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The Wrongologist

Geopolitics, Power and Political Economy

Sunday Cartoon Blogging – June 8, 2014

“The
oppressor’s most powerful weapon is the mind of the oppressed
.”
– Stephen Biko

We
are ending our visit to in Shenzhen today and are heading for Hong Kong. The people
we met here are focused, businesslike and practical. Everyone seems to be
working extremely hard to make and/or save money, to get a car, a better
apartment, to make a better life for their kids. No one spoke directly or openly
about politics, although they were quite interested in how we perceived
differences between their city and institutions and those in the US. We met no big picture people. More about
China next week after we return.


From
9,000 miles away, it seemed to be a typical week in US politics. The stock market
hit another all-time high, Republicans were for Sgt. Bergdahl before they were
against him, and Mr. Obama remembered D-Day:

Last week, Mr. Boehner said that he wasn’t certain about Climate Change, because after all, he wasn’t a scientist.  Let’s take that to its logical conclusion:

And the Coal industry continues to stand behind its supporters:

The return of Sgt. Bergdahl, who was held by the Taliban for 5 years, predictably upset Republicans. Mr. Obama did not consult them on the release, the Sgt. may have been a deserter, we shouldn’t negotiate with the Taliban, and we gave up too much to get him back…Take your pick:

Speaking of Fox News, HuffPo reports that they have their worst ratings in 13 years, and that wasn’t their biggest problem:

With a median age of 68.8 years, Fox’s audience is over six years older than either CNN or MSNBC. It’s even worse for their top rated program (O’Reilly) whose average viewer is over 72 years old. And their Great Blonde Hope [Megyn] (Kelly), who was specifically brought in to draw younger viewers, also exceeded Fox’s average with her typical viewer being over 70

Then, the Bergdahl affair triggered this tweet from Fox’s psychiatrist contributor:

The President does not have “Americanism in his soul”
http://t.co/PalsQV4C2H pic.twitter.com/Yim6r4kmmr

— Media Matters (@mmfa) June 4, 2014

Bergdahl brought out the worst in the GOP:



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Too Big to Fail/Jail (Again)

What’s Wrong Today:

Credit Suisse (CS), the Swiss bank, admitted on Monday in its guilty plea, that it helped American clients evade US taxes. From the plea:

For decades prior to and through in or about 2009…Credit Suisse did unlawfully, voluntary, intentionally, and knowingly conspire, combine, confederate, and agree together with others…to willfully aid, assist in, procure, counsel, and advise the preparation and presentation of false income tax returns and other documents to the Internal Revenue Service

In March, we wrote about Credit Suisse. We gave you the flavor of Credit Suisse’s evasion efforts:

In the US, VIPs would use a secret elevator without buttons and operated by remote control to be whisked to Credit Suisse private banking suites. The Senate report says that bankers hid bank statements in the pages of Sports Illustrated rather than sending account statements and leaving paper trails

The CS financial penalty was roughly $2.6 billion in fines, with $100 million going to the Fed, $715 million to the New York Department of Financial Services, and $1.8 billion to the Department of Justice (DOJ). CS will also appoint a monitor for two years subject to the approval of the NYDFS.

This fine dwarfs that imposed in 2009 on another big Swiss bank, UBS, who paid $780m, and whose offense may have been more extensive.

Yet, the most important difference with 2009 is not the money, but the charge and the plea. UBS was permitted to enter a deferred-prosecution agreement, enabling guilt to be expunged. CS was forced to plead guilty to aiding tax evasion—making it the first big firm with ties to the financial industry to be tagged with a criminal charge since Arthur Andersen in 2003.

The DOJ is crowing about its new found willingness to convict major financial institutions, with Eric Holder claiming,

This case shows that no financial institution, no matter its size or global reach, is above the law

The guilty plea certainly seems like a step forward from the neither-admit-nor-deny settlements that banks have counted on for the past decade, but as James Kwak said in The Atlantic:

There is a risk that the Credit Suisse deal—the guilty plea coupled with ample assurances that the admitted criminal will be allowed to remain in business—could become the new version of the deferred prosecution agreement: an outcome that makes everyone happy, yet punishes no one, and ultimately becomes just another cost of doing business

The Economist reported that:

The agreement was constructed over months of negotiations between Credit Suisse and its regulators, with particular attention paid to whether an admission of guilt would lead to the dissolution of the bank

Moneynews reported on CS’s reaction to the plea:

Credit Suisse Group AG CEO Brady Dougan said he doesn’t expect a guilty plea to a US criminal charge will drive customers away from the bank:

All the discussions with clients have actually been very reassuring…We continue to be hopeful and encouraged that there will be very little impact on business as we go forward

And in the CS press release describing the settlement, there is no expectation of:

Lost licenses, nor any material impact on its operational or business capabilities

Two controversial aspects of the agreement: First is the survival of current senior management. Five lower-level employees who had been indicted for their involvement in the tax scheme but were still being paid, will be terminated. This despite comments by Benjamin Lawsky, New York’s Superintendent of Financial Services, who said that the activity at Credit Suisse was “decidedly not the result of the conduct of just a few bad apples.”

The Second aspect is a provision allowing the identities of CS’s American clients who dodged paying taxes to remain protected.

The Wall Street Journal quotes Sen. Carl Levin (D-MI):

It is a mystery to me that the US government didn’t require as part of the agreement that the bank cough up some of the names of US clients with secret Swiss bank accounts

Senator Levin’s committee had published a report on CS showing that more than 22,000 of its accounts were held by Americans, and the CS settlement leaves no clear path to getting those names.

When UBS settled with the DOJ, it disgorged 19,000 names of US account holders.

There are two main ways to punish criminals and deter wrongdoing. One is criminal prosecution of the individuals involved, ideally getting lower-level employees to cooperate and gathering evidence as far up the management hierarchy as possible. (Some ongoing prosecutions against several CS employees continue)

The other is putting a bank out of business by revoking, or temporarily suspending its license, called the “death penalty”. Even if he escapes jail, no bank CEO wants THAT on his résumé. And that penalty would seem entirely appropriate for a bank that engages in a decades-long criminal conspiracy that costs US taxpayers billions of dollars.

More from the Economist:

The conventional wisdom, however, is that you can’t revoke a large bank’s license because of potential systemic consequences. (That’s why prosecutors only pressed for the guilty plea after receiving assurances that regulators would not revoke Credit Suisse’s licenses.)

If this is true, it’s an overwhelming argument that such “too big to jail” banks shouldn’t exist in the first place.

The reason some financial institutions are too big to fail (or jail) is that their collapse could trigger losses at other major institutions and provoke a system wide panic. That was the lesson of AIG in 2008: If it failed to make good on its credit default swaps, various pillars of the financial system might have collapsed, and no one knew how far the damage would spread.

The underlying problem in 2008 was that Lehman, AIG, Citigroup, Bank of America, and other financial institutions were both illiquid and essentially insolvent: They couldn’t come up with the cash to pay their bills, and in the market at that time their assets weren’t worth enough to cover their debts.

But that’s not the case today. Our banks today are sound, so the regulators say. In that case, CS has enough assets to pay off its debts, all of its creditors and counterparties will be made whole, and there is no reason to think about a bank failure.

The fundamental point is that CS is solvent. There are no losses that would have to be absorbed by someone else. If its assets really are worth more than its liabilities, then it must be possible to close down the bank (permanently or temporarily) without harming anyone except shareholders.

As an aside, the Wrongologist spent a couple of decades as an international banker. Back then, banks were supposed to be the ultimate symbol of honesty and decency. We are now witnessing how hollow this myth has become.

Look, were you or the Wrongologist to purposely defraud the US government of $millions, (perhaps in your case, $billions), we’d lose everything and with a felony conviction, get to enjoy several years of fine dining at the greybar hotel.

Yet, CS gets to pay a fine and move on, continuing to do business in the US, and senior bankers everywhere remain a protected class for the DOJ.

As Travis Bickle said: “someday a REAL rain is gonna come and wash the scum away”. Back then, he didn’t mean bankers.

But today, he would.

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Like a Little Prayer

What’s Wrong Today:

Remember when conservatives used to be against “activist judges”? Now, they like their shiny new toy, the Roberts Court, particularly after their decision in Town of Greece, NY vs. Galloway, et al. From the NYT:

In a major decision on the role of religion in government, the Supreme Court on Monday ruled that the Constitution allows town boards to start their sessions with sectarian prayers

The 5-to-4 vote divided the court’s conservative members from its liberal ones, and their opinions reflected different views of the role of faith in public life, in contemporary society and in the founding of the Republic

The WaPo quoted Justice Anthony M. Kennedy’s majority opinion:

Ceremonial prayer is but a recognition that, since this Nation was founded and until the present day, many Americans deem that their own existence must be understood by precepts far beyond the authority of government

Justices Thomas and Scalia differed. They said that to the extent coercion is relevant to whether there is a violation of the Constitution’s establishment clause, “it is actual legal coercion that counts.” Peer pressure, they said, is not enough.

Justice Kagan differed from the three conservatives: (brackets by the Wrongologist)

Month in and month out for over a decade, prayers steeped in only one faith, addressed toward members of the public, commenced meetings [in Greece NY] to discuss local affairs and distribute government benefits

She compared it — using the text of some of the prayers offered before the council’s meetings — to the idea of a judge inviting a minister to open a hearing with a prayer about “the saving sacrifice of Jesus Christ” or an election official reciting the Lord’s Prayer before opening the polls. Kagan wrote:

I would hold that the government officials responsible for the above practices — that is, for prayer repeatedly invoking a single religion’s beliefs in these settings — crossed a constitutional line

The facts of the case: A citizen is offended by her government requiring her to listen to a prayer with explicit references to a god she doesn’t believe in as a condition to attending a public meeting. She asks her government to refrain from doing that: A simple request that could have been accommodated in any number of ways. By having the council members choose to meet privately to pray before the meeting, by having a simple moment of non-denominational silent reflection before the public meeting, by working to make sure the opening “prayer” is a rotating event, for which all denominations are invited and for which non-believers also have a slot periodically to use those moments for some other form of statement.

But no. The town fathers say we’re going to continue to pray to Jesus whether or not attendees at our meetings believe in him. And our little town is going to spend taxpayer money litigating our right to do this all the way to the Supreme Court.

This kind of arrogance of government has now been validated by the Supreme Court. This is now what the First Amendment means.

Public meetings for the purpose of conducting government business are just that, business meetings. They are not an appropriate venue for conducting an organized prayer. If individuals should feel the need to pray silently to themselves, go for it.

It doesn’t matter if opening meetings with a prayer has been a long standing tradition; that is not relevant. Slavery and other forms of discrimination were also long standing traditions, yet very wrong.

There is a vast chasm between what goes on at state legislative proceedings and the much more intimate business transacted at the local level. These are small meetings where everyone often knows everyone else. These are neighbors, friends, and acquaintances. And they know whether you are praying or not. They see whether you bow your head or not. Later, they hear the prayer-giver lecturing you on your “ignorance” of the issue before the council, or in fact, of the American system. And, because they share the majority view, they feel a little freer to question whether or not YOU belong.

Worse, that the Greece NY town officials would make a statement that atheists were welcome to give an opening prayer shows the true level of their insensitivity. This decision should have been 9-0 that prayer is a private matter and should not be intertwined with government business at the local level.

Atheists remain the one group among us against whom discrimination is viewed as appropriate. A decision does not become defensible merely because atheists are permitted to give the prayer. A bit of a contradiction in terms, isn’t it?

What’s wrong is the Supreme Court’s clear message that Greece, NY and other towns can now say: “This is not YOUR town council; it’s OUR town council.” It’s the same message African-Americans got from the Confederate flag on the statehouse in South Carolina. In Greece, New York, it means, “This is OUR town, not YOURS. Don’t get any ideas.”

Picture this: Out of respect for those feelings being expressed in a prayer, the sentiments of which are totally foreign to oneself, you respectfully leave the room. You return to questioning looks. What could you possibly disagree with in our simple prayer?

Notice just how well this plays into “us vs. them”?

In public grammar school in the 1950’s, the Wrongologist said the Lord’s Prayer, along with his classmates. Our teacher was Catholic, but the prayer recited included the Book of Common Prayer doxology, which the Catholics (at that time) did not use.

Never mind that there were Jewish kids in the class. This was a violation of the establishment clause of the Constitution, but who knew?

The most important course that the Wrongologist took in college was US Constitutional law with the late Prof. Walter Giles. Studying with Giles informs this blog on a daily basis. He would have hated the Supreme Court’s decision in Town of Greece, NY vs. Galloway, et al.

Giles was famous for his annual Martini Lecture:

Every spring, he gave the Madison Martini Lecture. He would stroll into the room with a portable bar — glasses, tumbler, jigger, ice, Seagram’s gin, Cinzano vermouth, olives — and launch into the day’s lesson: President James Madison’s contribution to the Constitution, the separation of powers, and the system of checks and balances

Dr. Giles expected much from his students but promised much in return. We studied most of the Supreme Court decisions that had a bearing on Constitutional questions. You had to be able to stand up in class when called upon, and argue either side of the case in question. Giles prefaced every semester’s thick syllabus with a quotation from US Supreme Court Justice Benjamin N. Cardozo:

In the end the great truth will have been learned, that the quest is greater than what is sought, the effort finer than the prize, or rather that the effort is the prize, the victory cheap and hollow were it not for the rigor of the game

Enough digression. One of the great disillusionments of this age is the rejection of the values we achieved in the 1960s. You remember the Sixties, when the younger generation questioned everything “the establishment” stood for. We ended up with the Voting Rights Act, civil rights, women’s rights, abortion rights and some people are still pissed about it.

And now, this prayer decision. We do not live in a Christian nation. Most of our founding fathers were Deists. We rail against religiously-run Mideast nations and then our Supreme Court approves the use of religion in our own institutions…are we any better?

Where will the dismantling of the Constitution stop? What gets your blood boiling? Where do you make your stand?

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Can We Replace the Electoral College?

What’s
Wrong Today
:


One outcome
of the political struggle between Democrats and Republicans is the parties’
continuing efforts to game our voting rules. Nothing makes voters more cynical
than seeing political leaders seemingly supporting or opposing election laws
based solely on their partisan impact — from redistricting reform
to fights over whether to allow early voting. ­


New York
this week became the 10th state (plus DC) to join the National Popular
Vote Interstate Compact
, (NPV). The compact is a clever workaround to the
Electoral College. The Compact seeks to guarantee election of the presidential
candidate who wins the most popular votes in all 50 states and the District of
Columbia. The states that have approved NPV so far come in all sizes. Four are
small (Rhode Island, Vermont, and Hawaii, plus the District of Columbia), three
are medium-sized (Maryland, Washington, and Massachusetts), and four are large
(New Jersey, Illinois, California, and now New York).


By signing
on to the Compact, states agree they will award their electoral votes to the
winner of the national popular vote
. However, the measure will only be
triggered once states accounting for a majority of electoral votes have joined.
Right now, the states that support
the Compact total 165 of the 270 electoral votes necessary to activate the
national popular vote. There are 538 electoral votes, so a majority is 270.


If states
with an additional 105 electoral votes pass it, the US will hold a presidential
election in which, for the first time in US history, every vote in every state would count equally. The candidate who
receives the most votes will win.


We don’t
need a constitutional amendment to achieve this goal. The Constitution gives
each state power over how to allocate its electoral votes and the ability to
enter into binding interstate compacts. As
Hendrick Hertzberg said in the New
Yorker
:


NPV would provide
that we elect our Presidents the same way we elect our governors, our mayors,
our senators and representatives, our state legislators, and everybody else: by
adding up all the votes, and then awarding the job to whichever candidate gets
the largest number


And it
does this without changing a word of the Constitution. Can it happen? As
Nate
Silver
’s
chart below indicates, the relationship between whether a state has joined the
Compact and how it voted in the 2012 presidential election is nearly a 1-to-1
relationship:  


The 7 states where
President Obama won by the widest margins, along with DC, have joined. So have
three others — New Jersey, Illinois and Washington — where Obama won by at
least 15 percentage points. But none below that threshold have done so.


The Compact may be able to add Delaware, Connecticut
and Maine, where Obama also won by 15 percentage points or more. But they
account for only 14 total electoral votes (and Maine already has a unique way of apportioning electoral votes).


Oregon and
New Mexico also re-elected Obama by double-digit margins — and those two states
have become increasingly off-limits to Republican presidential candidates — but
have just 12 electoral votes between them.


After
that, you get to states like Michigan and Minnesota, which are blue-leaning but
that are competitive for both parties.


Their
votes might not be quite as influential in the Electoral College as the campaigns
presume — a Democrat who lost Minnesota would probably be in too much trouble
elsewhere to cobble together a 270-vote majority. And what about the swing
states, such as Ohio, New Hampshire and Colorado? Those states, along with
Florida, Virginia, Nevada, Iowa, Wisconsin and Pennsylvania, collectively had a
98.6% chance of determining the Electoral College winner in 2012, according to Silver’s
538 blog. In other words, these nine states are 70 times
more powerful than the other 41 (which collectively had a 1.4% chance of
determining the winner) combined.


That’s part
of the reason that many Americans object to the Electoral College. But states whose voters
have a disproportionate amount of influence may be in no mood to give it up. In
theory, recent history shows that states that want a Republican in the White
House might have an incentive to join the Compact. That’s because in the 2008
and 2012 elections, the Electoral College helped Democrats.


That means
that even if Mr. Obama had lost the national popular vote, he could have still
won in the Electoral College. The Electoral College has the potential to elect
a non-winner in the popular vote, something that is contrary to basic
democratic principles. It can render a major state like New York, California or
Texas irrelevant to presidential decision — without adding a corresponding
benefit.


As
Hertzberg says, it’s instructive that all 50 states have an independent
executive and 49 states have also chosen to copy the bicameralism of Congress, but
none has copied the electoral college. And no other liberal democracy uses it
either.


Under
the National Popular Vote, every voter would be politically relevant and equal
in every presidential election. Every vote would be included in the state
counts and national count.


Today,
there is no meaningful competition
in more than two-thirds of states and in even more congressional districts. As
soon as a state has an underlying preference of more than eight or nine
percentage points for one party — no amount of money or voter mobilization can
influence that state’s presidential outcome in a nationally competitive year.


For the
last few presidential cycles, more
than 98%
of general election campaign spending and campaign events took
place in only 12 states. Meanwhile, at least
35 states
— small and large, Eastern and Western, Democratic and Republican
— received less than one-hundredth of a percent of the attention they would
likely receive under a national popular vote for president.


This makes
a mockery of the idea that in presidential elections all states and all voters
matter. Our all-consuming focus on swing states makes their voters’ concerns
infinitely more important to presidential campaigns than the concerns of the
other two-thirds of Americans.

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Republican Fallacy About Natural Gas Exports

What’s
Wrong Today
:


From today’s
NYT:


As congressional
pressure builds on the Obama administration to quicken gas exports to Europe to
reduce its dependence on Russia, it may be tempting to gaze upon a marshy,
alligator-infested Louisiana inlet of the Gulf of Mexico


Where 3,000
workers are building a terminal that will send American natural gas around the
world by the end of next year. By 2017, the facility built by Houston-based Cheniere Energy could handle
roughly a sixth the amount of gas that flows from Russia to Europe every day. But,
50% of this gas is promised to India and South Korea. Not a problem, according
to Condoleezza
Rice
in yesterday’s WaPo:


Soon, North
America’s bounty of oil and gas will swamp Moscow’s capacity.
Authorizing the Keystone XL pipeline and championing natural gas exports would signal that we intend to do precisely that


Remember what John
Boehner
said in March to the WSJ:


The ability to turn the tables and put the
Russian leader in check lies right beneath our feet, in the form of vast
supplies of natural energy


If only
our Republican friends were correct. Here is a Q & A from Gail
Tverberg
:


How much natural
gas is the United States currently extracting?

(a) Barely enough
to meet its own needs
(b) Enough to allow lots of exports
(c) Enough to allow a bit of exports
(d) The United States is a natural gas importer

Answer: (d) The
United States is a natural gas importer, and has been for many years




The US Energy
Information Association (EIA) forecasts that by 2017, we will be able to meet America’s
domestic natural gas needs. Below is their chart:
  


Source:
Our Finite World, based on EIA’s
Annual Energy Outlook 2014


“EIA Fut”
means the future forecast of production and construction of production
facilities. OK, so maybe we could
export a little
to help our European allies.


Then, Tverberg
asks the $2 question: (emphasis by the Wrongologist)


How much natural gas
is the US talking about exporting?

(a) A tiny amount,
less than 5% of what it is currently producing.
(b) About 20% of what it is currently producing.
(c) About 40% of what it is currently producing.
(d) Over 60% of what it is currently producing.

The correct answer
is (d) Over 60% what it is currently
producing


Tverberg
continues:


If we look at the
applications for natural gas exports found on the Energy.Gov website,
we find that applications
for exports
total 42 billion cubic feet a day, most of which has already
been approved. This compares to US 2013 natural gas production of 67 billion
cubic feet a day


So we have
to come to the conclusion that if Republicans and the energy industry have
their way, we could be left with less
than half of current natural gas production for our own needs
. And by
2040, natural gas consumption is expected to be 23% higher than in 2013. This,
according to Republicans, would help Europe to work more effectively with us to
blunt Russia’s possible continued aggression in Ukraine.


Here
we go again, listening to Republicans sing the same old tune. US natural gas
companies have been searching for a
rationale for more LNG terminals and found one in the Ukraine crisis.


The
rationale is ideal for the gas companies because politicians can help out by wrapping
themselves in the flag of national security. If these politicians are
successful, there will be more profits for the gas companies and US gas
consumers will face higher prices and more hydraulic fracturing.


This
means Republicans are fine with poisoning our groundwater in order to sell
fracked gas to Europe. Here are some additional questions for your
consideration:

  • What
    exactly is in this for non-shareholders (citizens)?

  • And
    how is any of this good for the American consumer of energy?
  • Why
    must we place the Gulf of Mexico at greater environmental risk to enable Europe
    to avoid Russia?
  • Why
    are our natural water aquifers being given away to energy companies to use up
    at will?


The
Republicans continue to placate big business and big finance by enabling them
to export our jobs, machines, know-how, and funding. Essentially, the
Republicans exported our economy, and now ask Democrats; where are the jobs? With
the export of gas we don’t really have, Republicans now want to help big
business export the fuel of our economy, one of our strategic natural
resources.


If
they continue to decimate our economy (and our nation) in so many ways like
pirates stashing their take elsewhere, we should call them traitors.


The US has been an aggressor
in the Middle East for more than 60 years, beginning with deposing a
democratically elected government in Iran, in order to control our sources of energy.

Now that we have something approaching energy self-sufficiency, the Republican plan
is to EXPORT it?




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Ukraine Crisis is All About Energy

What’s
Wrong Today
:


Yes, Russia is guilty
of meddling in Ukraine, but so are the US and the European Union. The Cold War
may be over, but the rivalry rolls on. The rivalry between the West and
Russia is no longer over diverging political philosophies, but is mostly about
resources (and the financial gains) from exporting oil and gas, and controlling
the pipelines that transport them.


Yes, Russia needs
access to the Black Sea for its naval fleet and this is a major issue for
Moscow. But there is a story behind the story.


The other reason for
Putin’s intervention in Ukraine has to do with Russia’s need to control its very lucrative and strategically important “energy corridors.” These
corridors are in danger of being taken over by the West, and that is the likely
reason why Putin would risk going to war with the West over Ukraine. The pipelines
traverse the Caucasus and carry the oil and natural gas westwards to Europe.


Here is a graphic on
the corridors and the choke points they create from Charles
Hugh Smith
:




From Oil
Price
:


Given
the geography of the region there are only so many lanes where the pipelines
can be laid; and most of them transit through Ukraine. Others travel across
Azerbaijan and Turkey. Most of Western Europe’s gas and much of Eastern Europe’s
gas travels through Ukraine


What is going on
today is a race for control of who will dominate the energy
markets over the next two or three decades. That will be determined by who
controls the energy corridors from Central Asia, the Caucuses and through
Russia and Ukraine. From a report by the Wilson
International Center for Scholars
:


Ukraine’s
strategic location between the main energy producers (Russia and the Caspian
Sea area) and consumers in the Eurasian region, its large transit network, and
its available underground gas storage capacities make the country a potentially
crucial player in European energy transit – a position that will grow as
Western European demands for Russian and Caspian gas and oil continue to
increase


The
factors that are bringing the energy competition in Ukraine to a head are:


  • The natural gas discoveries in eastern Poland and western Ukraine


  • The Russian gas pipelines running through the Ukraine to Europe are
    less important than they were in 2009. There are two new gas lines built since then,
    the Nordstream and the South
    Stream
    . Both are controlled by Russia. The
    Nordstream is operating. It runs through the Baltic Sea to Germany. The South Stream is under construction, and first
    gas supplies via the South Stream gas pipeline are scheduled for late 2015.
    Here is a map of the South Stream:




Events
in Libya, Mali and Algeria are not isolated from this competition. They are
a part of simultaneous equations of energy supply that the leaders
in the West and Russia are trying to solve.


It
increasingly looks like a series of peripheral energy wars are being fought for
control of the energy supply to Europe.


This
highlights another problem for Russia and its state energy firm, Gazprom.
Its present natural gas advantage in Europe rests mainly on its current pipeline
infrastructure. This advantage could fade. There are current and proposed competitive
pipeline projects running through Turkey to Europe, new LPG terminal and
shipping support via the Bosporus, plus the five trans-Mediterranean pipelines
from Libya, Algeria and Morocco to southern Europe. Add to that, Chevron is
working on developing local shale gas in Ukraine.


Nearly 30% of Europe’s
gas comes from Russia. Moscow wants to keep that dependency for both geopolitical
influence and income, while Washington and Brussels want to alter it by
creating multiple channels for central Asian and Caspian oil to flow westwards.
Ukraine today finds itself in the center of this East-West dispute.


Finally, the Fiscal Times reported
that one of entities
included in Mr. Obama’s sanctions in response to Russia’s takeover of Ukraine’s
Crimean peninsula was Bank
Rossiya
. This takes the energy war to a new level since: (brackets and emphasis
by the Wrongologist)


Essentially, this
is a credit union for oligarchs, with a
side business in financing the Russian energy industry
. Its customers include
many more high-profile Russians than just those named in the [sanctions]. As of
Thursday it is, for all intents and purposes, out of business


Subsequently,
Reuters reported:


St Petersburg-based
Bank Rossiya said it had asked its clients to refrain from making foreign
currency payments to accounts at the bank due to US sanctions over Crimea



The Fiscal Times quoted Robert Rowe, Senior
Counsel for the American Bankers Association: (brackets by the Wrongologist)


If they [international
banks] are doing business with [Bank Rossiya], and they are also doing business
in the US, if something slips through, then suddenly they’re facing US
regulatory action. International wire traffic is voluminous and largely
automated, he said, making it easier for an international bank to simply stop
doing business with Bank Rossiya rather than trying to route transactions associated
with it away from the US


Rowe said
this would affect the oil and gas
companies that arrange their trade financing through the bank
.


This is what caused
Bank Rossiya to suspend accepting payments in dollars. However, the world will
not be making its payments for energy imports in Rubles.


Almost 100% of the
oil/gas market is transacted in US dollars
. And, you cannot
convert most currencies directly into Rubles. Banks and companies use their
local currency to buy US dollars which they then use to buy whichever other
currency they need to acquire. This is because the US dollar is the main
reserve currency for most countries and a key reserve currency everywhere. Only
the Yen, Euro, and UK pound can be directly converted to other currencies.
China’s currency isn’t even convertible outside of its own borders.


So, being locked
out of using the US dollar when the oil/gas market is entirely based upon the dollar
means that this sanction by Mr. Obama has teeth
.

It’s game on between
Russia and the US.


Once
again, the story behind the story in an international crisis is the quest to
control sources of energy. In the short term, the way that the West can gain
control over Ukraine and the pipelines, while limiting Russia’s influence with its
oil and gas reserves, is to move to destabilize Putin.


Keep following
this situation. Follow the money. To Big Oil. They still have the clout to move
governments to war, declared or undeclared.


We saw this
before in Operation Iraqi Freedom.

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Russia Is Still Russia

What’s
Wrong Today
:


The
more things change, the more they remain the same. We are beginning Cold War II (CWII)
with Russia, butting heads in several places in the world, none more important
this month than Ukraine. It brings to mind CW I. Here is a little history from
that time:


In 1952,
an American attaché in Moscow was fiddling with a shortwave radio when he heard the voice
of the American ambassador dictating letters in the Embassy, a few buildings
away. Although the Americans tore the walls out of the Ambassador’s office,
they weren’t able to find the listening device.


The broadcasts continued, so the Americans flew in two technical experts with special radio
finding equipment, who meticulously examined each object in the Ambassador’s
office. They finally tracked the signal to the wooden sculpture of the Great
Seal of the United States, hanging behind the Ambassador’s desk:




Henry Cabot Lodge showing bug at the UN
in 1960


The seal had been a
gift from the Soviet Boy Scouts. Cracking it open, they found a hollow cavity
and an unusual metal object, so mysterious in its design that it has come down
to us through history as “The Thing”:


The
Thing had no battery, no wires, and no source of power at all. It was just a
little can of metal covered on one side with foil, with a long metal whisker
sticking out the side


It seemed too simple
to be a bug, but the little round can was a resonant cavity. The resonant cavity microphone was
patented by the Radio Corporation of America (RCA) in
1941. By pointing a
beam of radio waves at it at a particular frequency, it would sing back. The
metal antenna was just the right length to broadcast back one of the harmonics
of the signal.


The resonator was behind
the eagle’s beak. When someone in the room spoke, vibrations in the air would
shake the foil, slightly deforming the cavity, which in turn made the resonant
signal weaker or stronger. The Thing was a wireless, remotely powered
microphone. It had been hanging on the
ambassador’s wall for seven years
.


The Thing has evolved
over time; today we call its descendent a RFID tag.
Our world is now full of these little pieces of metal and electronics that will
sing back to you if you shine the right radio wave on them.


But in 1952, this was
very cool stuff. American diplomats were up against technology from the future.
The person who designed the listening device was Lev Sergeyvich Termen.
Termen was born in Petersburg in 1896, to an aristocratic family. He was a
musical child and became an accomplished cellist, but his greatest love was
physics and engineering.


In 1917, Termen joined
the Bolshevik revolution, and was assigned to work at a new Soviet research
laboratory. His first job was to build a capacitative sensor to measure the
electrical properties of gases. It consisted of two metal plates; by
introducing a gas sample between the plates you could take a reading.



Instead of using a
regular dial for taking readings, Termen plugged in his headphones. The pitch
of the signal in the headphones corresponded to the value of the reading. Termen
noticed that when he moved his hands near the metal plates, it would affect the
pitch. He taught himself to play a few melodies, and his colleagues got
excited. “Termen is playing the voltmeter!” Termen soon had
constructed the world’s first electronic musical instrument.

His colleagues called
it the “Termenvox”, in his honor. Ninety-two
years ago this month, Termen was summoned to the Kremlin to
meet Lenin, who loved the device. That was the start of a journey that laid the foundations for
modern electronic music.

We, of course call
the device the Theremin
, used in music
and movie soundtracks to produce sounds we associate with science fiction. In
popular music, it was used most notably on “Good Vibrations” by the Beach Boys.

Termen playing the Theremin, 1929


According to Albert
Glinsky’s book, Theremin:
Ether Music and Espionage
, Stalin sent Termen to America, where he became
the toast of New York society, while passing information on US industrial
technology back to the Soviets. From Glinsky:

He had special
access to firms like RCA, GE, Westinghouse, aviation companies and so on, and
shared his latest technical knowhow with representatives from these companies
to get them to open up to him about their latest discoveries.

He also ran his own
companies, which were fronts for industrial espionage, and he reported to
Amtorg, the Soviet trading corporation in America, itself a front for espionage
activities…


Termen met
and married a young black American ballet dancer, Lavinia Williams, in 1938. Yet,
later that year, he returned suddenly to the Soviet Union, leaving his wife
behind. Some suggest he’d been kidnapped by Soviet officials, but Glinsky says
a combination of debt and homesickness led Theremin to return voluntarily.


That sounds doubtful, since he returned to Stalin’s
purges
.
He was arrested and accused of being a counter-revolutionary, and received an eight year sentence in 1939. Termen was exiled to a Siberian labor
camp and subsequently vanished into the top-secret Soviet intelligence machine.


World War
II saved Termen’s life. He was put to work in an institution only the Soviet
Union could have invented, a prison
filled with the greatest engineers and aerodynamicists in the country. After the war, he worked on various listening
devices. In addition to ‘The Thing’, he developed an even more innovative
system called Buran,
which listened to the vibrations in a window pane by reflecting a beam of light
off of it.


This is
still cutting-edge stuff today. Termen had built a laser microphone before
there were even lasers. It won him his freedom. People who met Termen after the
war remarked on the fact that he would barely move his lips while he talked, a
habit born of life under constant surveillance.


Termen
spent years trying to join the Communist party, but they kept making excuses to
turn him away. When he was 90 years old, he applied again, but they told him
that to join he had to take a five-year advanced course in Marxism-Leninism.


So he did
it. He went to night school and passed the course.


In 1991,
literally weeks before the fall of the Soviet Union, Termen got his party
badge. The 95-year-old Bolshevik was briefly the newest Communist in the
country. When people asked him: “Lev Sergeyevich, why on Earth would you join
the Communist Party now, when everyone else is leaving?”


He gave
the most badass answer imaginable: “I promised Lenin.”


Can you
imagine someone in today’s Russia saying: “I promised Putin”?

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Turkey’s Spiral

What’s
Wrong Today
:


Turbulence in Turkey
is growing. It started with the Gezi Park demonstrations last year that the Wrongologist
reported on here,
that left six people dead and 8,000 injured. At the time, Prime Minister Recep
Tayyip Erdogan repeatedly accused outsiders of being behind the protests. In a NYT Op-ed, Elif
Shafak wrote:


Several
government officials insinuated that dark forces were operating behind the
scenes, including the Jewish Diaspora, the CIA, the BBC, CNN and the
interest-rate lobby, a term for a cabal of domestic and foreign banks that
officials believe want to harm Turkey to further their own interests…Protesters
in Taksim Square were called terrorists


In December came the
major corruption
case
involving Mr. Erdogan’s administration and his AKP party. That led Prime
Minister Erdogan to frame the probe into the corruption as an “attempted coup”
by the US-based Sunni religious leader Fethullah Gulen. Mr. Erdogan also blamed
the US as the mastermind of a plot against his government. He raised
the possibility of expelling Francis Ricciardone, the US ambassador to
Turkey, soon after the scandal broke.


Then on
Feb. 15th, Reuters reported
that Turkey’s parliament approved a law boosting
Mr. Erdogan’s control over the appointment of judges and prosecutors
,
after a heated debate and a brawl that left one opposition lawmaker
hospitalized. Mr. Erdogan blamed Fethullah Gulen for instigating the corruption
investigation, and is threatened by Gulen’s rumored control over many in the
judiciary. Lots ‘o turbulence.


So, little
reason to be surprised when Al-Monitor reported
that on Feb. 19th:


President
Obama had his first conversation with PM Recep Tayyip Erdogan since the
latter’s government came under a corruption and bribery investigation
two months ago


That phone call
should have been routine, because Mr. Erdogan has enjoyed the reputation
of being the foreign leader that Mr. Obama spends the most time with on
the phone. That was, until Gezi Park in the summer of 2013. Only two weeks before the
Gezi events, Mr. Erdogan’s visit to DC was received with the highest levels of protocol.
But, after Gezi, they had a chilly encounter at the G-20 meeting in St.
Petersburg on Sept. 5-6, and just one brief phone conversation since.


Their call took place
on the same day that the Turkish parliament passed
restrictive Internet legislation that would allow the government to block
individual URLs without judicial review. It also obliges ISPs to store users’
personal Internet data for up to two years.



You might get the
impression that previously, there were no regulations or controls on the Internet
in Turkey, but that is incorrect. According to al-Monitor,
40,000 websites are inaccessible
in Turkey today. YouTube has been blocked for months at a time, and Vimeo has
been temporary blocked in the last couple of months.


If all of
this was not enough, whatsupturkey.com
along with many news outlets has reported on a new scandal:


With
about one month left to local elections, five phone recordings were leaked on YouTube
yesterday. In just a couple of hours, the video with the recordings had over
one  million views. Why? It exposes that Tayyip Erdogan and his family is
bathing in enormous amounts of unaccounted cash


Most of the
conversations on the leaked recordings allegedly took place between Tayyip Erdogan
and his son, Bilal Erdogan on the 17th of December, the same day as
a graft probe was unexpectedly initiated against ministers and sons in Mr. Erdogan’s own government.


The gist of the
conversations is that Mr. Erdogan needs to urgently move a LOT of cash.


In later recordings,
Bilal Erdogan calls back to his father and reports how the work is proceeding.
After a day of collecting enormous amounts of cash, allegedly about USD
1 billion
from 5 different houses and making it disappear by buying apartments
and making advance payments to businessmen they work with, he still hadn’t been
able to hide it all. Bilal says: (emphasis by the Wrongologist)


We
did not zeroized it yet father. Let me explain. We still have 30 million Euros that we could not yet dissolve.
Berat thought of something. There was an additional 25 million dollars that
Ahmet Calik should receive. They say let’s give this to him there. When the
money comes, we do something, they say. And with the remaining money we can buy
a flat from Sehrizar, he says. What do you say, father?


Mr. Erdogan agrees on
the call. How these leaked phone call recordings will influence the upcoming
local elections March 30 is unclear. The opposition parties, naturally,
immediately called for Mr. Erdogan to resign, while the Prime Minister has claimed
that the 11 minutes of conversation was a fabricated montage.


Then
there is today’s report from the BBC:


Riot police in
Turkey have fired water cannon and tear gas at hundreds of protesters calling
on Prime Minister Recep Tayyip Erdogan to quit. There has been uproar since a
recording emerged which it’s alleged features the prime minister and his son
discussing how to hide large sums of cash


Where is
all of this heading? Turkey has been an important US ally for a long time. The Turkish government has increased
its control over the judiciary and the media. It has exacted a high price in
terms of freedom of press, speech, and assembly, and has hurt Turkish economic
growth, which has been the strong point of the AKP’s appeal to voters.



In the process, the
“Turkish model” — a successful mix of democracy, market capitalism and Islamic
conservativism — that Mr. Obama and other Western leaders have celebrated, has
been endangered.



These major internal
tensions are unfolding just before municipal elections (Mar. 30, 2014). That
will be followed by the first-ever presidential election by popular vote
(August 2014) and then by a general election in June of 2015. The AKP should
make another strong showing in March, but it will be at the expense of government
transparency, the rule of law, the separation of powers, and a free media.



There’s little the US
or the EU can do to prevent Mr. Erdogan and the AKP from becoming more
dictatorial. The only force that can prevent that is the Turkish electorate, and it is
unclear whether it will embrace that idea. Mr. Erdogan and his Justice and Development Party have a
very different ideological worldview from that of the West. They gather in
protest in front of the US Embassy, they provoked the civil war in
Egypt and support the Salafi groups in Syria.


It is clear that the
Turkey-US relationship could be derailed at anytime.


In
the past, Turkey has concentrated power in the military or in the incumbent party.
In 2014, it appears that it is elections, the economy, and very limited international
pressure that will determine what happens next in Turkey.

 

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Some Pilots Make Minimum Wage

What’s
Wrong Today
:


The Wall Street Journal reported
yesterday that  there is a shortage of airline
pilots. The reason is the rest of the story: (emphasis by the Wrongologist)


A
widening shortage of US airline pilots is spotlighting the structure of an
industry built on starting salaries for regional-airline pilots that are roughly equivalent to fast-food wages


The WSJ reports that:


Starting pilot
salaries at 14 US regional carriers average $22,400 a year, according to the
largest US pilots union. Some smaller carriers pay as little as $15,000 a year.
The latter is about what a full-time worker would earn annually at the
$7.25-an-hour federal minimum wage


In fact, Republic
Airways Holdings Inc., one of the nation’s largest regional carriers, said it
would have to remove 27 of its 243 aircraft from operation because it couldn’t find enough qualified pilots. While regional
carriers are a key link in the US air-travel system, the big airlines, (whose
pilots’ salaries are much higher), outsource about half of their domestic flights
to these smaller partners in order to save money. The big carriers set the flight
schedules and fares, sell the tickets and buy the fuel, which leaves their
regional counterparts little room to raise wages.


This
structure has prevailed for years, but the WSJ
points out that federal rules implemented in August have brought matters to a
head by increasing the minimum flight experience required for most
commercial-airline pilots to 1,500 hours from 250 hours. The new law has
sharply increased the time and expense required to become a commercial pilot,
rendering today’s starting wages even less attractive and crimping the supply of would-be aviators.


Training
to become a commercial pilot can cost more than $100,000. To get the additional
flying time they now need, pilots can work as instructors or pay for the
additional time. Miami-based Eagle Jet International Inc. charges trainees $57 an hour to be co-pilots on its cargo flights,
which are under a different regulatory regime than passenger operations.


The WSJ
brings us a human interest story as part of their report:


Richard Papp, 26, a
third-year pilot at ExpressJet [is] trying to raise his 2-year-old daughter on
a $29,000-a-year salary. “This was a lifelong dream,” he said.
“But if I could do it all over again, I’d do something different.”


Here is a
thought experiment: Let’s say these guys or gals making minimum wage for a
regional airline make 600 flights a year, (2 flights/day) carrying an average
of 60 passengers each, or 36,000 passengers for the year.


That means
the pilot makes about 42 cents per
passenger flown
. Now think about what you pay for the average flight…


Far too
often, skilled worker shortages are blamed on the low quality of our workforce
or our education system. 


There are serious
barriers to receiving a quality education for many in our country, but there probably
is an ample supply of Americans who would like to be airplane pilots. The problem is, if you need to hire a truly
skilled worker, you can’t expect to pay them something close to the minimum
wage


Or, if you
do pay them minimum wage, do the rest of us a favor and don’t go around
complaining about how no matter how hard you look, you just can’t find the
workers you need. That’s a fallacy that has served US corporate interests for
decades, enabling US businesses to slash wages, hire immigrants under the H1-B program,
or move jobs offshore.


Most
Americans understand that they can no longer afford to underwrite the cost of a
quality higher education in return for receiving low starting wages. Most Americans
have to take whatever job they can get, knowing that the whole “upward
mobility” thing is over. Most politicians keep pushing the idea that we need to start training Americans for the skilled jobs of today. Um, like airline pilots?


Maybe
the FAA should require each airline to post the salary of the pilot on the cockpit
door for each flight.


Then
customers could decide if they want to fly on a plane piloted by somebody
making the minimum wage.

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Why Income Inequality Is Not Going Away

What’s
Wrong Today


Yesterday
we wrote about inequality and how for some, notably the
ultra-rich and their Republican servants, the word is a proxy for class
warfare. Today, let’s go beyond talk of class warfare and look at the tools at our
disposal to improve the level of equality in America.


What
can be done to reduce inequality? The Obama Administration said raising the
minimum wage was a good starting point.


If we are
talking about a $10.10/hr. minimum wage, then according to the Economic Policy
Institute
,
(EPI) about 30 million Americans
would get raises, including the thousands of Wal-Mart employees. That would clearly
help inequality.


Reducing
unemployment could have the largest impact on inequality. In his SOTU, President Obama mentioned
that 8 million jobs were created during his time in office. Since peaking at 10%
in October 2010, the unemployment rate has fallen more than 3 percentage
points. But The EPI’s new report on long-term unemployment has some encouraging
and depressing findings. Here is the encouraging finding:


The number of
people out of work for 27 weeks or longer fell to 3.8 million in December, down
from 4.7 million 12 months earlier. The average duration of unemployment is now
37.1 weeks, down from 38 weeks at the end of 2012


The depressing
finding: (emphasis by the Wrongologist)


There
are 28 states, plus the District of Columbia, where more than a third of the
unemployed have been jobless for six months or more. In New Jersey (46.6%), the
District of Columbia (46.6%), and Florida (46.2%), nearly half of the unemployed are long-term unemployed


Based
on the 2010 Census, in four of the five states with
the largest populations, more than 40% of unemployed people have been out of
work for at least six months.


Restoring
unemployment insurance to the long-term unemployed will help a little, but it
doesn’t move the inequality needle. People need jobs. And while Mr. Obama
touted a new commitment from chief executives to give long-term unemployed
workers a “fair shot at new jobs,” that won’t change things in a significant
way.


Here’s
why
:


Google
has 47,756 employees, Facebook has 5,790. Microsoft has 100,000, Amazon has
109,000. Apple has 80,300. That totals to 342,846 full and part-time jobs. That’s
just 10% more than GE, which has 305,000 by itself.


And
the total employment of these tech giants equates to roughly two months of new
job seekers that enter the US job market every
month
.


In
other words, it’s a pipe dream to believe that the tech giants, Internet
startups, and app developers will ever
employ the same number of people that manufacturing once did. There will
be even fewer realistic routes to full employment in the US as robots become
cheap, efficient, and more flexible.


Last
year, a new Wal-Mart opened in DC and advertised that 400 people would be
hired. Over 20,000 people applied for those 400 jobs, making it harder to get a job at Wal-Mart than to get into Harvard.
And, when there are 10 jobs and 30 job seekers, that doesn’t mean that society
has 20 slackers.


It has
become clear that we have entered an era where businesses just don’t need as
many people to produce the goods and services we use each year. The problem
will become even clearer with the introduction of self-driving cars (goodbye to
most taxi, bus and truck drivers) in the next 10-20 years. Bluntly, there
simply won’t be enough job slots for the entire population.

This means it’s time to assess the future
of work in the US.


Job
openings in the US have improved since the bottom of the Great Recession, but we
still have nearly 1.2 million fewer jobs
available on a monthly basis than before the recession:



And
there are roughly 3 unemployed people looking for each of those available jobs.
 


Lastly, today, we still
have 2 million fewer people working than were working in 2008
!


Is
it any wonder that Pew Research says that the proportion of
Americans who identify themselves as middle class has dropped sharply in recent
years? Today, about as many Americans identify themselves as lower or
lower-middle class (40%) as say they are in the middle class (44%). At the
same time, the share of the public who says they are in the lower or
lower-middle classes rose by 15 percentage points, from 25% in 2008 to 40%.


This is inequality we cannot fix
without wholesale changes in our politics. The Anti-Keynesians are just plain
wrong; they are never confused by facts, they just ignore them.


Full
employment could return in time. According to the Wall Street Journal, the number of
children US women are expected to have over their lifetime slipped last year to
1.88 from 1.89 in 2011. That is below the nation’s so-called “replacement rate”
of 2.1.


Compare
that to the birth rates during the late 1940’s and 1950’s when we experienced
the Baby Boom, and it ranged from 3.0-3.5.


All
of that means we may get back to equilibrium of jobs required to jobs offered
sometime in the next 20 years, but not
in the next 5 or 10 years
. In the meantime, we are  going to have to recognize that work, as we
currently conceive it, may no longer be the principal contribution to society
for many adults. 


One thing
we could be doing is refreshing our infrastructure. The American Society of
Civil Engineers provides an annual report card on our crumbling
infrastructure. It shows that we need to spend $3.6 Trillion on our
infrastructure by 2020.


Rebuilding
our infrastructure could be a great source of temporary jobs that could help
bridge our workers to the point where all the Boomers will have retired and our
smaller, more-tech-savvy work force can be at near-full employment.


We will
pay for the lives of these out-of-work people indirectly, through unemployment
benefits, food stamps, Social Security, Medicare and Medicaid, so what would be
wrong with paying many of them directly while we upgrade our roads, ports,
airports and build a ubiquitous high-speed Internet?



We used to live in an
industrial age, an Adam Smith and Karl Marx world, where the worker sought to
do as little as possible and the boss tried to get the worker to do as much as
possible. But today, in our self-serve economy, that’s
just not true. Today, people supply their own locomotion.  It will take another
generation for that to be a frictionless factor in our world of work.


Income
distribution is something society can and should decide. There is no intrinsic
reason why most of the benefits of our technology economy should go only to the
1% – that is really a matter of policies such as tax policy, minimum wage
policy, and pension policy.


In a
democracy, these policies should be decided by the majority, not by the 1% and their
political servants.

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