Oct 162015
 
 October 16, 2015  Posted by at 8:53 am Finance Tagged with: , , , , , , , , ,  4 Responses »


Alfred Palmer White Motor Company, Cleveland 1941

Corporate America’s Epic Debt Binge Leaves $119 Billion Hangover (Bloomberg)
The Economic Doomsday Clock Is Ticking Closer To Midnight (Artemis)
Rich Nations Lose Emerging-Markets Motor (WSJ)
Be Very Afraid: “The 3 Emerging Markets Debacles” Loom, HSBC Warns (Zero Hedge)
Goldman Sachs Blames Global Market Fears For Earnings Fall (Guardian)
Debt Slump Leaves Traders Exposed as European Banks Eye Job Cuts (Bloomberg)
Markets Expect Eurozone Deposit Rate To Go Deeper Into Negative Territory (BBG)
VW Forced By Germany To Recall 8.5 Million Diesels in Europe (Bloomberg)
US Pursues Several Paths in Volkswagen Probe (WSJ)
Treasury Considers Plan to Help Puerto Rico (NY Times)
Oil Is Killing the Drillers, and the Banks Want Their Cash Back Now (Bloomberg)
Billions Are Laundered Through British Banks, Treasury Admits (Times)
UK Banks May Need $5.1 Billion of Capital for Ring-Fencing (Bloomberg)
The Drone Papers: The Assassination Complex (Intercept)
‘Drone Papers’ Revelations Mandate a Congressional Investigation (FP)
The Multitude Of False Statements In Hillary’s Snowden Answer (New Yorker)
Merkel Prepares Germans for Historic Challenge of Refugee Crisis (Bloomberg)
EU Bid to Stem Refugee Influx Stalls on How Much to Give Turkey (Bloomberg)
US Lawsuits Build Against Monsanto Over Alleged Roundup Cancer Link (Reuters)

“Agressive borrowing”. That does not sound good.

Corporate America’s Epic Debt Binge Leaves $119 Billion Hangover (Bloomberg)

The Federal Reserve’s historically low borrowing rate isn’t benefiting corporate America like it used to. It’s more expensive for even the most creditworthy companies to borrow or refinance even as the Fed has kept its benchmark at near-zero the last seven years. Companies have loaded up on debt. They owe more in interest than they ever have, while their ability to service what they owe, a metric called interest coverage, is at its lowest since 2009. The deterioration of balance-sheet health is “increasingly alarming” and will only worsen if earnings growth continues to stall amid a global economic slowdown, according to Goldman Sachs credit strategists. Since corporate credit contraction can lead to recession, high debt loads will be a drag on the economy if investors rein in lending, said Deutsche Bank AG analysts.

“The benefit of lower yields for corporate issuers is fading,” said Eric Beinstein at JPMorgan. As of the second quarter, high-grade companies tracked by JPMorgan incurred $119 billion in interest expenses over the last year, the most for data going back to 2000, according to the bank’s analysts. The amount the companies owed rose 4% in the second quarter, the analysts said. The risk of default is negligible for companies with good credit. Even so, their health isn’t likely to improve when the Fed finally raises the lending rate, and it could worsen even without a hike, said Ashish Shah at AllianceBernstein. A souring economy or a shocking event such as a prominent terrorist attack could also cause borrowing costs to spike, he said.

The fallout of more borrowing coupled with lower earnings has raised concern among the analysts who track the debt and the money managers who buy it. Yet it seems the companies themselves are acting as if it’s not happening. They’re still paying out record amounts in buybacks and dividends. In the second quarter, the most creditworthy companies posted declining earnings before interest, taxes, depreciation and amortization. Yet they returned 35% of those earnings to shareholders, according to JPMorgan. That’s kept their cash-payout ratio – how much money they give to shareholders relative to Ebitda – steady at a 15-year high. The borrowing has gotten so aggressive that for the first time in about five years, equity fund managers who said they’d prefer companies use cash flow to improve their balance sheets outnumbered those who said they’d rather have it returned to shareholders..

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“..global central banks have set up the greatest volatility trade in history.”

The Economic Doomsday Clock Is Ticking Closer To Midnight (Artemis)

Prisoner’s Dilemma describes when two purely rational entities may not cooperate even if it is in their best interests to do so, thereby replacing known risks for unknown risks. In an arms race when two superpowers possess the ability to destroy each other, the optimal solution is disarmament and peace. If the superpowers do not trust one another completely, the natural course of action is proliferation of conflict through nuclear armament despite great peril to all. This non-cooperation, selfishness, and conflict, ironically results in an equilibrium of peace, but with massive risk. Global central banks are engaged in an arms race of devaluation resulting in suboptimal outcomes for all parties and greater systemic risk.

In this year alone 49 central banks have cut rates or devalued their currencies to gain a competitive edge and since 2008 there have been over 600 rate cuts worldwide. Globally we have printed over 14 trillion dollars since the end of the financial crisis. The global economy did not de-leverage from the 2008 crash but instead doubled down as global debt has increased a staggering 40% since 2007. The pace of global growth is slowing with the World Bank lowering GDP projections from 3% to 2.5%, and emerging economies from China to Brazil are struggling. Global currency reserves outside the US have declined over $1 trillion USD from their peak in August 2014 as foreign central banks have sold dollars to offset the ill effects of capital flight and commodity declines.

The last time the world economy experienced declines in reserves of this magnitude was right before the crash of 2008. Cross-asset volatility is rising from the lowest levels in three decades yet markets remain complacent with the expectation that central banks will always support asset prices. Volatility regime change is happening now and is a bad omen for a global recession and bear market. As global central banks compete in an endless cycle of fiat devaluation an economic doomsday clock ticks closer and closer to midnight. The flames of volatility regime change and an emerging markets crisis ignited on the mere expectation of a minor increase in the US federal funds rate that never came to be. The negative global market reaction to this token removal of liquidity was remarkable.

Central banks are fearful and unwilling to normalize but artificially high valuations across asset classes cannot be sustained indefinitely absent fundamental global growth. Central banks are in a prison of their own design and we are trapped with them. The next great crash will occur when we collectively realize that the institutions that we trusted to remove risk are actually the source of it. The truth is that global central banks cannot remove extraordinary monetary accommodation without risking a complete collapse of the system, but the longer they wait the more they risk their own credibility, and the worse that inevitable collapse will be. In the Prisoner’s Dilemma, global central banks have set up the greatest volatility trade in history.

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” International banks now have $3.6 trillion of exposure to emerging economies compared $1.2 trillion a decade ago..”

Rich Nations Lose Emerging-Markets Motor (WSJ)

New weakness emerged in China’s economy, heightening concerns that the woes of developing economies are ricocheting back to advanced ones and hurting the fragile recovery. Beijing on Wednesday reported that consumer prices slowed more than expected in September, reflecting weak domestic demand, a day after it said imports fell by one-fifth that same month. And Singapore, whose export-dependent economy is a bellwether for Asia’s health, said it narrowly avoided a recession, as its central bank on Wednesday took action to spur its economy for the second time this year. For years, emerging markets propped up global growth as their developed counterparts stalled. Now, a deepening slowdown in China and other developing markets is upending that scenario.

Central bankers from the U.S. to Japan now point to the emerging world as a risk rather than a cushion. “It’s clear that the slowdown in emerging markets is having an impact on developed markets,” said Adam Slater, a senior economist at Oxford Economics in London. “Emerging markets have been a very positive force for world growth over most of the last 10 years, and now the big contribution is dropping away.” New evidence is emerging that developing countries are buying fewer capital goods and higher-end products from richer countries. In addition to China’s announcement that its consumer-price index rose just 1.6% in September from the same period a year earlier, Indonesia, Southeast Asia’s largest economy, imported 16% fewer goods for its factories in the year through August.

Such grim data is reflected in the eurozone, which on Wednesday blamed a fall in industrial output in August on large developing economies such as China; in Germany, which this month announced a surprise fall in manufacturing orders in August and the lowest exports in seven years; in Japan, whose factory output was weaker than expected in the same period; and in the U.S., where exports for that month were their smallest since 2011. Global risk has risen over the last decade as developed and emerging markets became increasingly intertwined through trade, finance and investments. International banks now have $3.6 trillion of exposure to emerging economies compared $1.2 trillion a decade ago, according to the Bank for International Settlements.

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“The growth differential between EM and DM is still narrowing, not necessarily because DM is doing well but because EM is performing miserably…”

Be Very Afraid: “The 3 Emerging Markets Debacles” Loom, HSBC Warns (Zero Hedge)

[..] this is a story about the fundamentals and the fundamentals for EM are quite simply a disaster:
• Global growth and trade have entered a new era characterized by structural, endemic sluggishness
• Thanks to loose monetary policy that has kept capital markets wide open to otherwise insolvent producers and thanks also to anemic global demand, commodity prices aren’t likely to rebound anytime soon
• Because the Fed missed its window to hike, both a hawkish and a dovish Fed are likely precipitate capital outflows

As it turns out, HSBC went looking for opportunities across EM and came to the same conclusions. First, we have the five reasons for EM malaise: These are, in brief: collapse in global trade cycle, competitiveness problems (rising manufacturing unit labour costs), faltering domestic demand, downside risks posed by China, and the slump in commodity prices. And this is leading directly to a convergence of DM and EM growth, but not because DM is performing well: “The growth differential between EM and DM is still narrowing, not necessarily because DM is doing well but because EM is performing miserably. The leading indicators do not suggest any imminent improvement, either.”

That’s not the only place we’re seeing a “convergence” between EM and DM – they are also starting to look alike in terms of leverage: “The situation becomes even more toxic when the EM leverage cycle is taken into account. Thanks to years of abundant and cheap external liquidity, EM has built up debt very rapidly, while the drivers of economic growth have shifted towards private sector (household and corporate) credit. In many ways, EM is showing similar symptoms to its DM counterparts of weak economic performance and over- reliance on credit. The outcome is what we call the three EM debacles: de-leveraging, depreciation (or devaluation even de-pegging) and downgrades of credit ratings.

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“We continue to see strong levels of activity in investment banking and growth in investment management, and looking ahead, are encouraged by the competitive positioning of our global client franchise.”

Goldman Sachs Blames Global Market Fears For Earnings Fall (Guardian)

Goldman Sachs announced quarterly earnings that fell short of expectations on Thursday, blaming “renewed concerns” about global growth for the shortfall. Revenues fell to $6.86bn from $8.39bn a year ago. The bank had been expected to announce $7.13bn in revenue. Goldman’s third-quarter net income fell to $1.43bn, or $2.90 a share, from $2.24bn, or $4.57 a share, a year earlier. “We experienced lower levels of activity and declining asset prices during the quarter, reflecting renewed concerns about global economic growth,” said Lloyd Blankfein, chairman and CEO. “We continue to see strong levels of activity in investment banking and growth in investment management, and looking ahead, are encouraged by the competitive positioning of our global client franchise.”

The bank set aside $2.35bn for compensation and benefits for the third quarter of 2015, 16% lower than the third quarter of 2014. Fixed income, currencies and commodities trading revenue fell 33% to $1.46bn for the quarter, while equities trading revenue increased 9% to $1.75bn. Goldman is the latest US giant to announce disappointing results in this earnings season. Yesterday Walmart, the world’s largest retailer, also released results that fell short of expectations. It blamed rising wage costs and online competition for the shortfall. Goldman’s results came as Citigroup too released its latest results. The bank also reported a slowdown in trading but profits jumped 50% to $4.29bn compared to the same quarter last year as its legal bills dropped sharply. Legal and associated costs for the quarter were $376m, down from $1.55bn a year ago, when the bank was preparing for an eventual $5.7bn fine for the manipulation of foreign-exchange rates.

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“Goldman Sachs on Thursday reported a 34% decrease in fixed-income trading revenue..”

Debt Slump Leaves Traders Exposed as European Banks Eye Job Cuts (Bloomberg)

For the new leaders of Deutsche Bank and Credit Suisse, a debt-trading slump in the third quarter could provide fresh incentive to shrink their bond businesses as they reshape the firms to boost profitability. “Trading floors are like morgues at present,’’ Bill Blain at Mint Partners said. “For new CEOs looking to cut and kitchen-sink costs, it’s an easy call to reduce headcount.’’ John Cryan, Deutsche Bank’s co-CEO, and Credit Suisse CEO Tidjane Thiam both took over at mid-year with mandates to rebuild investor trust after their firms’ shares trailed investment-banking peers. Both will present plans this month for overhauls to adapt to stricter capital rules and interest rates stuck at record lows. Deutsche Bank and Credit Suisse got more than 20% of their revenue from trading fixed-income products in the first half, a bigger slice than European rivals such as Barclays and UBS.

That reliance leaves them more vulnerable to a market rout that ensnared assets from junk bonds to emerging-market currencies and dented results at U.S. peers. Credit Suisse publishes third-quarter earnings on Oct. 21, and Deutsche Bank the following week. Goldman Sachs on Thursday reported a 34% decrease in fixed-income trading revenue in the quarter, exceeding the 23% slump at JPMorgan and 11% decline at Bank of America, excluding accounting gains. “September was awful,” said Christopher Wheeler, an analyst at Atlantic Equities in London. “It has to have a read-across to Europe.” Banks’ fixed-income units – most of which trade bonds and products tied to interest-rates, currencies and commodities – were rattled in the third quarter by China’s yuan devaluation, a glut in oil and questions over whether the Fed would increase U.S. interest-rates.

Investors dumped assets including high-risk, high-yield U.S. debt linked to energy companies, which tumbled 16%, according to a Bank of America Merrill Lynch index. Currencies across developing markets – including the Turkish lira and the Brazilian real – fell against the dollar. Clients’ uncertainty prompted them to avoid some fixed-income markets, hurting the revenue of banks that take commissions on every trade, said Blain at Mint Partners. That doesn’t bode well for Deutsche Bank, among the world’s biggest traders of bonds along with securities tied to interest-rates, currencies and emerging markets, according to data from Coalition Ltd. Credit Suisse, one of the biggest traders of securitized products, relied on fixed-income trading for about 21% of revenue in the first half.

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From negative to more negative. And nobody dares say the emperor is naked? At sub-zero, he’s freezing his balls off.

Markets Expect Eurozone Deposit Rate To Go Deeper Into Negative Territory (BBG)

Debt and money markets are readying for a cut to the ECB’s deposit rate, regardless of what its policy makers say in public. Traders are pricing in a possible reduction to the rate for holding overnight deposits, said UBS and Barclays. ECB officials have declared it’s too early to expand stimulus and President Mario Draghi said more than a year ago that rates have reached their nadir. Economists predict changes to its bond-buying program, or quantitative easing, would come before any adjustment to more conventional monetary tools. With inflation in the euro region once again negative, speculation has swelled that the ECB will tinker with policy, perhaps with the euro in mind. The currency’s recent appreciation has added to downside risks for growth and inflation outlooks, ECB Executive Board member Yves Mersch said.

The central bank won’t hesitate to act if the inflation outlook weakens over the medium term, Mersch said Oct. 13. “The main objective for cutting the deposit rate would be to weaken the euro,” said Nishay Patel, a London-based fixed-income strategist at UBS. “It would not be a substitute for an increase in the QE program, which is able to provide stimulus to the economy.” The deposit rate was set at minus 0.2% in September 2014, after first being cut below zero in June that year. Draghi said at the time rates had reached its “lower bound.” Yields on Germany’s two-year notes were at minus 0.27% on Thursday. The market is pricing in at least a 50% chance of a cut of 10 basis points, or 0.1 percentage point, to the deposit rate, according to UBS strategists.

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“New parts necessary to fix some vehicles will probably be ready by next September..”

VW Forced By Germany To Recall 8.5 Million Diesels in Europe (Bloomberg)

Volkswagen will embark on one of the biggest recalls in European automotive history, affecting 8.5 million diesel vehicles, after German authorities threw out the carmaker’s proposal for voluntary repairs. The Federal Motor Transport Authority, or KBA, demanded a recall of 2.4 million cars in Germany after reviewing proposals Volkswagen filed last week to fix vehicles fitted with software designed to cheat on pollution tests, German Transport Minister Alexander Dobrindt said Thursday in Berlin. The mandatory recall is the basis for callbacks throughout Europe, where diesel accounts for more than half the market. Germany’s rare public snub of its biggest carmaker came after Volkswagen circumvented diesel emissions regulations starting in 2008.

The country’s demands will speed a process that Volkswagen said will last beyond 2016, and give authorities more control. “It’s an unusual measure to be ordering a mandatory recall,” said Arndt Ellinghorst, a London-based analyst with Evercore ISI. “It shows to me that the KBA is losing patience with VW’s slow response on what to do to fix the engines so far. Customers have been left unsettled.” The 8.5 million affected cars represent slightly less than one-third of Volkswagen’s auto deliveries in the region from 2009 through August, based on sales figures the company published for the five divisions involved. The recall is also Germany’s biggest since its current rules took effect in 1997, more than the record 1.9 million cars the entire auto industry brought back in under repair programs last year.

The mandatory recall will be more expensive for Volkswagen because the company will need to work on the cars more quickly, Evercore’s Ellinghorst said. The manufacturer has yet to specify exactly how it will fix the cars, though it has said some will require only a software update while others will need new or rebuilt engine parts. “The KBA’s decision opens up the possibility of a common and coordinated response in all European Union states,” Volkswagen CEO Matthias Mueller wrote Dobrindt on Thursday in a letter obtained by Bloomberg. “Such a unified procedure would be in the European spirit as well as in the interests of customers.” Volkswagen must share technical details of its fix with authorities by mid-November, and the recall will begin in January.

The KBA will test vehicles to ensure the repairs were successful, Dobrindt said. New parts necessary to fix some vehicles will probably be ready by next September, he said. Throughout Europe, Dobrindt has estimated that Volkswagen will probably need to exchange or rebuild parts for about 3.6 million engines. For the sake of customers and the image of the automobile, “we will clear up what happened at Volkswagen,” Enak Ferlemann, state secretary in Germany’s Transport Ministry, said. “Germany will stay the No. 1 auto country.”

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Agressive prosecutor?!

US Pursues Several Paths in Volkswagen Probe (WSJ)

The U.S. attorney’s office in Detroit and the Justice Department’s Fraud Section joined a sweeping federal probe of Volkswagen AG over emissions-test cheating, according to people familiar with the matter, signaling the government’s intent to cast a broad net and explore numerous paths to a possible criminal case. The number of federal offices now involved in the Volkswagen case suggests an investigation could target the German auto maker and its employees for alleged offenses ranging from pollution to misleading government officials to claims made to consumers. The Federal Trade Commission, which investigates fraudulent advertising, confirmed its involvement, suggesting a focus on potentially misleading claims regarding the emissions.

The involvement of the U.S. attorney in Detroit, Barbara McQuade, signals her office may take a significant role in what is expected to be a major case. Ms. McQuade has a reputation as an aggressive prosecutor, having won a corruption case against former Detroit Mayor Kwame Kilpatrick. In sprawling investigations like the Volkswagen probe, the Justice Department has a choice of which prosecutor to assign. David Uhlmann, formerly a top environmental crimes prosecutor who is now a law professor at the University of Michigan, said the number of government offices involved suggested the case would be “of national significance,” with any settlement likely to reach into the billions of dollars.

The federal investigation now includes the Detroit office of the Federal Bureau of Investigation and the Justice Department’s Environment and Natural Resources Division, which investigated BP after the Deepwater Horizon oil spill, people familiar with the probe said. The EPA, which in September disclosed the auto maker’s cheating, could hit Volkswagen with more than $18 billion in fines based on the number of vehicles involved, though it isn’t clear whether the agency will pursue such a large penalty. [..] Europe’s largest auto maker faces not only aggressive investigations by European and U.S. authorities, but also class-action lawsuits from aggrieved customers. Prosecutors in Germany earlier this month raided Volkswagen offices and private homes as part of a criminal inquiry there.

The EPA alleged last month that Volkswagen had violated two parts of the U.S. Clean Air Act. That law exempts auto makers from criminal penalties for illegal pollution, but it does criminalize the conveying of false information to regulators. [..] Federal prosecutors have recently turned to other laws to charge auto makers with crimes. The Justice Department charged GM and Toyota with wire fraud for concealing information on safety defects. In the GM case, prosecutors also used a section of the U.S. code that can hold companies broadly accountable for misleading government officials.

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Dare they set a precedent?

Treasury Considers Plan to Help Puerto Rico (NY Times)

Officials in the Treasury Department are discussing a radical and aggressive response to the fiscal chaos engulfing Puerto Rico that could involve a broad debt exchange assisted by the federal government. The proposal calls for the federal government to help Puerto Rico collect and account for local tax revenues from the island’s businesses and residents, according to people briefed on the matter who spoke on the condition of anonymity because they were not authorized to publicly discuss the proposal. An inability to collect all the taxes owed is widely seen as contributing to Puerto Rico’s debt crisis. The tax proceeds would be placed in a “lockbox” overseen by the Treasury and eventually paid out by the Treasury to the holders of the new bonds that Puerto Rico would issue in the proposed exchange.

Since the Treasury would effectively become the paying agent for the new bonds, they would be more attractive than the bonds that creditors now hold. That would make it easier for Puerto Rico to exchange the new debt with creditors who hold bonds that have been devastated in value since the island warned this summer that it could not pay its debts. The proposal has logistical, political and legal challenges, however, and may never get off the ground. “Right now, Puerto Ricans don’t even like to pay taxes to their own government,” said one person with knowledge of the discussions. If the I.R.S. were to suddenly replace the local tax authorities and try to gather up the money for debt service, “people would say, ‘Go to hell. I’m not paying the U.S. government.’ ”

But the fact that such an unusual idea has been floated between the Treasury and top finance officials from Puerto Rico in recent months suggests a sharp shift in Washington’s approach to the island’s economic crisis. Without addressing the proposal directly, officials from the Treasury said in a statement that it had “no plans to provide a bailout to Puerto Rico.” Until now, the Treasury has provided mostly technical assistance to island officials, while the Republican leaders in Congress have expressed strong reservations about bailing out Puerto Rico. The island’s first choice appears to be a bankruptcy law amendment that would allow the island to send some of its governmental bodies into Chapter 9 municipal bankruptcy court. But bills introduced to that effect have not moved..

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“Lenders extended low interest credit to wildcatters desperate for cash, then—perhaps remembering the 1980s oil bust—wheeled the debt off their books by selling new stocks and bonds to investors, earning sizable fees along the way. ”

Oil Is Killing the Drillers, and the Banks Want Their Cash Back Now (Bloomberg)

When Whiting Petroleum needed cash earlier this year as oil prices plummeted, JPMorgan Chase, its lead lender, found investors willing to step in. The bank helped Whiting sell $3.1 billion in stocks and bonds in March. Whiting used almost all the money to repay the $2.9 billion it owed JPMorgan and its 25 other lenders. The proceeds also covered the $45 million in fees Whiting paid to get the deal done, regulatory filings show. Analysts expect Whiting, one of the largest producers in North Dakota’s Bakken shale basin, to spend almost $1 billion more than it earns from oil and gas this year. The company has sold $300 million in assets, reduced the number of rigs drilling for oil to eight from a high of 24, and announced plans to cut spending by $1 billion next year.

Eric Hagen, a Whiting spokesman, says the company has “demonstrated that it is taking appropriate steps to manage within the current oil price environment.” Whiting has said it will be in a position next year to have its capital spending of $1 billion equal its cash flows with an oil price of $50 a barrel. As for Whiting’s investors, the stock is down 36%, as of Oct. 14, since the March issue, and the new bonds are trading at 94¢ on the dollar. More than 73% of the stocks and bonds issued this year by oil and gas producers are worth less today than when they were sold. Banks’ sell-the-risk strategy underpins the shale oil boom. Lenders extended low interest credit to wildcatters desperate for cash, then—perhaps remembering the 1980s oil bust—wheeled the debt off their books by selling new stocks and bonds to investors, earning sizable fees along the way.

“Everyone in the chain was making money in the short term,” says Louis Meyer at Oscar Gruss. “And no one was thinking long term about what they’re going to do if prices fall.” North American oil and gas producers have sold $61.5 billion in equity and debt since January, paying more than $700 million in fees. Half the money was raised to repay loans or restructure debt, the data show. “Being there for our clients in all market environments, particularly the tough ones, is something we feel very strongly about,” says Brian Marchiony, a JPMorgan spokesman. “During challenging periods, companies typically look to strengthen their balance sheets and increase liquidity, and we have helped many do just that.”

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My, are we surprised.

Billions Are Laundered Through British Banks, Treasury Admits (Times)

Investigations into corrupt cash flowing through Britain barely scratch the surface of the problem, the first official report on the scale of money laundering revealed yesterday. The national risk assessment, published by the Treasury, said “hundreds of billions of pounds of international criminal money” is laundered through British banks every year. Investigations into international corruption by the National Crime Agency covered cases limited to “millions of pounds of assets in the UK . . . and financial flows that span the globe”, it added. The publication of the risk assessment forms part of the government’s anti-corruption agenda, which saw the prime minister warn this summer of the threat to the British economy and the City of London posed by “dirty money”.

Much more work was required, the report’s authors admitted, if Britain was to create a “hostile environment for illicit finance”. They wrote: “The assessment shows that the collective knowledge of UK law enforcement agencies, supervisors and the private sector of money laundering and terrorist financing risks is not yet sufficiently advanced.” The campaign group Transparency International said the report was “a clear and unambiguous recognition of the risks posed by money laundering in the UK and the weaknesses in the UK’s system for detecting illicit and corrupt money flowing into a wide range of sectors”.

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“..under Bank of England rules on the separation of retail operations from riskier investment banking.”

UK Banks May Need $5.1 Billion of Capital for Ring-Fencing (Bloomberg)

The U.K.’s largest banks may face higher capital requirements under Bank of England rules on the separation of retail operations from riskier investment banking. The BOE’s Prudential Regulation Authority estimates that so-called ring-fencing could mean an additional capital requirement of £2.2 billion pounds ($3.4 billion) to £3.3 billion pounds by 2019, when the rules kick in. The move is aimed at ensuring that financial services crucial to the U.K. economy, such as deposit-taking, payments and overdrafts, will be protected if riskier units incur losses and have to be shut down.

The additional burden is due to the protected unit being measured on a standalone basis for its capital needs. In addition, any transactions between the ring-fenced unit and other parts of the institution will be classed as third-party deals, meaning capital will have to be held against them. “The PRA recognizes that applying this approach may result in increased capital requirements for some firms,” it said in a consultation paper published in London on Thursday. The rules will probably apply to HSBC RBS, Lloyds, Barclays, Santander and Co-operative Bank.

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A second Snowden.

The Drone Papers: The Assassination Complex (Intercept)

Drones are a tool, not a policy. The policy is assassination. While every president since Gerald Ford has upheld an executive order banning assassinations by U.S. personnel, Congress has avoided legislating the issue or even defining the word “assassination.” This has allowed proponents of the drone wars to rebrand assassinations with more palatable characterizations, such as the term du jour, “targeted killings.” When the Obama administration has discussed drone strikes publicly, it has offered assurances that such operations are a more precise alternative to boots on the ground and are authorized only when an “imminent” threat is present and there is “near certainty” that the intended target will be eliminated.

Those terms, however, appear to have been bluntly redefined to bear almost no resemblance to their commonly understood meanings. The first drone strike outside of a declared war zone was conducted more than 12 years ago, yet it was not until May 2013 that the White House released a set of standards and procedures for conducting such strikes. Those guidelines offered little specificity, asserting that the U.S. would only conduct a lethal strike outside of an “area of active hostilities” if a target represents a “continuing, imminent threat to U.S. persons,” without providing any sense of the internal process used to determine whether a suspect should be killed without being indicted or tried. The implicit message on drone strikes from the Obama administration has been one of trust, but don’t verify.

The Intercept has obtained a cache of secret slides that provides a window into the inner workings of the U.S. military’s kill/capture operations at a key time in the evolution of the drone wars — between 2011 and 2013. The documents, which also outline the internal views of special operations forces on the shortcomings and flaws of the drone program, were provided by a source within the intelligence community who worked on the types of operations and programs described in the slides. The Intercept granted the source’s request for anonymity because the materials are classified and because the U.S. government has engaged in aggressive prosecution of whistleblowers. The stories in this series will refer to the source as “the source.”

The source said he decided to provide these documents to The Intercept because he believes the public has a right to understand the process by which people are placed on kill lists and ultimately assassinated on orders from the highest echelons of the U.S. government. “This outrageous explosion of watchlisting — of monitoring people and racking and stacking them on lists, assigning them numbers, assigning them ‘baseball cards,’ assigning them death sentences without notice, on a worldwide battlefield — it was, from the very first instance, wrong,” the source said.

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What goood would that do?

‘Drone Papers’ Revelations Mandate a Congressional Investigation (FP)

This morning, the reporting team at the Intercept published an impressive eight-part series on the policies and processes of U.S. drone strikes, called “The Drone Papers.” Some of the newly reported information is purportedly based upon “a cache of secret slides that provides a window into the inner workings of the U.S. military’s kill/capture operations … between 2011 and 2013.” Intercept journalist Jeremy Scahill writes that the slides “were provided by a source within the intelligence community.” [..] this reporting could awaken or reintroduce interested readers to how the U.S. national security apparatus has thought about and conducted counterterrorism operations since 9/11. The reporting is less one big “bombshell” and more of a synthesis of over a decade’s worth of reporting and analysis, bolstered by troubling new revelations about what has become routine. [..]

The Intercept series, at a minimum, reconfirms and illuminates much of what we knew, thought we knew, or suspected about drone strikes. For example, there is “not a bunch of folks in a room somewhere just making decisions,” as President Barack Obama put it in 2012, but indeed a clear chain of command that is displayed in a slide with the heading: “Step 1 — ‘Developing a target’ to ‘Authorization of a target.’” Also, it is clear that the Obama administration strongly prefers killing suspected terrorists rather than capturing them, despite claiming the opposite. Additionally, it is evident that the military and intelligence communities do not have the intelligence, surveillance, and reconnaissance platforms that they claim they need.

Finally, the documents support that military commanders have a strong bias against seemingly endless and pointless drone strikes, strongly preferring a “find, fix, finish, exploit, analyze, and disseminate” (F3EAD) approach, which allows a command staff to continuously improve its situational awareness of an environment through capturing and interrogating suspected militants and terrorists. As one secret study declares: “Kill operations significantly reduce the intelligence available from detainees and captured materials.” One military official described to me the normalcy of killing with drones in 2012, saying, “It really is like swatting flies. We can do it forever easily and you feel nothing. But how often do you really think about killing a fly?”

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Chafee: “That’s what the federal courts have said; what Snowden did showed that the American government was acting illegally for the Fourth Amendment. So I would bring him home.”

The Multitude Of False Statements In Hillary’s Snowden Answer (New Yorker)

I’ve already given my instant verdict on Tuesday night’s Democratic debate: in terms of the horse race, Hillary Clinton was the clear winner, although Bernie Sanders also did pretty well. But it was a long discussion about serious issues, and some of the exchanges bear closer inspection—including the one about Edward Snowden, the former National Security Agency contractor who is currently languishing in Russia. The exchange began with host Anderson Cooper asking Lincoln Chafee, a former governor of Rhode Island, “Governor Chafee: Edward Snowden, is he a traitor or a hero?” Chafee replied that he would bring Snowden home without forcing him to serve any jail time. “The American government was acting illegally,” he continued. “That’s what the federal courts have said; what Snowden did showed that the American government was acting illegally for the Fourth Amendment. So I would bring him home.”

Chafee was stating a truth. In May of this year, a three-judge panel at the U.S. Court of Appeals for the Second Circuit, in Manhattan, ruled that the N.S.A., in routinely collecting the phone records of millions of Americans—an intelligence program that Snowden exposed in 2013—broke the law of the land. The Patriot Act did not authorize the government to gather calling records in bulk, the judges said. “Such expansive development of government repositories of formerly private records would be an unprecedented contraction of the privacy expectations of all Americans,” the decision read. The ruling overturned one that had been handed down in December, 2013, in which a federal judge, William Pauley, said that the N.S.A.’s collection of metadata was legal. After Chafee spoke, Cooper turned to Hillary Clinton and asked, “Secretary Clinton, hero or traitor?”

Clinton, who earlier in the debate had described herself as “a progressive who likes to get things done,” replied, “He broke the laws of the United States. He could have been a whistle-blower. He could have gotten all of the protections of being a whistle-blower. He could have raised all the issues that he has raised. And I think there would have been a positive response to that.” “Should he do jail time?” Cooper asked, to which Clinton replied, “In addition—in addition, he stole very important information that has unfortunately fallen into a lot of the wrong hands. So I don’t think he should be brought home without facing the music.” From a civil-liberties perspective—and a factual perspective—Clinton’s answers were disturbing enough that they warrant parsing.

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This should have been done at least a year ago.

Merkel Prepares Germans for Historic Challenge of Refugee Crisis (Bloomberg)

German Chancellor Angela Merkel, facing growing criticism from within her own party for her handling of the refugee crisis, urged lawmakers to prepare for the long haul as asylum seekers continue to surge into Europe. “It’s not an exaggeration to describe this task as a historic test for Europe,” Merkel said in a speech to parliament in Berlin Thursday ahead of a European Union summit. “I expect from this council that everyone does his part.” The chancellor, who was lambasted at a town-hall event Wednesday by members of her party accusing her of encouraging migration and failing to control the nation’s borders, also called on fellow legislators to back proposals to provide additional funding for refugees and tighten the country’s asylum rules. “I’ve said that we need to give every person a friendly welcome. And I’m not changing my mind on that.”

With Germany expecting at least 800,000 refugees and migrants this year, including many from Syria, Merkel is bucking pressure from political allies and the public to shift her principled stance and limit the influx. After a decade in power, Europe’s biggest refugee crisis since World War II has the chancellor on the defensive as she urges other EU countries to do more to share the burden. The outbursts at a meeting of her Christian Democratic Union on Wednesday offer a snapshot of public resistance to Merkel’s open-door policy that’s eroding her poll ratings and voter support for her party. Audience members at the two-hour event in eastern Germany accused the chancellor of failing to do her job, portrayed refugees as ingrates and blamed the crush of arrivals for a housing shortage in the nearby city of Leipzig.

“This is the biggest task I’ve faced in my life as chancellor,” responded Merkel, who earlier told the audience that human dignity is universal and sought to put the refugee crisis in an international context. “I know that it’s a difficult situation. But I wouldn’t give up. Let us be confident and optimistic.” Several lawmakers in Merkel’s 311-member parliamentary group in Berlin criticized her at a closed meeting on Tuesday for failing to stem the influx, prompting her to respond that a refugee quota is impossible to set, according to two party officials who attended. Merkel said Thursday that confronting the migrant crisis will require a global approach that includes working to solve the conflict in Syria and aiding Turkey, where she will travel over the weekend, to stem the flow of refugees.

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Tusk puts things on their head: “If we are not able to find humanitarian and efficient solutions then others will find solutions which are inhuman, nationalistic and, for sure, not European..” Reality is, the EU has already created an inhuman situation simply by doing nothing.

EU Bid to Stem Refugee Influx Stalls on How Much to Give Turkey (Bloomberg)

European leaders failed to reach a final agreement on recruiting Turkey to help stem the flow of refugees from the Middle East, with some eastern member states dragging their heels over how much aid to grant their neighbor. Angela Merkel told a news conference that the European Union had a draft accord with Turkey on curtailing the flow of migrants and refugees. She said the figure of €3 billion in EU aid to Turkey was discussed at a summit in Brussels, but that the issue had yet to win full support from the 28-nation bloc. With more than a million migrants set to reach the EU in 2015 and Russian bombing raids on Syria threatening even greater flows for next year, some member states are recoiling at the sacrifices they’ll have to force on their voters.

The summit underscored the challenge facing the EU with the leaders attempting to woo Turkey, already harboring more than 2 million refugees itself, after cold-shouldering the country’s requests to join the bloc for the past decade. “If we are not able to find humanitarian and efficient solutions then others will find solutions which are inhuman, nationalistic and, for sure, not European,” EU President Donald Tusk said at a news conference after the meeting. The day that ended with a stalemate over money had begun with Merkel calling on her EU partners to pay their share of the costs of helping refugees. Afterward the chancellor described the progress made in cautious terms, saying that “outlines of cooperation” with Turkey were becoming “quite visible.”

Turkey has spent more than €7 billion euros on refugees in the last three or four years, Merkel noted, so the EU helping out was “burden-sharing.” She said there was “a general sense” among leaders that it was right “to shelter refugees closer to their home rather than financing them here in our own countries.” While the member states agreed to send hundreds more border guards to help Frontex and other joint agencies patrolling the bloc’s borders, leaders made little progress on how to redesign the system of distributing immigrants, forming an EU border guard corps or on how to ensure arrivals are properly processed. “These are all divisive issues and the goal today was to have the first serious exchange,” Tusk said.

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Mass tort.

US Lawsuits Build Against Monsanto Over Alleged Roundup Cancer Link (Reuters)

Personal injury law firms around the United States are lining up plaintiffs for what they say could be “mass tort” actions against agrichemical giant Monsanto that claim the company’s Roundup herbicide has caused cancer in farm workers and others exposed to the chemical. The latest lawsuit was filed Wednesday in Delaware Superior Court by three law firms representing three plaintiffs. The lawsuit is similar to others filed last month in New York and California accusing Monsanto of long knowing that the main ingredient in Roundup, glyphosate, was hazardous to human health. Monsanto “led a prolonged campaign of misinformation to convince government agencies, farmers and the general population that Roundup was safe,” the lawsuit states.

The litigation follows the World Health Organization’s declaration in March that there was sufficient evidence to classify glyphosate as “probably carcinogenic to humans.” “We can prove that Monsanto knew about the dangers of glyphosate,” said Michael McDivitt, whose Colorado-based law firm is putting together cases for 50 individuals. “There are a lot of studies showing glyphosate causes these cancers.” The firm held town hall gatherings in August in Kansas, Missouri, Iowa and Nebraska seeking clients. Monsanto said the WHO classification is wrong and that glyphosate is among the safest pesticides on the planet. “Glyphosate is not a carcinogen,” company spokeswoman Charla Lord said.

“The most extensive worldwide human health databases ever compiled on an agricultural product contradict the claims in the suits.” Roundup is used by farmers, homeowners and others around the globe and brought Monsanto $4.8 billion in revenue in its fiscal 2015. But questions about Roundup’s safety have dogged the company for years. Attorneys who have filed or are eying litigation cited strong evidence that links glyphosate to non-Hodgkin lymphoma (NHL). They said claims will likely be pursued collaboratively as mass tort actions. To find plaintiffs, the Baltimore firm of Saiontz & Kirk advertises a “free Roundup lawsuit evaluation” on its website. The Washington, D.C. firm Schmidt & Clark is doing the same, as are other firms in Texas, Colorado and California.

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Feb 012015
 
 February 1, 2015  Posted by at 12:20 pm Finance Tagged with: , , , , , , ,  4 Responses »


William Henry Jackson Steamboat Metamora of Palatka on the Ocklawaha, FL 1902

Europe’s Creditors Play With ‘Political Fire’ Pushing Greece To The Brink (AEP)
To Escape Economic Hell, Greece Needs Tsipras To Call Germany’s Bluff (Guardian)
As In 1942, Germany Must Show Restraint Over Greece (Cockburn)
The Country That Refuses to Bow Down to Western Bankers (AlterNet)
Greece Hires Lazard To Advise On Debt (FT)
Greece Will Repay ECB, IMF, Reach Deal With EU, Tsipras Says (Bloomberg)
Barricades Down, Ties Off: Welcome To Greece’s Style Revolution (Guardian)
Podemos Looks to Capture Tsipras Momentum to Oust Rajoy (Bloomberg)
Spain’s Anti-Austerity Podemos Stages Show Of Force Before Elections (Reuters)
Merkel’s Unintended Creation: Tsipras Win To Upset EU Power Balance? (Spiegel)
Dijsselbloem To Varoufakis: “You Just Killed The Troika” (Zero Hedge)
Greece Shakes Europe’s Political Kaleidoscope – Expect The Unexpected (Reuters)
China Manufacturing Shrinks For The First Time In Two Years (Guardian)
Beyond GDP: UK Greens Spark Debate On A Better Measure Of Progress (Guardian)
The Rise Of The Working Poor: When Having A Job Cannot Prevent Poverty (Ind.)
10 Reasons You Don’t Hear The Doomsday Clock Ticking (Paul B. Farrell)

“We are ants; the Greeks are grass-hoppers..”

Europe’s Creditors Play With ‘Political Fire’ Pushing Greece To The Brink (AEP)

Spain’s Podemos party – much in evidence at Syriza’s victory party in Athens, and even more mutinously radical – is leading national polls at 27pc. Marine Le Pen’s Front National won the EU elections in France with calls for a return to the franc and a return to sovereign borders. The three biggest opposition parties in Italy are now hostile to the euro. This is not contagion from Greece. It is running in parallel. Yet how it is handled will spill over with emotional force into the internal debates everywhere in Europe. “Syriza has just won a landslide popular mandate from the Greek people to tell the Troika to go to Hell. It is ludicrous to shout at them and tell them they can’t wriggle out of agreements,” said Giles Merritt, head of the Brussels think-tank Friends of Europe. Mr Merritt said the Syriza revolt has exposed the political failure of EMU crisis strategy with refreshing clarity.

“People in Brussels are losing patience with Germany. The real issue at hand is how we are going to rescue the eurozone from economic depression caused by five years of misguided austerity. Tspiras may find that he has more friends in this city than he thinks,” he said. “We cannot possibly risk Grexit at this stage and trigger a fresh eurozone crisis, so the Commission will soon waiver. Jyrki Katainen is toeing the line for now but he is not a fool. It is Greece that really has the whip hand, and the task is to find a face-saving formula for Germany,” he said. Prof Ashoka Mody, a former IMF bail-out chief in Europe and now at Princeton University, said hints by ECB members that they may pull the plug on Greek banks are “extremely irresponsible” and beyond the proper authority of these officials.

“They are supposed to be the guardians of financial stability. I have never heard of such outlandish threats before. The EU authorities have no idea what the consequences of Grexit might be, or what unknown tremors might hit the global payments system. They are playing with fire,” he said. Marc Ostwald from Monument said Grexit would open a Pandora’s Box. “They are all playing down the risk but once you throw Greece out, you are setting a precedent that nobody wanted to set. How could Cyprus stay in the euro given its dependence on Greek banks? As we have just seen with the Swiss franc, once the system buckles the markets will go after the next victim like a plague of locusts,” he said. The ECB would shield Portugal from immediate Grexit fall-out, but corrosive doubts would be planted.

As the Portuguese newspaper Publico wrote in an editorial entitled “Portugal is not Greece, but…”, the country has the same afflictions of crushing debt, low-growth, and lack of competitiveness within EMU. Combined public and private (non-financial) debt is 380pc of GDP, the highest in Europe, making the country acutely vulnerable to debt-deflation dynamics. Nor is it still viewed as an austerity poster child by Berlin. “The reforms have stalled. Behind the scenes they have put a halt to cuts. It is surprising that people haven’t paid attention to this,” said Raoul Ruparel from Open Europe. “We are ants; the Greeks are grass-hoppers,” protests Luís Marques Guedes, Portugal’s presidency minister.

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“Living standards were 85% of the European average before the financial crisis; they are now down to 60%. ”

To Escape Economic Hell, Greece Needs Tsipras To Call Germany’s Bluff (Guardian)

Lovers of Greek myths know the story of Sisyphus, the king of Corinth who as a punishment from the gods was condemned to spend his time in Hades pushing a boulder to the top of a hill. Every time Sisyphus neared the summit, the boulder slipped from his hands and rolled to the bottom of the slope, and he had to start all over again. The parallels between the sad story of Sisyphus and the equally sad story of Greece are too obvious to require comment. Burdened with debts that are worth 175% of its national output and rising, Greece faces a vain struggle to escape from the economic Hades in which it has been struggling these past five years. So when Alexis Tsipras, head of Greece’s new Syriza coalition government, says his country not only needs debt relief but demands it, he is right. Under the austerity conditions of the past half-decade, the Greek economy has shrunk by 25%. Living standards were 85% of the European average before the financial crisis; they are now down to 60%.

The surprising thing about Greece is not that the people have voted for a radical alternative to the status quo, but that they were stoical for so long. Tsipras’s challenge to the economic orthodoxy also makes sense. What Greece – and the indeed the entire eurozone – needs is not more austerity but stronger demand. Two numbers illustrate the abject failure of economic policy in the 19-nation single currency area: -0.6% and 11.4%. The first is the current inflation rate; the second the current jobless rate. The new government in Athens has made its intentions clear. It has shelved privatisation plans. It has raised the minimum wage and announced moves to hire more civil servants. The message from Tsipras is that we want debt relief and an end to the economic squeeze, and we want them now. There is, though, a complication. Greek voters also want to stay in the eurozone and the EU, which means that Tsipras can get what he wants only through negotiations with his country’s creditors. That means doing a deal with the ECB, the other members of the EU and the IMF.

Ultimately, it means doing a deal with Angela Merkel. David Marsh of the Official Monetary and Financial Institutions Forum wonders how Syriza is going to reconcile these three aims. Merkel and the other EU hardliners can see the inconsistency in Tsipras’s negotiating position. They are relatively relaxed about Greece because they know the tough talking has yet to start. Then they will say that if Greece wants to stay in the euro and wants ECB support for its shaky banks, it has to accept the terms set by its creditors, perhaps with some minor modifications. Tsipras’s best chance of avoiding a humiliating climbdown is to toughen his stance and threaten to leave the euro unless he gets Greece’s official debt reduced by, say, 50%. Indeed, unless he is prepared to do this, it’s hard to see why this leftwing prime minister chose a rightwing anti-German party as his coalition partner.

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“They make a desert and call it peace.”

As In 1942, Germany Must Show Restraint Over Greece (Cockburn)

Here are some quotes from the diaries of Count Ciano (Mussolini’s foreign minister and son-in-law), referring to Greece a year and a half after it was invaded and occupied by Germany. 6 October 1942: “Clodius [the Third Reich’s economics minister] is in Rome to discuss the Greek financial question, which is very bad. If it continues at this rate, sensational and unavoidable inflation will result, with all its consequences… “All this is absurd, but the German army does not intend to reduce its interest rate.” 8 October 1942 [Ciano tells Mussolini about the Greek situation and quotes his reply]: “If we lose this war it will be because of the political stupidity of the Germans who have not even tried to use common sense, and have made Europe as hot and treacherous as a volcano.” “He [Mussolini] is thinking of speaking to Himmler about this… but he will not get anywhere.”

In 2015, as in 1942, the Germans tend to overplay a strong hand. They insist that the Greeks abide by austerity agreements that have just been rejected by Greek voters in the general election on 25 January. The reason there was an election at all was that the previous Greek government, drawn from the conservative New Democracy and nominally socialist Pasok parties, could not get enough support in parliament to select a new president because eurozone leaders and the IMF would not relax their terms. The clear message from Greece is that no Greek government can satisfy the demands of the troika and expect to survive. The Greeks have every reason to reject the troika’s austerity programme. If ever an economic plan failed, it is this one. When the EU and IMF took control of Greek economic policy five years ago, they were meant to solve its debt crisis, modernise the economy and restore it to health.

They have demonstrably failed. A quarter of the economy has been destroyed, 26% of the workforce and 57.5% of youth is unemployed, and the economy is in crisis still. Listening to EU officials speak of “progress made”, one is reminded of Tacitus’s line, spoken by a British insurgent leader resisting the Roman occupation, which has echoed down the centuries: “They make a desert and call it peace.” Do the EU, ECB and IMF officials who visit Athens, often displaying an arrogance and contempt for the views of the Greeks that Tacitus would have found familiar, have much idea of what is happening there? Megan Greene, chief economist for the Portfolio Solutions Group, has studied economic relations between Greece and Germany since 2006. Reflecting on the past five years, she wonders if IMF officials “surrounded by security men in dark glasses” ever met any ordinary Greeks. She recalls an ECB official in Athens being astonished when she told him that many Greeks simply did not have the money to pay their taxes.

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“..a central bank which was not accountable to any national authority and which would push countries merely to become hostages to the whims of the financial markets.”

The Country That Refuses to Bow Down to Western Bankers (AlterNet)

Mario Seccareccia, a professor of economics at the University of Ottawa, has been outspoken in his warnings that austerity policies have the potential to smash economies and spread human misery. In his work supported by the Institute for New Economic Thinking and elsewhere, he has challenged deficit hawks and emphasized the need for strong government investment in things like jobs, education, healthcare, and infrastructure if economies are to prosper. In the following interview, he talks about why what happened to Greece was entirely predictable, why the Greeks were right to reject austerity in the recent election, and what challenges the country faces in forging a sustainable path forward with the left-wing Syriza party at the helm.

Lynn Parramore: You have long been warning of problems in the Eurozone. What do the Greek elections mean to the debate about austerity and how it impacts economies?
Mario Seccareccia: I actually began warning about problems in the Eurozone even before they launched the Euro in 1999! A couple of years after the adoption, in 1992, of the Maastricht Treaty, which was the initial step in the creation the European Economic and Monetary Union or the Eurozone, I happened to be in Paris for the launch of a book that I had co-edited in French titled Les Pièges de l’Austérité (The Austerity Traps) that had been published in November 1993. During the discussions, a number of us were already raising very serious questions about a treaty which prevented national governments from doing what they needed to do to stabilize their economies — namely engage in needed deficit spending, regardless of the magnitude, during times of recession for the purpose of stabilizing income and employment.

Some of us at the book launch warned of problems that could arise from a European supranational currency and a central bank which was not accountable to any national authority and which would push countries merely to become hostages to the whims of the financial markets. Along with many others, I’ve also raised concerns over what economists call “deflationary bias” in the structure of the Eurozone — that is, the tendency for policies to focus on lower inflation instead of more jobs and growth and to prevent greater public spending as a means to achieve growth. I could see that Greece would be the country that would be hit first by these problems because it is financially the weakest link in the euro chain, and because of the high public debt ratio when it joined the Eurozone in 2002. What is surprising is that it took until 2010 to reach such a crisis even though the warnings had been there for a long time.

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Big name. Interesting choice.

Greece Hires Lazard To Advise On Debt (FT)

The Greek government has hired investment bank Lazard to advise it on managing sovereign debt in a sign that Syriza is serious about honouring its election pledge to restructure its debt pile—despite EU officials warning against it. Tensions have been high since the country’s newly-elected far-left party came to power after winning elections a week ago, with German chancellor Angela Merkel on Saturday reiterating that Greece’s European creditors would not consider forgiving part of the debt-ridden country’s rescue loans. “I don’t see a further debt haircut,” she said. News of the move to hire Lazard came as Erkki Liikanen, an ECB governing council member, warned that Greek banks would be cut off from ECB lending if no deal was reached by the end of February when Greece’s support programme expires.

“We (the ECB) have our own legislation and we will act according to that. . . Now, Greece’s programme extension will expire at the end of February so some kind of solution must be found, otherwise we can’t continue lending,” Mr Liikanen said. Meanwhile, prime minister Alexis Tsipras on Friday called ECB president Mario Draghi to reassure him that his new government wanted to reach a “mutually beneficial” solution with international partners over the renegotiation of Greece’s bailout. A Greek official, who spoke to Bloomberg on condition of anonymity, said Mr Tsipras called Mr Draghi following a tense meeting between his new finance minister Yanis Varoufakis and Jeroen Dijsselbloem, the head of the eurozone group of finance ministers.

Mr Varoufakis had said that Greece would no longer co-operate with the troika of international lenders and would not accept an extension of its EU bailout. “This position enabled us to win the trust of the Greek people,” he said. Mr Dijsselbloem in return rejected the new Greek government’s call for an international conference that would consider writing off part of Greece’s debt, which last year amounted to 175% of national output. The exchange, along with tough words from Berlin, captured an adversarial mood as the new Greek government and its eurozone partners made their first formal contact and set the stage for tense negotiations that could decide Greece’s future in the European bloc.

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Weighing very word is crucial: “I am absolutely confident that we will soon manage to reach a mutually beneficial agreement..”

Greece Will Repay ECB, IMF, Reach Deal With EU, Tsipras Says (Bloomberg)

Greek Prime Minister Alexis Tsipras sought to repair relations with creditors after a week-long selloff in bonds and stocks, triggered by his pledge to end the country’s bailout agreement. Greece will repay its debts to the European Central Bank and the International Monetary Fund and reach a deal soon with the euro area nations that funded most of the country’s financial rescue, Tsipras said Saturday in an e-mailed statement. “My obligation to respect the clear mandate of the Greek people with respect to ending the policies of austerity and returning to a growth agenda, in no way entails that we will not fulfill our loan obligations to the ECB or the IMF,” Tsipras said.

Greece may soon be operating without a financial safety net for the first time in five years after Tsipras said he won’t respect the conditions of the country’s €240 billion rescue. He’s asking euro area officials to endorse an alternative program of economic revival that would allow increases in spending and wages to boost growth. “We need time to breathe and create our own medium-term recovery program, which amongst other things will incorporate the targets of primary balanced budgets and radical reforms to address the issues of tax evasion, corruption and clientelistic policies,” Tsipras said. “I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.”

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“As a last act of resistance the victims sang, breaking into the Greek national anthem, as they were lined up before the firing squad.”

Barricades Down, Ties Off: Welcome To Greece’s Style Revolution (Guardian)

Barely 20 minutes after being sworn in, Tsipras was standing before a large slab of marble in the rifle range of Kaisariani holding a clutch of red roses. The slab commemorates 200 resistance fighters killed by Nazi SS officers as the war neared its end on 1 May 1944. The youngest was 14. The red roses, gingerly placed on top of the memorial, represented the “rivers of blood” that some in Kaisariani, an Athens suburb, still recall flowing through the streets that day. The massacre, in reprisal for the fatal ambushing of a German general, would end up being among the worst committed by Nazi forces feeling the heat of resistance. The victims were almost all communists interned in Athens’ infamous SS-run Haidari concentration camp. If memory is the stomach of the mind, as St Augustine once noted, for Greek leftwingers Kaisariani is a visceral reminder of what so many endured during the “stone years” of the 20th century.

Civil war, military dictatorship, persecution under rightwing governments ensued. As a last act of resistance the victims sang, breaking into the Greek national anthem, as they were lined up before the firing squad. Tsipras did not speak. He did not have to. The monument spoke for him. And its message was twofold: the left had finally achieved power, and Germany should never forget how much the Greeks had suffered. Just as they had done under occupation, they would continue to resist Germany’s hegemony and its perceived attempts at subjugation through economically disastrous austerity.

Two days after overthrowing the old political order, the young revolutionaries insisted that barricades protecting the Greek parliament –ostensibly from furious protesters – be brought down. Under Syriza’s stewardship, Athens’s new civil protection minister felt fit to announce that the cradle of democracy no longer needed to be iron clad. The biting cuts and tax rises that had pushed Greeks on to the streets, in massive demonstrations when the crisis first hit, now belonged to the past. Under azure skies – for the sun had come out – I watched as workmen dismantled the barriers with an alacrity not known to most labourers in Greece.

A riot bus, parked alongside the building at the behest of the previous conservative-led coalition, was gone by the time the sun had come up. A band of American tourists, taking in the sight as they watched the slow-motion dance of the ceremonial guards outside the parliament, began to applaud. Inside, as the government held its first cabinet meeting, the cameras rolled. Looking straight up at them, Tsipras declared: “We do not have the right to disappoint our voters.” By day’s end, the anti-austerians had delivered on their promises, reinstating the minimum wage, rehiring public sector employees, and rolling back on all manner of reforms.

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“Tick tock, tick tock, Mariano – you won’t survive till summer..”

Podemos Looks to Capture Tsipras Momentum to Oust Rajoy (Bloomberg)

Thousands of supporters of Spanish anti-austerity party Podemos converged on Madrid today to kick off a year of campaigning they hope will end with the ouster of Prime Minister Mariano Rajoy. The group, which has led in most recent opinion polls, has been energized by the election victory of its ally Syriza in Greece, where Prime Minister Alexis Tsipras is challenging the European Union’s insistence on spending cuts after a seven-year recession that wiped out 25% of the economy. “Greece, brothers, here we come,” the crowd shouted. “Tick tock, tick tock, Mariano — you won’t survive till summer.” Podemos emerged over the past year, matching similar movements in Italy, Ireland and Greece, where many voters have grown tired after years of austerity.

While Spain’s economy is growing at the fastest pace in seven years, its 24% unemployment rate means many voters are still to feel the effects of the recovery. “Change has already started,” Juan Carlos Monedero, a member of Podemos’s executive committee, said in comments broadcast on the Internet. The anti-establishment party’s march started outside the central bank and the headquarters of the army in Cibeles square in the center of the capital and then headed down to the Puerta del Sol, the plaza colonized by the so-called indignados in 2011. Most demonstrators wore stickers with the party’s purple logo, a reference to Spain’s second republic brought to an end by the civil war in 1936.

Podemos grew out of the indignados movement – many of its leaders and party workers were involved in the 2011 demonstrations – and won five seats in the European elections in May just four months after it was created. Since then the party’s popularity has surged. A Jan. 10 survey published by El Pais showed the party on 28.2% with Prime Minister Rajoy’s People’s Party in third place on 19.2%. A Sigma Dos poll published by TV station Telecinco on Jan. 20 showed the PP leading Podemos by 29.4% to 26.2%. “Podemos has become a force in Spanish politics and need to be taken seriously,” said Tom Rogers, senior economist at Oxford Economics. “However, as radical parties get closer to government, they tend to get the most radical elements out and become more pragmatic.”

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“In Greece, more has been done in six days than in many years..”

Spain’s Anti-Austerity Podemos Stages Show Of Force Before Elections (Reuters)

Tens of thousands marched in Madrid on Saturday in the biggest show of support yet for Spanish anti-austerity party Podemos, whose policies and surging pre-election popularity have drawn comparisons with Greece’s new Syriza rulers. Crowds chanted “yes we can” or “tic tac tic tac” to suggest the clock was ticking for Spain’s scandal-ridden political elite. Many waved Greek and Republican flags and banners reading “the change is now” or “Pablo president”. Podemos (“We Can”) was formed just a year ago by university professor Pablo Iglesias, but produced a major shock by winning five seats in elections for the European Parliament in May.

Tapping into Spaniards’ austerity fatigue and widespread anger at “la casta”, as it calls the country’s business and political elites, it is currently topping opinion polls in the run-up to local, regional and national elections this year. “People are fed up with the political class,” said Antonia Fernandez, a 69-year-old pensioner from Madrid who had come to the demonstration with her family. Fernandez, who lives with her husband on a €700-a-month combined pension cheque, said she used to vote for the Socialist Party but had lost faith in it because of its handling of the economic crisis and its austerity policies. “If we want to have a future, we need jobs,” she said. Spain is emerging from a seven-year economic slump as one of the euro zone’s fastest growing countries.

But the exit from recession has yet to ease the hardship for millions of households, in a country where nearly one in four of the workforce remains out of a job. Addressing the crowd in the Puerta del Sol square in central Madrid, the 36-year-old, pony-tailed Iglesias said 2015 would be the “year of change” in Spain. “The wind of change is starting to blow in Europe,” he said in Greek, as he praised Greek leftist leader Alexis Tsipras’ first decisions as prime minister. Tsipras promised that five years of austerity, “humiliation and suffering” imposed by international creditors were over after his Syriza party romped to election victory on Jan. 25. “Who said it was impossible? Greece today has a government of change. In Greece, more has been done in six days than in many years,” Iglesias said.

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Der Spiegel defends Angela.

Merkel’s Unintended Creation: Tsipras Win To Upset EU Power Balance? (Spiegel)

Tsipras never tires of saying that he wants to “give the Greeks back their dignity.” And dignity is an important word for those who seek to understand what has happened in Greece. If so many Greeks didn’t feel humiliated by their own corrupt political class, by their dwindling prosperity – but also by the Germans and the other Europeans – Tsipras would have never been elected. Tsipras is a man whose career was spawned by the euro crisis. The currency that was designed to unite Europe has effectively divided its people. In an economic community in which some feel that they have been hoodwinked and others feel oppressed, Tsipras’ fans revere him as a rebel. Many Greeks see him as a man who has what it takes to free them from oppression.

At the same time, many Germans see him as a terrifying extremist. They view Tsipras as Europe’s nightmare. Tsipras is the anti-Merkel, and he never would have achieved this kind of political success were it not for the German chancellor. And now these individuals constitute the two antipodes in a Europe in which there is a growing lack of mutual understanding. How could it come to this point? Right from the start, the euro was more than just a currency. It was a pledge to heal the rifts created by war and blind nationalism in Europe. When then-German Chancellor Helmut Kohl signed the Maastricht Treaty on Feb. 7, 1992, he hoped that the common currency would irreversibly unite the Continent.

Now, the euro appears to be stirring up the very antagonistic sentiments that it was supposed to eliminate. In Greece the crisis has brought a government to power that features an entirely new mixture of left-wing radicals and right-wing populists, whose only common ground is the joint struggle against Merkel’s austerity dictate. But Tsipras is also Merkel’s unintended creation. His rise to power cannot be explained without a deep understanding of the frustration that Europe’s policy of austerity has sparked. This may seem irrational. After all, it was the Greeks who amassed such huge debts that their country could no longer bear the burden in April 2010. But by morphing Merkel into an austerity dominatrix, Tsipras has created an artificial figure upon whom he can project all of the Greeks’ negative feelings.

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“..and whispered…”you have just killed the Troika,” to which Varoufakis responded… “wow!”

Dijsselbloem To Varoufakis: “You Just Killed The Troika” (Zero Hedge)

Amid ‘turmoiling’ stock markets on Friday, CNBC’s Simon Hobbs summed up the status quo’s thinking on the new Greek leadership when he noted, somewhat angrily and shocked, “The Greeks are not even trying to reassure the markets,” seeming to have entirely forgotten (and who can blame him in this new normal the world has been force-fed for 6 years) that political leaders are elected for the good of the people (by the people) not for the markets. Yesterday saw the clearest example yet of Europe’s anger that the Greeks may choose their own path as opposed to following the EU’s non-sovereign leadership’s demands when the most uncomfortable moment ever caught on tape – the moment when Eurogroup chief Jeroen Dijsselbloem stood up at the end of the EU-Greece press conference, awkwardly shook hands with Greece’s new finance minister, and whispered…”you have just killed the Troika,” to which Varoufakis responded… “wow!”

As Keep Talking Greece reports: The joint press conference was concluding, when Greek Finance Minister Yanis Varoufakis droped a last bombshell. “…and with this if you want – and according to European Parliament – flimsily-constructed committee we have no aim to cooperate. Thank you.” Varoufakis was referring to the famous Troika, the country’s official creditors consisting of the European Union, the International Monetary Fund and the European Central Bank.. After concluding with a “Thank you” Varoufakis gives the word to Eurogroup Chief Jeroen Dijsselbloem, who wants to hear the translation first. Then he takes off the ear phones, he stands up and sets to leave. An enforced-looking shaking of hands delays the departure of the Dutch FinMin. Dijsselbloem quickly whispers something to Varoufakis’ ear, he briefly replies back and the Eurogroup chief leaves the press conference hall as soon as it was possible.

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“We’re in for at least half a decade of turbulence and uncertainty in Europe.”

Greece Shakes Europe’s Political Kaleidoscope – Expect The Unexpected (Reuters)

By catapulting to power an improbable alliance of the hard left and nationalist far right, Greece has shaken up Europe’s political kaleidoscope and may have signaled the end of an era of centrist consensus. With eight general elections due in the European Union this year, as well as regional votes, the earthquake in Athens may be a harbinger of other shocks to come. Expect the unexpected in 2015 from Britain to Finland and Denmark to Spain as voters who have endured five years of economic crisis, falling real incomes and welfare cuts vent their anger, anxiety or apathy at the ballot boxes. Mainstream center-right and center-left parties that have dominated European politics since the end of World War II are bleeding support to populists at both ends of the spectrum, and to mavericks like Italian comic-turned-politician Beppe Grillo.

This theme will be prominent during Reuters’ annual euro zone summit this week which will interview a host of policymakers from Brussels and key EU capitals. In many countries, voters feel the established parties offer no real alternative. Many are keen to punish a ruling “caste” perceived as out of touch with ordinary people’s concerns, and as helping themselves rather than their electors. What unites many of the new forces is hostility to the EU and to policies of austerity driven from Brussels and Berlin. “We’ve reached the end of a 30-year cycle of liberal individualism and wealth accumulation that began with Ronald Reagan and Margaret Thatcher,” former British Europe minister Denis MacShane said in an interview. “We’re in for at least half a decade of turbulence and uncertainty in Europe.”

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This is not just growth contraction, it’s actual contraction. Things get worse fast.

China Manufacturing Shrinks For The First Time In Two Years (Guardian)

China’s manufacturing activity contracted for the first time in more than two years in January, an official survey showed on Sunday, signalling further downward pressure on the world’s second-largest economy. The official purchasing managers’ index (PMI) released by the national bureau of statistics came in at 49.8 last month, down from the 50.1 recorded in December. The index, which tracks activity in factories and workshops, is considered a key indicator of the health of China’s economy. A figure above 50 signals expansion, while anything below indicates contraction. January’s figure was the first contraction for 27 months. The British bank HSBC said last month that a preliminary reading of its own PMI edged up to 49.8 in January from a final reading of 49.6 in December. It was at the break-even point of 50.0 in November.

The bank is scheduled to release its final PMI figure on Monday. ANZ Banking Group said in a research report that the NBS figures were unexpected, particularly given “favourable seasonal factors”. “The Chinese New Year falls into late February this year, while it was in late January last year,” ANZ said. “Past experience suggests that there could be significant front loading effect before the Chinese New Year, which would provide short-term impetus to the manufacturing industry.” China’s central bank surprised economists in November by cutting benchmark interest rates for the first time in more than two years, in a move interpreted as an attempt to shore up flagging growth. The People’s Bank of China lowered its one-year rate for deposits by 25 basis points to 2.75% and its one-year lending rate by 40 basis points to 5.6%.

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“The prior question is, ‘what are we trying to achieve with our lives?’”

Beyond GDP: UK Greens Spark Debate On A Better Measure Of Progress (Guardian)

Daffodils do it; babies do it; kittens do it: growing seems like the most natural thing in the world, and over the years we’ve come to understand growth as the normal state for economies, too. Recessions, when GDP temporarily declines, are an aberration, imperilling human progress and interrupting the natural order. And chancellors are keen to trumpet Britain’s success when, as in 2014, our growth rate races ahead of the competition. So when the Green party suggested last week that it might abandon the idea of targeting GDP growth as a public policy aim, it caused a storm of indignation with some commentators fearing that the environmentalist party – which has been registering support of more than 10% in some recent polls – would catapult Britain back to the dark ages.

Caroline Lucas, the Green MP for Brighton and the party’s spokeswoman on the economy, is keen to play this down, stressing that any shift to a new way of gauging economic success would have to be gradual. She argues, for example, that a more rounded view of progress might incorporate a measure of how much Britain is depleting or polluting its “natural capital” – resources such as rivers, forests and oceans. The independent Natural Capital Committee, chaired by academic Dieter Helm, already produces regular reports for the government on sustainable use of resources.

“I don’t think it’s unreasonable to say that – at the very least to begin with – alongside GDP, we might also begin to have a measure of the depletion of resources,” Lucas says. “Once people get more used to that, you could imagine bringing in two or three more indicators: health, community cohesion, equality and so on.” She argues that GDP – which measures all kinds of economic activity, but misses out “bad” factors such as pollution, is “a very, very flawed measure: all it’s measuring is the amount of money revolving around the economy, without ascertaining whether or not it’s being used to good or bad ends. The prior question is, ‘what are we trying to achieve with our lives?’

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Britain’s great recovery.

The Rise Of The Working Poor: When Having A Job Cannot Prevent Poverty (Ind.)

The “vast majority” of veterans who need financial aid to prevent them from slipping into homelessness are unable to make ends meet despite having jobs, the head of a leading military charity has revealed. Hugh Milroy, the CEO of Veterans Aid, a front-line charity fighting homelessness among the country’s ex-servicemen and women, said about 80 per cent of its active cases could be described as “working poor” – people who are in employment but still fall below the poverty line. Staff at the charity, one of two being supported by The Independent on Sunday’s charity appeal, have observed a marked change in the kind of person seeking help over the past two years. The proportion of working poor on the charity’s books has been rising rapidly, they said.

“They are people who simply cannot afford to live and work. We’ve had one or two really bad cases where whole families could have ended up on the streets if we hadn’t intervened,” Dr Milroy said. “This is a really serious issue, and it isn’t going away. Life in Britain is complex and expensive. Some people simply can’t afford their rent and end up sleeping in their car, even though they’ve got a job. You cannot sustain your life like that.” The charity recently helped a single father with three young children who had been given 24 hours to move out of his flat after accruing debts through a payday loans company. Veterans Aid gave him money for a deposit on a new property and guaranteed his rent for six months. “Had we not, they would have been on the streets,” Dr Milroy said.

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“..in the United States at present, the policies being pursued by too many wealthy people and decision makers are ones that, as in the case of the Mayan kings, preserve their interests in the short run but are disastrous in the long run.”

10 Reasons You Don’t Hear The Doomsday Clock Ticking (Paul B. Farrell)

The Doomsday Clock was just reset: It’s now “Three Minutes to Midnight,” warns the Bulletin of Atomic Scientists. It’s loud ticking is a grim reminder, as Joe Romm put it on ClimateProgress, that “Earth’s rate of global warming is 400,000 Hiroshima bombs a day.” Yes, a civilization-ender, and yet, Gallup polls dismiss the warning — the public doesn’t consider climate change a major national priority. The threat was also summarized in Scientific American: The Doomsday Clock is “a visual metaphor to warn the public about how close the world is to a potentially civilization-ending catastrophe. Experts on the board said they felt a sense of urgency this year because of the world’s ongoing addiction to fossil fuels, procrastination with enacting laws to cut greenhouse-gas emissions and slow efforts to get rid of nuclear weapons.” Yes, global warming is as powerful and lethal as 400,000 atomic bombs exploding daily, said James Hansen, former head of NASA Goddard Institute of Space Studies.

America is addicted to Big Oil. But paradoxically, that’s numbing us to the terminal ticking sound of the disasters ahead. Our brains are trapped in denial — not just Big Oil and their right-wing climate-science deniers — but more than 100 million average Americans. We’re deaf. Dumb. Blind. To the threats. This is a problem of psychology, behavioral economics and the neurosciences. As anthropologist Jared Diamond, author of “Collapse: How Societies Choose to Fail or Succeed,” put it: Our brains still haven’t learned the lessons of history. Remember, centuries ago two million people lived in the Mayan civilization. But like “so many societies the elite made decisions that were good for themselves in the short run and ruined themselves and societies in the long run.”

As a result, the Mayan civilization collapsed “because of a combination of climate change, drought, water-management problems, soil erosion, deforestation.” Diamond added the rulers “managed to insulate themselves from the consequences of their actions.” Forests being chopped down. But “the kings didn’t recognize that they were making a mess until it was too late.” Flash forward, “similarly, in the United States at present, the policies being pursued by too many wealthy people and decision makers are ones that, as in the case of the Mayan kings, preserve their interests in the short run but are disastrous in the long run.” Yes, today the old pattern is repeating. Listen to 10 excuses Americans make. All of us, not just Big Oil but all across America, Washington, Wall Street, and yes, all over Main Street. Here’s why we are already repeating the same fate as the Mayans in today’s world of endless hypocrisy and denials about global warming, failing to prepare, oblivious of the coming storms.

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