Tuesday, June 15, 2010

61% Underfunded Illinois Teachers Pension Fund Goes For Broke, Becomes Next AIG-In-Waiting By Selling Billions In CDS

“If you were to have faxed me this balance sheet and asked me to guess who it belonged to, I would have guessed, Citadel, Magnetar or even a proprietary trading desk at a bank.” So begins a story by Alexandra Harris of the Medill Journalism school at Northwestern, which, however, does not focus on some exotic product-specialized hedge fund, or some discount window (taxpayer capital) backed prop desk (hedge fund) at a TBTF bank, but instead at the 61% underfunded, $33.7 billion Illinois Teachers Retirement System (TRS), which just happened to lose $4.4 billion in 2009 (a year when, courtesy of America's conversion from capitalism to socialism, the market rose 60%), and 5% in2008. Yet underperformance can be explained. What can not, is that the TRS has now become a shadow AIG. As Harris notes "TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default, that were blamed in part for the 2008 collapse of Lehman Bros. and bailout of insurance giant American International Group Inc., or AIG." Demonstrating just how far the fund is willing to go in the "for broke" category, knowing full well that if it repeats AIG's implosion, the government will likely bail it out, is the disclosure that a stunning 81.5% of the fund's investments are considered risky - this means it is the fourth-riskiest investment portfolio for a pension fund in the U.S! All it will take is another Flash Crash-like event, or a liquidity crunch, and the 355,000 "full-time, part-time and substitute public school teachers and administrators working outside the city of Chicago" will likely end up with a big, fat donut in their retirement portfolios courtesy of some deranged lunatic, portfolio manager, situated externally at a bank like Goldman Sachs, who in taking a page straight out of Obama's bailout nation, has decided there is no such thing as risk. And to those naive enough to think the TRS is the only such fund which has now gone all-in on "no risk and infinite return", wait until such stories start emerging about every single massively underfunded pension and fully insolvent fund in the US.

From Harris' report:

Frank Partnoy, a law and finance professor at the University of San Diego who worked on Wall Street as a derivatives structurer in the mid-1990s, said TRS’s portfolio is an indication that investing is not about what is smart but what will generate the highest returns.

“It’s an epic illustration of how we’ve really gotten lost in financial complexities,” he said, after studying the Illinois Auditor General's 2009 audit of TRS and the fund's March 31 derivatives positions.

TRS said it uses over-the-counter, or privately negotiated, derivatives to maximize the performance of its portfolio and only allows money managers to invest in derivatives if they “have the appropriate expertise and knowledge and employ sophisticated risk management systems,” said David Urbanek, public information officer, in an e-mail.

The fact that TRS trustees and investment advisors approved the use of OTC derivatives isn’t, in itself, alarming. The financial instruments are not explicitly prohibited in the Illinois pension code, and many derivatives contracts provide protection against losses on other investments.

In the balance sheet provided to Medill News Service, TRS’s OTC derivatives portfolio showed that in addition to writing CDSs, the pension fund was selling swaptions and shorting international-based interest rate swaps. For each contract written or sold, TRS received a premium.

And as always happens when one collects pennies before a rollercoaster, the spectacular blow up always eventually catches up with you:

Unfortunately for TRS, its OTC positions soured in late April when Greece’s debt woes worsened, Standard & Poor’s downgraded Spain’s debt to AA and the euro dropped to its lowest levels since the currency’s inception. The International Monetary Fund and European Central Bank orchestrated a $1 trillion bailout to ensure that Greece and the other PIIGS—Portugal, Ireland, Italy and Spain—would not default on their debts.

“As the European debt crisis worsens, TRS’ positions are going to bleed money,” the trader said.

Where it gets even scarier, is that TRS may be fraudulently misrepresenting its massively underwater portfolio:

But the Illinois Teachers’ Retirement System said if it unwound the OTC trades held in its pension fund today, the positions would have a market value of $5 million and a notional value of $1.1 billion. Notional value is the total value of a leveraged financial instrument’s assets.

It isn’t clear how TRS is valuing its OTC derivatives and market experts, among them Rosenthal, who estimated a loss of $515 million as of March 31, were skeptical the OTC positions could have been showing a net positive notional value.

TRS projects it will have logged a $158 million gain from its derivatives portfolio by the June 30 end of fiscal 2010— with $5 million derived from its swaptions, CDS and interest rate swaps positions—and just a fraction of its projected $627 million total return.

A significant portion of TRS’s OTC derivatives are linked to interest rate swaps and those are tied to either the London Interbank Offering Rate or Euro Interbank Offering Rate. Interest rate swaps stipulate for every basis point tick upward in the LIBOR or EURIBOR, the fund is forced to pay out an interest rate that is two basis points higher. This is why the notional value of TRS’s U.S. dollar- and international-based interest rate swaps were in the red by $361.4 million at the end of March.

TRS’ portfolio also includes a large number of swaptions—or the right at a future time to enter into a swap position—which showed a loss of $14 million as of March 31. In addition, the fund sold approximately $154 million worth of CDSs guaranteeing the debt of dozens of companies, countries and states, among them American International Group Inc., GMAC, Panama, Mexico and California. (See graphic).

A large part of TRS’s international-based interest rate swaps positions are linked to the Brazilian Interbank Deposit Rate and Euribor in a bet that inflation would stay low in Europe but rise in emerging markets.

Rosenthal, who said TRS appears to be betting that long-term Treasury yields will greatly increase, is incredulous that the fund even has this view. “Their job is not to play the [Treasury] yield curve,” Rosenthal said. “It’s not their job to have that view.”

Swaptions, Euribor exposure, curve trades? What the hell happened to buy and hold. Does TRS really expect to survive this, when there are sharks like Goldman who know every single trade the TRS has on, and one day, sooner rather than later, will destroy it, but not before margin calling it to death in the process.

The logical question of who the hell is supervising this slow motion train crash surprisingly has no answer:

Section 1-109.1. of the Illinois Pension Code states it is the duty of the board of trustees of a retirement system or pension fund to appoint fiduciaries to manage its assets—including the power to acquire and dispose of any assets—as well as assign others as fiduciaries to oversee activities other than asset management.

TRS said it makes day-to-day operational decisions concerning strategic asset allocation, portfolio structure and manager selection, but cedes all of its investment decisions, within TRS parameters, to professional money managers, a list some 60 names long that includes Goldman Sachs Asset Management, JPMorgan Investment Management, Northern Trust Co. and State Street Global Advisors.

When asked which managers were responsible for the pension fund’s derivatives portfolio, Urbanek, the Illinois TRS spokesman, said OTC derivatives positions are scattered across each asset class because they are “complementary positions” within each portfolio.

According to its investment policy, TRS encourages diversification of assets and “prudent” risk taking because these strategies align with its long-term investing goals. “Increasing risk is rewarded with compensating returns over time.”

“They’re not maintaining effective internal controls,” Partnoy said. “Is it prudent risk-taking to write CDSs on Brazil?”

At the end of the day, it appears the fund is doing nothing illegal by essentially offloading front-office duties to Goldman, which of course is happily trading in advance of the fund, to whose books it likely has full exposure, to benefit its own prop trading desk, and reward its own shareholders first and foremost: 63 out of 63 profitable trading days anyone?

The bottom line, experts say, is that there is no language in the Illinois pension code that prohibits pension funds and retirement systems from buying or selling OTC derivatives as an investment method. In the event of catastrophic losses, lawsuits would be filed against the fiduciaries, but ultimately taxpayers would be left holding the bag.

And here we see where the next layer of catastrophic systemic collapse will come from: the multi-trillion pension system, which is now invested in the riskiest imaginable products, and whose existence is contingent on a market and economy, both priced to perfection. The Fed is surely aware of this, and will do everything in its power to prevent a catastrophic collapse. Yet the Fed always loses the battle at the end of the day. And if Americans were angry the last time they had to bail out bankers, just wait until it becomes obvious that these very banks blew up the pensions of tens of millions of Americans only so that the very same banks could enjoy at least one more year of record bonuses. It is not obvious where the next crash will happen. And it is certain that nothing will be done, as facing the problem would mean recognizing the massive losses already facing the pension system. And that would be the dominoes that forces yet another round of inevitable mark-to-market, and bank implosions. The timebomb is now ticking and there are merely seconds left before it goes off. We have been warned, and will do nothing to stop it.

Moody's Latest To Downgrade Greek Debt To Junk

Moody's Investors Service slashed Greece's credit rating to junk status on Monday in a new blow to the debt-ridden country that is under intense international scrutiny after narrowly avoiding default last month.

A Moody's statement said it was cutting Greece's government bond ratings by four notches to Ba1 from A3, with a stable outlook for the next 12-18 months. It was the second of the three major agencies to accord Greek bonds junk status. Standard & Poor's did the same in late April.

The downgrades reflect concern that the country could fail to meet its obligations to cut its deficit and pay down its debt - which the Greek government says is out of the question.

Finance Ministry officials in Athens had no immediate reaction to the rating cut, which came as a delegation from the International Monetary Fund and the European Union started an interim review of the country's efforts to pull itself out of a major debt crisis.

After amassing a vast public debt and overspending that sent its budget deficit spiraling to 13.6 percent of gross domestic product in 2009, Greece was saved from defaulting on its loans in May by the first installment of a joint EU and IMF euro110 billion bailout. It is to receive the second in September, pending implementation of a major austerity program that has sparked strong union reaction and a series of damaging strikes.

"The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package," said Moody's lead analyst for Greece Sarah Carlson.

"The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels."

"Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating."

Despite the downgrade, the gap, technically known as a spread, between Greek 10-year bond yields and their benchmark German equivalents dipped only slightly late Monday. The difference was at 5.91 percent, down from 6.12 percent earlier in the day.

That means that Greece would have to pay a rate of around 9 percent were it to raise cash through bond issues. However, bolstered by the rescue loans, Athens says it has no plans to try selling its bonds to the markets soon — except for short-term treasury bill issues in July.

In return for the bailout, Prime Minister George Papandreou's center-left government announced painful austerity measures, slashing pensions and salaries while increasing indirect taxes, seeking to gradually bring the deficit down to 2.6 percent in 2014. The continued flow of EU and IMF funds is conditional on Greece meeting its targets, which will remain under constant scrutiny.

Athens says it has exceeded deficit-cutting targets in the first five months of 2010, as a lower-than-expected increase in revenues was offset by higher spending cuts.

The finance ministry says the January-May deficit stood at euro8.97 billion ($10.77 billion), compared to euro14.65 billion in the first five months of 2009. The drop translates into a 38.8 percent reduction, more than the planned 35.1 percent cut.

Papandreou said late last week that Greece was back on track to "a normal financial and fiscal situation, having left the major dangers behind."

Monday's Moody's statement said the austerity package was "very ambitious."

"There is considerable uncertainty surrounding the timing and impact of these measures on the country's economic growth, particularly in a less supportive global economic environment," Carlson said.

The EU/IMF delegation, which will stay in Athens for the week, was holding meetings at the finance ministry and was expected to also meet with officials at the labor ministry in coming days to review reforms to the social security system.

Russia deploys hundreds of extra soldiers to Kyrgyz military base

Moscow/Bishkek, Kyrgyzstan - Russia has deployed hundreds more soldiers to protect its military base in Kyrgyzstan, in the wake of fresh unrest that had left almost 100 people dead in the Central Asian country as of Sunday.

Three Ilyushin Il-96 military planes with a battalion of Russian paratroopers on board have landed at the base in Kant, the Interfax news agency reported. A Russian battalion typically ranges from 350 to 800 soldiers, depending on the situation.

The planes also reportedly carried ammunition.

The troops have been tasked with protecting the base in northern Kyrgyzstan, in case the bloody clashes between Kyrgyz and Uzbek nationals in the south spread.

Russia had previously sent some 150 extra soldiers to Kyrgyzstan after violent protests in early April brought down the government of President Kurmanbek Bakiyev.

Kyrgyz President Rosa Otunbayeva has requested Russian military intervention to quell the new wave of rioting and looting, but Russian President Dmitry Medvedev on Saturday rejected her plea.

US wants South Korean boat’s sinking as they tell it but Russia and China don’t agree

Christopher King questions the US-South Korean accusation that North Korea sank the South Korean corvette the Cheonan in March this year. He says the lack of evidence linking Pyongyang to the sinking, coupled with the history of US deceptions in Vietnam, Afghanistan and Iraq, makes it more likely that the Cheonan was sank by the US or South Koreans, accidentally or deliberately.

US Secretary of State Hillary Clinton has “...warned Chinese officials that China could put itself in a ‘dangerous position’ if it refuses to accept North Korea’s role in the sinking of the Cheonan, an apparent reference to the South Korean joint civilian-military investigatory report”, according to the 2point6billion.com website. This Hong Kong news forum’s name should remind us that Europe is following America into conflicts everywhere with our economies and currencies collapsing while Asia is getting on with rapid development. Can there possibly be a connection?

There is no use Americans getting angry with China for having its exports surge as the Financial Times reports. Many of us can think of much better ways to spend money than on wars and have been saying for a long time that America should be restructuring its economy rather than killing people half a world away in order to steal their oil. Why blame China for America’s own blunders? As I’ve said previously, America would like an excuse for mid-level conflict with China in order to bring in trade sanctions and recover American jobs. A reason to default on their interest payments would be nice too. They’re also pressing for a revaluation of the renminbi. The Chinese won’t be impressed by Hillary ’s threats, so there’s the possibility of a good manufactured conflict here.

”Truth has now become politics and evidence doesn’t matter”

The Chinese and Russians don’t agree with America that North Korea sank the South Korean corvette Cheonan on 26 March 2010, and why should they just because Hillary Clinton expects them to? They’ve seen the evidence. All there is against North Korea is a piece of metal with a single character on it that is said to be usually (not always, but usually) used in North Korea. Even some South Korean experts don’t agree with this. No-one appears to have said is even part of a torpedo. It’s not enough to convince an American jury, criminal or civil, so how can it go to the United Nations? Why are the UK and Europe going along with this? Truth has now become politics and evidence doesn’t matter.

The international character of the investigation was much touted by the Americans, but it turns out that experts from other countries were merely window-dressing observers while Americans and South Koreans did the investigating. Since our countries are expected to back America in the United Nations, the investigation report should be made public before we become entangled in yet another American conflict even further away from Europe than the Afghanistan-Pakistan mess. Show us the evidence!

The Cheonan sinking might indeed have been the North Koreans taking revenge for a maritime clash with South Korea in November 2009, but it is unlikely. The North Koreans like minor provocations that display their bargaining items and this does not fit the pattern. It might also have been a mine or the Sokcho, the Cheonan’s sister ship, wildly firing off a torpedo as well as its guns.

Suspcious US behaviour

As I’ve said previously, I like the United States as culprits. As suspicious behaviour, why is it that the US only announced on 5 July, after two months, that it and South Korea had an anti-submarine exercise in progress allegedly 75 miles away at the same time as the sinking? Possibly much closer. We knew anyway. Bloggers were writing about it and it was independently reported. I mentioned it on this website on 2 July. There’s grave suspicion in South Korea about the American story. The government says that it will track down spreaders of internet rumours and conspiracy theories contrary to government conclusions. What’s this? Isn’t South Korea supported by the US because it’s a democracy where, by definition, the proletariat are allowed to disagree with their government? Indeed, there is an expectation that we, the unwashed, will scrutinize our exalted leaders’ actions. Such over-sensitivity and control usually means that we’re not being told the truth.

The excited gunfire by the Cheonan’s sister ship, the Sokcho, against an (alleged) flock of birds and America’s bellicose response to the sinking, without evidence, reminds me of the 1964 Gulf of Tonkin incident that President Johnson used to start a full-scale war on Vietnam. We know how that went. Nearly 60,000 American dead wasn’t it, with at least two million Vietnamese killed and the population still suffering genetic damage from agent orange that the US sprayed over nearly the whole country.

Echoes of Tonkin

The papers about the Tonkin incident were only declassified and pried out of the government by persistent investigative journalists. The synopsis on the George Washington University website by Robert J. Hanrock in the formerly classified journal Cryptographic Quarterly makes fascinating and relevant reading.

If you don’t know the story, the USS Maddox and USS Turner Joy were on a mission of deliberate provocation within the territorial waters of North Vietnam. Simultaneously, on land the CIA and American “trainers” were organizing raids by South Vietnamese commandos on the North’s facilities. Maddox had engaged North Vietnamese torpedo boats two days previously when on a similar mission. On the night of 4 August 1964 at 21.34 hours both Maddox and Turner Joy detected surface and air threats. They began high speed evasive manoeuvres and a few minutes later Turner Joy began firing its main five-inch guns wildly. It fired over 300 rounds on up to 13 targets, fired star shells, dodged two dozen torpedoes, dropped four or five depth charges. Targets were appearing and disappearing. US aircraft called in could find no attackers. No trace of debris was found in the morning. The Maddox’s captain did not believe that there had been any attackers and this was found to be the case. The ships’ own high-speed wakes, erroneous sonar interpretation and radar reflections from waves were responsible for false targets and torpedoes.

Delighted by first reports of an attack, President Johnson was not pleased when doubts that any attack had occurred reached him. He was cheered however, when the National Security Service presented him with reports based on radio intercepts that had been selected to support the attack story by omitting 90 per cent of the material, particularly items indicating that there had been no attack. Johnson used this material to get the House of Representatives to give him a free hand on military action in South East Asia, resulting in the American wars in Vietnam, Cambodia and Laos. America killed millions. Does it sound familiar?

Johnson knew that there had been no attack on the Maddox and Turner Joy. He is quoted as saying, “Hell, those damn stupid sailors were just shooting at flying fish,” and thought himself very clever. The government had resisted releasing the Tonkin documents for years because they were so similar to the intelligence methods used in support of the Iraq war.

The Cheonan explosion time at 21.22 hours, is within 12 minutes of the time the 1964 Tonkin incident commenced (21.34 hours). The same symptoms of wild gunfire against an unidentified target are seen. American craft were near the Cheonan and presumably helicopters with torpedo-carrying and depth charge capability. It is possible that the Cheonan was not where it was supposed to be or expectations of where it should have been were wrong. In other words, it could have been mistaken for a North Korean vessel. The coincidence of times is noteworthy. Early evening when sight of one’s surroundings has just been lost could be a disturbing and disorientating time, especially near a hostile coast as both these incidents were.

I know nothing of naval warfare, so call me presumptuous, but firing on an unidentified target that has not shown hostility is surely an amazing thing to do. America has an appalling record in Iraq and Afghanistan for attacking targets without confirmation of their identity. BBC reporter John Simpson’s convoy was attacked on camera by an American aircraft, killing a cameraman and 17 other persons with 45 injured. Wedding parties are particularly favoured for air attack, when they are reported as Taliban or Al-Qaeda training camps. General Stanley McChrystal’s big idea in Afghanistan at present is special forces night attacks on houses, often the wrong ones, with everyone killed, men, women and children. Of course, there’s the Wikileaks’ “Collateral Murder” video showing American attitudes, that you have probably seen.

The Sokcho might not have been the only craft firing at the time of the Cheonan explosion. If an American submarine or helicopter torpedoed or depth charged the Cheonan, whether by accident or intentionally, they are clearly not going to admit to it.

Because of their record of genuine conspiracies and murderous ones at that, only the most naïve persons now believe the American and British governments. That is why we have conspiracy theories. It is a simple fact that there is no evidence whatsoever in the public domain linking North Korea to the sinking. Having examined the best that the Americans have, the Russians and Chinese don’t think so either. Yet Hillary Clinton wants the world to trust and believe her when she says that North Korea was responsible. The evidence is really that the Cheonan sinking is another in a long line of American deceptions.

Christopher King is a retired consultant and lecturer in management and marketing. He lives in London, UK.

BP Death Clouds Already Onshore! Benzene-3400ppb & Hyrdrogen Sulfide-1200ppb TOXIC AIR ALERT

Click this link ..... http://www.youtube.com/watch?v=eGxGVGiD3yk

Obama Issues Executive Order Mandating “Lifestyle Behavior Modification”


Obama Issues Executive Order Mandating ?Lifestyle Behavior Modification? June 12, 2010 ? 28 Comments

White House Chief of Staff Rahm Emanuel is fond of saying, ?You don?t ever want a crisis to go to waste; it?s an opportunity to do important things that you would otherwise avoid.? Well, the Obama Administration certainly has not let the British Petroleum (BP) Deepwater Horizon oil rig crisis go to waste, using it as a smokescreen to silently assault and further diminish American citizens? personal freedom.

While the nation has its eyes and ears focused on the blame game ping-pong match between President Obama and BP top brass, President Obama on Thursday, June 10, quietly announced a new Executive Order establishing the ?National Prevention, Health Promotion, and Public Health Council.?

You will "change" to my liking! Claiming the ?authority vested in me as President by the Constitution and the laws of the United States of America,? President Obama has truly gone off the deep end this time in his most atrocious attempt to date to control every aspect of Americans? lives.

According to Sec. 5. of the Executive Order that details the President?s ?National Prevention and Health Promotion Strategy,? the Council will be charged with carrying out ?lifestyle behavior modification? among American citizens that do not exhibit ?healthy behavior.?

The President?s desired lifestyle behavior modifications focus on:

smoking cessation; proper nutrition; appropriate exercise; mental health; behavioral health; sedentary behavior; substance-use disorder; and domestic violence screenings. Making matters even worse, if that is even possible at this point, President Obama will create an ?Advisory Group? composed of experts hand-picked from the public health field and various other areas of expertise ?outside the Federal Government.?

Let?s consider who the President has sought advice and mentoring from in the past:

Rev. Jeremiah Wright, who the Anti-Defamation League calls a ?Messenger of Intolerance,? and Bill Ayers, leader of the 1960?s domestic terrorist group ?Weatherman? that was ?responsible for 30 bombings aimed at destroying the defense and security infrastructures of the U.S.? Now, President Obama is going to seek medical advisors who will be charged with modifying lifestyles and behaviors of those citizens he deems unhealthy? ?Paging Dr. Kevorkian! You?re wanted in the White House STAT by President Obama!?

Whether you are a child, a parent, a worker, or retired, the President?s approximately 25-member ?Advisory Group? will soon be present in every aspect of Americans? lives, as the Executive Order prescribes. Specifically, our new so-called lifestyle behavior modification advisors will be actively carrying out the President?s orders in:

worksite health promotion; community services, including community health centers; preventive medicine; health coaching; public health education; geriatrics; and rehabilitation medicine. President Obama?s sweeping plan to enforce ?lifestyle behavior modification? is chock full of open-ended target areas, especially when it comes to issues of ?mental? and ?behavioral? health, ?proper nutrition,? ?sedentary behavior,? and ?appropriate exercise.? The President?s Executive Order is a blatant and forceful attempt to adjust the way Americans young and old think, behave, eat, drink and whatever else free will used to entitle our nation?s citizens to enjoy as prescribed by the Founding Fathers.

If you are feeling stressed-out, sad, confused, hungry, thirsty, bored, or tired, do you honestly trust President Obama and his ?Advisory Group? to act in your best interests?

Do not wait for President Obama?s next assault on your freedom and liberties to take its toll on you and your family! Join the Nanny State Liberation Front today so you can defeat big government before it?s too late.

Tensions high, food runs low in prisons

HONOLULU (AP) - Prison officials said tensions in inmate populations rose last month because of inadequate meals caused by a low supply of food.

The Department of Public Safety told the state Procurement Office that if not addressed, the rising tensions could result in serious inmate disturbances.

Deputy Director for Corrections Tommy Johnson said the prisons that house 6,000 inmates were in danger of running out of food because not enough bids were received on a number of items.

A law that went into effect last year to help local farmers requires state agencies to gather competitive bids before buying food and other fresh agricultural products.

The Crude Truth


The British learn every few years that their much vaunted “special relationship” with the United States is actually, in terms of relationships, rather more normal than they suppose – being a zig-zagging affair fraught with hypocrisy, deception and self interest, with underlying patterns of dominance and submission as fetchingly described by Sade and Sacher-Masoch. The BP disaster is giving them yet another refresher course in who wields the whip.

It’s no use London’s Mayor, Boris Johnson, bleating about there being “something slightly worrying about the anti-British rhetoric that seems to be permeating from America”, and invoking the “huge exposure of British pension funds to BP” which makes it “a matter of national concern if a great British company is being continually beaten up on the airwaves.” (About one in every eight pounds sterling paid out in dividends in the UK comes from BP, Britain’s largest company, which also deigns to give the reeling UK exchequer a thickish wad in tax money.)

It’s worse than useless for Lord Tebbitt, once a Tory minister in Margaret Thatcher’s cabinet, to splutter about “a crude, bigoted, xenophobic display of partisan, political, presidential petulance against a multinational company.”

We’re talking about something infinitely more important to Barack Obama than the possible bankruptcy of BP, the ruin of BP investors both sides of the Atlantic, or a eventual takeover of the reeling company by Petro-China. We’re talking about the political survival of Barack Obama and his party across the next four years, starting with the midterm elections this coming November.

Two weeks ago the president and his advisors realized that they were headed for the rocks. The Great Reconciler of 2008 was being reclassified in the popular mind as the Wimp of the Year in 2010. The White House had allowed BP’s CEO, Tony Hayward, to grab headlines day after day with absurdly lowball estimates of how much oil was gushing out into the Gulf.

As BP’s initial 5,000 barrels-a-day number, successfully sold to the Obama administration and the press, sank onto disrepute against the current very moderate estimate of 30,000 bpd, (equivalent of an Exxon Valdez spill every 8 days or so, with a higher calculation running nearer 100,000bpd) , the tar balls started sticking to Obama’s elegant footwear.

No one can turn on a dime quicker than a panicked politician. Take the corporate lapdog Bobby Jindal, governor of Louisiana and at the time of BP’s oil well blow-out on April 20, a figure of fun after his awful performance on national tv in 2009, rebutting Obama’s first State of the Union speech. These days Jindal is fighting the spill 24/7, rushing from wetlands to barrier islands, savaging BP and the White House as twins in dilatory incompetence. Louisianans roar their applause and he’s soared in the polls.

As Gallup’s poll showed Obama dipping to a 44 per cent approval rating he finally got the message and whacked Hayward, saying if it were up to him he’d fire the guy. Goodbye, Mr We-Need-To-Get-Beyond-Partisanship. Welcome, Obama the Cagefighter (novice division): Why hadn’t he talked to Hayward in the 49 days since the blow-out? “Here’s the reason: because my experience is, when you talk to a guy like a BP CEO, he’s gonna say all the right things to me. I’m not interested in words. I’m interested in actions.” White House flack Gibbs also argued very oddly that Obama hadn’t talked to Hayward because, in terms of corporate governance he’s not the go-to guy at BP.

When the U.S. government wheels out the heavy artillery and starts suing BP for damages, the numbers start flying past the $40 billion mark pretty fast as you tot up Clean Water Act violations, plus fines for bird and fish kills, compensation for workers, expenses incurred by state and local authorities …. On and on. Then throw in criminal charges for willful conspiracy and maybe even the Chinese will think twice about taking over this target of public and private litigation, in cases that will stretch out for a couple of decades, at a bare minimum. More than 200 lawsuits have already been filed.We’ve got two to three decades of litigation to look forward to.

It’s bad luck for Britain that when BP officially became twin consonants instead of British Petroleum back in 2001 it didn’t knock the B out altogether. Aggrieved British politicians denounce the Obama administration for throwing heavy emphasis on the formally discarded “British” in BP. What do they expect? Here in Petrolia, California (site of spec oil drilling back in 1864) someone asked me at the post office yesterday, was it true the Queen owned BP.

What goes around comes around. One of the greatest bailouts in history came in 1953, when the Eisenhower administration authorized a CIA-backed coup in Iran. The Anglo-Iranian Oil Company, owned by the British government, had been expropriated and nationalized in 1951 by unanimous vote of Iran’s parliament. The ’53 coup evicted prime minister Mohammed Mossadeq and installed Shah Reza Pahlevi, the creature of the West’s oil companies , with full tyrannical powers. The AIOC got back 40 per cent of its old concession and became an internationally owned consortium, renamed… British Petroleum.

There are plenty of American ingredients in the company, with such BP acquisitions and mergers down the years as Standard Oil of Ohio, Amoco and Arco,. No matter, it’s “British Petroleum” now in the minds of Americans and the company is the designated fall guy – a role it richly deserves since, as Jeanne Pascal, a former lawyer for the US Environmental Protection Agency, recently put it, “They are a recurring environmental criminal and they do not follow US health, safety and environmental policy.”

No mercy.

Footnote: A CounterPuncher writes to me: “BP is indeed a conscience-less company, possibly even more so than the rest. My father who was an eye-surgeon was appointed by the Shah government and A.I.O.C. (Anglo-Iranian Oil Co, later renamed BP) to teach Persian doctors to battle trachoma in South Persia (Abadan). I remember the many instances of utterly callous behavior from A.I.O.C. officials towards heavy accidents in the huge refinery there affecting Persian workers, the neglect of normal safety procedures and even the disgust about A.O.I.C.'s working methods expressed by the Dutch director of Shell at whose house we were staying for some time on Mount Demawand near Teheran.”

A Deadly 9/11 Cover-Up

In our latest newsletter, hot off the press - What do the W.R. Grace Company, the Trade Towers, Libby Montana and asbestos have in common? Andrea Peacock weaves the fatal threads together in a brilliant investigation. The terrible bottom line:

“If asbestos-related diseases begin showing up in rescue workers and others exposed at Ground Zero in the next few years, there’s little doctors can do about it. There’s medication to ease the symptoms of asbestosis – in which scar tissue caused by asbestos fibers gradually suffocates victims – but no cure. Those with lung disease can forestall the inevitable decline by taking care of themselves: quit smoking, get plenty of exercise to keep their lung capacity as high as possible. It could take another 30 years for mesothelioma cases to manifest – an asbestos-related lung cancer that kills fast once it hits. The full legacy of that day, for which W.R. Grace now bears some responsibility, will be unfolding for decades. “

Also in this powerful edition: After a mine disaster in western Siberia Russian workers rise up. Boris Kagarlitsky describes the social explosion. Jeffrey Blankfort reviews Quicksand, the book the Israel lobby doesn’t want you to read.

I urge you to subscribe now!

1.3 million flee as China flooding kills 155

Unusually heavy seasonal flooding in China has killed at least 155 people and forced more than 1 million to flee as water levels in some areas reached at their highest in more than a decade, the government reported Saturday.


Unusually heavy seasonal flooding in China has killed at least 155 people and forced more than 1 million to flee as water levels in some areas reached at their highest in more than a decade, the government reported Saturday.

Direct economic losses total 24 billion yuan ($6.5 billion), with large swaths of the country's southeast hit especially hard, according to the Office of State Flood Control and Drought Relief Headquarters.

Virtually all of the country's major rivers were swollen, while water levels in lakes along the mighty Yangtze River were higher than in 1998, when catastrophic flooding killed about 4,000 people.

The office said 140,000 houses had collapsed and more than 1.3 million people had been moved to temporary shelter. Overall losses were about four times what they were last year, it said. Heavy rain has been falling since April, with 13 torrential storms on record already this season.

Flooding strikes along the Yangtze almost every summer, although authorities had claimed that construction of the massive Three Gorges Dam along the river's upper reaches would help modulate water levels and prevent major losses.

The office did not say what if any role the dam had played in controlling flood waters, although it said officials responsible for anti-flooding measures had been ordered to monitor and adjust levels wherever possible.

Crony Healthcare in Action

Obamacare is pretty much modeled after the monstrosity that Mitt Romney designed for Massachusetts. WSJ has a report on how that experiment is going:
High health-care costs are so sensitive in Massachusetts that when two health-care company executives suggested consumers could help by watching their weight, the Boston Herald ran a sarcastic page-one headline: "It's Your Fault, Fatso."
Here's WSJ on how well RomneyCare is reining in costs:
Four years after Massachusetts passed a health-care overhaul similar to the recently enacted national plan, small businesses are seeing their premiums rise 22% this year. People in the state have some of the highest premiums in the nation.
Then it just turns into Crony Healthcare:
In Massachusetts, a few prestigious hospitals enjoy considerable bargaining power. State and federal authorities are looking into allegations that Partners HealthCare System Inc., which operates Massachusetts General Hospital and Brigham and Women's Hospital, engaged in anti-competitive behavior. Insurers generally swallow the high prices and pass them on to people buying coverage.
What's really scary about this madness is the solution that most in Massachusetts seem to be in favor of:
There is fairly broad agreement on how to fix the system. A state commission —including representatives of government, insurers, doctors and hospitals—recommended in July that Massachusetts adopt a "global payment" system. Health professionals would be paid for caring for patients over a certain period of time, rather than compensated for each test or treatment. Implementing the fixes, though, will take years.
Of course, this nutty solution will result in fewer tests and fewer treatments, but it sure sounds like doctors will have incentive to drag things out over longer periods. This will, of course, result in limits on the period allowed for treatments of different illnesses, and heaven help you if treatment for you is required beyond the period designated for your illness.

Then, of course, there is the favorite solution of every politician for climbing prices, price controls:
[Governor] Patrick's answer is to cap insurance-company rate increases at 7.7% this year. Insurers say that is draconian, and have sued to reverse Mr. Patrick's action.

Picture all this madness at the national level because it is coming with Obamacare. It's all about politicians who have no idea how free markets work and police themselves. It's all about politicians who have no idea of the impossibility of replacing the huge number of calculations made by individuals in a free market, by a central planning authority. It's about politicians who don't understand the incentive system. It's about politicians who fail to understand that the creation of power centers (new regulations and agencies) ultimately leads to those who will attempt to influence and capture the thinking in such power centers. It's about cronyism. In healthcare, it will mean crony healthcare--which will mean less care, care directed toward the treatments offered by those who have captured the regulators. It will mean higher prices for less, and ultimately more pain more suffering and earlier deaths for most of us.

BP Grasping At Strings

Struggling to halt the gargantuan flow of crude oil from the seabed of the Gulf of Mexico, BP CEO Tony Hayward took time out from his demanding schedule to discuss with Outside The (Cardboard) Box the effect the environmental disaster has had on his life, BP’s plans for the future and his inspiration for BP’s latest approach to stemming the flow.

Canada Is Zionist Jewish Occupied Territory: Jews Are NOT Prosecuted For Violating Canada's "Hate Laws"!

Few Canadians are even aware that back in the early 1970's, Canadian Jewish groups, including the B'nai B'rith spearheaded the campaign to have Hate Crime Legislations introduced and passed in the Federal Government in Ottawa into law. The general public was kept in the dark (purposely) to the fact that the Canadian Government with the stroke of a pen, basically surrendered Canadian personal freedoms into the hands of Zionist Jews.

But now, 30+ years later, we are finally paying the consequences to allowing these monsters to take over this once great nation. Here now, I want to present the following article, through www.us.altermedia.info, that shows clearly that the new Hate Crime Laws do NOT apply to the Zionist Jews at all. Here is that article:

Canada’s so-called “hate laws” have for long been among the most draconian and tyrannical in the world, including the establishment of extra-legal kangaroo courts called “Human Rights Tribunals” that have all the powers of a court. The purpose of these infamous tribunals is to silence all criticism of the Canadian government’s racial and immigration polices, but more particularly to silence any criticism of Israel or the Jews. Not too surprisingly, one of these tribunals has decided that Jewish hatred of non-Jews should get the blind eye.

According to the Canadian National Post: “The Canadian Jewish Congress says the Toronto Police Service is pushing anti-hate law ‘to its most absurd level’ by listing ‘non-Jewish Shiksa’ as a victim category in its latest hate crime study. The statistical report reveals that officers investigated hate crimes in Toronto last year against such unusual victim groups as teachers, feminists, infidels, police, Nazis and pedophiles. But it is the redundantly named category of ‘non-Jewish Shiksa’ — a slur for a non-Jewish woman, from a Hebrew root meaning ‘a detested thing’ — that has especially baffled the CJC, a prominent advocate for stronger hate crime laws. ‘You just can’t apply it to literally everything,’ said CEO Bernie Farber.” (Read: You can’t apply it to Jews.)

The National Post goes on. “The 2009 shiksa incident, classified as mischief, happened in 53 Division, a central uptown area colloquially known among police as ‘Sleepy Hollow’ because it includes the city’s most pleasant residential communities, including some of the Jewish neighbourhoods around Bathurst and Lawrence. It is not known whether a charge was laid, or a prosecution successful.” (I would love to know the details of that “incident.”)

Nowhere else is the liberal hypocrisy of so-called “hatecrime” laws more blatantly on display than in cases where the Jews are involved.

For starters. the entire Jewish religion is, of course, based on a concept of racial supremacy. The Jews seriously believe they are better than the rest of humanity. Yet I very much doubt that any rabbis will be summoned before any Canadian Human Rights Tribunals any time soon for possession of the Babylonian Talmud. (Although a few years ago some legislators in Russia did attempt to outlaw the Talmud as “hate literature”.)

Jews habitually refer to other people as Goyim, “stupid cattle”, but for some reason that never appears on any official list of legally banned racial slurs. Apparently, in Canada, it is quite all right to call any non-Jewish woman a “side of beef” or “slab of meat,” which is what shiksa means in Yiddish. Presumably it’s also acceptable to refer to some Jewish slut’s Gentile toy boy lover as a shaygets, which is another Yiddish term of opprobrium referring to a portion of a male animal’s anatomy. (That’s animal, not human. The Jews repeatedly refer to non-Jews as animals, but apparently that’s not “hate”.)

In Leo Rosten’s famous work The Joys of Yiddish, I noticed that almost a third of all the words listed in Rosten’s lexicon are terms of insult, abuse, degradation, opprobrium and belittlement. Do police get special training to arrest these Jewish haters, speaking Yiddish? Of course not. The hate crime laws are designed to oppress and humiliate White people, who lose their temper and say what they really think of the Third Worlders destroying their homeland. All other cases are unimportant.

NTS Notes: All Canadians must be made aware of these horrendous facts. It seems that the Zionist Jews wanted their devious Hate Crime laws to apply to the unsuspecting Goyim only, while they openly break the laws with impunity, and are allowed to go about their business in destroying this nation, enslaving the masses, and taking control for themselves!

You cannot pass any laws that specify forms of Hate Crimes and allow one group the privilege of circumventing such laws. But it seems that is exactly what the evil Zionist Jews have done. It is no wonder that the Rothschilds say that Zionist Jewish groups control Canada, and that our poodle Prime Minister, Stephen Harper, is nothing more than a slave. They are totally in control of Canada and are flaunting it with their laws!

More to come


With bra or without, attorney denied entry

MIAMI, June 13 (UPI) -- An underwire bra kept a Miami lawyer from seeing her client, and when she removed it, prison dress codes meant she still couldn't see him, authorities said.

Attorney Brittney Horstman's bra triggered a metal detector at Miami Federal Detention Center, and security guards would not let her enter, The Miami Herald reported Saturday.

Horstman stepped into a bathroom, removed the bra, and in blouse and jacket cleared the walk-through detector, the newspaper said.

But security guards still refused to allow her in, saying since she was braless she violated prison dress code guidelines.

"So, simply because I was a woman who wore a specific bra, my client was denied access to his attorney today," Horstman said. "This is completely unacceptable."

Attorneys and the prison reached an agreement several years ago allowing female attorneys entry if guards confirmed by using a wand that an underwire bra was setting of the walk-through detector, the Herald said.

Prison officials would not comment on the incident with Horstman, but people familiar with the procedure say the guards on duty Friday probably "didn't get the memo."

'Act two' of crisis begins: Soros

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Unemployment drop amid weak economy

Business Day reporter Chris Zappone says that if Asia is hit by a slowing global economy, Australia will suffer the consequences.

Billionaire investor George Soros says ''we have just entered Act II'' of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession.

''The collapse of the financial system as we know it is real, and the crisis is far from over,'' Mr Soros said at a conference in Vienna. ''Indeed, we have just entered Act II of the drama.''

Mr Soros, 79, said the current situation in the world economy is ''eerily'' reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.

Concern that Europe’s sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $US4 trillion from global stock markets this year. Europe's debt-ridden nations have to raise almost 2 trillion euros ($2.85 trillion) within the next three years to refinance, according to Bank of America.

''When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken centre stage, but the effects are liable to be felt worldwide,'' Mr Soros said.

Mr Soros gained fame in the 1990s when he reportedly made $US1 billion correctly betting against the British pound. He also wagered that Germany's mark would appreciate after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year. His firm, Soros Fund Management, manages about $US25 billion.

Credit default swaps, which aim to protect bondholders against the risk of a default, are dangerous and a ''license to kill,'' Mr Soros said overnight. CDSs should only be allowed if there is an insurable interest, he said.

Japan and the U.S.: Ad Hoc War, Ad Hoc "Recovery"

Japan had no real plan to win World War II, or for its "recovery" from its 1989 bubble. The U.S. has no real plan to "win" in Iraq or Afghanistan, or for this "recovery." It's all ad hoc, and the consequences are predictably catastrophic.

Through a bit of luck, I recently viewed an NHK TV program (in translation) on the origins of the Japanese attack on the U.S. Navy which launched World War II. To my great surprise, the war was all ad hoc.

The program was based on 400 hours of taped conversation between former mid-rank Japanese Naval officers who had gathered to privately discuss the war in 110 informal meetings in the early 1980s.

The Japanese are circumspect in the best of circumstances about matters of national "face" and responsibility for the war and Japan's policies of horrific brutality against civilians and enemy combatants alike.

The reluctance to speak the truth was evident in some of the voices of those who were front and center in the Imperial Navy Staff and the Combined Fleet throughout the war.

Other voices were angry, and their anger broke through the cultural restraints which had bound them to secrecy all those decades after the war. "Didn't you think of the 3,000 men who were sacrificed?" "Why didn't you go directly to Admiral Nagano and try to convince him not to approve the war?"

This was not the "official history" or even the history these participants had revealed in debriefings after the war. According to this program, the connection of the Imperial family to the Navy (via a celebrated Admiral who was chief of Staff between 1932 and 1941) had never been openly discussed.

The transcripts and audio recordings revealed a truth which I had never encountered in all my 40 years of reading about Asia, Japan, and the Pacific War: the entire war was essentially ad hoc, as much the result of the Navy's fear of domination by the Imperial Army as it was about the U.S. embargo on oil exports to Japan which had been imposed after Japan invaded Indochina in 1941.

Bureaucratic infighting between the services, the influence of a key Admiral over the Emperor, jousting between the Naval General Staff and the leaders of the Combined Fleet, and ultimately, fear of losing domestic power led the Navy's General Staff to recommend war against the U.S. as the "only possible response" to the oil embargo.

The "official reasons" given for the war--a "greater East Asia co-prosperity sphere", even the U.S. embargo on oil--played no part in the actual decisions to wage war on the U.S., or in planning to win such a war.

One would think the Naval General Staff or the Imperial General Headquarters would have formulated a rigorous, well-conceived plan to actually win the war before launching it; one would be wrong. The Japanese "plan" was based on two fantasies: the first, that quick strikes at U.S. bases in the Philippines and Pearl Harbor would induce the U.S. to promptly negotiate a peace favorable to Japan (i.e., the war would be short), and then, when that was revealed as fantasy, to force a "decisive battle" which would effectively destroy U.S. Naval power in the Pacific.

In effect, the decision to wage war on the U.S. was the outcome of domestic politics and pride, not strategic considerations. The consequences of war were not thought through, and accountability was poor. The entire chain of command was riddled with ad hoc thinking and decisions based on domestic political rivalries, glossed-over realities, fear of losing face, and misplaced deference to forces within the Imperial family.

There are hundreds of websites on the Imperial Navy and the Pacific Theater of World War II, and the Imperial Japanese Navy Page is remarkably thorough. I especially recommend its economic analysis of Japan and the U.S., which contains this telling conclusion:

In the end, however, the Tojo government chose the path of aggression, compelled by internal political dynamics which made the prospect of a general Japanese disengagement in China (which was the only means by which the American economic embargo would have been lifted) too humiliating a course to be taken.

This dogmatic fantasy of a "decisive battle" led the Japanese Combined Fleet to launch an ill-planned invasion of the island of Midway in June 1942, with the express goal of drawing out and then sinking the last three remaining U.S. aircraft carriers. The officers taped in 1981-83 bemoaned the lack of planning, and recounted that the General Staff had recommended against the Midway assault. Others said they had begged for more time to plan the invasion and been rebuffed.

Unbeknownst to the Imperial Navy, the U.S. Navy had, by extraordinary efforts, broken the Imperial Navy's secret radio-signal codes. Thus the U.S. Navy had forewarning and could position itself accordingly.

Nonetheless, the battle was sprawling mess of chance sightings at the extreme range of carrier aircraft, good and bad luck on both sides and a suicide attack by U.S. Navy torpedo bombers (41 out of 42 shot down).

The end result was a "decisive battle," but not the one Japan had "planned"; the core of their Naval aviation was lost--four aircraft carriers and their most experienced pilots.

Here are two authoritative books on the battle: Miracle at Midway and Shattered Sword: The Untold Story of the Battle of Midway .

Despite this catastrophic defeat (unreported to the Japanese civilian populace, of course), the leaders of the Japanese Navy stubbornly held to the fantasy of a "decisive battle" even as their strategic and tactical situations deteriorated. This fantasy led to them throwing the last of the Imperial Navy into a climactic attack on U.S. forces in the Leyte Gulf off the Philippines. Part of that story is told in The Last Stand of the Tin Can Sailors: The U.S. Navy's Finest Hour .

Despite initial success, the "decisive battle" of Leyte Gulf turned against the Imperial Navy.

With all hope of a decisive battle gone, the Japanese Navy resorted to suicide attacks on a scale that was unprecdented in warfare: thousands of young Japanese pilots were ordered to fly their planes into American ships: kamikazes, the "divine wind" which, it was hoped, would save Japan just as a "divine wind" had arisen to sink the invading Chinese Fleet hundreds of years before.

Thousands of pilots were sacrified and hundreds of U.S. warships were damaged or sunk. Strategically, the kamikaze campaign changed nothing.

The Japanese were incapable of admitting that their war was impossible to win. Instead, they ratcheted up to ever-higher levels of sacrifice and fantasy. We know from elderly Japanese friends that the Japanese were prepared for an unprecedented sacrifice of their civilian population to counter the coming American invasion; suicide aircraft were parked at the end of streets and camouflaged, young girls were sent deep into mountain caves to assemble munitions (our friend was one of them), and students were trained en masse to become suicidal "human waves" who would rush the invaders with whatever weapons were available.

Perhaps unsurprisingly, this same stubborn refusal to admit strategic failure is evident in Japan's two "lost decades" of failed "recovery." A series of prime ministers come and go, many not even lasting a year, as the same ad hoc "strategy" of endless Keynesian "stimulus" is ratcheted up, year after year, with less and less effect, except to increase the debt burdens of the nation to the point of no return.

Japan's leaders had no real "plan" to escape their bubble bust, the structural changes of their economy and demographics, or the resulting deflation. For 21 long years, their response has been a dogmatic embrace of an ad hoc policy of maintaining the status quo at all costs.

Japan grew rich after the war via a massive reconstruction project and a disciplined mercantilist policy of limiting imports and ramping up exports. The "plan" for "recovery" was a continuation of these same policies which had worked so well in the 1946-1986 era: build and export.

But the world economy had changed, and Japan had already built out its infrastructure. Rather than submit to a "defeat" of the interlocking status quo domestic political fiefdoms, Japan embarked on a disastrous two decades of building bridges to nowhere, even as its rural population shrank and its demographics reversed from growth to decline.

The cost of this ad hoc policy of enabling the status quo, at whatever cost and sacrifice, is now apparent, though the Japanese are generally as circumspect about it as they are about the atrocities and stupidity of the war their nation launched in 1937 against China and in 1941 against the U.S.

Once again, the Japanese leadership is incapable of admitting that its ad hoc Keynesian "plan" to escape deflation and engineer a "recovery" have failed. Once again, domestic politics trumps reality, accountability and transparency, and once again the lack of rigorous strategic planning dooms a rigidly embraced ad hoc policy to ruin.

Does this story of ad hoc waging of war remind you of the Iraq war? It should, for it is the same story: a stubborn refusal to execute a rigorous, realistic strategy to win a war cavalierly launched on abjectly fantastic premises (the Iraqis will welcome us as liberators, etc.), and the suppression of any voices in the U.S. Armed Forces who questioned the ad hoc decisions and assumptions (for instance, U.S. Army General Shinseki, who was cashiered for insisting that it would take 300-500,000 troops on the ground to control Iraq, rather than the 120,000 the planners sent).

Sycophants and yes-men were rewarded, voices of experience and skepticism were ignored or sent packing; rather than admit the "official reasons" were mere propaganda to mask domestic political machinations, hubris and misplaced fear of losing "face," the ad hoc policies were simply ratcheted up to higher levels of sacrifice. The anger of the mid-ranking Imperial Navy officers who saw their men sacrificed for an ignoble ad hoc war to cover up the sins and stupidities of their leaders is now rising in the U.S. officer corps as well, though just as in Imperial Japan, the internal restraints of loyalty to the service and the nation stifle many voices.

Even now, there is no strategy for "winning," and the word itself has been lost from the official vocabulary. It's not a "war," so there's no "winning." The sacrifice of the troops is not a consideration to the U.S. leadership, anymore than it was in the Imperial leadership. The trillions of dollars of national treasure squandered on an ad hoc war is also no consideration; every sacrifice will be demanded of the Military and civilians to avoid admitting the war was a tragic mistake, the result of hubris, heedless dogmatism, and a preference for domestically attractive fantasies rather than strategic imperatives and rigorous planning.

The "recovery" engineered by Bernanke and his cronies is just as ad hoc as the Japanese policies of the past 21 years. The same disastrous reliance on endless borrowing and Keynesian "stimulus" to prop up a failed status quo which is no longer aligned with global or domestic realities is now the "policy" of the U.S. leadership.

Just as Japan has squandered two decades and trillions of yen to prop up its zombie banks--insolvent in any true audit--so too is the U.S. squandering trillions to prop up its zombie banks and construction/real estate lenders. There is no "exit plan" for either Iraq/Afghanistan or the "stimulus" of borrowing $1.5 trillion each and every year to prop up the failed status quo fiefdoms.

Japan has failed to admit the Grand Failure of its stubborn ad hoc indulgence of the status quo. Every year, the same tired "solution" is trotted out: borrow more money, spend it unwisely but in ways which satisfy domestic political powers.

Isn't this precisely the path the U.S. has chosen? Every year, the Japanese government borrows and spends 40% of its total Federal budget in the vain hope that the "organic demand" which has been missing for 20 years will magically appear. Two decades of failure has done nothing to dislodge the dogmatic embrace of pure fantasy.

Now the U.S. is on the same treadmill to disaster, borrowing 40% of its Federal budget every year just to keep the status quo from imploding. Take in $2 trillion in tax revenues, borrow $1.5 trillion and spend $3.5 trillion. Does anyone think this is sustainable?

Of course not. But just as the mid-rank officers in the Imperial Navy were too busy with day-to-day operations to question the obvious flaws in an ad hoc strategy, so too are the players in the U.S. "machine" too busy, too cowed, and ultimately too fearful of losing their positions and perks to question the obvious flaws in the ad hoc war and economic policies being pursued by the Empire.

It is human nature to want to believe in a cause and in future victory, even when the war or policy is totally ad hoc. Once the nation and Empire is committed, even when the decisions to commit were poor and based on fantasy, those in service to the nation and Empire obediently support the doomed policies, even as they see that victory is impossible and the nation is careening into inevitable ruin.

The Japanese citizenry own 93% of their government's debt; regardless of the consequences, they loyally cling to their government bonds. The Japanese government can foist off trillions more in debt on its populace, until some final breaking point when there are no longer enough old people with disposable income to support the failed policy of ever-rising debt.

For the younger Japanese are opting out, not just of buying government bonds but of the entire status quo; young Japanese women are deciding not to have children, and young Japanese men are refusing to become heavy-drinking "salarymen" in servitude to the nation's export machine.

Young Japanese are refusing to buy and own autos; they are deciding not to get married. They are opting out of the entire failed status quo, while their seniors, who have sacrificed so much to prop up the pride of the nation and of the Powers That Be, are befuddled and angered by the younger generation's refusal to carry the same burdens of ad hoc dogmatism and fantasy.

The U.S. is not quite so well-placed to endure two decades of ad hoc dogmatism in service to a failed status quo. We rely on non-U.S. players to buy our ballooning debt, and to accept miserly rates of interest on top of the bargain.

There is no "exit strategy" from today's ad hoc Keynesian debt binge, nor any "exit strategy" from Iraq and Afghanistan. The "policy" is to cling to the fantasy that if we just keep doing the same things, in 10 or 20 years then it will all sort itself out: "organic demand" will return to the domestic U.S. economy, and we can declare "victory" in Iraq and Afghanistan.

That is not a strategy for success or victory; it is only a guarantee of catastrophic consequence.

Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case

The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.

“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.

Fannie, based in Washington, and Freddie in McLean, Virginia, own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise. How deep in the hole Fannie and Freddie go depends on unemployment, interest rates and other drivers of home prices, according to the companies and economists who study them.

‘Worst-Case Scenario’

The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.

If housing prices drop further, the companies may need more. Barclays Capital Inc. analysts put the price tag as high as $500 billion in a December report on mortgage-backed securities, assuming home prices decline another 20 percent and default rates triple.

Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.

“One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan, whose firm warned customers away from municipal bond insurers in 2002 and downgraded Enron Corp. a month before its 2001 collapse.

Unfinished Business

A 20 percent decline in housing prices is possible, said David Rosenberg, chief economist for Gluskin Sheff & Associates Inc. in Toronto. Rosenberg, whose forecasts are more pessimistic than those of other economists, predicts a 15 percent drop.

“Worst case is probably 25 percent,” he said.

The median price of a home in the U.S. was $173,100 in April, down 25 percent from the July 2006 peak, according to the National Association of Realtors.

Fannie and Freddie are deeply wired into the U.S. and global financial systems. Figuring out how to stanch the losses and turn them into sustainable businesses is the biggest piece of unfinished business as Congress negotiates a Wall Street overhaul that could reach President Barack Obama’s desk by July.

Neither political party wants to risk damaging the mortgage market, said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and White House economic adviser under President George W. Bush.

“Republicans and Democrats love putting Americans in houses, and there’s no getting around that,” Holtz-Eakin said.

‘Safest Place’

With no solution in sight, the companies may need billions of dollars from the Treasury Department each quarter. The alternative -- cutting the federal lifeline and letting the companies default on their debts -- would produce global economic tremors akin to the U.S. decision to go off the gold standard in the 1930s, said Robert J. Shiller, a professor of economics at Yale University in New Haven, Connecticut, who helped create the S&P/Case-Shiller indexes of property values.

“People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.”

Congress created the Federal National Mortgage Association, known as Fannie Mae, in 1938 to expand home ownership by buying mortgages from banks and other lenders and bundling them into bonds for investors. It set up the Federal Home Loan Mortgage Corp., Freddie Mac, in 1970 to compete with Fannie.

Lower Standards

The companies’ liabilities stem in large part from loans and mortgage-backed securities issued between 2005 and 2007. Directed by Congress to encourage lending to minorities and low- income borrowers at the same time private companies were gaining market share by pushing into subprime loans, Fannie and Freddie lowered their standards to take on high-risk mortgages.

Many of those went to borrowers with poor credit or little equity in their homes, according to company filings. By early 2008, more than $500 billion of loans guaranteed or held by Fannie and Freddie, about 10 percent of the total, were in subprime mortgages, according to Fed reports.

Fannie and Freddie also raised billions of dollars by selling their own corporate debt to investors around the world. The bonds are seen as safe because of an implicit government guarantee against default. Foreign governments, including China’s and Japan’s, hold $908 billion of such bonds, according to Fed data.

‘Debt Trap’

“Do we really want to go to the central bank of China and say, ‘Tough luck, boys’? That’s part of the problem,” said Karen Petrou, managing partner of Federal Financial Analytics Inc., a Washington-based research firm.

The terms of the 2008 Treasury bailout create further complications. Fannie and Freddie are required to pay a 10 percent annual dividend on the shares owned by taxpayers. So far, they owe $14.5 billion, more than the companies reported in income in their most profitable years.

“It’s like a debt trap,” said Qumber Hassan, a mortgage strategist at Credit Suisse Group AG in New York. “The more they draw, the more they have to pay.”

Fannie and Freddie also benefited by selling $1.4 trillion in mortgage-backed securities to the Fed and the Treasury since September 2008, bonds that otherwise would have weighed on their balance sheets. While the government bought only the lowest-risk securities, it could incur additional losses.

‘Hard to Judge’

Treasury Secretary Timothy F. Geithner has vowed to keep Fannie and Freddie operating.

“It’s very hard to judge what the scale of losses is,” Geithner told Congress in March.

One idea being weighed by the Obama administration involves reconstituting Fannie and Freddie into a “good bank” with performing loans and a “bad bank” to absorb the rest. That could cost taxpayers as much as $290 billion because of all the bad loans, according to a May estimate by Credit Suisse analysts.

At the end of March, borrowers were late making payments on $338.4 billion worth of Fannie and Freddie loans, up from $206.1 billion a year earlier, according to the companies’ first- quarter filings at the Securities and Exchange Commission.

The number of loans more than three months past due has risen every quarter for more than a year, hitting 5.5 percent at Fannie as of the end of March and 4.1 percent at Freddie, according to the filings.

Surge in Delinquencies

The composition of the $5.5 trillion of loans guaranteed by Fannie and Freddie suggests that the surge in delinquencies may continue. About $1.98 trillion of the loans were made in states with the nation’s highest foreclosure rates -- California, Florida, Nevada and Arizona -- and $1.13 trillion were issued in 2006 and 2007, when real estate values peaked. Mortgages on which borrowers owe more than 90 percent of a property’s value total $402 billion.

Fannie and Freddie may suffer additional losses as a result of the Treasury’s effort to prevent foreclosures. Under the program, banks with mortgages owned or guaranteed by the companies must rewrite loan terms to make them easier for borrowers to pay.

The Treasury program is budgeted to cost Fannie and Freddie $20 billion. The companies have already modified about 600,000 delinquent loans and refinanced almost 300,000 more, in some cases for an amount greater than the houses are worth.

The government is using Fannie and Freddie “for a public- policy purpose that may well increase the ultimate cost of the taxpayer rescue,” said Petrou of Federal Financial Analytics. “Treasury is rolling the dice.”

Republican Phase-Out

If the plan works and foreclosures fall, that could help stabilize Fannie’s and Freddie’s balance sheets and ultimately protect taxpayers.

“Avoiding foreclosures can be a route to reducing loss severity,” said Sarah Rosen Wartell, executive vice president of the Center for American Progress, a Washington research group with ties to the Obama administration.

Loans issued since 2008, when the companies raised standards for borrowers, should be profitable and help offset prior losses, Wartell said.

Republicans attempted to include a phase-out of the mortgage companies in the financial reform bill. Democratic lawmakers and the Obama administration opted for further study, and the Treasury began soliciting ideas in April.

Representative Scott Garrett, a New Jersey Republican and co-sponsor of the phase-out amendment, said eliminating Fannie and Freddie would force the government and the housing market to confront the issue.

“It’s somewhat impossible to predict the magnitude of their impact if they continue to be the primary source of lending,” Garrett said in an interview.

Caught in ‘Quandary’

Democrats dismissed the phase-out idea as simplistic.

“We need to have a housing-financing system in place,” Senate Banking Committee Chairman Christopher Dodd said last month. “If you pull that rug out at this particular juncture, I don’t know what the particular result would be. We’re caught in this quandary.”

By delaying action, the Obama administration keeps losses off the government’s books while building a floor under housing prices during a congressional election year.

Keeping Fannie and Freddie functioning could also support an overall economic recovery. Residential real estate -- the money spent on rent, mortgage payments, construction, remodeling, utilities and brokers’ fees -- accounted for about 17 percent of gross domestic product in 2009, according to the National Association of Home Builders.

‘Already Lost’

Allowing the companies to go under and hoping that private financing will fill the gap isn’t realistic, analysts say. It would require at least two years of rising property values for private companies to return to the mortgage-securitization market, said Robert Van Order, Freddie’s former chief international economist and a professor of finance at George Washington University in Washington.

The price tag of supporting Fannie and Freddie “needs to be evaluated against the cost of not having a mortgage market,” said Phyllis Caldwell, chief of the Treasury’s Homeownership Preservation Office.

Whatever the fix, the money spent will not be recovered, said Alex Pollock, a former president of the Federal Home Loan Bank of Chicago who is now a fellow at the Washington-based American Enterprise Institute.

“It doesn’t matter what you do or don’t do, Fannie and Freddie will cost a lot of money,” Pollock said. “The money is already lost. There’s an attempt to try to avert your eyes.”