Friday, March 19, 2010

Bombing of Dresden in World War II

The bombing of Dresden in World War II by the Allies remains controversial after more than 50 years. Dresden, the capital of the German state of Saxony, was fire-bombed by the British Royal Air Force (RAF) and the United States Army Air Force (USAAF) over three days (February 13-15, 1945) near the end of World War II. Air Marshall Arthur Harris, inventor of area bombing, ordered the action. He was never held accountable for this alleged war crime.


85% of Dresden was destroyed

Reasons for the attack

Dresden was widely considered a city of little war-related industrial or strategic importance, though, after the fact, in his memoirs Winston Churchill described it as a "centre of communications of Germany's Eastern Front." Dresden itself was most noted as a cultural centre, with noted architecture in the Zwinger Palace, the Dresden State Opera House and its historic cathedral (the Frauenkirche) and other churches. It was also called "Elbflorenz", i.e. Florence of the Elbe, due to its stunning beauty. It has been claimed that the bombing was at the request of the Soviet Union, to attack a German armoured division in transit through the city. However, RAF briefing notes indicate that one of the motives was to show "the Russians when they arrive, what Bomber Command can do" (that is, to intimidate the Soviets).

At the time, the city was cramped full of refugees fleeing from the advancing Red Army. Dresden, having been spared from previous attacks, was considered to be very safe. Bomber Command was ordered to attack Berlin, Dresden, Leipzig and other east German cities to "cause confusion in the evacuation from the east" and "hamper the movements of troops from the west". This directive led to the raid on Dresden and marked the erosion of one last moral restriction in the bombing war: the term "evacuation from the east" did not refer to retreating troops but to the civilian refugees fleeing from the advancing Soviet troops. Although these refugees clearly did not contribute to the German war effort, they were considered legitimate targets simply because the chaos caused by attacks on them might obstruct German troop reinforcements to the Eastern Front. There are eyewitness-reports that even civilians fleeing the firestorm engulfing Dresden in February 1945 were strafed by British and American aircraft, though it is doubted [1].

Nature of the attack

The fire-bombing consisted of dropping large amounts of high-explosive to expose the timbers within buildings, followed by incendiary devices (fire-sticks) to ignite them and then more high-explosives to hamper the efforts of the fire services. This eventually created a self-sustaining 'fire storm' with temperatures peaking at over 1500 °C. After the area caught fire, the air above the bombed area, become extremely hot and rose rapidly. Cold air then rushed in at ground level from the outside and people were sucked into the fire.

3,907 tons of bombs were dropped. Out of 28,410 houses in the inner city of Dresden, 24,866 were destroyed. An area of 15 square kilometers was totally destroyed, among that: 14,000 homes, 72 schools, 22 hospitals, 19 churches, 5 theaters, 50 bank and insurance companies, 31 department stores, 31 large hotels, and 62 administration buildings.


Impact of the attack

The precise number of dead is difficult to ascertain and is not known. Estimates vary from 35,000 to 135,000 dead. Such estimates are made very difficult by the fact that the city was crowded at that time by many unregistered refugees and wounded soldiers. The foreign slave workers may represent a large number of dead, since they were usually employed in the squads to fight fires storms. (In comparison, some 100,000 died in the bombing of Hiroshima, about 50,000 in the bombing of Nagasaki and 100,000 in the bombing of Tokyo and 200,000 were killed in Warsaw during the Warsaw uprising 1944.) There have been larger estimates for the number of dead, ranging as high as a quarter of a million, but they are from disputed sources, such as the Nazi Propaganda Ministry and Holocaust denier David Irving. The Nazis made use of Dresden in their propaganda and promised swift retaliation.

Dresden compared with other bombing targets in Germany

This destruction is not out of line with the destruction of other German cities and the tonnage of bombs dropped was lower than that used on many other cities. The US Strategic Bombing Survey says nothing about Dresden but says "On three nights in late July and early August 1943 it struck Hamburg in perhaps the most devastating single city attack of the war — about one third of the houses of the city were destroyed and German estimates show 60,000 to 100,000 people killed. No subsequent city raid shook Germany as did that on Hamburg; documents show that German officials were thoroughly alarmed and there is some indication from interrogation of high officials that Hitler himself thought that further attacks of similar weight might force Germany out of the war. The RAF proceeded to destroy one major urban center after another. Except in the extreme eastern part of the Reich, there is no major city that does not bear the mark of these attacks. However, no subsequent attack had the shock effect of the Hamburg raid."

Was the Dresden bombing justified?

The Dresden bombing is a strongly debated decision, and the action is still widely perceived as lacking military justification, even within the context of the controversial area bombing policy pursued against Germany by Britain's Bomber Command in 1942-1945. The city has never regained its pre-war population of 630,000.

One popular charge against the bombing is that the city was not a military target. However, other evidence suggests otherwise; The city contained the Zeiss-Ikon optical factory and the Siemens glass factory (both of which were entirely devoted to manufacturing military gunsights). The immediate suburbs contained factories building components of radars and electronics, and fuses for anti-aircraft shells. Other factories produced gas masks, engines for Junkers aircraft and cockpit parts for Messerschmitt fighters. After the attack, Germany was to claim that Dresden's industry was only making civil goods, a notion which much of the world accepted, and still accepts, as true.

Allied experiences of the attack

There are anecdotes of the pilots and crew having problems years later. Some had nightmares, some thought they would go to hell as war criminals, some had unshakable visions of the fires and the burning cities. Many other veterans, however, doubt these anecdotes, noting that their briefings included details on what they were hitting, and that no one in their recollection had any misgivings about the mission.

Author Kurt Vonnegut had been captured during the Battle of the Bulge and was a prisoner of war near Dresden during the bombing. He later wrote about his experiences and feelings in his novel Slaughterhouse-Five.

Post-war: reconstruction and reconciliation

After the war great efforts were made to rebuild some of Dresden's former landmarks, such as the Frauenkirche, the Semperoper or the Zwinger. Despite its location in the Soviet occupation zone (subsequently the DDR), in 1956 Dresden entered a twinning relationship with Coventry, which had suffered the worst destruction of any English city at the hands of the Luftwaffe earlier in the war, including the destruction of its cathedral. Groups from both cities were involved in moving demonstrations of post-war reconciliation.

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Thursday, March 18, 2010

The Next Big Bailout "Any Day Now"

Housing is still on the rocks and prices are headed lower. Master illusionist Ben Bernanke has managed to engineer a modest 7-month uptick in sales, but the fairydust is set to wear off later this month when the Fed stops purchasing mortgage-backed securities (MBS). When the program ends, long-term interest rates will creep higher and sales will begin to flag. The objective of Bernanke's $1.25 trillion quantitative easing program was to transfer the banks’ toxic assets onto the Fed's balance sheet. Having achieved that goal, Bernanke will now have to find a way to unload those same assets onto the public. Freddie and Fannie, which have already been used as a government-backed off-balance-sheet dumping ground, appear to be the most likely candidates.

Bernanke's liquidity injections have helped to buoy stock prices and stabilize housing, but the economy is still weak. There's just too much inventory and too few buyers. Now that the Fed is withdrawing its support, matters will only get worse.

Of course, that hasn't stopped the folks at Bloomberg News from cheerleading the "nascent" housing rebound. Here's a clip from Monday's column:

"The U.S. housing market is poised to withstand the removal of government and Federal Reserve stimulus programs and rebound later in the year, contributing to annual economic growth for the first time since 2006. Increases in jobs, credit and affordable homes will help offset the end of the Fed’s purchases of mortgage-backed securities this month and the expiration of a federal homebuyer tax credit in April. ‘The underlying trend is turning positive,’ said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York."

Just for the record; there have been no "increases in jobs". Unemployment is stuck at 9.7 percent with underemployment checking in at 16.8 percent. There's no chance of housing rebound until payrolls start to rise. Jobless people cannot afford to buy homes.

Also, while it is true that the federal homebuyer tax credit did cause a spike in home purchases its effect has been short-lived and sales are gradually returning to normal. It's generally believed that "cash for clunker-type" programs (like the homebuyer tax credit) merely move demand forward and have no meaningful long-term impact.

So, it's likely that housing prices -- particularly on the higher end -- will continue to fall until they return to their historic trend. (probably 10 to 15 per cent lower) That means more trouble for the banks which are already using all kinds of accounting flim-flam ("mark-to-fiction") to conceal the wretched condition of their balance sheets. Despite the surge in stock prices, the banks are drowning in the losses from their non-performing loans and toxic assets. At the same time, they're about to get hit by the next wave of Option ARMs and Alt-As resets which will require another $1 trillion in financing.

The Fed has indicated that it's finished helping the banks for the time being. Now it's Treasury's turn. Bernanke will keep the Fed funds rate at zero, but he is not going to expand the Fed's balance sheet anymore. Geithner understands this and is working frantically to put together the next bailout that will reduce the mortgage principal for underwater homeowners. But it's a thorny problem, because many of the borrowers have second liens which could amount to as much as $477 billion. That means that if the Treasury's mortgage-principal reduction plan is enacted; it could wipe out the banks. Here's an excerpt from an article in the Financial Times which explains it all:

"A group of investors in mortgage-backed bonds dubbed the Mortgage Investors Coalition (MIC) recently submitted to Congress a plan to overhaul the refinancing of underwater borrowers by writing down the principal balances of both first and second mortgages. The confederation of insurers, asset managers and hedge funds hope to break a logjam between Washington DC and the four megabanks with the most exposure to writedowns on second lien mortgages, including home equity lines of credit.

“The private sector initiative coincides with House Financial Services Committee Chairman Barney Frank’s open letter dated March 4 to the CEOs of the banks in question – Bank of America, Citigroup, JP Morgan Chase and Wells Fargo – urging them to start forgiving principal on the second lien loans they hold.

But the banks are unlikely to take action until they get new accounting guidance from regulators that would ease the impact of such significant principal reductions on their capitalization ratios."

"Accounting guidance"? Either the banks are holding out for a bigger bailout or they want Treasury to approve looser accounting standards to conceal their losses from their shareholders. Either way, it's clear that they're trying to hammer out the best deal possible for themselves regardless of the costs to everyone else.

Financial Times again:

"The four banks in question collectively own more than $4 billion of the $1 trillion in second lien mortgages outstanding. BofA holds $149bn, Citi holds $54 billion, JP Morgan holds $101 billion and Wells Fargo holds $115 billion, according to fourth quarter 2009 10Q filings with the Securities & Exchange Commission.

“As proposed, the MIC’s plan entails haircuts to the first and second lien loans to reduce underwater borrowers’ loan to value ratios to 96.5 per cent of current real estate market prices, according to two sources.

“For the program to work, HAMP would place principal balance forgiveness first in the modification waterfall. The associated second lien would take a principal balance reduction but remain intact through the process - ultimately to be re-subordinated to the first lien, the sources said.

“A systemic program to modify second lien mortgages called 2MP does exist but Treasury has stalled on implementation because the banks that hold them can’t afford it, investors said. The sources all said implementation of the program, called 2MP, would result in ‘catastrophic’ losses for the nation’s four largest banks, which collectively hold more than $400 billion of the $1 trillion in second lien mortgages outstanding." ("Mortgage investors push for banks to write down second liens", Allison Pyburn, Financial Times)

Hold on a minute! Didn't Geithner just run bank "stress tests" last year to prove that the banks could withstand losses on second liens?

Yes. And the banks all passed with flying colors. So, why are the banks whining now about the potential for "catastrophic" losses if the plan goes forward? Either they were lying then or they're lying now; which is it?

According to the Financial Times the banks hold $400 billion in second lien mortgages. But --as Mike Konczal points out--the stress tests projected maximum losses of just "$68 billion. In other words, Geithner rigged the tests so the banks would pass. Now the banks want to have it both ways: They want people to think that they are solvent enough to pass a basic stress test, but they also want to be given another huge chunk of public money to cover their second liens. They want it all, and Geithner's trying to give it to them.

And don't believe the claptrap from Treasury that "they have no plan for mortgage principal reductions.” Baloney! According to the Financial Times:

“Treasury continues to tell investors that any day now they will be out with a final program and they will be signed up.... ‘The party line continues to be they are a week away, two weeks away,’ the hedge fund source said."

So, it's not a question of "if" there will be another bank bailout, but just "how big" that bailout will be. The banks clearly expect the taxpayer to foot the entire bill regardless of who was responsible for the losses.

So, let's summarize:

1--Bank bailout #1--$700 billion TARP which allowed the banks to continue operations after the repo and secondary markets froze-over from the putrid loans the banks were peddling to credulous investors.

2--Bank bailout #2--$1.25 trillion Quantitative Easing program which transferred banks toxic assets onto Fed's balance sheet (soon to be dumped on Fannie and Freddie) while rewarding the perpetrators of the biggest financial crackup in history.

3--Bank bailout #3--$1 trillion (or more) to cover all mortgage cramdowns, second liens, as well as any future liabilities including gym fees, energy drinks, double-tall nonfat mocha's, parking meters etc. ad infinitum. Basically, carte blanche for the banksters.

And as far as the banks taking "haircuts"? Forget about it! Banks don't take "haircuts". It looks bad on their quarterly reports and cuts into their bonuses. Taxpayers take haircuts, not banksters. Besides, that's what Geithner gets paid for--to make sure bigshot tycoons don't have to pay for their mistakes or bother with the niggling details of fleecing the little people.

The next big bailout is on the way. Be prepared.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

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