Sep 272015
 September 27, 2015  Posted by at 5:15 pm Finance Tagged with: , , , , , , , , ,  4 Responses »

Harris&Ewing The Capitol in the snow 1917

Societies in decline have no use for visionaries
– Anaïs Nin

The moment we heard that John Boehner would resign, the first thing that came to mind was: the next one will be a Greater Fool and a Bigger Liar. For all of his obvious faultlines, Boehner is human. As was evident for all to see Thursday when the Pope -Boehner’s as Catholic as JFK and Jesus Christ- came to see ‘him’ in ‘his’ Senate. Even smiled reading that the Pope had asked Boehner to pray for him.

But Boehner was really of course just a man who through time increasingly became a kind of barrier between a president and his party on the one hand, and Boehner’s own, increasingly ‘out there’, party on the other. He moved from far right to the right middle just to keep the country going. In essence, that’s little more than his job, but just doing your job can get you some nasty treatment these days in the land of the free.

So now we’ll get a refresher course in government shutdown, though there’s no guarantee that Boehner’s successor will be enough of a greater fool to cut his/her (make that his) new-found career short by actually letting it happen. At least not before December.

The government shutdown is a threat like Janet Yellen’s rate hike, one which always seems to disappear right around the next corner, a process that eats away at credibility much more than participants are willing and/or able to acknowledge. Until it’s too late.

Now that it’s clear they lost on Obamacare, Republicans demand that funding for Planned Parenthood must stop, as the women’s group is accused of ‘improperly selling tissue harvested from aborted fetuses’, something it vehemently denies. And there we’re right back to the shadow boxing multi-millionaire tragic comedy act the US Congress has been for years now.

So yeah, by all means let it shut down. Thing is, as much as Boehner was always already a walking safety hazard, there’s guys waiting in the wings who’d love to end Obama’s presidency any which way they can. The official GOP viewpoint may be that Da Donald is a greater fool, but that view isn’t shared by the entire caucus. Again, so yeah, bring it on, like the rate hike, let’s see you do it.

It’s not a little ironic that one day after the Pope holds his hand, Boehner leaves a squabble behind that involves aborted fetuses. Where I come from, no accusations of people either eating babies or selling their tissue is taken serious, ever. We call that folklore.

Meanwhile, Anarchy In The US is a distinct possibility. It’s probably a good thing all these guys still have paymasters, wouldn’t want to have them make their own decisions. More irony: Boehner brought more donations into the GOP caucus than anyone else. They’ll miss him yet.

Also meanwhile, European and US exchanges were up on Friday as if no investor ever saw a Volkswagen in their lives. Even as there’s no escaping the idea that VW’s illegal drummings go way beyond the 11 million vehicles they themselves fessed up to, and the millions more from other carmakers. Where I come from, we call this endemic fraud.

This little graphic from T&E seems to indicate that VW was the least worst of the offenders. And it will be very hard for politicians to find a carpet left big enough to sweep this under. Class action lawsuits are being prepared for investors and car owners, and politics doesn’t trump courts, at least not everywhere.

Merkel and Hollande and all of their lower level minions will have to cut their losses and offer their carmakers to the vultures, or risk getting severely burned in the process. Or is it already too late? The German Green Party claims Merkel knew of the rigged emissions tests. For now, the government is in steep denial:

German Greens Claim Merkel Government Knew Emissions Tests Were Rigged

The German Green party has claimed that the German Government, led by Chancellor Angela Merkel, knew about the software car manufacturers used to rig emissions tests in the US. The Green party has said it asked the German Transport Ministry in July about the devices used to deceive regulators and received a written response as follows, the FT reports: “The federal government is aware of [defeat devices], which have the goal of [test] cycle detection.”

The Transport Ministry denied knowing that the software was being used in new vehicles, however. The timing of the questions has raised concerns over whether the German government knew about the activities at Volkswagen stretching back to 2009. “The federal government admitted in July, to an inquiry from the Greens, that the [emissions] measurement practice had shortcomings. Nothing happened,” said Oliver Krischer, a German Green party lawmaker.

That written response the Financial Times reports on either exists or it does not. Let’s see it. Simple. If it does exist, Merkel’s in trouble. Then again, the EU knew about the defeat device at least two years ago. It’s starting to look as if everyone was involved. And you can’t fire everyone.

EU Warned On Devices At Centre Of VW Scandal Two Years Ago

EU officials had warned of the dangers of defeat devices two years before the Volkswagen emissions scandal broke, highlighting Europe’s failure to police the car industry. A 2013 report by the European Commission’s Joint Research Centre drew attention to the challenges posed by the devices, which are able to skew the results of exhaust readings. But regulators then failed to pursue the issue — despite the fact the technology had been illegal in Europe since 2007. EU officials said they had never specifically looked for such a device themselves and were not aware of any national authority that located one.

Matthias Müller was announced as VW’s new head honcho. Now there’s a greater fool if ever you saw one. Who can possibly want that gig? His predecessor Winterkorn left the top post, but to date not the one as head of Porsche. Ergo, he presides over those who lead the internal investigation at the company. And even if Winterkorn is bought off and out, VW is still as big of a hornet’s nest as you can find. The company’s corporate -and legal- structure, which includes unsavorily close ties to the governments of both Lower Saxony -which owns 20% of the company, in (highly) preferred stock- and federal Germany, virtually guarantees it.

Nor does it stop there. Both the German and British governments now stand accused of perverting EU law on emissions. The Wall Street Journal asks how much the EU itself knew. Easy answer: plenty. Inevitable. Key words: spin doctors, damage control.

This morning’s Bild am Sonntag, which claims to be in the possession of an ‘explosive document’, reports first that a October 7 deadline has been handed VW by Berlin to ‘fix’ its problems, and second that engineering giant Bosch, which provided the -initial?!- “defeat device” software, warned VW as long as 8 years ago, in 2007, that the software was for internal testing purposes only. VW‘s own technicians “warned about illegal emissions practices” in 2011, the Frankfurter Allgemeine Sonntagszeitung cites an internal report as saying.

And that’s just the beginning. Or rather, the beginning may have been much earlier. Bloomberg writes, in an article called “Forty Years Of Greenwashing” that “On 23 July 1973, the EPA accused [Volkswagen] of installing defeat devices in cars it wanted to sell in the 1974 model year.” Great, now we have to wonder what Gerald Ford knew? Dick Nixon?

In perhaps an ill-timed effort to divert attention away from her car industry, Merkel dreams of more global power:

Germany Battles Past Ghosts as Merkel Urges Greater Global Role

Europe’s dominant country is stepping out from its own shadow. Seventy years after Germany’s defeat at the end of World War II, Chancellor Angela Merkel’s government is signaling a willingness to assume a bigger role in tackling the world’s crises without fear of offending allies like the U.S. Spurred into more international action by the refugee crisis, Merkel on Wednesday prodded Europe to adopt a “more active foreign policy” with greater efforts to end the civil war in Syria, the source of millions fleeing to safety. As well as enlisting the help of Russia, Turkey and Iran, Merkel said that will mean dialogue with Bashar al-Assad, making her the first major western leader to urge talks with the Syrian president.

Germany’s position as Europe’s biggest economy allowed Merkel and her finance minister, Wolfgang Schaeuble, to assume a leading role during the euro-area debt crisis centered on Greece, but the change in focus to beyond Europe’s borders is very much political. After decades of relying on industrial prowess – now under international scrutiny as a result of the Volkswagen scandal – globalization and the necessity to keep Europe relevant are opening up options for Merkel to make Germany a less reluctant hegemon.

Syria has spurred “a rethink in German foreign policy,” Magdalena Kirchner at the German Council on Foreign Relations in Berlin, said. “As the refugee crisis developed, the view took hold that this conflict can no longer be fenced off or ignored. With her stance on the crisis, Merkel may be prodding other European leaders toward a bigger international engagement.”

And Angela’s Germany tells the ECB to take a hike and grow a pair while they’re at it. For a country that spent the best part of the year telling Greece to stick to the law and the plan or else, that’s quite something.

ECB Faces Defiance on Bank Oversight as Germany Hoards Power

The ECB faces increasing defiance from euro-area governments reluctant to cede control over their lenders, highlighted by a German bill that chips away at the ECB’s supervisory powers. The Bundestag, the lower house of parliament, votes Thursday on an amendment to Germany’s banking act that would allow the Finance Ministry in Berlin to issue rules on banks’ recovery plans, risk management and internal decisions under a bill implementing European Union rules for winding down failing banks. The ECB, which assumed supervisory powers over euro-area banks last November, is considering complaining at the European Commission, asking the EU’s executive arm to take Germany to court over the legislation.

As for Angela and the refugee issue, no changes any faster than a frozen molasses flow. Germany announced it will spend €4 billion on refugees already in the country, but votes to stop who’s still coming. As if that’s a serious option. They’re going to do it with gunboats, no less. Agianst overloaded dinghies.

EU To Use Warships To Curb Human Traffickers

The EU will use warships to catch and arrest human traffickers in international waters as part of a military operation aimed at curbing the flow of refugees into Europe, the bloc’s foreign affairs chief has said. “The political decision has been taken, the assets are ready,” Federica Mogherini said on Thursday at the headquarters of the EU’s military operation in Rome. The first phase of the EU operation was launched in late June. It included reconnaissance, surveillance and intelligence gathering, and involved speaking to refugees rescued at sea and compiling data on trafficker networks. The operation currently involves four ships – including an Italian aircraft carrier – and four planes, as well as 1,318 staff from 22 European countries.

Beginning on October 7, the new phase will allow for the seizure of vessels and arrests of traffickers in international waters, as well as the deployment of European warships on the condition that they do not enter Libyan waters. “We will be able to board, search, seize vessels in international waters, [and] suspected smugglers and traffickers apprehended will be transferred to the Italian judicial authorities,” Mogherini said. “We have now a complete picture of how, when and where the smugglers’ organisations and networks are operating so we are ready to actively dismantle them,” she said.

Those 1,318 staff could be used to help and rescue refugees, who will keep coming. Another 17 drowned in the Aegean Sea this Sunday morning. That should be the no. 1 priority. Instead, Europe’s policy of death continues unabated. France started bombing Syria -again- and Putin can and will no longer be ignored when it comes to his sole Middle East stronghold. We’ve created a god-awful mess, and not even god’s alleged man-on-the-earth, the underwhelming Pope Francis, does more than stammer a few hardly audible scripted lines about it.

It’s all about power and money, and none of it is about people. In other ‘news’, China securitizes its markets in a pretty standard desperate greater fools’ last move. As I said earlier, Beijing’s Rocking the Ponzi.

China Becomes Asia’s Biggest Securitization Market

China’s fledging securitization market is soaring, as Beijing looks for new ways to ease lending to firms amid the country’s slowest period of economic growth in more than two decades. In the past few months, Chinese officials have laid out new rules to expand and quicken the process for car makers and other lenders to issue debt by bundling together pools of underlying loans. Issuance of asset-backed securities in the world’s second largest economy rose by a quarter in the first eight months of 2015—to $26.3 billion from $20.8 billion in the same period last year, according to data publisher Dealogic. Though the Chinese securitization market took flight just last year, it has already become Asia’s biggest, outpacing other, more developed markets like South Korea and Japan.

China’s new economic reality, no matter what Xi tells Obama, was revealed by China Daily. Imagine a company in the US, or an EU country, announcing 100,000 lay-offs in one go. For China, it’s the first of many, though not all may be publicly announced.

Chinese Mining Group Longmay To Cut 100,000 Coal Jobs (China Daily)

The largest coal mining group in Northeast China is cutting 100,000 jobs within the next three months to reduce its losses – one of the biggest mass layoffs in recent years. Heilongjiang Longmay Mining Holding Group Co Ltd, which has a 240,000 workforce, said a special center would be created to help those losing their jobs to either relocate or start their own businesses. Chairman of the group Wang Zhikui said the job losses were a way of helping the company “stop bleeding”. It also plans to sell its non-coal related businesses to help pay off its debts, said Wang.

In Japan, desperate fool Shinzo Abe moves on to Abenomics 2.0 with three entirely fresh but as yet unnamed new “arrows”. Here’s thinking Japan doesn’t need Abenomics 2.0, it needs Abe 2.0. Or tomorrow will be even worse than today.

Japan’s Abe Airs Abenomics 2.0 Plan For $5 Trillion Economy

Japan’s prime minister Shinzo Abe, fresh from a bruising battle over unpopular military legislation, announced Thursday an updated plan for reviving the world’s third-largest economy, setting a GDP target of 600 trillion yen ($5 trillion). Abe took office in late 2012 promising to end deflation and rev up growth through strong public spending, lavish monetary easing and sweeping reforms to help make the economy more productive and competitive.

So far, those “three arrows” of his “Abenomics” plan have fallen short of their targets though share prices and corporate profits have soared. “Tomorrow will definitely be better than today!” Abe declared in a news conference on national television. “From today Abenomics is entering a new stage. Japan will become a society in which all can participate actively.”

Participate actively in the downfall of both Abe and the nation, that is.

As for you yourself, unless you stop clinging to the silly notion of an economic recovery -let alone perpetual growth-, you too are a greater fool, the quintessential one. And until you do, you’re a bigger liar too. You lie to yourself. Just so others can lie to you too.

What is happening in today’s world is a total downfall, both economic and moral, and the two are closely intertwined. What’s more, though we’re blind to it, as Anaïs Nin said, “Societies in decline have no use for visionaries.” Our societies therefore end up with liars only. Nobody else gets a shot at the title. There’s no use for anything but lies.

All leaders, as we can see these days wherever we look, talk the talk but don’t walk the walk. Every single one of them schemes and lies and hides their acts from public scrutiny. Political leaders, corporate leaders, the lot. This behavior is so ubiquitous we’ve come to see it as inevitable, even normal.

Whether it’s the economy, climate, the planet, warfare, your future obligations, your pensions, the future of your children, nobody in power tells you the truth. Human life is fast losing the value we would like to tell ourselves we assign to it. We don’t, do we? Children drown in the Mediterranean every day, and we let them drown, it’s not just our leaders who do.

Children also get shot to bits in various theaters of war (or rather, invasion) in faraway countries that our leaders involve us in, our tax dollars pay for, and our media don’t show. What the European refugee crisis shows us is that there are no faraway countries anymore, or theaters of war. Our own technological advances have taken care of that. They’re on our doorstep. And sending in the military is only going to make it worse.

Our technological advances haven’t come with moral advances, quite the contrary, our morals turn out to be a thin layer of mere cheap veneer. What advances we’re making are the last death rattle of a society in decline, and a dying civilization. All we have left to look forward to from here on in is cats in a sack. And we owe that to ourselves.

Sep 262015
 September 26, 2015  Posted by at 9:27 am Finance Tagged with: , , , , , , , , ,  4 Responses »

Russell Lee Dillon, Montana, trading center for prosperous cattle and sheep country 1942

VW’s Systematic Fraud Threatens To Engulf The Entire Industry (Economist)
Volkswagen Scandal Spreads Throughout Europe’s Credit Markets (Bloomberg)
EU Warned On Devices At Centre Of VW Scandal Two Years Ago (FT)
VW Bungles Restart With New CEO From Old Guard (Reuters)
More Volkswagen Engines May Be Implicated, German Minister Says (Bloomberg)
Did -Political- Privilege Enable Volkswagen’s Diesel Deception? (Bloomberg)
Problems at Volkswagen Start in the Boardroom (NY Times)
Boehner Resigns From Congress: ‘House Leadership Turmoil Would Do Harm‘ (CNBC)
It’s All ‘Perverted’ Now as U.S. Swap Spreads Tumble Below Zero (Bloomberg)
Junk-Debt Investors Fight for Scraps as US Shale Rout Deepens (Bloomberg)
Wall Street Braces For Grim Third Quarter Earnings Season (Reuters)
It’s Carnage Out There For Emerging Markets (CNBC)
Emerging Markets Are Facing a Big Foreign FX Debt Bill (Tracy Alloway)
Bill and Melinda Gates Foundation Sues Petrobras, Auditor for Fraud (WSJ)
How Much Longer Can Consumers Underpin Canada’s Economy? (Reuters)
British Spies Track “Every Visible User On The Internet” (Intercept)
Industrial Farming Is One Of The Worst Crimes In History (Guardian)
Europe’s Refugees Are Modern-Day Pioneers (McArdle)
EU To Use Warships To Curb Human Traffickers (Al Jazeera)

“Hidden within the German firm is a big finance operation that makes loans to car buyers and dealers and also takes deposits, acting as a bank.”
“..more than half Europe’s claimed gains in efficiency since 2008 have been “purely theoretical”, says T&E.”

VW’s Systematic Fraud Threatens To Engulf The Entire Industry (Economist)

Class-action lawsuits from aggrieved motorists will arrive at the speed of a turbocharged Porsche. On September 22nd VW announced a €6.5 billion provision to cover the costs of the scandal but that is likely to prove too little. By that stage the company’s value had fallen €26 billion. The financial damage could go further. Hidden within the German firm is a big finance operation that makes loans to car buyers and dealers and also takes deposits, acting as a bank. Its assets have more than doubled in the past decade and make up 44% of the firm’s total. And it may be vulnerable to a run. In previous crises “captive-finance” arms of industrial firms have proven fragile. After the Deepwater Horizon disaster BP’s oil-derivative trading arm was cut off from long-term contracts by some counterparties.

General Motors’ former finance arm, GMAC, had to be bailed out in 2009. With €164 billion of assets in June, VW’s finance operation is as big as GMAC was six years ago, and it appears to be more dependent on short-term debts and deposits to fund itself. Together, VW’s car and finance businesses had €67 billion of bonds, deposits and debt classified as “current” in June. This means—roughly speaking—that lenders can demand repayment of that sum over the next 12 months. The group also has a big book of derivatives which it uses to hedge currency and interest-rate risk and which represented over €200 billion of notional exposure at the end of 2014. It is impossible to know if these derivatives pose a further risk, but if counterparties begin to think VW could be done for they might try to wind down their exposure to the car firm or demand higher margin payments from it.

If depositors, lenders and counterparties were to refuse to roll over funds to VW, the company could hang on for a bit. It has €33 billion of cash and marketable securities on hand, as well as unused bank lines and the cashflow from the car business. The German government would lean on German banks to prop up their tarnished national champion, 20% of which is owned by the state of Lower Saxony. So far the cost of insuring VW’s debt has risen, but not to distressed levels. Still, unless the company convinces the world that it can contain the cost of its dishonesty, it could yet face a debt and liquidity crisis.

Read more …

The losses accelerate.

Volkswagen Scandal Spreads Throughout Europe’s Credit Markets (Bloomberg)

A week after it admitted to cheating on U.S. emissions tests for years, Volkswagen’s pain is beginning to spread throughout Europe’s credit markets. The Bank of France stopped trading two securities backed by Volkswagen auto loans on Friday, while executives of parts supplier Schaeffler AG find themselves fielding questions about their biggest customer as they drum up support for an initial public offering, according to people familiar with the matters. Since Volkswagen admitted Sept. 18 that it had cheated on U.S. air pollution tests since 2009, the chief executive officer resigned, the company became the target of a joint investigation by 27 U.S. states and the stock price tumbled 28%. Matthias Mueller, the former Porsche chief who was appointed Volkswagen’s CEO Friday, said his most urgent task is to win back trust for the company.

“Under my leadership, Volkswagen will do everything it can to develop and implement the most stringent compliance and governance standards in our industry,” he said in a statement. The two Volkswagen-related securities weren’t in an updated list the Bank of France distributed on Friday after being included in the original version sent to investors earlier this week, said the people, who asked not to be identified because they aren’t authorized to discuss the matter publicly. The Paris-based bank is buying asset-backed securities under a ECB purchase program designed to help boost lending in the euro area. Volkswagen Financial Services has €22.8 billion of outstanding asset-backed debt, according to a September presentation on its website.

Read more …

Everyone knew. And everyone was involved.

EU Warned On Devices At Centre Of VW Scandal Two Years Ago (FT)

EU officials had warned of the dangers of defeat devices two years before the Volkswagen emissions scandal broke, highlighting Europe’s failure to police the car industry. A 2013 report by the European Commission’s Joint Research Centre drew attention to the challenges posed by the devices, which are able to skew the results of exhaust readings. But regulators then failed to pursue the issue — despite the fact the technology had been illegal in Europe since 2007. EU officials said they had never specifically looked for such a device themselves and were not aware of any national authority that located one. The technology is at the heart of a scandal that exploded last Friday when US regulators revealed Volkswagen had used it to rig emissions tests, potentially laying itself open to criminal charges and substantial fines.

The Environmental Protection Agency said the defeat devices turn on emissions controls when vehicles are being tested but turn them off during regular driving. This means that while on the road, the cars are able to emit up to 40 times the amount of nitrogen oxides that US environmental standards allow. Initially the focus was exclusively on cars sold by Volkswagen into the US market. But Germany has now said that the company cheated in the same way in Europe as well. The inability of regulators across the EU to expose this deceit has shone a spotlight on the lobbying power of the European motor industry, which has made a huge gamble on diesel. Some 53% of new car sales in the EU are diesels, up from just more than 10% in the early 1990s.

Meanwhile the British government came under fire on Friday from the opposition Labour party after it admitted receiving evidence nearly a year ago that some diesel cars were fitted with equipment to rig emissions tests. The Department for Transport received evidence in October 2014 that there was a “real world nitrogen oxides compliance issue” for diesel passenger cars. The evidence was contained in a 60-page report by the International Council on Clean Transportation. It tested 15 vehicles and found they produced an average of seven times the legal limit for the deadly gas. One car produced 25 times the limit. The DfT said the report demonstrated the shortcomings in the old testing system and that ministers had been pushing for the EU to accelerate the introduction of a real-driving emissions test.

Read more …


VW Bungles Restart With New CEO From Old Guard (Reuters)

Matthias Mueller is the wrong chief executive for Volkswagen. The scandal-hit German carmaker on Sept. 25 appointed the 62-year-old CEO of its brand Porsche to replace Martin Winterkorn, who resigned days earlier after VW admitted tampering with its cars to falsify regulatory emissions tests. Just as with new chair Hans Dieter Poetsch, it has chosen an insider when it should have looked beyond its Wolfsburg base. Mueller knows the gigantic carmaker inside out, and has what it takes to fix operational woes. But having been at the group since the late 1970s, he is also a deeply entrenched member of the Wolfsburg old guard. His insider status suggests he is an imperfect investigator of the scandal. From 2007 and 2010, he was the group’s head of product management, responsible for all vehicle projects of the Volkswagen brand.

The company started to fit diesel cars with so-called “defeat devices” that manipulated emission tests in 2009. VW’s supervisory board has stressed that the new CEO is personally untainted by the wrongdoing. Investors have no choice but to take its word. But given VW’s investigation is in its early days, it still seems an unnecessary risk, especially as a well-versed auto manager with no Wolfsburg history was readily available. Herbert Diess, the new head of VW’s passenger-car group, was poached from rival BMW earlier this year. The scope of the misconduct is massive, and the scandal is still evolving. This week, Volkswagen has admitted 20% of all its passenger cars sold from 2009 to 2014 might be affected by the emissions manipulations.

On Sept. 25, Germany’s transport minister Alexander Dobrindt said VW falsified emission data of light commercial vehicles too. Switzerland banned the sale of affected models. And Bloomberg reported on the same day that executives in Wolfsburg controlled key aspects of the rigged emissions tests, referring to three unnamed people familiar with the company’s U.S. operations. Winterkorn’s speedy exit was the right move. But the departed CEO is still around, as chief executive of Porsche SE, the holding company that owns 50.7% of VW voting shares. The group as a whole urgently needed a proper restart to cope with the emission scandal. For now, it does not look like it is getting one.

Read more …

Of course there are.

More Volkswagen Engines May Be Implicated, German Minister Says (Bloomberg)

Volkswagen may also have used software to fake diesel-emission tests in 1.2-liter engines, widening the number of vehicles under scrutiny, German Transportation Minister Alexander Dobrindt said. “There’s also discussion now about 1.2-liter cars being affected,” Dobrindt said in a speech to parliament in Berlin on Friday. “At least for now we believe that possible manipulations can come to light here, too. That’s being further investigated in the current talks with Volkswagen.” So far, the “illegal” tampering with emission controls affects about 2.8 million Volkswagen vehicles in Germany with 1.6-liter and 2-liter diesel engines, including light utility vans, Dobrindt said.

Germany’s motor-vehicle certification bureau has asked VW for “a binding statement on whether the company can redress the technical manipulations it has acknowledged so the vehicles can be returned to a condition that meets technical regulations,” said Dobrindt, who set up a government investigating commission this week after Volkswagen’s actions came to light. Volkswagen “has pledged full support for the commission’s work and to cooperate in the investigation,” he said.

Read more …

“..’das VW-Gesetz,’ the Volkswagen Law.”

Did -Political- Privilege Enable Volkswagen’s Diesel Deception? (Bloomberg)

In Italy, the privilege is called potere speciale; in France, action spécifique; in the U.K., it’s a “golden share.” Those are all different names for an ownership stake that gives a government—be it national or local—special powers above any other shareholder. That makes a crucial difference in running a business. Governments, for example, have good reason to prevent jobs from moving to more competitive labor markets. A golden share can help with that. In Europe, most golden shares are held in utilities and telecoms, companies that were state monopolies before being privatized. For more than a decade, the European Union, as it expanded and liberalized its common open market, has been trying to undo the persistence of state control. But there is one golden share that has endured, a German law so breathtakingly exceptional it can only be called what it is in fact called—“das VW-Gesetz,” the Volkswagen Law.

It is explicitly designed for a single company. Germany has managed to defend its golden share against the EU because VW had built a reputation as a force for good: responsible corporate citizen, pioneer in environmental progess. That reputation has just run out of Fahrvergnügen. Regulators in the U.S., France, South Korea, Italy, and now Germany have announced investigations into whether Volkswagen purposely designed software so its diesel engines could defeat emissions tests. The company will recall 11 million cars, and its stock has fallen as much as 30% on the news. The company quickly set aside $7.3 billion to cover costs related to the scandal, a figure that may fall short of the mark. On Sept. 21, Martin Winterkorn, Volkswagen’s chief executive officer, apologized, looking panicked.

A metallurgist with a Ph.D. who used to run technical development for Volkswagen, Winterkorn has a reputation as an engineer’s engineer. But there was no easy fix here. On Sept. 23 he offered his resignation to the company’s supervisory board. The board quickly accepted. “The damage done,” said a board member at a press conference in Braunschweig, “cannot be measured.” The same day, Stephan Weil, prime minister of Lower Saxony, the state where Volkswagen is headquartered, announced that “whoever’s responsible would be aggressively sued.” He spoke at the same press conference—and on behalf of the company. Weil sits on Volkswagen’s supervisory board, because Lower Saxony owns 20% of the company.

Per the Volkswagen Law, Saxony has a controlling interest with virtual veto power—the golden share. Weil is both government minister and owner. This is a coziness that is exceptional even in consensus-driven Germany. Publicly held German companies have two boards. Executives sit on the management board. They are in turn controlled by the supervisory board, which includes shareholders and labor leaders. Broadly, Germany’s dual-board structure preserves executive independence. Yet at Volkswagen, labor has an extra friend on the top board: the state. “You have the voice of the government present in the shareholder meetings,” says Carsten Gerner-Beuerle at the London School of Economics. “That is not something you’d see in any other board.”

Read more …

“It’s been a soap opera ever since it started.”

Problems at Volkswagen Start in the Boardroom (NY Times)

There is a long tradition of scandal and skulduggery in the auto industry, but few schemes appear as premeditated as Volkswagen’s brazen move to use sophisticated software to circumvent United States emissions standards. That such a thing could happen at Volkswagen, Germany’s largest company and the world’s largest automaker by sales — 202.5 billion euros last year — has mystified consumers and regulators around the world. But given Volkswagen’s history, culture and corporate structure, the real mystery may be why something like this didn’t happen sooner. “The governance of Volkswagen was a breeding ground for scandal,” said Charles M. Elson, professor of finance and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “It was an accident waiting to happen.”

The company, founded by the Nazis before World War II, is governed through an unusual hybrid of family control, government ownership and labor influence. Even by German standards, “Volkswagen stands apart,” said Markus Roth, a professor at Philipps-University Marburg and an expert in European corporate governance. “It’s been a soap opera ever since it started.” Volkswagen’s recent history — a decades-long feud within the controlling Porsche family, a convoluted takeover battle and a boardroom coup — has dominated the German financial pages and tabloids alike. This week, the German newspaper Süddeutsche Zeitung compared Volkswagen’s governance to that of North Korea, adding that its “autocratic leadership style has long been out of date.” It said “a functioning corporate governance is missing.”

Until a forced resignation this spring, the company was dominated by Ferdinand Piëch, 78, the grandson of Ferdinand Porsche and the father of 12 children. He reigned over Volkswagen’s supervisory board and directed a successful turnaround at the luxury brand Audi before taking the reins at its parent, Volkswagen, in 1993. Mr. Piëch set the goal of Volkswagen’s becoming the world’s largest automaker by sales, a goal the company achieved this past year. He stepped down as chairman in April after unsuccessfully trying to oust the company’s chief executive, Martin Winterkorn, who himself was forced out this week. One measure of Mr. Piëch’s influence: In 2012, shareholders elected his fourth wife, Ursula, a former kindergarten teacher who had been the Piëch family’s governess before her marriage to Ferdinand, to the company’s supervisory board.

Although many shareholders protested her lack of qualifications and independence, they have little or no influence. Porsche and Piëch family members own over half the voting shares and vote them as a bloc under a family agreement. Labor representatives hold three of the five seats on the powerful executive committee, and half the board seats are held by union officials and labor. Of the remaining seats, two are appointed by the government of Lower Saxony, the northwestern German state that owns 20% of the voting shares. Two are representatives of Qatar Holding, Qatar’s sovereign wealth fund, which owns 17% of Volkswagen’s voting shares. Members of the Piëch and Porsche families hold three more seats, and a management representative holds another. Outside views rarely penetrate. “It’s an echo chamber,” Professor Elson said.

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“I know this, I’m doing this for the right reasons and you know what, the right things will happen as a result.”

Boehner Resigns From Congress: ‘House Leadership Turmoil Would Do Harm‘ (CNBC)

House Speaker John Boehner, under fire from conservatives over a looming government shut down, said Friday he will resign from Congress at the end of October. “Prolonged leadership turmoil would do irreparable damage to the institution,” he said. In an afternoon news conference, Boehner became emotional when expressing gratitude to his family and constituents, and said he was proud of what he’s accomplished. However, Boehner said he plans to get as much work done as he can on outstanding fiscal issues before he leaves Congress at the end of October. He said although he doesn’t know what he will do in the future, “I know this, I’m doing this for the right reasons and you know what, the right things will happen as a result.”

Boehner, 65, told House Republicans of his decision earlier in the morning. Later, he left a meeting and answered a reporter’s shouted question about how he felt with, “It’s a wonderful day.” President Barack Obama said he was taken by surprise by Boehner’s decision, adding that he called the Republican leader after hearing the news. “John Boehner is a good man. He is a patriot. He cares deeply about the House, an institution in which he has served for a long time. He cares about his constituents and he cares about America,” Obama told reporters at a joint press conference with China’s president.

“We have obviously had a lot of disagreements, and politically we’re at different ends of the spectrum, but I will tell you he has always conducted himself with courtesy and civility with me,” Obama said. House Majority Leader Kevin McCarthy of California will likely be Boehner’s successor, political observers told CNBC. Boehner said that although the choice of the next speaker is up to members of Congress, he thinks McCarthy would make an “excellent speaker.”

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“.. it theoretically signals that traders view the credit of banks as superior to that of the U.S. government..”

It’s All ‘Perverted’ Now as U.S. Swap Spreads Tumble Below Zero (Bloomberg)

At the height of the financial crisis, the unprecedented decline in swap rates below Treasury yields was seen as an anomaly. The phenomenon is now widespread. Swap rates are what companies, investors and traders pay to exchange fixed interest payments for floating ones. That rate falling below Treasury yields – the spread between the two being negative – is illogical in the eyes of most market observers, because it theoretically signals that traders view the credit of banks as superior to that of the U.S. government. Back in 2009, it was only negative in the 30-year maturity, a temporary offshoot of deleveraging and market swings following the credit crisis. These days, swap spreads are near or below zero across maturities.

The shift is a result of a confluence of events, says Aaron Kohli, an interest-rate strategist in New York at BMO Capital Markets. It’s a ripple effect of regulations spawned by the credit crunch, combined with large-scale selling of Treasuries and surging corporate issuance.
“All of these effects have been pushing swap spreads the same way – lower,” Kohli said. “If this doesn’t go away after quarter-end, it could be the fact that a lot of the structural changes that have taken place in the marketplace are now manifesting. And this might then be one of the most visceral examples.”

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Take your losses and pull the plug.

Junk-Debt Investors Fight for Scraps as US Shale Rout Deepens (Bloomberg)

It’s every U.S. shale investor for himself as the worst oil rout in almost 30 years drags down its latest victims. Investors in $158.2 million of Goodrich Petroleum’s debt agreed to take 47 cents on the dollar in exchange for stock warrants for some note holders and a lien on Goodrich’s oil acreage, according to a company statement today. That puts them second in line if the Houston-based company liquidates its assets in bankruptcy and pushes the remaining holders of $116.8 million in original bonds to the back of the pack. “In the industry it’s called ‘getting primed,’” said Spencer Cutter, a credit analyst with Bloomberg Intelligence. “It’s every man for himself. They’re trying to get in and get exchanged, and if you can’t you’re getting left out in the cold.”

Wildcatters attracted billions of dollars during the boom after years of near-zero interest rates sent investors hunting for returns in riskier corners of the market. U.S. high-yield debt has more than doubled since 2004 to $1.3 trillion while the amount issued to junk-rated energy companies has grown four-fold to $208 billion, according to Barclays. Most of the companies spent money faster than they made it even when oil was $100 a barrel and are struggling to stay afloat with prices at $45. Goodrich didn’t name the bondholders who participated in the swap. The largest holder was Franklin Resources, which owned about 24% of the bonds, according to data compiled by Bloomberg. Franklin has invested in the debt of other distressed drillers, including Halcon Resources, SandRidge Energy and Linn Energy.

This was Goodrich’s second exchange this month. Three weeks ago, the company swapped $55 million on convertible notes for bonds worth half as much. To sweeten the deal, it lowered the share price at which investors can turn their notes into stock to $2. Investors who didn’t participate in Goodrich’s earlier exchange took another hit with today’s swap because it put holders of the new bonds ahead of them in liquidation. Prices fell four cents to 18 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

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Caterpillar is set to drag down a wide swath of shares.

Wall Street Braces For Grim Third Quarter Earnings Season (Reuters)

Wall Street is bracing for a grim earnings season, with little improvement expected anytime soon. Analysts have been cutting projections for the third quarter, which ends on Wednesday, and beyond. If the declining projections are realized, already costly stocks could become pricier and equity investors could become even more skittish. Forecasts for third-quarter S&P 500 earnings now call for a 3.9% decline from a year ago, based on Thomson Reuters data, with half of the S&P sectors estimated to post lower profits thanks to falling oil prices, a strong U.S. dollar and weak global demand. Expectations for future quarters are falling as well. A rolling 12-month forward earnings per share forecast now stands near negative 2%, the lowest since late 2009, when it was down 10.1%, according to Thomson Reuters I/B/E/S data.

That’s further reason for stock investors to worry since market multiples are still above historic levels despite the recent sell-off. Investors are inclined to pay more for companies that are showing growth in earnings and revenue. The weak forecasts have some strategists talking about an “earnings recession,” meaning two quarterly profit declines in a row, as opposed to an economic recession, in which gross domestic product falls for two straight quarters. “Earnings recessions aren’t good things. I don’t care what the state of the economy is or anything else,” said Michael Mullaney, chief investment officer at Fiduciary Trust in Boston.

The S&P 500 is down about 9% from its May 21 closing high, dragged down by concern over the effect of slower Chinese growth on global demand and the uncertain interest rate outlook. The low earnings outlook adds another burden. China’s weaker demand outlook has also pressured commodity prices, particularly copper. This week, Caterpillar slashed its 2015 revenue forecast and announced job cuts of up to 10,000, among many U.S. industrial companies hit by the mining and energy downturn. Also this week, Pier 1 Imports cut its full-year earnings forecast, while Bed Bath & Beyond gave third-quarter guidance below analysts’ expectations.

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The continuing story. Getting worse by the day.

It’s Carnage Out There For Emerging Markets (CNBC)

It’s been another week of bloodshed in emerging markets, with the Brazilian real, South African rand and Turkish lira all pummelled to record lows as China growth concerns and uncertainty about U.S. rate hikes continue to bite. Remarks by Fed Chair Janet Yellen late Thursday suggesting the central bank could still raise rates this year sparked fresh selling on Friday, with the Malaysian ringgit and Indonesian rupiah falling to their lowest levels since the Asian financial crisis in 1998. “EM currencies are being squeezed between concerns about the severity of China’s economic slowdown and increasing uncertainty regarding U.S. monetary policy,” Nicholas Spiro at Spiro Sovereign Strategy, told CNBC.

“Country-specific vulnerabilities, notably in Brazil and Turkey, are also weighing on sentiment – indeed more so than external factors in the case of many EMs,” he said. A rout in Brazil’s currency – what has shed almost 10% this month and almost 60% this year – against a backdrop of a political crisis and an economy mired in recession, has also soured sentiment towards other emerging markets. “In short, the world is not falling apart. Yet for EM, Brazil is vital,” analysts at Standard Bank said in a note. “Too big to fail but not big to save. IMF, would you please step in and save us all?” To stem the slide, Brazil’s central bank on Thursday warned it would use its foreign exchange reserves to defend the currency.

These strong words bought some respite to the real, which bounced more than 5% and off a record low of about 4.248 per dollar hit earlier on Thursday. Brazil isn’t the only country bank taking action to shore up a battered currency. Indonesia’s central bank on Friday said it will announce new steps to increase onshore supply of dollars – part of a move to support the rupiah, which has shed about 20% of its value this year.

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Brazil will soon need capital controls. Like Greece. And like Greece, it needs debt retsructuring.

Emerging Markets Are Facing a Big Foreign FX Debt Bill (Tracy Alloway)

The extent of emerging markets’ foreign-currency borrowing binge is laid bare in new number-crunching from CreditSights. With EM currencies down a collective 15% since the start of the year, the cost of repaying debt and loans denominated in foreign currencies, such as the U.S. dollar and the euro for EM countries, is likely to increase. With that scenario in mind, CreditSights analysts Richard Briggs and David Watts have analyzed cross-border lending data from the Bank for International Settlements and corporate bond index data from Bank of America Merrill Lynch to try to figure out just how big EM’s foreign debt bill could be.

First up are the BIS data on cross-border lending, scaled against a country’s foreign currency revenue (i.e. exports). Bank figures range from a mere 6% in South Korea to a whopping 56% in Brazil. Next up are corporate bonds, via BofAML’s hard-currency, emerging-market corporate bond index, as a% of foreign-currency revenue. Brazil dominates again, with a big chunk of its foreign FX bonds having been sold by energy companies. Combine cross-border lending, plus foreign FX corporate bonds, then add a smattering of government debt, and you get the CreditSights chart below, showing total hard-currency borrowing by country Brazil is the standout, followed by Turkey and Colombia.

It’s not a pretty chart, and unfortunately, as the CreditSights analysts note, the real picture of emerging markets’ foreign-currency borrowing is probably even uglier. (When it comes to corporate bonds, for instance, the BofAML index excludes dollar or euro-denominated debt that exceeds certain thresholds.)

We have tried to capture as much of the hard currency debt as we can reliably get for a cross country comparison using BIS and the bond index data but the actual total will almost certainly be higher given that only BIS reporting banks are included and the bond debt only includes the index eligible deals.

Oh dear.

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Isn’t Gates just getting what he deserves for his large fossil fuel investments?

Bill and Melinda Gates Foundation Sues Petrobras, Auditor for Fraud (WSJ)

The Bill and Melinda Gates Foundation is suing Brazil’s Petróleo Brasileiro SA and its auditor in a New York court, claiming a vast corruption scheme centered on the state-run oil company caused the charitable organization to lose tens of millions of dollars. The foundation, started by the billionaire co-founder of Microsoft and his wife, joins a long list of plaintiffs seeking to recoup money they lost as the scandal hammered the value of their investments in Petrobras shares. It is just the latest bad news for the troubled oil company, which is scrambling to restore its reputation, rebuild investor confidence and pay down ballooning debt amid a global slump in oil prices.

Petrobras has long maintained it was a victim of a yearslong bid-rigging and bribery ring that Brazilian prosecutors say was cooked up by suppliers and a few crooked insiders who fleeced the oil company for at least $2 billion. The Gates lawsuit, filed against Petrobras and the Brazilian unit of PricewaterhouseCoopers LLP or PwC, alleges that corruption at the oil company was so widespread as to be “institutional” and that wrongdoing was “willfully ignored” by its auditor. “The depth and breadth of the fraud within Petrobras is astounding. By Petrobras’s own admission, the kickback scheme infected over $80 billion of its contracts, representing approximately one-third of its total assets,” the lawsuit said.

“Equally breathtaking is that the fraud went on for years under PwC’s watch, who repeatedly endorsed the integrity of Petrobras’ internal controls and financial reports. This is not a case of rogue actors. This is a case of institutional corruption, criminal conspiracy, and a massive fraud on the investing public.” The Gates Foundation filed the lawsuit late Thursday in the Southern District Court of New York. A co-plaintiff in the lawsuit is WGI Emerging Markets Fund, LLC, which managed investments for the Gates Foundation. The Gates Foundation held more than $27 million in Petrobras shares as of 2013, according to a tax filing.

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Must. Get. Rid. Of. Harper.

How Much Longer Can Consumers Underpin Canada’s Economy? (Reuters)

The Bank of Canada is hoping the average Canadian continues to do the heavy lifting for the economy and gets it out of its rut from the first half of the year, even with dangerously high household debt levels. That may be a big ask. Canada’s average household debt-to-income ratio is back at a record high of 164.6% in the second quarter, driven by mortgages, after inching lower in the previous two quarters. Since the financial crisis Canadian household debt has increased at the second-fastest pace among developed nations, according to a recent McKinsey Global Institute study. Greece topped the list. Citing figures from Ipsos Reid, a 2014 Bank of Canada report concluded that 40% of all household debt was held by borrowers who had a total debt-to-income ratio greater than 250%, compared to the average of 162.3%.

This segment of heavily indebted borrowers rose to about 12% in 2014 from around 6% in 2000. Consumer spending – primarily related to the housing market – has been the main driver of the Canadian economy over the past five years. It buoyed and boosted Canada through the worst of the global financial crisis, even as the U.S. housing market and economy crashed. But now Canada’s economy has taken a sharp turn for the worse. The jobless rate hit a one-year high of 7% in August as sharp falls in oil prices took their toll. Even U.S. Federal Reserve Chair Janet Yellen cited the slowdown in Canada, an important U.S. trade partner, in its concerns about the global economy that led it to hold off yet again on its first rate rise in nearly a decade.

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Because they can.

British GCHQ Spies Track “Every Visible User On The Internet” (Intercept)

There was a simple aim at the heart of the top-secret program: Record the website browsing habits of “every visible user on the Internet.” Before long, billions of digital records about ordinary people’s online activities were being stored every day. Among them were details cataloging visits to porn, social media and news websites, search engines, chat forums, and blogs. The mass surveillance operation — code-named KARMA POLICE — was launched by British spies about seven years ago without any public debate or scrutiny. It was just one part of a giant global Internet spying apparatus built by the United Kingdom’s electronic eavesdropping agency, Government Communications Headquarters, or GCHQ.

The revelations about the scope of the British agency’s surveillance are contained in documents obtained by The Intercept from National Security Agency whistleblower Edward Snowden. Previous reports based on the leaked files have exposed how GCHQ taps into Internet cables to monitor communications on a vast scale, but many details about what happens to the data after it has been vacuumed up have remained unclear. Amid a renewed push from the U.K. government for more surveillance powers, more than two dozen documents being disclosed today by The Intercept reveal for the first time several major strands of GCHQ’s existing electronic eavesdropping capabilities. One system builds profiles showing people’s web browsing histories. Another analyzes instant messenger communications, emails, Skype calls, text messages, cell phone locations, and social media interactions.

Separate programs were built to keep tabs on “suspicious” Google searches and usage of Google Maps. The surveillance is underpinned by an opaque legal regime that has authorized GCHQ to sift through huge archives of metadata about the private phone calls, emails and Internet browsing logs of Brits, Americans, and any other citizens — all without a court order or judicial warrant. Metadata reveals information about a communication — such as the sender and recipient of an email, or the phone numbers someone called and at what time — but not the written content of the message or the audio of the call. As of 2012, GCHQ was storing about 50 billion metadata records about online communications and Web browsing activity every day, with plans in place to boost capacity to 100 billion daily by the end of that year.

The agency, under cover of secrecy, was working to create what it said would soon be the biggest government surveillance system anywhere in the world. The power of KARMA POLICE was illustrated in 2009, when GCHQ launched a top-secret operation to collect intelligence about people using the Internet to listen to radio shows. The agency used a sample of nearly 7 million metadata records, gathered over a period of three months, to observe the listening habits of more than 200,000 people across 185 countries, including the U.S., the U.K., Ireland, Canada, Mexico, Spain, the Netherlands, France, and Germany.

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“The animals suffer greatly, yet they live on and multiply. Doesn’t that contradict the most basic principles of Darwinian evolution?”

Industrial Farming Is One Of The Worst Crimes In History (Guardian)

At first sight, domesticated animals may seem much better off than their wild cousins and ancestors. Wild buffaloes spend their days searching for food, water and shelter, and are constantly threatened by lions, parasites, floods and droughts. Domesticated cattle, by contrast, enjoy care and protection from humans. People provide cows and calves with food, water and shelter, they treat their diseases, and protect them from predators and natural disasters. True, most cows and calves sooner or later find themselves in the slaughterhouse. Yet does that make their fate any worse than that of wild buffaloes? Is it better to be devoured by a lion than slaughtered by a man? Are crocodile teeth kinder than steel blades?

What makes the existence of domesticated farm animals particularly cruel is not just the way in which they die but above all how they live. Two competing factors have shaped the living conditions of farm animals: on the one hand, humans want meat, milk, eggs, leather, animal muscle-power and amusement; on the other, humans have to ensure the long-term survival and reproduction of farm animals. Theoretically, this should protect animals from extreme cruelty. If a farmer milks his cow without providing her with food and water, milk production will dwindle, and the cow herself will quickly die. Unfortunately, humans can cause tremendous suffering to farm animals in other ways, even while ensuring their survival and reproduction.

The root of the problem is that domesticated animals have inherited from their wild ancestors many physical, emotional and social needs that are redundant in farms. Farmers routinely ignore these needs without paying any economic price. They lock animals in tiny cages, mutilate their horns and tails, separate mothers from offspring, and selectively breed monstrosities. The animals suffer greatly, yet they live on and multiply. Doesn’t that contradict the most basic principles of Darwinian evolution? The theory of evolution maintains that all instincts and drives have evolved in the interest of survival and reproduction. If so, doesn’t the continuous reproduction of farm animals prove that all their real needs are met? How can a cow have a “need” that is not really essential for survival and reproduction?

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“They have had enough to fear. Now they have hope.”

Europe’s Refugees Are Modern-Day Pioneers (McArdle)

“They lose everything when their boats overturn – everything from their cell phones to their babies,” the Belgian nurse told me. He said it in a matter-of-fact tone that I recognized from my days giving tours of the cleaned-up Ground Zero site. It is not the sound of people who don’t care; it is the sound of people who have been living in the middle of horror for so long that they cannot keep stopping to cry. I cried when I got on the boat to leave the island of Lesbos, walking past the tent city that has sprung up at the docks. I cried all over again when my mother called to ask how my trip to Greece had been. But the refugees weren’t crying. So many of them looked happy, sitting under makeshift tents put together out of reams of netting and whatever cloth they could find.

Some smiled as they walked down the road with a backpack or a garbage bag that contained everything they had in the world. Others smiled as they walked down the road without one. Children laughed, men waved, mothers grinned shyly. “They’re safe now,” said one of the doctors at Kara Tepe, the temporary camp where refugees, largely from Syria, wait for passage to the European mainland. “They’re happy because they’re safe.”

[..] These hundreds of thousands survived the Taliban, the Islamic State, the Syrian civil war. They survived a perilous crossing, clinging to their children in a flimsy raft. They have finally arrived on safe shores. Where will these refugees go? America is willing to eventually take 100,000 Syrians a year. Where will these refugees go? Europe is squabbling over the distribution of 120,000 people over the next two years. Where will these refugees go? Mostly, no one knows. There is no plan for most of the estimated 4 million who have fled Syria so far, or for the thousands who are still coming every day. Where will these refugees go? The few I was able to talk to had no answer, but they were not afraid. They have had enough to fear. Now they have hope.

Europe and the U.S. have seen these people as a problem to be solved, or at best an obligation to be fulfilled. Take another look: These people are pioneers. Future citizens, teachers, engineers, P.T.A. dads, entrepreneurs, valedictorians, doctors. They are following in the footsteps of the immigrants who built the United States: the ones who chose to strike out for unknown territory, heading west with not much more than a knapsack. The modern-day pioneers striving toward Europe shouldn’t have to beg for a chance to build productive lives in Germany or Britain or the U.S. We should be going out to invite them in. We should have started much sooner.

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Criminally insane.

EU To Use Warships To Curb Human Traffickers (Al Jazeera)

The EU will use warships to catch and arrest human traffickers in international waters as part of a military operation aimed at curbing the flow of refugees into Europe, the bloc’s foreign affairs chief has said. “The political decision has been taken, the assets are ready,” Federica Mogherini said on Thursday at the headquarters of the European Union’s military operation in Rome. The first phase of the EU operation was launched in late June. It included reconnaissance, surveillance and intelligence gathering, and involved speaking to refugees rescued at sea and compiling data on trafficker networks. The operation currently involves four ships – including an Italian aircraft carrier – and four planes, as well as 1,318 staff from 22 European countries.

Beginning on October 7, the new phase will allow for the seizure of vessels and arrests of traffickers in international waters, as well as the deployment of European warships on the condition that they do not enter Libyan waters. “We will be able to board, search, seize vessels in international waters, [and] suspected smugglers and traffickers apprehended will be transferred to the Italian judicial authorities,” Mogherini said. “We have now a complete picture of how, when and where the smugglers’ organisations and networks are operating so we are ready to actively dismantle them,” she said. The new measures come at a time when Europe is enduring the largest refugee crisis since World War II.

An estimated 13.9 million people became refugees in 2014, while an average of 42,500 were displaced from their homes each day due to conflict and persecution, according to the UN refugee agency. Europe has already received more than 700,000 asylum applications in 2015. The Organisation for Economic Co-operation and Development predicts that number will exceed one million by the end of the year. Expanding the operation into Libyan waters is still pending the approval of the EU’s security council and the Libyan government. “We have a lot to do in high seas, and in the meantime we are continuing to work on the legal framework that could make it possible for us to operate also in Libyan territorial waters,” she added.

Gerry Simpson, a senior researcher at Human Rights Watch’s refugee programme, described the operation as “lawful but misguided”. “EU officials are misguided when they treat smugglers and traffickers as the root of the refugee problem,” he told Al Jazeera. “The roots of the problem are the violence in their home countries, as well as the conditions in the first countries where they take refuge – Egypt, Libya, Turkey [and] Sudan.” “Instead of wasting tax payers money on tackling smugglers who will always find a way to bring their clients to Europe, officials should pressure or support those first countries of asylum to properly protect and help refugees,” Simpson said.

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