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Archive: POLITICS

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KSM: The Need for A Criminal Trial

It’s been a few days now since Benjamin Wittes and Jack Goldsmith wrote their op-ed in the Washington Post calling the trial of Khalid Sheikh Mohammed “dispensable” and proffering that “the politically draining fight about civilian vs….. military trials is not worth the costs.”

Their proposal: “Instead of expending great energy on a battle over the proper forum for an unnecessary trial of Mohammed and his associates, both sides would do well instead to define the contours of the detention system that will, for some time to come, continue to do the heavy lifting in incapacitating terrorists.”

Benjamin Wittes is a senior fellow and research director in public law at the Brookings Institution. Jack Goldsmith teaches at Harvard Law School and served as an assistant attorney general in the Bush administration. Both are members of the Hoover Institution’s Task Force on National Security and Law.

After all the kerfuffle and back-and-forthing concerning where KSM would be tried and by whom, the Wittes-Goldsmith approach seemed sufficiently outside the box to at least warrant some further exploration.

So I contacted some of the brainiest civil rights lawyers I know to ask their opinions. Here’s what some of them told me:

David Frakt is a Lt. Col. in the Air Force Reserve JAG Corps and a professor of law at Western State University College of Law. He was formerly a military defense counsel who challenged the legitimacy of Military Tribunals and won the release of a GITMO detainee and his repatriation to Afghanistan.

He told me, “Wittes and Goldsmith’s solution would satisfy no one. A trial would serve a number of important functions other than simply providing a lawful basis for incarceration if convicted and sentenced. The American people deserve to know what happened on 9/11 and who was behind it. The families deserve an opportunity to see justice served. The accused deserve an opportunity to have their guilt proven, or establish their innocence.”

He added, “Nearly everyone agrees that this was one of the most monstrous single crimes ever committed. Whether one views KSM and his alleged co-conspirators as war criminals or simply mass murderers, there needs to be a criminal trial in some forum.”

Frakt’s point of view is echoed by most of those we contacted.

more from Chris Floyd

Team Obama Propaganda Campaign Reaches Fever Pitch

I’ve seldom seen so much rubbish written by people who ought to know better in a single day. Many able people have heaped the scorn and incredulity on three articles, one a piece on Rahm Emanuel slotted to run in the Sunday New York Times Magazine, another an artfully packed laudatory piece on Timothy Geithner by John Cassidy in the New Yorker and a more even handed looking one (I stress “looking”) in the Atlantic.

Ed Harrison has skillfully shredded parsed the Geithner pieces . Simon Johnson thrashed the New Yorker story. A key paragraph below:

The main feature of the plan, of course, was – following the stress tests – to communicate effectively that there was a government guarantee behind every major bank or quasi-bank in the United States. Of course this works in the short-term – investors like such guarantees. But there’s a good reason we usually don’t guarantee all financial institutions – or act happy when other countries do the same. Unconditional bailouts lead to trouble, encouraging reckless risk-taking and undermining responsible governance. You can’t run any form of reasonable market system when some big players hold “get out of bankruptcy free” cards.

Banking expert Chris Whalen was so disturbed by the numerous distortions in the New Yorker piece that he had already fired off a long letter to the editor by the time I pinged him, with these starting paragraphs:

Jack Cassidy tells us that “Timothy Geithner’s financial plan is working—and making him very unpopular.” Unfortunately this is completely wrong. Cassidy’s comment just illustrates why the New Yorker has fallen into such obscurity, namely because it is more Vanity Fair than its vivacious sibling and unable to perform critical journalism.

In fact, the banking system is continuing to sink under bad loans and even worse securities losses. Telling the public that the banks are “fixed” is irresponsible. Unfortunately this false perception is widespread, including among major media such as CNBC and also with a number of my clients in the hedge fund world.

And from Marshall Auerback, who had a ringside view of the aftermath of the Japanese bubble:

Cassidy’s article brings to mind a retort by Chou En Lai when he was asked about the success of the French Revolution. He said, “It’s too early to tell”. Yet here we have John Cassidy from the New Yorker and Joshua Green from The Atlantic both making the assumption that the Geithner plan “worked”. This whole line about “taxpayers to recover bailout money” is based on an accounting fraud, because accounting abuses are the primary means by which TARP recipients have repaid bailout money — putting us at greater risk. That may seem paradoxical, but the rush to repay is driven by a desire to have unrestrained executive bonuses (a very bad thing associated with far greater accounting fraud and failures — requiring future, larger taxpayer bailouts) and accounting abuses produce the (fictional) ability to repay the United States (primarily by failing to recognize existing losses). The TARP recipients weakened their financial condition, and increased moral hazard, when they rushed to repay the TARP funds. Both factors increase the risk of making more expensive future bailouts more likely.

Yves here. The reason that people who can discern clearly what is afoot are so deeply disturbed is simple, and all the comments touch on it. The campaign to defend Geithner and Emanuel, both architects of the administration’s finance friendly policies has gone beyond what most people would see as spin into such an aggressive effort to manipulate popular perceptions that it is not a stretch to call it propaganda.

This strategy, of relying on propaganda to mask their true intent, has become inevitable, given the strategic corner the Obama Adminstration has painted itself in. And this campaign has become increasingly desperate as the inconsistency between the Adminsitration’s “product positioning” and observable reality become increasingly evident.

Recall how we got here. Early in 2009, the banking industry was on the ropes. Both the stock and the credit default swaps markets said that many of the big players were at serious risk of failure. Commentators debated whether to nationalize Citibank, Bank of America, and other large, floundering institutions.

The case for bold action was sound. The history of financial crises showed that the least costly approach is to resolve mortally wounded organizations, install new management, set strict guidelines, and separate out the bad loans and investments in order to restructure and sell them. An IMF study of 124 banking crises concluded that regulatory forbearance, the term of art for letting impaired banks soldier on, found:

The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred…

Shuttering sick banks is hardly a radical idea; the FDIC does it on a routine basis. So the difference here was not in the nature of the exercise, but its operational complexity.

This juncture was a crucial window of opportunity. The financial services industry had become systematically predatory. Its victims now extended well beyond precarious, clueless, and sometimes undisciplined consumers who took on too much debt via credit cards with gotcha features that successfully enticed into a treadmill of chronic debt, or now infamous subprime and option-ARM mortgages.

Over twenty years of malfeasance, from the savings and loan crisis (where fraud was a leading cause of bank failures) to a catastrophic set of blow-ups in over the counter derivatives in 1994, which produced total losses of $1.5 trillion, the biggest wipeout since the 1929 crash, through a 1990s subprime meltdown, dot com chicanery, Enron and other accounting scandals, and now the global financial crisis, the industry each time had been able to beat neuter meaningful reform. But this time, the scale of the damage was so great that it extended beyond investors to hapless bystanders, ordinary citizens who were also paying via their taxes and job losses. And unlike the past, where news of financial blow-ups was largely confined to the business section, the public could not miss the scale of the damage and how it came about, and was outraged.

The widespread, vocal opposition to the TARP was evidence that a once complacent populace had been roused. Reform, if proposed with energy and confidence, wasn’t a risk; not only was it badly needed, it was just what voters wanted.

But incoming president Obama failed to act. Whether he failed to see the opportunity, didn’t understand it, or was simply not interested is moot. Rather than bring vested banking interests to heel, the Obama administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff. There would be no Nixon goes to China moment from the architects of the policies that created the crisis, namely Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Director of the National Economic Council Larry Summers.

more from Yves Smith's excellent Naked Capitalism

A Simple Reform Proposal from a Recovering Derivatives Trader

I have to confess that I have officially crossed over to curmudgeon status. I long for the days when bankers actually cared about relationships, when transactions were used to service customers, and when the word fiduciary meant something. It seems that granularity of a relationship is now defined as a single transaction and the time horizon of both buyers and sellers is limited by the conclusion of the deal.

Aside from whining about being old, I am deeply saddened by the debate or more precisely the lack of intelligent debate about how to properly reform the financial sector. The wise old men of Wall Street (Volker et al) have more or less all said that we need some significant reform to create a value added financial service segment, and that we must return to an environment that is less about risk taking and more about service.

While I agree with their sentiments, I don’t actually agree with the prescription that the answer (or even part of the answer) lies in separating proprietary trading from “customer servicing”. The days when pure brokerage can be separated from proprietary financial intermediation and risk transformation are LONG gone. Further the issue is not really with taking excess risk in the banks’ prop trading desk. Instead I would suggest the fundamental causes of the crisis and the current state of the financial segment are fairly simple namely too much leverage, too much credit exposure, not enough transparency, and of course pay practices that encourage speculation on the firms, and worse, the taxpayers, balance sheets.

Of course these three things are interconnected as well, but let me do my best to put forward a segmented argument

Too much leverage – We all know that the prop trading books are not the proximate cause of the meltdown. Rather is is the loan book and the inventory left on the shelf from a clogged securitization pipeline. We have all seen the numbers of the dramatic increase in leverage of all banks – whether Investment or Commercial – so the issue is not a return to Glass Steagall separation. Rather is is about charging properly for capital use, mandating that off balance sheet item be put back on the balance sheet (as in the final analysis these off balance sheet items are not off balance sheet) and encouraging the use of exchange and other standardized mechanisms to reduce net exposure, and increase transparency. While we all understand leverage caused the crisis we seem not to be able to agree on a solution.

Further what I find lacking in the debate is recognition that even the management of these financial institutions did not understand their real exposure (go ask Marcel Ospel of UBS, if you doubt the truth of this statement) It seems absurd to me that if the management of the financial institutions didn’t understand the real risks that any regulator has a snowball’s chance in hell of understanding (and regulating) our way out of this mess. Too little of the debate has focused on the fact that financial instrument complexity coupled with the federally mandated power of certain rating agencies masked the real financial risk form both the internal mgmt team and to investors. So we need to attack the root causes of this excess leverage and lack of mgmt understanding of the real risks, i.e too much complexity.

much more at Yves Smith's Naked Capitalism blog

The lingering of an absurd imperial reflex

There were chuckles and sniggers in Qatar last month when Hillary Clinton, the US secretary of state, warned that a military dictatorship was imminent in Iran. Threatening America's most intransigent adversary, Clinton seems to have been oblivious to her audience: educated Arabs in the Middle East where America's military presence has long propped up several dictators, including such stalwart allies in rendition and torture as Hosni Mubarak.

Of course, by her own standards, Clinton was being remarkably nuanced and sober: during the presidential campaign in 2008 she promised to "obliterate" Iran. An over-eager cheerleader of the Bush administration's serial bellicosity, Clinton exemplifies Barack Obama's essential continuity with previous US foreign policymakers – despite the president's many emollient words to the contrary. Clinton has also "warned" China with an officiousness redolent of the 1990s when her husband, with some encouragement from Tony Blair, tried to sort out the New World Order.

But the illusions of western power that proliferated in the 90s now lie shattered. No longer as introverted as before, China contemptuously dismissed Clinton's warnings. The Iranians did not fail to highlight American skulduggery in their oil-rich neighbourhood. But then Clinton is not alone among Anglo-American leaders in failing to recognise how absurdly hollow their quasi-imperial rhetoric sounds in the post-9/11 political climate.

Visiting India last year David Miliband decided to hector Indian politicians on the causes of terrorism, and was roundly rebuffed. Summing up the general outrage among Indian elites, a leading English language daily editorialised that the British foreign secretary had "yet to be house-trained". The US treasury secretary, Timothy Geithner, provoked howls of laughter in his Chinese audience when he assured them that China's assets tied up in US dollars were safe.

As foreign secretary of a nation complicit in two recent terrorist-recruiting wars, Miliband could have been a bit more modest. Resigned to financing America's massive deficits with Chinese-held dollars, Geithner could have been a bit less strident.

But no: old reflexes, born of the victories of 1945 and 1989, linger among Britain and America's political elites, which seem almost incapable of shaking off habits bred of the long Anglo-American imperium – what the American diplomat and writer George Kennan in his last years denounced as an "unthought-through, vainglorious and undesirable" tendency "to see ourselves as the centre of political enlightenment and as teachers to a great part of the rest of the world".

more from Pankaj Mishra in The Guardian (U.K.)

At It Again

Our 'liberal' paper of record, that is...

On Sunday, February 28th the New York Times published an outrageous oped by Efraim Karsh full of lies, distortions and mistakes.

Karsh describes the Israeli-Palestinian conflict as an urgent foreign policy matter for the United States.

It doesn't appear to be urgent. One more American administration has prostrated itself before Israeli arrogance and expansionism. Karsh mentions some sort of "100-year war between Arabs and Jews." There is no 100 year war between Arabs and Jews. There is a 100 year colonial struggle between Zionist Jews and the Palestinian people (and briefly the Lebanese as well).

He hopes that the "Islamic nation can make peace with the idea of Jewish statehood in the House of Islam." Its not about Jewish statehood in the house of Islam.

Its about Zionist Jewish settlers dispossessing the Palestinians and occupying Palestinian land. And killing Palestinians. Its not a religious conflict. Its a territorial one, an anti-colonial one, a national liberation struggle, even if the discourse used these days to describe it is often religious.

"Muslim states threaten Israel's existence not so much out of concern for the Palestinians, but rather as part of a holy war to prevent the loss of a part of the House of Islam," he says. He is lying. Who is he talking about? Iran?

Even if that was a real threat and not merely grandstanding, who else is there? the Saudis, the Turks, the Egyptians, the Jordanians and others all collaborate with Israel. Syria?

Hardly a threat and eager for peace as long as it can regain the occupied Golan heights. And the Israeli police force could conquer Syria in a few hours. Hizballah? Not a state and not trying to destroy Israel but merely protect Lebanese territory.

Hizballah threatens a bloody revenge if Israel attacks Lebanon, but that's it. And he is also lying when he says that Muslim states believe in some kind of holy war to prevent the loss of a part of the house of Islam. Which Muslim state? Nobody talks like this or says these things.

Most Muslim states either collaborate with Israel or just don't care (like Iraq today).

Karsh is a third rate academic who clearly has not visited much of the "Muslim World" about which he writes with generalizations, clichés, racism, Orientalism and a right wing pro Israeli agenda.

more from Nir Rosen, a real journalist who actually knows about the Middle East

Whatever Happened to "We the People"?

The twin swelling heads of Empire and Oligarchy are driving our country into an ever-deepening corporate state, wholly incompatible with democracy and the rule of law.

Once again the New York Times offers its readers the evidence. In its February 25, 2010 issue, two page-one stories confirm this relentless deterioration at the expense of so many innocent people.

The lead story illustrates that the type of massive speculation—casino capitalism, Business Week once called it—in complex derivatives is still going strong and exploiting the weak and powerless who pay the ultimate bill.

Titled “Banks Bet Greece Defaults on Debt They Helped Hide,” the article shocks even readers hardened to tales of greed and abuse of power. Here are the opening paragraphs: “Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin.”

“Echoing the kind of trades that nearly toppled the American Insurance International Group /AIG/, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.”

“These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company, or in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.”

“It’s like buying fire insurance on your neighbor’s house—you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich.