authority is only likely to increase.

“The story of Boeing sabotaging rigorous safety scrutiny is chilling to all of us — and more reason to keep the 737 MAX grounded until certification is really and truly independent and the system is reformed,” said Blumenthal, D-Conn.

But, you know, the entire narrative is about ‘the company’, not about the people in the company who make these fatal decisions. They can do whatever they want, secure in the knowledge they will never be held to account. For financial losses perhaps at some point, but not for the loss of life. At best, they’ll get fired and walk away with a huge bonus. And that’s just wrong.

And it’s not like there were no warning signs (via Seattle Times again, from Oct 3):

Boeing Rejected 737 MAX Safety Upgrades Before Fatal Crashes – Whistleblower

Seven weeks after the second fatal crash of a 737 MAX in March, a Boeing engineer submitted a scathing internal ethics complaint alleging that management — determined to keep down costs for airline customers — had blocked significant safety improvements during the jet’s development. The ethics charge, filed by 33-year-old engineer Curtis Ewbank, whose job involved studying past crashes and using that information to make new planes safer, describes how around 2014 his group presented to managers and senior executives a proposal to add various safety upgrades to the MAX.

The complaint, a copy of which was reviewed by The Seattle Times, suggests that one of the proposed systems could have potentially prevented the crashes in Indonesia and Ethiopia that killed 346 people. Three of Ewbank’s former colleagues interviewed for this story concurred. The details revealed in the ethics complaint raise new questions about the culture at Boeing and whether the long-held imperative that safety must be the overarching priority was compromised on the MAX by business considerations and management’s focus on schedule and cost. Managers twice rejected adding the new system on the basis of “cost and potential (pilot) training impact,” the complaint states.

This one is from AP, Oct 18. These are just the most recent revelations, this stuff goes back years. Neither Boeing nor the FAA ever did anything, until the planes started falling from the skies:

Messages From Former Boeing Test Pilot Reveal 737MAX Concerns

A former senior Boeing test pilot told a co-worker that he unknowingly misled safety regulators about problems with a flight-control system that would later be implicated in two deadly crashes of the company’s 737 Max. The pilot, Mark Forkner, told another Boeing employee in 2016 that the flight system, called MCAS, was “egregious” and “running rampant” while he tested it in a flight simulator.

“So I basically lied to the regulators (unknowingly),” wrote Forkner, then Boeing’s chief technical pilot for the 737. The exchange occurred as Boeing was trying to convince the Federal Aviation Administration that MCAS was safe. MCAS was designed at least in part to prevent the Max from stalling in some situations. The FAA certified the plane without fully understanding MCAS, according to a panel of international safety regulators.

Forkner also lobbied FAA to remove mention of MCAS from the operating manual and pilot training for the Max, saying the system would only operate in rare circumstances. FAA allowed Boeing to do so, and most pilots did not know about MCAS until after the first crash, which occurred in October 2018 in Indonesia.

As I covered extensively before the issue at hand is that Boeing, in order to cut costs, among other things, decided to have just one -active- “angle-of-attack” sensor (which measures the angle of the plane vs income air, it’s located at the bottom front of the fuselage) on the plane. All it takes is one bird flying into it to compromise and/or deactivate that sensor. And then neither the software not the pilots know what to do anymore. But yeah, it’s cheaper… One sensor won’t do, nor will two, you need at least three in case one is defective. But yeah, that costs money. Seattle Times once again:

Messages From Former Boeing Test Pilot Reveal 737MAX Concerns

Boeing’s chief engineer for commercial airlines acknowledged that the company erred by not specifically testing the potential for a key sensor to erroneously cause software on the 737 Max to drive down the plane’s nose. In both fatal crashes, faulty data from one of two angle-of-attack sensors, which measure the pitch of the plane against the oncoming stream of air, caused the 737 Max’s Maneuvering Characteristics Augmentation System, or MCAS, to drive down the jet’s nose, which pilots struggled to counteract before ultimately entering a fatal dive.

John Hamilton, vice president and chief engineer of Boeing Commercial Airplanes, told senators that the company “did test the MCAS uncommanded inputs to the stabilizer system, due to whatever causes was driving it, not specifically due to an AOA sensor.’’ Senator Maria Cantwell of Washington, the Senate Commerce Committee’s top Democrat, asked if he now thought that was wrong. “In hindsight, senator, yes,’’ Hamilton replied.

They didn’t test the hardware at all, they tested the software! And all they have to say is that that was wrong. But only in hindsight! And then they tried to fix the mess they created with a new software program, MCAS, but didn’t even tell the pilots it existed. I kid you not! They did this because it might have required pilots to do more training, which raises the price of a plane, and they were already losing out to Airbus.

And lest we forget, this all happened because when Boeing was busy spending its capital on buying back its own shares, Airbus had developed a new plane to accommodate a much more energy-efficient -though larger- engine. When Boeing figured that out, they had neither the time nor the money left (because of the share buybacks) to develop their own new plane.

So what they did was they stuck such an engine (which they did have) onto a 737 model that was not equipped for the much bigger and heavier load. That in turn lead them to work on a software solution to lift the nose of the plane despite that load, which might have worked in theory but was always a bad idea, something in the vein of putting a giraffe’s neck on a hummingbird.

But Muilenburg and his people kept pushing it all, because they knew they had been caught awfully wanting, and they needed that more cost-efficient plane. And this is how all the ensuing mess started. It was all because of money. Of the execs being caught with their pants down, and trying to hide their naked hairy asses.

And then, as I started out this essay, they are still not held accountable. The company will face billions in ‘repair’ damages, some of them may lose their jobs or bonuses, but none will be held responsible for the deaths of those 346 people.

That is just not right. Not in the case of Monsanto, and not in that of Boeing. Not all Boeing planes are disasters, but the 737 definitely is. Donald Trump a few months ago suggested they should just rebrand the plane, give it another name, do some expensive PR work and bob’s your uncle. But let me ask you, would you fly on a 737, even if under another name? Far as I know, all they did was change the software, not the hardware.

Plus, the other day some airline, was that in South Korea?!, grounded a whole bunch of 787’s because of cracks on their wings. Look, I’m not saying Boeing’s in trouble. I’m just saying Boeing’s in deep trouble. But then, you know, they’ll kick out Muilenburg and some other guys, and a few FAA heads will retire, and they’ll declare the rotten apples gone, and we’re off to a whole new start. Yay! But the 346 people will still be dead.

Debt Rattle September 18 2019

Sep 182019

September 18, 2019 Posted by Raúl Ilargi Meijer at 9:40 am Finance Tagged with: accountability, Boeing, derivatives, Facebook, FDIC, Fed, Kavanaugh, oil, repo, Saudi, Snowden 10 Responses »

Henri Matisse Antibes 1908

• Fed Concludes First Repo In A Decade Amid Liquidity Panic (ZH)

• Big Banks Score Win As FDIC Proposes Easing Post-Crisis Derivatives Rules (R.)

• Oil Steadies After Saudi Pledges To Restore Output Lost In Attacks (R.)

• Without Accountability, There Can Never Be Trust in Our Government (Cates)

• House Panel Asks Boeing CEO To Testify October 30 on 737 MAX (R.)

• Ethiopian Crash Victims Want 737 MAX Documents From Boeing, FAA (R.)

• Editorial Mistake My Ass (Mish)

• Democrats Urge New Probe Of Kavanaugh, Impeachment Inquiry (R.)

• Trudeau Reassures Allies Amid Alleged Spying Case (BBC)

• Catastrophic Effects Of Working As A Facebook Moderator (G.)

• US Government Is Suing Edward Snowden For His Book Profits (Verge)

Oh yeah, let’s save the bankers again….

• Fed Concludes First Repo In A Decade Amid Liquidity Panic (ZH)

Update 4: It’s over: after a torrid 30 minutes in which the NY Fed first announced a repo operation, then announced the repo was canceled due to technical difficulties, then mysterious the difficulties went away just minutes later, at precisely 10:10am, the Fed concluded its first repo operation in a decade, which while not topping out at the $75 billion max, was nonetheless a significant $53.15 billion, split as follows: • $40.85BN with TSYs as collateral at a 2.1% stop out rate • $0.6BN with Agencies as collateral at a 3.0% stop out rate • $11.7BN with Mortgage-backed securities as collateral at a 2.1% stop out rate. While the Fed did not disclose how many banks participated in the operation, it is safe to say it was a sizable number.

Worse, the result from today’s unexpected repo operation, we can now conclude that in addition to $1.3 trillion in ‘excess reserves’, a Fed which is now cutting rates and will cut rates by 25bps tomorrow, the US financial system somehow found itself with a liquidity shortfall of $53 billion that almost paralyzed the interbank funding market. Oh, and for those wondering why the Fed did a repo, the answer is simple: it did not want to launch QE just yet. But make no mistake, once repo is insufficient, the Fed will have no choice but to escalate to the next step which is open market purchases. Which brings us to the bigger question of how long such overnight repos will satisfy the market, and how long before the next repo rate spike prompts the Fed to do the inevitable, and restart QE. At least president Trump will be delighted.

And while we’re saving their multi-million bonuses, let’s throw them some more bones,..

• Big Banks Score Win As FDIC Proposes Easing Post-Crisis Derivatives Rules (R.)

A U.S. banking regulator on Tuesday proposed easing a rule requiring banks to set aside cash to safeguard derivatives trades between affiliates, marking one of the biggest wins for Wall Street lenders under the business-friendly Trump administration. The proposal, by the Federal Deposit Insurance Corporation, could potentially free $40 billion across the nation’s largest banks, according to a 2018 survey by the International Swaps and Derivatives Association (ISDA), the global trade group that has been lobbying for the rule change for years.

The proposal is subject to public comment and will likely face resistance from Democratic lawmakers and consumer groups, who have warned that chipping away at regulations put in place following the 2007-2009 financial crisis could sew the seeds of the next one. Countries across the globe introduced a slew of rules to rein in the global over-the-counter derivatives market after big bets on credit swaps brought firms including Lehman Brothers and AIG to their knees.

Was there any damage at all? Didn’t I read that they hit a bunch of empty tanks?

• Oil Steadies After Saudi Pledges To Restore Output Lost In Attacks (R.)

Oil prices were little changed on Wednesday, steadying after Saudi Arabia said it will restore by the end of the month production lost in weekend attacks on its facilities. Prices plummeted 6% on Tuesday after Saudi Arabia’s energy minister said the country had managed to restore oil supplies to customers to where they stood before the attacks on its facilities that shut 5% of global oil output by drawing from its huge inventories. But tension in the region remained elevated after the United States said it believed the attacks on the world’s top oil exporter originated in southwestern Iran. Iran has denied involvement in the strikes.

Brent crude oil futures were flat at $64.55 a barrel by 0732 GMT. U.S. West Texas Intermediate (WTI) crude CLc1 futures were down 15 cents, or 0.1%, to $59.19 a barrel, after sinking 5.7% on Tuesday. “Considering limited spare (production) capacity outside Saudi Arabia and risks of renewed attacks on Saudi energy infrastructure, a risk premium is likely to stay on oil prices in the foreseeable future,” UBS analysts said in a note. Energy Minister Prince Abdulaziz bin Salman said on Tuesday that average oil production in September and October would be 9.89 million barrels per day and that the world’s top oil exporter would ensure full oil supply commitments to its customers this month.

Not sure Bill Barr is your man.

• Without Accountability, There Can Never Be Trust in Our Government (Cates)

The Watergate scandal, at its heart, was about political operatives working on behalf of the Nixon administration (informally known as “The Plumbers”) attempting to plant bugs in the phones of the Democratic National Committee (DNC) headquarters at the Watergate Hotel, so they could spy on key Democratic campaign communications. A little-remembered fact is that bugs had been successfully planted earlier; the burglars were returning to plant a new set in the phones because the first set never worked properly. It was during this second foray into DNC headquarters in the middle of the night that they were caught by an observant security guard.

So the Watergate scandal was based on an attempt to spy on political opponents, but no evidence ever surfaced that any successful spying was actually done. The first set of listening devices never functioned, and the operatives were caught while trying to replace them. That won’t be the case in the Spygate scandal, because this wasn’t an off-the-books dirty tricks group like The Plumbers running an operation against the Trump campaign. This was the federal government itself, making use of the official engines of its intelligence and law enforcement agencies and surveillance courts to spy on a political campaign and, then, a presidency. And it’s because this scandal is so much worse than Watergate that the persons responsible for it must be held accountable for their actions.

[..] The crimes here amount to a deliberate attempt to subvert the federal intelligence and law enforcement agencies and turn them into political engines of partisan policy to shield political friends and destroy political enemies. After covering up serious crimes committed by their political friends, these key government officials used their offices to manufacture crimes to use as a pretext to investigate and punish their political enemies. Unless this behavior is punished with the utmost severity, no one will ever be able to place trust in the federal government. The ball of accountability will soon end up in the court of U.S. Attorney General William Barr.

I for one have little faith in Congress in this case. Not that I have much faith in Congress in general.

• House Panel Asks Boeing CEO To Testify October 30 on 737 MAX (R.)

The U.S. House Transportation and Infrastructure Committee formally asked Boeing CEO Dennis Muilenburg on Tuesday to testify on the now grounded 737 MAX that has been involved in two deadly crashes since October 2018 that killed 346 people. The panel’s chair, Representative Peter DeFazio, also asked John Hamilton, the chief engineer of Boeing’s Commercial Airplanes division, to appear. Both executives have been asked to testify on Oct. 30. Last week, DeFazio asked Muilenburg to make several employees available for interviews as part of a congressional probe into the design, development and certification of 737 MAX aircraft. “Boeing has received the Committee’s invitation and is reviewing it now. We will continue to cooperate with Congress and regulatory authorities as we focus on safely returning the MAX to service,” a Boeing representative said in a statement.

But will they get them? Boeing will just claim they would reveal company secrets.

• Ethiopian Crash Victims Want 737 MAX Documents From Boeing, FAA (R.)

A lawyer for victims of Ethiopian Airlines Flight 302 said on Tuesday he wants Boeing Co and the U.S. Federal Aviation Administration to hand over documents about the decision to keep the Boeing 737 MAX in the air after a deadly Lion Air crash last October. A week after Lion Air Flight 610 nose-dived into the Java Sea, killing all 189 aboard, the FAA warned airlines that erroneous inputs from an automated flight control system’s sensors could lead the jet to automatically pitch its nose down, but the agency allowed the jets to continue flying. Five months later, the same system was blamed for playing a role when ET302 crashed on March 10, killing all 157 passengers and crew and prompting a worldwide grounding of the 737 MAX that remains in place.

“The decisions to keep those planes in service are key,” Robert Clifford of Clifford Law Offices, which represents families of the Ethiopian crash victims, said at a status hearing before U.S. Judge Jorge Alonso in Chicago. Nearly 100 lawsuits have been filed against Boeing by at least a dozen law firms representing families of the Ethiopian Airlines crash victims, who came from 35 different countries, including nine U.S. citizens and 19 Canadians. Families of about 60 victims have yet to file lawsuits but plaintiffs’ lawyers said they anticipate more to come. Most of the lawsuits do not make a specific dollar claim, though Ribbeck Law Chartered has said its clients are seeking more than $1 billion.

The entire Kavanaugh thing is empty, just two women trying to sell a book. Trump said he should sue them. But as a Supreme Court judge, perhaps he shouldn’t.

• Editorial Mistake My Ass (Mish)

As details emerge in the New York Times Kavanaugh scandal, it’s very clear the NYT repeatedly made serious errors On September 14, the New York Times resurrected unsubstantiated and graphic rumors about Supreme Court Justice Brett Kavanaugh in a purposeful smear article Brett Kavanaugh Fit In With the Privileged Kids. She Did Not. The article was by disgraced NYT authors Robin Pogrebin and Kate Kelly to promote their upcoming book “The Education of Brett Kavanaugh: An Investigation.” I do not normally report on sleaze but to understand what the NYT did, I have to. Here is one controversial paragraph: “We also uncovered a previously unreported story about Mr. Kavanaugh in his freshman year that echoes Ms. Ramirez’s allegation. A classmate, Max Stier, saw Mr. Kavanaugh with his pants down at a different drunken dorm party, where friends pushed his penis into the hand of a female student.”

The NYT later added this correction. “The book reports that the female student declined to be interviewed and friends say that she does not recall the incident. That information has been added to the article.” Making matters worse for itself, the NYT came out and blamed it all on an “editing error”. Reporters Robin Pogrebin and Kate Kelly said in an interview on MSNBC that they wrote in the draft of their Sunday Review piece that a woman who Kavanaugh was said to have exposed himself to while a student at Yale had told others she had no recollection of the alleged incident. Their editors, they say, removed the reference. “It was just sort of. . . in the haste of the editing process,” said Pogrebin.

But this is where the non-story leads to. Kamala seeks a way to reinvent her campaign, the rest just follows.

• Democrats Urge New Probe Of Kavanaugh, Impeachment Inquiry (R.)

U.S. Senator Kamala Harris on Tuesday urged a House of Representatives panel to investigate Supreme Court Justice Brett Kavanaugh, while a Democratic lawmaker filed an impeachment resolution in the wake of new allegations of sexual misconduct by the conservative judge when he was in college in the 1980s. The moves by Harris, one of 20 Democratic presidential candidates, and Representative Ayanna Pressley, a progressive on the left of the party, signaled impatience among some Democrats with congressional leaders unenthusiastic about pursuing Kavanaugh’s impeachment, though their efforts appeared unlikely to spur action.

Harris said in a letter to House Judiciary Committee Chairman Jerrold Nadler that the panel should “hold Mr. Kavanaugh accountable for his prior conduct and testimony.” Nadler on Monday faulted the FBI’s probe of prior sexual misconduct allegations against Kavanaugh ahead of his narrow confirmation by the Senate in October 2018, saying in a radio interview it “apparently was a sham.” But Nadler also said his panel had its “hands full” with investigating Republican President Donald Trump. In her letter to Nadler, Harris suggested the House Judiciary Committee could create a task force and retain outside counsel if it did not have the time or resources to pursue an inquiry of Kavanaugh now.

Harris and several other Democratic presidential candidates called for Kavanaugh’s impeachment after the New York Times published an essay over the weekend detailing what it described as a previously unreported incident of sexual misconduct by Kavanaugh. Others include former U.S. Housing and Urban Development Secretary Julian Castro; U.S. Senators Elizabeth Warren and Cory Booker; South Bend, Indiana Mayor Pete Buttigieg; and former U.S. Representative Beto O’Rourke.

Only a Five Eyes spy chief. And whaddaya know, there’s Bill Browder again. See from yesteday: The Magnitskiy Myth Exploded.

• Trudeau Reassures Allies Amid Alleged Spying Case (BBC)

Canadian Prime Minister Justin Trudeau has moved to reassure allies in the wake of an alleged spying case with possible international implications. A senior intelligence official was charged last week with violating national security laws. Cameron Ortis had access to information coming from Canada’s global allies, the RCMP national police force said. Canada is in close contact with its intelligence partners over the case, Mr Trudeau says. “We are in direct communications with our allies on security,” the prime minister said while campaigning in Newfoundland on Tuesday. “We are also working with them to reassure them, but we want to ensure that everyone understands that we are taking this situation very seriously.” Canada is a member of the Five Eyes – the intelligence alliance that also includes the US, UK, Australia and New Zealand.

Mr Ortis, who was a director general with the police force’s intelligence unit, is accused of breaching the Security of Information Act and the Criminal Code. The charges filed against him include the “unauthorised communication of special operational information”, possessing a device or software “useful for concealing the content of information or for surreptitiously communicating, obtaining or retaining information”, and breach of trust by a public officer. [..] Mr Ortis was looking into allegations that Russian tax fraudsters had laundered millions of dollars through Canada, a US financier told Reuters. Bill Browder, a high-profile critic of Russian President Vladimir Putin, said he had met Mr Ortis twice in Canada in 2017 after alerting the RCMP to the matter.

What exactly would you say is Facebook’s role in our society? How about in your life?

• Catastrophic Effects Of Working As A Facebook Moderator (G.)

They describe being ground down by the volume of the work, numbed by the graphic violence, nudity and bullying they have to view for eight hours a day, working nights and weekends, for “practically minimum pay”. A little-discussed aspect of Facebook’s moderation was particularly distressing to the contractors: vetting private conversations between adults and minors that have been flagged by algorithms as likely sexual exploitation. Such private chats, of which “90% are sexual”, were “violating and creepy”, one moderator said. “You understand something more about this sort of dystopic society we are building every day,” he added. “We have rich white men from Europe, from the US, writing to children from the Philippines … they try to get sexual photos in exchange for $10 or $20.”

Gina, a contractor, said: “I think it’s a breach of human rights. You cannot ask someone to work fast, to work well and to see graphic content. The things that we saw are just not right.” The workers, whose names have been changed, were speaking on condition of anonymity because they had signed non-disclosure agreements with Facebook. Daniel, a former moderator, said: “We are a sort of vanguard in this field … It’s a completely new job, and everything about it is basically an experiment.” John, his former colleague, said: “I’m here today because I would like to avoid other people falling into this hole. As a contemporary society, we are running into this new thing – the internet – and we have to find some rules to deal with it.

Pay him in Bitcoin.

• US Government Is Suing Edward Snowden For His Book Profits (Verge)

The Justice Department has filed a civil lawsuit against Edward Snowden that would recover all proceeds of his recently released memoir, the department announced on Tuesday. The charges coincide with the official publication of the book, which is titled Permanent Record. Snowden’s memoir was allegedly not submitted to the CIA or NSA for pre-publication review, a required practice among former employees of intelligence agencies. As such, the department considers the book a breach of Snowden’s fiduciary obligations, and names the publishers as co-defendants in the suit.

Given the still-classified programs and materials discussed in the memoir, it is unlikely that the book would have been approved for publication by the agencies. Snowden remains a de facto fugitive from the US government, and would likely face charges under the Espionage Act if he returned to the country. But the new civil case could nonetheless cause problems for Snowden, potentially enjoining his publishers from releasing any of the proceeds from the book. Crucially, the suit does not seek to block the release of Snowden’s memoir, as doing so would be illegal under the First Amendment.

From Notes on the Next War, 1935

Why Should The IMF Care About Its Credibility?

Aug 012016

August 1, 2016 Posted by Raúl Ilargi Meijer at 5:38 pm Finance Tagged with: accountability, credibility, EU, Greece, IEO, IMF, Lagarde, relevance, SDR, Varoufakis 3 Responses »

Dorothea Lange Migratory agricultural worker family fixing tire along California highway US 99 1937

The IMF’s Independent Evaluation Office (IEO) issued a report a few days ago entitled ‘The IMF and the Crises in Greece, Ireland, and Portugal’. It is so damning for managing director Christine Lagarde and her closest associates, that it’s hard to see, certainly at first blush, how they could all keep their jobs. But don’t be surprised if that is exactly what will happen.

Because organizations like the IMF don’t care much, if at all, about accountability. Their leaders think they are close to untouchable, at least as long as they have the ‘blessing’ of those whose interests they serve. Which in case of the IMF means the world’s major banks and the governments of the richest nations (who also serve the same banks’ interests). And if these don’t like the course set out, a scandal with a chambermaid is easily staged.

But the IEO doesn’t answer to Lagarde, it answers to the IMF’s board of executive directors. Still, despite multiple reports over the past few years out of the ‘inner layers’ of the Fund that were critical of, and showed far more comprehension of events than, Lagarde et al, the board never criticizes the former France finance minister in public. And maybe that should change; if the IMF is to hold on to the last shreds of its credibility, that is. But that brings us back to “Organizations like the IMF don’t care much, if at all, about accountability.”

What the IEO report makes very clear is that the IMF should never have agreed, as part of the Troika, to assist the EU in forcing austerity upon Greece without insisting on significant debt relief, in the shape of a haircut, or (a) debt writedown(s). The IMF’s long established policy is that both MUST happen together. But its Troika companion, the EU, is bound by the Lisbon Treaty, which stipulates: “The Union shall not be liable for or assume the commitments of central governments”. Also, the ECB can not “finance member states”.

If Lagarde and her minions had stayed true to their own ‘principles’, they should have refused to impose austerity on Greece if and when the EU refused debt relief (note: this has been playing out since at least 2010). They did not, however.

The IMF caved in (how willingly is hard to gauge), and the entire Troika agreed to waterboard Greece. The official excuse for bending the IMF’s own rules was the risk of ‘contagion’. But in a surefire sign that Lagarde et al were not acting with, let’s say, a “clear conscience”, they hid this decision from their own executive board.

Moreover, the IEO now says it was unable to obtain key records or assess the activities of secretive “ad-hoc task forces”. “Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located; [the IEO] has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff..”

One must wonder why the IMF has an executive board at all. Is it only to provide a facade of credibility and international coherence? When it becomes so clear, and -no less- through a report issued by one of its own offices, that its ‘boots on the ground’ care neither for its established policies nor for its board, isn’t it time for the board to interfere lest the Fund loses even more credibility?

The IMF’s main problem, which many insiders may ironically see as its main asset, is the lack of transparency, combined with the overwhelming power exerted by the US and Europe. And Europe’s grip on the IMF is exactly what the report is about, in that it accuses Lagarde et al of bowing to EU pressure, to the extent that it abandons its own guiding ‘laws’. It acted like it was the European Monetary Fund, not the international one.

So there’s no transparency, no accountability, and in the end that will lead to no credibility and no relevance. Well, that’s exactly how the EU lost Britain. And that shows where accountability and credibility are important even for non-democratic supra-national institutions, something these institutions are prone to neglect.

No, there will not be a vote put to the people, no referendum on the IMF. Though that would sure be interesting. What can happen, though, is that countries, even large ones like China and Russia, threaten to leave, perhaps start their own alternative fund. These things have already been widely discussed.

What is sure is that the US/Europe-centered character of the Fund will have to change. If Washington and Brussels try to appoint another European as managing director (an unwritten law thus far) they will face a rebellion.

That next appointment may come sooner than we think. Because Christine Lagarde is in trouble. It’s even a bit strange, and that’s putting it gently, that she’s still in her job. What’s hanging over her head is a 2008 case, in which she approved a payment of €403 million to businessman Bernard Tapie, for ‘losses’ he was to have suffered in 1993 when French bank Crédit Lyonnais supposedly undervalued his stake in Adidas.

Lagarde is accused of negligence in the case, in particular because she ignored advice from her own ministry (yeah, that does smack like the IMF thing) and let the Tapie case go to a special arbitration committee instead of the courts. That Tapie was a supporter of the Sarkozy government Lagarde served as finance minister at the time makes it juicier.

So does this: In 1993 Crédit Lyonnais was a private bank. But in 2008, it had been wound up and was run by a state-operated consortium. Therefore, the €403 million ‘awarded’ to Tapie out-of-court was all taxpayers money. Even juicier: in December 2015, a French appeal court overruled the compensation and ordered Tapie to repay the money, with interest.

What’s peculiar about Lagarde staying on at the IMF is that she is not merely under investigation or even ‘only’ accused of committing a crime. Instead, she has been ordered to stand trial, something she’s spent 8 years trying to avoid. Still, apparently nobody sees any problem in her continuing to act as Managing Director of the IMF.

That is quite something. And it directly affects the Fund’s credibility. If a president or prime minister of a country, any country, had been ordered to stand trial, the likely procedure would be to temporarily stand down and let someone else take care of government business pending the trial.

As it stands, however, Lagarde is allowed to sit pretty. And then? Borrowing from the Guardian: “A charge of negligence in the use of public money carries a one-year jail sentence and a €15,000 fine. The CJR is made up of six members of the French Assemblée Nationale, six members of the upper house, the Senate and three magistrates. No date has been set for the hearing.”

Ironically, negligence turns out to be a very light charge. Someone in Lagarde’s position could have given away or squandered trillions of euros and then be fined €15,000. But then, class justice is alive and well in France. What are the odds that she will be convicted? She’d have to be found with a chambermaid in Manhattan for that to happen…

That’s perhaps what the IMF board are thinking too. Whether that’s wise remains to be seen. Hubris rules all these institutions, sheltered as they are from the real world. But the real world is changing.

Ironically, many people think these changes will reinforce the IMF. Since the Fund can issue a sort of ‘super money’ in the shape/guise of Special Drawing Rights (SDRs), and especially China would seem to like SDRs becoming the world’s reserve currency instead of the US dollar, the IMF in some people’s eyes holds a trump card.

There may well be an effort to hide private and public debt throughout the planet even more than it is hidden now, through SDRs. We’ll likely see governments and perhaps large corporations issue bonds denominated in SDRs. China seems to think that this could potentially halt much of its capital flight.

My trouble with this is that it’s either too unclear or too clear who would profit most from such schemes. Even if the next managing director of the IMF is not European, but Asian or African, the puppet masters of the Fund will still be the same western financial ‘cabal’. And I don’t see China or Russia signing up to that kind of control, and willingly expand it by making SDRs far more important.

Then again, there’s a sh*tload of debt that needs to be hidden, and the whole world is running out of carpet to sweep it under. Then again, Russia is not that indebted. It’ll be hard to get a consensus.

But all that won’t help Greece. Let’s get back to that. We left off where Lagarde conspired with the EU, under the guise of preventing contagion, to abandon the IMF’s own rules in order to waterboard the country. Of course, we know, though nobody writing on the IEO report mentions it, that the contagion they were trying to prevent was not so much between nations but between banks.

The bailout-related policies and actions that Lagarde hid from her own board (!) were designed to make French and German banks ‘whole’ at the cost of the Greek people. It became austerity, so severe as to make no sense whatsoever -certainly inside an alleged ‘Union’-, even if the IMF -not the world most charitable institution- has always banned this without being accompanied by strong debt relief.

Schäuble and Dijsselbloem saved Germany and Holland at the expense of Greece. This will end up being the undoing of the EU, even if nobody’s willing to acknowledge it despite the glaring evidence of the Brexit.

It will probably be the undoing of the IMF as well. And there I get back to what I’ve said 1000 times: centralization can only work in times of growth. There is no conceivable reason, other than dictatorship, why people would want to be part of a centralizing movement unless they get richer from it.

In today’s shrinking global economy, we have passed a point of no return in this regard. Everyone will want out of these institutions, and get back to making their own decisions about their own lives, instead of having these decisions being taken by some far away board with no accountability.

Let’s end with a few quotes about the IEO report. Ambrose Evans-Pritchard was in fine form:

IMF Admits Disastrous Love Affair With The Euro and Apologises For The Immolation Of Greece

The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory.

[..] In Greece, the IMF violated its own cardinal rule by signing off on a bailout in 2010 even though it could offer no assurance that the package would bring the country’s debts under control or clear the way for recovery, and many suspected from the start that it was doomed. The organisation got around this by slipping through a radical change in IMF rescue policy, allowing an exemption (since abolished) if there was a risk of systemic contagion. “The board was not consulted or informed,” it said. The directors discovered the bombshell “tucked into the text” of the Greek package, but by then it was a fait accompli.

[..] The injustice is that the cost of the bailouts was switched to ordinary Greek citizens – the least able to support the burden – and it was never acknowledged that the true motive of EU-IMF Troika policy was to protect monetary union. Indeed, the Greeks were repeatedly blamed for failures that stemmed from the policy itself. This unfairness – the root of so much bitterness in Greece – is finally recognised in the report. “If preventing international contagion was an essential concern, the cost of its prevention should have been borne – at least in part – by the international community as the prime beneficiary,” it said.

That would seem to leave the IMF just one option: to apologize profoundly to Greece, to demand from the EU that all unjust measures be reversed and annulled, and to set up a very large fund (how about €1 trillion) specifically to support the Greek people, including retribution of lost funds, repair of the health care system, reinstatement of a pension system that can actually keep people alive and so on and so forth.

And to top it off of course: debt writedowns as far as the eye can see. You f**k up, you pay the price. This makes me think of a remark by Angela Merkel a few weeks ago, she said ‘we have found the right mix when it comes to Greece’. Well, Angela, that is so completely bonkers it’s insulting, and the IMF’s own evaluation office says so.

I like this one from Bill Black as well:

It was only after forcing the Greek people into a pointless purgatory of a decade of disaster that the troika would consider providing debt relief…The only ‘debt relief’ they offer to discuss is a ‘long rescheduling of debt payments at low interest rates.’ This, under their own dogmas, will lock Greece into a long-term debt trap that will materially lower Greece’s growth rate for decades and leave it constantly vulnerable to recurrent financial crises. That is a recipe for disaster for Greece, Italy, and Spain (collectively, 100 million citizens) and for the EU. It is financial madness – and that ignores the political instability it will cause to force an EU member nation to twist slowly in the wind for 50 years.”

Got that one off of Yanis Varoufakis’ site, and he must be feeling very vindicated, even if not nearly enough people express it, by the IMF report. Because he’s said all along what they themselves are now admitting. But it ain’t much good if nothing changes, is it? Or, as Varoufakis put it:

[..] to complete this week’s drubbing of the troika, the report by the IMF’s Independent Evaluation Office (IEO) saw the light of day. It is a brutal assessment, leaving no room for doubt about the vulgar economics and the gunboat diplomacy employed by the troika. It puts the IMF, the ECB and the Commission in a tight spot: Either restore a modicum of legitimacy by owning up and firing the officials most responsible or do nothing, thus turbocharging the discontent that European citizens feel toward the EU, accelerating the EU’s deconstruction.

[..] The question now is: What next? What good is it to receive a mea culpa if the policies imposed on the Greek government are the same ones that the mea culpa was issued for? What good is it to have a mea culpa if those officials who imposed such disastrous, inhuman policies remain on board and are, in fact, promoted for their gross incompetence?

In sum, an urgent apology is due to the Greek people, not just by the IMF but also by the ECB and the Commission whose officials were egging the IMF on with the fiscal waterboarding of Greece. But an apology and a collective mea culpa from the troika is woefully inadequate. It needs to be followed up by the immediate dismissal of at least three functionaries.

First on the list is Mr Poul Thomsen – the original IMF Greek Mission Chief whose great failure (according to the IMF’s own reports never before had a mission chief presided over a greater macroeconomic disaster) led to his promotion to the IMF’s European Chief status. A close second spot in this list is Mr Thomas Wieser, the chair of the EuroWorkingGroup who has been part of every policy and every coup that resulted in Greece’s immolation and Europe’s ignominy, hopefully to be joined into retirement by Mr Declan Costello, whose fingerprints are all over the instruments of fiscal waterboarding. And, lastly, a gentleman that my Irish friends know only too well, Mr Klaus Masuch of the ECB.

You probably guessed by now that I would certainly and urgently add Christine Lagarde to that list of people to be fired. And not appoint another French citizen as managing director. Too risky. They do crazy things. The IMF must be reorganized, and thoroughly, or it no longer has a ‘raison d’être’.

I see no reason to doubt that those who call the shots are too blinded by hubris to execute such measures, so I’ll list these things one more time: transparency, accountability, credibility and if you don’t have those you will lose your relevance.

But it’s probably a bad idea to begin with to let an economy, if not a world, in decline, be governed by the same people who owe their positions to its rise. It would seem to take another kind of mindframe.