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http://kunstler.com/blog/2013/04/we-wish.html

We Wish

Wishful thinking now runs so thick and deep across the USA that our hopes for a credible future are being drowned in a tidal wave of yellow smiley-face stories recklessly issued by institutions that ought to know better. A case in point is the Charles C. Mann's tragically dumb cover story in the current Atlantic magazine -- "We Will Never Run Out of Oil" * -- setting out in great detail the entire panoply of techno-narcissistic "solutions" to our energy predicament. Another case in point was senior financial writer Joe Nocera's moronic op-ed in last week's New York Times beating the drum for American "energy independence."

You could call these two examples mendacious if it weren't so predictable that a desperate society would do everything possible to defend its sunk costs, including the making up of fairy tales to justify its wishes. Instead, they're merely tragic because the zeitgeist now requires once-honorable forums of a free press to indulge in self-esteem building rather than truth-telling. It also represents a culmination of the political correctness disease that has terminally disabled the professional thinking class for the last three decades, since this feel-good propaganda comes from the supposedly progressive organs of the media -- and, of course, the cornucopian view has been a staple of the idiot right wing media forever. We have become a nation incapable of thinking, or at least of constructing a consensus that jibes with reality. In not a very few years, the American public will be so disappointed and demoralized by broken promises like these that they will turn the nation upside down and inside out, probably with violence and bloodshed.

Charles Mann's Atlantic article begins by cheerleading for the mining of methane hydrates from the ocean floor. These are natural gas molecules trapped in ice formations in the muck around the continental shelves. Mann spotlights the efforts of a Japanese research ship conducting tests. Guess what: the Japanese are engaging in this because they have absolutely no fossil fuels of their own, and a failing consensus about nuclear power, and they are on a course to become the first advanced industrial nation to be forced to return to a medieval economy. That is, they are the most desperate among the desperate. You could say they've got nothing to lose (but a few billion of their rapidly depreciating Yen).

Methane hydrates are stable only at extreme pressures or very low temperatures. They also exist in the arctic permafrost, for instance, Siberia, where conventional natural gas drilling operations have been carried out for decades, with no contributions from methane hydrates. Undersea methane hydrate exploration projects have gone on for decades in the US, Canada, India, Russia, China, and Japan. The hope is that this so-called "hot ice" would turn out to be the gas equivalent of tar sands, which would mean at best a very expensive way to get more fossil fuels as the conventional sources dry up. That hope has dimmed in nations other than extremely desperate Japan. Like a lot of techno-wonders, the recovery of methane hydrates can be demonstrated on the "science project" scale. For now, no viable technique exists for getting commercially-scaled streams of natural gas out of methane hydrates. The Japanese themselves state that it would take at least ten years, if ever, to commercially mine methane hydrates. Japan doesn't have ten years. It's banking system is imploding, and without capital even the science projects will come to an end.

Charles Mann is equally rapturous about shale oil and gas. He writes:

"Today, though, fracking is unleashing torrents of oil in North Dakota and Texas--it may create a second boom in the San Joaquin Valley--and floods of natural gas in Pennsylvania, West Virginia, and Ohio. So bright are the fracking prospects that the U.S. may become, if only briefly, the world's top petroleum producer. ("Saudi America," crowed The Wall Street Journal. But the parallel is inexact, because the U.S. is likely to consume most of its bonanza at home, rather than exporting it.)"

This is very misleading. The US consumes roughly 19 million barrels a day. The Bakken and Eagle Ford shale formations produce about a million barrels a day combined now, and guaranteed to get a whole lot lower within the next five years. Today's near-peak production is based on furious drilling and fracking of extremely expensive wells -- known as "the Red Queen syndrome" because they are running as fast as they can to keep production up. Meanwhile, the depletion curve on shale oil is a reverse "hockey stick."

The situation is similar for shale gas, the difference being that the temporary glut of 2005 - 2012 happened because we didn't have the means to export surplus gas from the initial burst of development and it briefly flooded the domestic market. The price of shale gas is still below the level that makes it economic to produce and when it eventually rises to that level, and beyond, it will be too expensive for its customers to buy. Shale gas is also subject to the Red Queen Syndrome.

These arguments have been well-rehearsed many times in this blog and elsewhere. But the key to understanding our energy predicament is ignored in cornucopian cases like Charles Mann's Atlantic piece, which is the role of capital. Non-cheap oil has already worked its hoodoo on advanced industrial economies: it has already destroyed the process of capital formation. These economies were not designed to run on non-cheap oil and they can't, and the capital is no longer there for even the research-and-development to change out the infrastructure, let alone carry out any as-yet-undesigned changes. Furthermore, there is no prospect that we can rescue the process of capital formation at the scale required to continue financing things like shale oil. The absence of real growth in the USA, Europe, and Japan has already destroyed the operations of interest and repayment of debt, and any new debt issued will never be repaid, meaning it is functionally worthless (we just don't know it yet). These impairments of capital formation have left the major commercial banks insolvent and central banks have worked tirelessly to rescue them by issuing more "money" in the form of credit that can never be paid back.

What all this means is that the capital does not exist to run non-cheap oil economies, or to continue indefinitely the production of non-cheap oil and gas, not to mention methane hydrates and other fantasy fuels.

Joe Nocera's op-ed in last week's New York Times was shorter and even dumber (and lazier) than Charles Mann's foolish Atlantic article. It was based on remarks made by Canada's Energy Minister, Joe Oliver, who said (among other patently false and idiotic things) that Canada "has the resources to meet all of America's future needs for oil." Oliver was pimping for the Keystone pipeline project to transport tar sands byproducts from Alberta down to the US. Nocera swallowed everything Oliver said whole, such as "oil mined from the sands is simply not as environmentally disastrous as opponents like to claim." Is that so, Joe? And what's your source for that assertion? Canada's Energy Minister? The slug at the bottom of Nocera's column said he was invited onto the op-ed page because regular columnists Gail Collins and Nicholas Kristoff were off (or on book leave). Nocera's column was disgracefully ignorant. The editors should send him back to the Times business section where unreality is the order-of-the-day.

Now, many people may draw the conclusion that some conspiracy is underway when the major mainstream media report the news so disingenuously, but that is just not so. The reason we, in effect, lie to ourselves incessantly is because of the master wish behind all the subsidiary wishes: we want to keep driving to WalMart forever and we can't imagine any other way of life, let alone the way of life that the contraction of industrial economies is tending toward -- which is to say a way, way downscaled and re-localized economic life centered on farming and artisanal manufacture. Yes, we are going medieval too, eventually, just like the Japanese, who will get there a little sooner than we will. It's hard to swallow, I'm sure. That's why we prefer the more digestible propaganda gummi bear treats like Charles Mann's Atlantic article and Joe Nocera's stupid op ed.

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http://www.informationclearinghouse.info/article34748.htm

Everything Is Rigged: The Biggest Price-Fixing Scandal Ever

The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix

Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.

You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."

That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.

Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.

"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."

The bad news didn't stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry," CFTC Commissioner Bart Chilton said.

But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.

"A farce," was one antitrust lawyer's response to the eyebrow-raising dismissal.

"Incredible," says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.

All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it's increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.

If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it's no secret. You can stare right at it, anytime you want.

The banks found a loophole, a basic flaw in the machine. Across the financial system, there are places where prices or official indices are set based upon unverified data sent in by private banks and financial companies. In other words, we gave the players with incentives to game the system institutional roles in the economic infrastructure.

Libor, which measures the prices banks charge one another to borrow money, is a perfect example, not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and what you get is unstoppable corruption.

Every morning, 18 of the world's biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks. The 18 banks together are called the "Libor panel," and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges, every morning at 11:30 London time, are the daily Libor figures.

Banks submit numbers about borrowing in 10 different currencies across 15 different time periods, e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to commercial loans (both short- and long-term) to swaps.

Dating back perhaps as far as the early Nineties, traders and others inside these banks were sometimes calling up the company geeks responsible for submitting the daily Libor numbers (the "Libor submitters") and asking them to fudge the numbers. Usually, the gimmick was the trader had made a bet on something – a swap, currencies, something – and he wanted the Libor submitter to make the numbers look lower (or, occasionally, higher) to help his bet pay off.

Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor submitter at the Royal Bank of Scotland:

SWISS FRANC TRADER: can u put 6m swiss libor in low pls?...
PRIMARY SUBMITTER: Whats it worth
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?...
PRIMARY SUBMITTER: ok low 6m, just for u
SWISS FRANC TRADER: wooooooohooooooo. . . thatd be awesome

Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it's hard to imagine an image that better captures the moral insanity of the modern financial-services sector.

Hundreds of similar exchanges were uncovered when regulators like Britain's Financial Services Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes embarrassed for the banks. "It's just amazing how Libor fixing can make you that much money," chirped one yen trader. "Pure manipulation going on," wrote another.

Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution.

Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to "collateral consequences" in the economy.

The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers. So it was left to towns and cities like Baltimore (which lost money due to fluctuations in their municipal investments caused by Libor movements), pensions like the New Britain, Connecticut, Firefighters' and Police Benefit Fund, and other foundations – and even individuals (billionaire real-estate developer Sheldon Solow, who filed his own suit in February, claims that his company lost $450 million because of Libor manipulation) – to sue the banks for damages.

One of the biggest Libor suits was proceeding on schedule when, early in March, an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York to argue an extraordinary motion to dismiss. The banks' legal dream team drew from heavyweight Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer.

The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, "Our goal here is not to destroy a major financial institution."

In any case, this all-star squad of white-shoe lawyers came before Buchwald and made the mother of all audacious arguments. Robert Wise of Davis Polk, representing Bank of America, told Buchwald that the banks could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was competitive. "It is essential to our argument that this is not a competitive process," he said. "The banks do not compete with one another in the submission of Libor."

If you squint incredibly hard and look at the issue through a mirror, maybe while standing on your head, you can sort of see what Wise is saying. In a very theoretical, technical sense, the actual process by which banks submit Libor data – 18 geeks sending numbers to the British Bankers' Association offices in London once every morning – is not competitive per se.

But these numbers are supposed to reflect interbank-loan prices derived in a real, competitive market. Saying the Libor submission process is not competitive is sort of like pointing out that bank robbers obeyed the speed limit on the way to the heist. It's the silliest kind of legal sophistry.

But Wise eventually outdid even that argument, essentially saying that while the banks may have lied to or cheated their customers, they weren't guilty of the particular crime of antitrust collusion. This is like the old joke about the lawyer who gets up in court and claims his client had to be innocent, because his client was committing a crime in a different state at the time of the offense.

"The plaintiffs, I believe, are confusing a claim of being perhaps deceived," he said, "with a claim for harm to competition."

Judge Buchwald swallowed this lunatic argument whole and dismissed most of the case. Libor, she said, was a "cooperative endeavor" that was "never intended to be competitive." Her decision "does not reflect the reality of this business, where all of these banks were acting as competitors throughout the process," said the antitrust lawyer Sokol. Buchwald made this ruling despite the fact that both the U.S. and British governments had already settled with three banks for billions of dollars for improper manipulation, manipulation that these companies admitted to in their settlements.

Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit, declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and other manipulation cases now in the pipeline.

"It's now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive," he said. "And that's not just surmising. This is just based upon what they've been caught at."

Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds of manipulation more inevitable. "There's no therapy like sending those who are used to wearing Gucci shoes to jail," he says. "But when the attorney general says, 'I don't want to indict people,' it's the Wild West. There's no law."

The problem is, a number of markets feature the same infrastructural weakness that failed in the Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor, although the investigation into these markets reportedly focuses on some different types of improprieties.

Though interest-rate swaps are not widely understood outside the finance world, the root concept actually isn't that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make your loan payments fixed, you've got the basic idea of an interest-rate swap.

In practice, it might be a country like Greece or a regional government like Jefferson County, Alabama, that borrows money at a variable rate of interest, then later goes to a bank to "swap" that loan to a more predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers.

Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of these privately calculated benchmarks. ISDAfix's U.S. dollar rates are published every day, at 11:30 a.m. and 3:30 p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays, etc.) submits information about bids and offers for swaps.

And here's what we know so far: The CFTC has sent subpoenas to ICAP and to as many as 15 of those member banks, and plans to interview about a dozen ICAP employees from the company's office in Jersey City, New Jersey. Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated. Oliver Wyman is the same company that the British Bankers' Association hired to review the Libor submission process after that scandal broke last year. The upshot of all of this is that it looks very much like ISDAfix could be Libor all over again.

"It's obviously reminiscent of the Libor manipulation issue," Darrell Duffie, a finance professor at Stanford University, told reporters. "People may have been naive that simply reporting these rates was enough to avoid manipulation."

And just like in Libor, the potential losers in an interest-rate-swap manipulation scandal would be the same sad-sack collection of cities, towns, companies and other nonbank entities that have no way of knowing if they're paying the real price for swaps or a price being manipulated by bank insiders for profit. Moreover, ISDAfix is not only used to calculate prices for interest-rate swaps, it's also used to set values for about $550 billion worth of bonds tied to commercial real estate, and also affects the payouts on some state-pension annuities.

So although it's not quite as widespread as Libor, ISDAfix is sufficiently power-jammed into the world financial infrastructure that any manipulation of the rate would be catastrophic – and a huge class of victims that could include everyone from state pensioners to big cities to wealthy investors in structured notes would have no idea they were being robbed.

"How is some municipality in Cleveland or wherever going to know if it's getting ripped off?" asks Michael Masters of Masters Capital Management, a fund manager who has long been an advocate of greater transparency in the derivatives world. "The answer is, they won't know."

Worse still, the CFTC investigation apparently isn't limited to possible manipulation of swap prices by monkeying around with ISDAfix. According to reports, the commission is also looking at whether or not employees at ICAP may have intentionally delayed publication of swap prices, which in theory could give someone (bankers, cough, cough) a chance to trade ahead of the information.

Swap prices are published when ICAP employees manually enter the data on a computer screen called "19901." Some 6,000 customers subscribe to a service that allows them to access the data appearing on the 19901 screen.

The key here is that unlike a more transparent, regulated market like the New York Stock Exchange, where the results of stock trades are computed more or less instantly and everyone in theory can immediately see the impact of trading on the prices of stocks, in the swap market the whole world is dependent upon a handful of brokers quickly and honestly entering data about trades by hand into a computer terminal.

Any delay in entering price data would provide the banks involved in the transactions with a rare opportunity to trade ahead of the information. One way to imagine it would be to picture a racetrack where a giant curtain is pulled over the track as the horses come down the stretch – and the gallery is only told two minutes later which horse actually won. Anyone on the right side of the curtain could make a lot of smart bets before the audience saw the results of the race.

At ICAP, the interest-rate swap desk, and the 19901 screen, were reportedly controlled by a small group of 20 or so brokers, some of whom were making millions of dollars. These brokers made so much money for themselves the unit was nicknamed "Treasure Island."

Already, there are some reports that brokers of Treasure Island did create such intentional delays. Bloomberg interviewed a former broker who claims that he watched ICAP brokers delay the reporting of swap prices. "That allows dealers to tell the brokers to delay putting trades into the system instead of in real time," Bloomberg wrote, noting the former broker had "witnessed such activity firsthand." An ICAP spokesman has no comment on the story, though the company has released a statement saying that it is "cooperating" with the CFTC's inquiry and that it "maintains policies that prohibit" the improper behavior alleged in news reports.

The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. "It's almost hilarious in the irony," says David Frenk, director of research for Better Markets, a financial-reform advocacy group, "that they called it ISDAfix."

After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced to trust.

"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly.

That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.

All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they'll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. "In general," it wrote, "those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion."

Translation: When prices are set by companies that can profit by manipulating them, we're fucked.

"You name it," says Frenk. "Any of these benchmarks is a possibility for corruption."

The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It's not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever's in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it's only just coming into view.

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http://www.informationclearinghouse.info/article34740.htm

Lawyer’s Jail Torment Marks US Totalitarian State

Half a century ago this month Martin Luther King wrote his famous prison protest against racial injustice, entitled ‘Letter from Birmingham Jail’. An excerpt reads: “Injustice anywhere is a threat to justice everywhere. We are caught in an inescapable network of mutuality... Whatever affects one directly, affects all indirectly.”

Fifty years on to this very month, King’s defiant cri de coeur could hardly be more apt to express the barbarous injustice being committed by the US government against one of that nation’s bravest defence lawyers - Lynne Stewart.

Ms Stewart (73) is dying in a federal prison in Fort Worth, Texas, from cancer that has spread from her breast to the rest of her body. Her family has little doubt that her life-threatening illness has been induced by the vindictive conditions of her incarceration by the US authorities.

Ralph Poynter, her husband for the past 50 years, and more than 10,000 petition signatories from across the world are mobilising to face down the barbarity of the American regime. Her supporters are demanding Lynne’s immediate release from her prison cell on compassionate and legally entitled grounds.

Lynne Stewart’s story is not just one of personal harrowing torment. The US state’s cruel persecution of this woman epitomises the general destruction of human rights and the rise of draconian police powers across America in the aftermath of 9/11 and the fraudulent “war on terror”.

This climate of repression and xenophobia also became evident last week in the wake of the Boston marathon bombings, where one of America’s major cities was put under a state of virtual martial law for several days while the security apparatus hunted down two brothers, who were already known to these authorities.

Lynne Stewart came of age politically in the turbulent 1960s. Growing up in the poor New York working-class districts of Brooklyn and Harlem, she became a defence lawyer with the express purpose of upholding the rights of the oppressed, marginalised and downtrodden - many of whom were her friends and neighbours.

She witnessed how many of her friends from the African-American community were harassed and brutalised by American racist police forces. She saw how the courts denied justice to poor communities and how these communities were neglected and abandoned by elitist governments, to live in open-air prisons called inner-city ghettoes.

With irrepressible passion and wit, Lynne Stewart saw her duty to her fellow human beings as representing those who had been cast aside as untouchable and unwanted in an American society where all too often poverty and racial prejudice automatically impose a harsh life sentence of misery and suffering at birth. Without fear or favour, Lynne saw her vocation as, in her own colourful words, to not just defend those who couldn’t make it to the finish line, but to defend those who couldn’t even make it to the starting line.

Once, she stated publicly her purpose as a defence lawyer: “Our quests are formidable. We have in Washington poisonous government that spreads its venom to the body politic in all corners of the globe. There is a consummate evil that unleashes its dogs of war on the helpless. Our enemy is motivated only by insatiable greed, with no thought of other consequences. In this enemy there is no love of the land or the creatures that live there, no compassion for the people, no thought of future generations. This enemy will destroy the air we breathe and the water we drink as long as the dollars keep filling up their money-boxes… We go out to stop police brutality; to rescue the imprisoned.”

Lynne’s words were not those of a bookish lawyer, but rather those of an impassioned human being who clearly saw injustice as an enemy of the people, as a political oppression that must be fought with all her body, heart, mind and spirit.

Her trenchant defence of the principle of presumed innocence saw her take on cases that many other attorneys shunned. These cases included members of the Black Panther movement and other radical social movements, such as Anti-Vietnam War, Weather Underground and Irish freedom fighters. She defended a great many other unknown ordinary citizens who were victims of daily American police brutality and racism. For Lynne Stewart, the courts were not a place to make a moneyed career in - they were battlegrounds to take up the plight of people who were victims of elite privilege and abusive state power.

During the 1990s, typically Lynne recognised the plight of American Muslims who were increasingly being harassed and demonised by America’s state security and police services. She took on the case of Sheikh Omar Abdel-Rahman, also known as the “Blind Sheikh”.

Following the 1993 World Trade Center bombings in New York, the Egyptian-born cleric was accused in 1995 of “seditious conspiracy” in another plot to blow up various city landmarks, including the Statue of Liberty, the Brooklyn Bridge and the United Nations Building. Many observers denounced the prosecution as a set-up, pointing out that Sheikh Omar was poor, blind and disabled. Also, it was well known in the communities that FBI undercover agents had been for months going into mosques inveigling youths with these very same hare-brained terror schemes.

As with the recent Boston marathon bombings, there are many unanswered questions about the shadowy role of the Federal Bureau of Investigation in the 1993 New York blasts and the subsequent alleged landmarks bombing plot. There are strong suspicions that the FBI used “sting” tactics to entrap unwitting felons - in much the same that many people have questioned how the two Tsarnaev brothers in Boston were permitted to apparently evade known security concerns.

Lynne Stewart was not intimidated out of defending Sheikh Omar even though the increasingly unhinged American corporate media portrayed him as the “embodiment of Islamic terrorism”. By then, there was a growing pernicious climate of Islamophobia in the US - a disturbing trend that has since become a hate-filled crescendo in the decade following the 9/11 explosions in 2001.

Sheikh Omar was eventually sentenced to life imprisonment in 1995 along with nine other defendants. His prosecution was seen then as a travesty, owing to Lynne Stewart’s vigorous defence and evidence. For many observers, she proved in court not only the sheikh’s innocence, but also that the American government, the legal system and the law enforcement agencies were all implicated in insider-job terrorism and perverting justice. Recall that these revelations made by Lynne Stewart’s legal work were six years before 9/11 and the so-called “war on terror”.

True to her humanitarianism, Stewart maintained professional client relations with the incarcerated Sheikh Omar - who is currently serving out his sentence in a federal prison in North Carolina. The sheikh may have been behind bars, but Lynne Stewart continued working to clear his name and for his eventual acquittal.

This legal representation of an unfairly demonised man would lead to Lynne Stewart’s downfall in the following decade at the hands of the increasingly militant US authorities.

After 9/11, President George Bush’s Attorney General John Ashcroft instituted a raft of laws that would target defence lawyers and prevent their exercise of constitutional rights of free speech. Under these new stringent so-called anti-terror laws in the aftermath of 9/11, Stewart was accused of aiding terrorism because of her prison visits to Sheikh Omar and for allegedly passing written communications to his supporters on the outside. This latter accusation was based on a highly contaminated misrepresentation of a press release Lynne Stewart sent to the Reuters news agency concerning the case of her client. In the pre-9/11 era, such legal activities would have been considered normal confidential defence-client relations. Not any more; they are now seen as “collaborating with enemies of the state”. That is a measure of how extreme political and legal conditions in the US have deteriorated.

Lynne Stewart was arrested in 2002 and charged with “materially supporting terrorism”. Bizarrely - and indicating the witch-hunt climate that has gripped the US following 9/11 - the arrest was announced by Attorney General Ashcroft during an appearance on the David Letterman Late Show aired on the television channel CBS.

After a lengthy controversial legal battle, Lynne Stewart was herself sentenced to 10 years’ imprisonment at the end of 2009 for aiding and abetting terrorists. She has now served more than three years of that sentence. Such is the sadistic nature of her incarceration, for some of the time she has been shackled with arm and leg irons to her prison bed, even while receiving medical treatment for her cancer.

The conclusion from this American state-sanctioned barbarity is clear. Lynne Stewart’s imprisonment is an attempt by the US regime to bury her alive behind bars. Of all people, Lynne Stewart knew best how the Washington shadow government of corrupt politicians and secret services were constructing the war-on-terror charade to demonise Muslims and create a climate of fear and paranoia in American society - a climate that would soon enable the shadow government to strip citizens of their human rights and constitutional protections. In a word, Lynne Stewart had to be silenced and got rid off. She knew too much and was too articulate about the vile inner-workings and scheming of the US secret state.

If voices like those of Lynne Stewart had remained free and active, it is probable that the US secret government would not be able to get away so easily with expanding its panoply of barbarities, such as the Guantanamo Bay concentration camp, torture of detainees held without charge, the wholesale collapse of civil liberties, spying and surveillance on citizens, the illegal invasions and aggression towards other countries, and - perhaps the ultimate totalitarianism - the extrajudicial murder of foreign and American nationals with assassination drones by presidential order.

Owing to her life-long commitment to defending the rights of others and her rapidly deteriorating health, Lynne Stewart’s prison ordeal has won a growing public call for her immediate release, both within the US and across the world. Her case has also drawn widespread awareness and concern about the repressive trajectory of US society and the encroachment of a full-blown totalitarian police state.

Her cause has gained support from thousands of ordinary people who recognise Stewart’s towering defence of society’s weak and vulnerable members. Her supporters include human and social rights activists, UN special rapporteur on human rights Richard Falk, and many renowned thinkers and writers, such as Daniel Ellsberg, Chris Hedges, Ralph Schoenman, Alice Walker and Cornel West, as well as former congresswoman Cynthia McKinney.

South Africa’s Archbishop Desmond Tutu has added his voice calling for Stewart’s immediate release, as has veteran American actor Ed Asner, who said: “Given the enormous good that Lynne Stewart has done for humanity throughout her life as a courageous lawyer for the poor, the oppressed and the unjustly accused, I am shocked by the cynical perversity of an American government that has pursued her savagely and vengefully.

Asner continued: “Lynne Stewart must be freed. The law requires her compassionate release and the medical care that can save her life. We must deny the US state a death sentence aimed at the freedom of us all. The state power that torments Lynne Stewart invades countries at will, murders hundreds of thousands with impunity and creates a climate of fear and repression to prevent the people of this country from calling those in power to account.”

Author and media commentator Ralph Schoenman said: “We must mobilize world opinion to stop the judicial and political murder of Lynne Stewart, an ominous measure of the mass repression in preparation for all working people and the oppressed. Few cases encapsulate so fundamentally the destruction of democratic rights in the United States as the persecution of Lynne Stewart.”

African-American comedian and political commentator Dick Gregory has vowed to continue a hunger strike until Stewart is freed. Nearly three weeks after refusing food, Gregory said: “The prosecution and persecution of Lynne Stewart is designed to intimidate the entire legal community so that few would dare to defend political clients whom the state demonizes and none would provide a vigorous defense. It also was designed to narrow the meaning of our cherished first amendment right to free speech, which the people of this country struggled to have added to the Constitution as the Bill of Rights.”

In sum, we may return to the words of the late Martin Luther King: “Injustice anywhere is a threat to justice everywhere.”

It is high time for the US authorities to free Lynne Stewart from her unjust imprisonment.

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http://www.informationclearinghouse.info/article34751.htm

A Post-history Strip Tease

How cozy it would be to summon the retro-spirit of Burt Bacharach to define our geopolitical future and start singing, "What the world needs now / is love, sweet love".

Sorry to scratch the vinyl. We interrupt this lovey-dovey to bring you breaking news. You have been catapulted to the age of the new Hobbesian "hero" - digital and virtual as well as physical.

Casino capitalism - aka turbocharged neoliberalism - is ruthlessly destroying the last vestiges of the welfare state and the egalitarian consensus in the industrialized West, possibly with the odd Scandinavian exception. It has established a "New Normal" consensus, intruding into private lives, dominating the political debate and institutionalizing for good the marketization of life itself - the final act of fierce corporate exploitation of natural resources, land and cheap labor.

Integration, socialization and multiculturalism are being corroded by disintegration, segregation, and widespread de-socialization - a direct consequence of the David Harvey-coined notion of "dis-accumulation" (society devouring its own).

This state of things is what Flemish philosopher and art historian Lieven De Cauter, in his book Entropic Empire, calls "the Mad Max phase of globalization".

It is a Hobbesian world, a latent global civil war, a war of all against all; the economic haves against the have-nots; intolerant Wahhabis against "apostate" Shi'ites; the children of the Enlightenment against all manner of fundamentalists; the Pentagon militarization of Africa against Chinese mercantilism.

The disintegration and balkanization of Iraq, detonated by the Pentagon's Shock and Awe 10 years ago, was a sort of prelude for this Brave New Disorder. The neo-con worldview, from 2001 to 2008, advanced the project with its ideology of Let's Finish Off The State, everywhere; once again Iraq was the best example. But from bombing a sovereign nation back to the Stone Age, the project moved to civil war engineering - as in Libya and, hopefully for the engineers, Syria.

When we have armchair analysts, influential or otherwise, paid by flush foundations - usually in the US but also in Western Europe - pontificating about "chaos and anarchy", they are just reinforcing a self-fulfilling prophecy. If "chaos and anarchy" turns them on, it's because they are just reflecting the predominant libidinal economy, from reality TV to all sorts of what De Cauter describes as "psychotic games" - inside a room, inside an octagon, inside an island or virtually inside a digital box.

So welcome to the geopolitics of the young 21st century: an age of non-stop war (virtualized or not), sharp polarization and a pile-up of catastrophies.

After Hegel, Marx and that mediocre functionary of Empire, Fukuyama; but also after brilliant deconstructions by Gianni Vattimo, Baudrillard or Giorgio Agamben, this is what we get.

For Marx the end of history was a classless society. How romantic. Instead, in the second half of the 20th century, capitalism married Western liberal democracy till death do them part. Well, death is now upon them both. The Red Dragon, as in China, has joined the party and came up with a new toy; single-party neoliberalism.

An individualistic, self-indulgent, passive, easily controllable consumer drowned in a warped form of democracy that basically favors insiders - and very wealthy players; how could that be a humanist ideal? Yet the PR was so good that this is what legions in Asia, Africa, the Middle East and South America aspire to. But it's still not enough for the geo-economic Masters of the Universe.

Thus post-history as the ultimate reality show. And war neoliberalism as its favorite weapon.

Choose your camp
We are now familiar with Giorgio Agamben's paradigm of the state of emergency - or state of exception. The ultimate example, until the mid 20th century, was the concentration camp. But post-history is more creative.

We have the Muslim-only concentration camp - as in Guantanamo. We have the simulacrum of a concentration camp - as in Palestine, which is virtually walled and under 24/7 surveillance, and where "the law" is dictated by an occupying power. And we have what happened - as a dry run - last week in Boston; the euphemistic "lockdown", which is a suspension of the law to the benefit of martial law; no freedom of movement, no cell phone network, and you if you go the corner shop to buy a soft drink you may be shot. A whole city in the industrialized North turned into a high-tech concentration camp.

Agamben talked about the state of exception as a top-down excess of sovereignty, and the state of nature - as in Hobbes - as a bottom-up absence of sovereignty. After the Global War on Terror (GWOT), which, despite whatever the Pentagon says, is indeed eternal (or The Long War, as defined in 2002, and part of the Pentagon doctrine of Full Spectrum Dominance), we can talk about a merger.

The war on terror, seductively normalized by the Obama administration, was and remains a global state of exception, even though trappings come and go; the Patriot Act; shadowy executive orders; torture - a recent US bipartisan panel accused all top officials of the George W Bush administration of torture; extraordinary rendition, with which secular then allies of the West such as Libya and Syria collaborated, not to mention Eastern European nations and the usual Arab puppets, Egypt under Mubarak included; and the sprawling apparatus of homeland security.

As for a real concentration camp, once again we don't need to look further than Guantanamo - which, contrary to Obama's campaign promise, will remain open indefinitely, as well as some among the vast number of Bush-era CIA "secret" prisons.

In all these cases whatever happens to social life - suspension, dissolution, balkanization, implosion, a state of emergency - what happens to normal citizens is that citizenship (bios) evaporates. But ruling elites - political, economic, financial - don't care about citizenship. They're only interested in passive consumers.

Pick your dystopia
The dystopias of the New Global Disorder are all being normalized. We're familiar with state terrorism - as in the CIA's "secret" drone war over tribal areas in Pakistan, in Yemen, Somalia and soon in other African latitudes. And we're also familiar with non-state terrorism, as applied by that nebula that we in the West describe as "al-Qaeda", with its myriad franchises and copycats.

We have a bunch of hyper-states - such as the US, China and Russia and the EU as whole - and myriad infra-states or failed states, some by design (Libya, and Syria is on the way), as well as satellite states, some essential to the Western-controlled system such as the Gulf Counter-Revolution Club (GCC - Gulf Cooperation Council).

It's always enlightening to look back at how the Pentagon interprets this world. Here we find an "integrating core" opposed to a "non-integrated gap". The "core" is what matters, in this case North America and most, but not all, of the EU. Sheepish, passive populations, with a consumer elite - the fast, mobile elites of liquid modernity, described by Bauman - and a vast mass of surviving toilers, a great deal of them expendable (as the millions of European victims of troika austerity policies who will never find a decent job again).

For the non-integrated gap, it's Hobbes all the way. In the case of Africa - until virtually yesterday derided as a black hole - there's an added geopolitical power play; how to counter-attack the extraordinary penetration of Chinese mercantilism over the last decade. The Pentagon's response is to deploy Africom everywhere; to subdue nations that are too independent, such as Libya; and in the case of the French elite, also on the bandwagon, to try to regain some imperial muscle in Mali, profiting exactly from the implosion and balkanization of Libya.

The look of post-history, its aesthetic ideal, is the city as theme park. Los Angeles may have been the archetype but the best examples are Las Vegas, Dubai and Macao. In the absence of Umberto Eco and Baudrillard, who reveled in the mirror images of simulacra, we may follow master architect Rem Koolhaas - a keen observer of the urban dementia in southern China - to learn what junk space is all about.

Then there's the security obsession - from cities like London turning into a sprawling version of Bentham's Panopticum to the pathetic strip tease ritual at every airport, not to mention the gated condo or "community", more like gated atoms, as the emblem of capsular civilization. Guerrilla counter-attacks, though, may be as lethal as Sunni Iraqis fighting the Americans in the "triangle of death" in the mid-2000s. In Sao Paulo, Brazil - the ultimate violent megalopolis - gangs "clone" cars and license plates, fool security at the door of gated condos, drive to the garage, and proceed to systematically rob each apartment in every floor.

You're history
Conceptually, post-history cuts all corners. The flow of history is degraded as fake. Simulacrum trumps reality. We see history repeating not as tragedy and farce but as a double farce; an overlapping example is jihadis in Syria weaponized just like the former "freedom fighters" in Afghanistan in the 1980s anti-Soviet jihad conflating with the Western gang in the UN Security Council trying to apply to Syria what they got away with in Libya; regime change.

We also have history repeating itself as cloning; neoliberalism with Chinese characteristics beating the West in its industrialization game - in terms of speed - while at the same time repeating the same mistakes, from the mindless excesses of an acquisition mentality to no respect for the environment.

It goes without saying that post-history buries the Enlightenment - as favoring the emergence of all sorts of fundamentalisms. So it had also to bury international law; from bypassing the UN to launch a war on Iraq in 2003 to using a UN resolution to launch a war on Libya in 2011. And now Britain and France are taking no prisoners trying to bypass the UN or even NATO itself and weaponize the "rebels" in Syria.

So we have a New Medievalism that cannot but fit wealthy neo-theocracy - as in Saudi Arabia and Qatar; because they are Western allies, or puppets, internally they may remain medieval. Superimposed, we have the politics of fear - which essentially rules Fortress America and Fortress Europe; fear of The Other, which can be occasionally Asian but most of the time Islamic.

What we don't have is a political/philosophical vision of the future. Or a historical political program; political parties are only worried about winning the next election.

How would a post-state system look like? Independent minds don't trust mammoth, asymmetrical, wobbly blocs like the EU, or the G-20, or even aspiring multipolars such as the BRICS (Brazil, Russia, India, China, South Africa - which still do not represent a real alternative to the Western-controlled system). No one is thinking in terms of a structural mutation of the system. Marx was beyond right on this: what determines history are objective, concrete, palpable processes - some of them very complex - affecting the economic and technological infrastructure.

What is possible to infer is that the real historical subject from now on is technology - as Jean-Francois Lyotard and Paul Virilio were already conceptualizing in the 1980s and 1990s. Technology will keep advancing way beyond the capitalist system. Techno-science is on the driving seat of history. But that also means war.

War and technology are Siamese twins; virtually all technology gets going as military technology. The best example is how the Internet completely changed our lives, with immense geo-economic and political ramifications; Beijing, in a 2010 white paper, may have hailed the Internet as a "crystallization of human wisdom", but no state filters more information on the Internet than China. Pushing the scenario to a dystopian limit, Google's Eric Schmidt argues, correctly, that with a flip of a switch, soon an entire country could even disappear from the Internet.

So, essentially, we may forget about a utopian regression to the state of the tribal nomad - as much as we may be fascinated by them, be they in Africa or in the Wakhan corridor in Tajikistan. If we survey the geopolitical landscape from Ground Zero to Boston, the only "models" are declinations of entropy.

Meet the neoliberal Adam
Now for post-history's favorite weapon: war neoliberalism. The best analysis these past few years by far is to be found in French geostrategist Alain Joxe's book Les Guerres de L'Empire Global.

Joxe mixes it all up, because it is all interconnected - the eurocrisis, the European debt crisis, occupations and wars, restriction of civil liberties, totally corrupted elites - to unmask the project of Neoliberalism's Global Empire, which goes way beyond the American Empire.

Financialization's ultimate goal is unlimited accumulation of profit - a system where the wealthy get much wealthier and the poor get literally nothing (or, at best austerity). The real-life Masters of the Universe are a denationalized rentier class - cannot even call them noblesse, because mostly their absence of taste and critical sense is appalling, as in purveyors of unabashed bling bling. What they do is to the benefit of corporations, instead of the protecting functions of states. In this state of things military adventures become police doctrine. And a new information technology - from drones to "special" munitions - can be used against popular movements, not only in the South but also the North.

Joxe is able to show how a technological revolution led at the same time to the IT management of that goddess, The Market, as well as the robotization of war. So here we have a mix of economic, military and technological mutations, in parallel, leading to an acceleration of decisions that totally pulverize the long span of politics, generating a system incapable of regulating either finance or violence. Between the dictatorship of the "markets" and social democracy, guess who's winning hands down.

In fact, Slavoj Zizek had already posed the key question, at least in terms of the Decline of the West. The (closet) winner is in fact "capitalism with Asian values' - which, of course, has nothing to do with Asian people and everything to do with the clear and present tendency of contemporary capitalism to limit or even suspend democracy". (See here.)

French philosopher Jean Claude Michea takes the political analysis further. He argues that post-modern politics has become in fact a negative art - defining the least bad society possible. That's how liberalism - which shaped modern Western civilization - became, as neoliberalism, the "politics of lesser evil". Well, "lesser evil" for who's in control, of course, and damn the rest.

In another crucial book, Michea comes up with the delightful metaphor of the neoliberal Adam as the new Orpheus, condemned to escalate the path of Progress with no authorization to look back.

Not many contemporary thinkers are equipped to thrash Left and Right in equally devastating measure. Michea tells us that both Left and Right have submitted to the original myth of capitalist thinking; this "noir anthropology" that makes Man an egoist by nature. And he asks how could the institutionalized Left have abandoned the ambition of a just, decent society - or how the neoliberal wolf has wreaked havoc among the socialist sheep.

Beyond neoliberalism and/or a desire for social democracy, what the reality show tells us is that an internecine global civil war is at hand - the hypothesis I explored in my 2007 book Globalistan. When we mix Washington's pivoting to Asia; the obsession with regime change in Iran; the fear of Western elites with the ascension of China; the real Arab Spring, which has not even started, via young generations who want political participation but without being constrained by religious fundamentalism; Muslim resentment against what is perceived as a New Crusade against them; the growth of neo-fascism in Europe; and the advanced pauperization of the Western middle class, it's hard to think about love.

And still - Burt Bacharach to the rescue - that's exactly what the world needs now.

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http://www.globalresearch.ca/martial-law-in-boston-american-democracy-in-shambles/5332581

Martial Law in Boston: American Democracy in Shambles

With the imposition of a state of siege in Boston, a historical threshold has been crossed. For the first time ever, a major American city has been placed under the equivalent of martial law. The already frayed veneer of a stable democracy based on constitutional principles is in shreds.

On Monday, April 15, two bombs exploded near the finish line of the Boston Marathon in the city’s center. Three people were killed and over 170 were injured, some seriously.

This was a criminal act with tragic consequences. But violence, including acts of mass homicide and disasters resulting in major loss of life, is a regular feature of American society. Even as the events in Boston were unfolding, a factory explosion in Texas, to all appearances linked to safety hazards, took far more lives than the bombs detonated at the end of the marathon.

There is no precedent for the massive mobilization of military, police and intelligence forces carried out April 19 in Boston and its environs, which encompass more than 1 million people. Thousands of heavily armed police and National Guard troops occupied the streets, backed up by machine gun-mounted armored vehicles, Humvees and Black Hawk helicopters. As the WSWS noted, the scene resembled the US occupation of Baghdad.

The people were told to remain indoors while police, with automatic weapons drawn, conducted warrantless house-to-house searches. Some of those who strayed out of doors were surrounded by police and ordered to go home. The mass transit system was shut down; passenger train service along the northeastern corridor was halted; businesses, universities and other public facilities were closed.

Boston—the cradle of the American Revolution, one of the most liberal cities in one of the most liberal states in the US, the country’s premier center of higher education—was turned into an armed camp. This staggering mobilization of federal, state and local police power was deployed to track down a 19-year-old youth.

So far, there has been no protest from within the political or media establishment to the lockdown.

Following the capture of alleged bomber Dzhokhar Tsarnaev, President Obama issued a late-night statement from the White House in which he stressed the role of his administration in the police-state mobilization, boasting that he had “directed the full resources of the federal government…to increase security as needed.” Ignoring the presumption of innocence, he referred to the captured suspect and his dead brother as “these terrorists.”

Obama’s Justice Department quickly announced that it would not read the suspect his “Miranda right” to remain silent and obtain legal counsel before speaking to police investigators. It would instead question the seriously injured youth “extensively” not just on matters related directly to public safety, but more broadly on “intelligence matters.” This sets a precedent for denying these rights to anyone arrested under antiterrorism statutes, which, under Obama, has already included political dissidents such as Occupy Wall Street and anti-NATO protesters.

Encouraged by the police-military mobilization, Republican senators Lindsey Graham and John McCain and New York Congressman Peter King, all of whom have close ties to the military and intelligence agencies, demanded that Tsarnaev be declared an enemy combatant and turned over to the military.

The events in Boston have laid bare the modus operandi for the establishment of dictatorial forms of rule in the US. One or another violent act carried out by disoriented or disaffected individuals, perhaps with the help of elements within the state, is declared a terrorist event. A state of siege is imposed suspending democratic rights and establishing military-police control.

So deeply implicated are all of the organs of the state in these plans that little in the outer trappings of political life would have to be changed. It would not be necessary to overthrow the president or shut down Congress. These institutions would readily play their assigned role, and the imposition of a military dictatorship would be sanctioned by the US Supreme Court.

The media would simply continue to do what it normally does—functioning as a de facto arm of the state and providing the necessary pretexts, while whipping up the requisite fear and panic within the public.

The very fact that the entire establishment agrees that democratic norms cannot be maintained in the face of violence by a handful of people testifies to the advanced stage of the breakdown of American democracy.

So disproportionate was the scale of the response to the actual level of the threat that the conclusion cannot be avoided that the Boston bombings were the pretext for, not the cause of, the lockdown. The police-state mobilization was the culmination of more than a decade of intensive planning and the ceaseless buildup of the repressive forces of the state since 9/11, carried out under the cover of the “war on terror.”

The operation is not an expression of strength or confidence on the part of the American ruling class. On the contrary, it reflects the near panic of the corporate-financial elite in the face of mounting social discontent, exacerbated by extreme nervousness over the precarious state of global financial markets. What haunts the ruling class is not the fear of a terrorist attack, but dread of a new financial collapse, with the likely consequence of massive social upheavals.

The breakdown of American democracy has profound causes, the first of which is the staggering level of social inequality.

Democracy cannot be maintained when the richest 5 percent of the population controls over 60 percent of the wealth. In the moves to police-military dictatorship, the forms of rule are coming into conformance with the underlying social reality of American capitalism.

Another fundamental cause of the crisis of democracy is the eruption of US militarism.

The power of the military/intelligence apparatus has grown immensely, particularly since the end of the Soviet Union, as the American ruling class has turned to military aggression as a means of offsetting the decline in its global economic position. The professional military, segregated from society at large and hostile to it, has acquired ever-greater influence over political affairs and civilian authority. As always, imperialist war is incompatible with democracy.

American liberalism as a distinct political tendency has ceased to exist. The lining up of the Democratic Party behind the “war on terror,” and the external aggression and internal repression carried out in its name, has made clear that there is no section of the ruling elite that will defend democratic rights. The Obama administration, which has expanded the right-wing, antidemocratic policies of the Bush administration, is without question the most reactionary in US history.

As always, the filthiest role is played by the media and its leading personnel. From day one, they turned the airwaves into a continual rumor mill, making one unsubstantiated claim after another in an effort to sow fear and panic and justify the police-state measures being taken. They readily agreed to self-censor their reports in accordance with the demands of the police agencies. As CNN anchor Chris Cuomo, son of the former Democratic governor of New York and brother of the state’s current governor, told viewers, “We’ve only been showing the feeds that authorities are comfortable with.”

The media seeks to create an aura of popular support for martial law-type measures. But the initial confusion will give way to mounting disquiet. The abrupt shift in the forms of rule will create opposition in the population, above all in the working class.

The appropriate conclusions need to be drawn. Social inequality and war—the inevitable outcome of capitalism—are incompatible with democracy. One or the other—capitalism or democracy—must go.

That is the issue confronting the working class.

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http://thearchdruidreport.blogspot.com/

The God With Three Heads

It's been said that a man’s religion is the thing he can’t bear to have questioned. If there’s any truth in that old saying, the idea that faith in progress is a religion has a great deal going for it. Over the seven years this blog has been appearing, I’ve discussed any number of controversial issues and made plenty of proposals that contradict the conventional wisdom of our times; none of them has fielded me as many spluttering denunciations as the suggestion that belief in progress is the most important civil religion of the modern industrial world.

A commenter on one of the many other sites where my posts appear thus started off his critique of last week’s post with a shout of “Why bear with this?” Since I doubt anybody’s holding a gun to his head and making him read The Archdruid Report, he’ll have to answer his question himself. Still, his furious outburst is a useful reminder of one of the distinctive features of the belief systems we’re discussing; however subtle and closely reasoned their intellectual sides happen to be, they reach right down into the deepest places of the human heart, and draw on powerful and unreasoning passions.

Civil religions and theist religions alike have motivated believers to die for their faith and to kill for it, to make tremendous sacrifices and commit appalling crimes. Not many human motivations can equal religion as a driving force, and I don’t know of any that reliably surpass it. When people push past the limits of ordinary humanity in any direction, good or evil, if it’s not a matter of the love or hate of one human being for another, odds are that what drives them onward is either a theist faith or a civil one.

This is among the core reasons why I’ve launched into an exploration of the religious dimensions of peak oil, and why I’ve begun that with a study of the most distinctive feature of the religious landscape of our time: the way that belief in the invincibility and beneficence of progress has come to serve an essentially religious role in the modern world, permeating the collective conversations of our time. It’s also a core reason why that exploration will continue over the weeks to come, because there’s much more that needs saying about the contemporary faith in progress, the historical mythology that underlies it, and the distortions it imposes on nearly all of our society’s assumptions about the future.

It’s important, to begin with, to pay attention to the ambiguities wrapped up in the modern conception of progress. When people think or talk about progress, by that name or any of its common euphemisms, there are at least three different things they can mean by it. All three share the common presupposition that history has an inherent tendency to move in a particular direction, that movement in that direction is a good thing, and that human beings can and should contribute to that forward movement toward the good; it’s the dimension of human life in which the movement is believed to be taking place that marks the distinction between these different meanings of progress.

The first version of progress is moral progress: it centers on the claim that history’s inherent tendency is toward increasingly ethical human relationships and social forms. These days, especially on the leftward end of society, this version of progress is usually framed in political terms, but its moral thrust is impossible to miss, as its proponents inevitably frame their arguments in terms of moral absolutes, virtues and vices. At its best, the ethical stance of the contemporary mainstream Left in America and Europe is one of the few really original moral philosophies to develop in modern times, with a distinctive focus on the virtues of equality, social justice, and kindness, all understood and pursued primarily on a collective rather than an individual level; at its worst—like all philosophies, it has its less impressive side—it becomes a self-righteous cant, by turns saccharine and shrill, in the service of the craving for unearned power that’s the besetting sin of all modern moralists.

You can see the faith in moral progress in action any time people insist that some proposed social change is an advance, a move forward, away from the ignorance and injustice of the benighted past. Even when this sort of talk is cheap manipulative rhetoric, as of course it so often is, it’s the faith in moral progress that gives the manipulation power and allows it to work. Think about the implications of “forward” and “backward” as applied to social changes, and you can begin to see how deeply the mythology of progress pervades contemporary thought: only if history has a natural direction of flow does it make any kind of sense to refer to one set of social policies as “progressive” and another as “backward,” say, or to describe the culture or laws of one of the flyover states despised by the coastal literati as “stuck in the 1950s.” It’s the faith that history moves in the direction set out by a specific definition of moral progress that gives these very common metaphors their meaning.

That’s only one of the three things that faith in progress can choose as its focus, though. The second is scientific and technical progress, which centers on the claim that history’s inherent tendency is toward increasingly complete human knowledge and domination of the cosmos. In theory, it might be possible to conceive of scientific progress without a corresponding increase in technical power, or vice versa; in practice, at least in the minds of those who interpret progress along these lines, the two are rarely separated. As Francis Bacon argued in the first gray dawn of the scientific revolution, the value of knowledge concerning nature is the power that results from that knowledge; investment in the production of scientific knowledge is almost universally justified by talking about what the resulting knowledge will let humanity do to the world.

To see the core features of a religion in starkest terms, it’s often useful to look at its most extreme forms, and the faith in scientific and technical progress is no exception. The example I have in mind here is the Singularitarian movement, which claims that sometime soon—Singularitarian prophet Ray Kurzweil has set the date as 2045—the unstoppable onward march of progress, bootstrapped by the creation of artificial intelligences far more powerful than any human mind, will accelerate to infinity. All the dreams of science fiction, from starflight through immortality to virtual sex with Marilyn Monroe, will become realities, and humanity will achieve something like godhood—unless the hyperintelligent computers decide to exterminate us all instead, that is.

There are plenty of things worth discussing about the Singularitarian religion, but the one that’s relevant to the present theme is the wild misunderstanding it imposes on the nature of scientific knowledge. A large portion of the discoveries of science, including many of its greatest achievements, can be summed up neatly by the words “you can’t do that.” If an all-wise supercomputer could be created at all—and it’s far from certain that one could be—it’s entirely possible that it would sort through the sum total of human science and technology and say to us, “For beings of such modest mental capacities, you’ve done a good job of figuring out what can be done with the resources available to you. Here are some technical tricks you haven’t worked out yet, but starflight, immortality, sex with this Marilyn Monroe person? Sorry, those aren’t possible; you’ll have to go on living without them.” What’s more, it’s entirely possible that it would be right.

Even outside the Singularitarian faith, though, you can count on either blank incomprehension or furious disagreement if you suggest that there might be things that scientific and technological progress can’t achieve. Those of my readers who have been in the peak oil scene for any length of time will have learned that the most common dismissal they’ll get, when they try to suggest to the rest of the world that betting the future on infinite resource extraction from a finite planet is not a bright idea, is some variation on “Oh, I’m sure they’ll come up with something.” The “they” in this overfamiliar sentence are of course scientists and engineers; the mere fact that “they” have been trying to come up with something in this particular case for well over a century, and success is still nowhere in sight, does nothing to dent the really rather touching faith that today’s popular culture places in their powers.

Scientific and technical progress, then, plays a massive role in the modern mythology of progress. It's equalled if not exceeded by the third kind of progress, economic progress, which centers on the claim that history’s inherent tendency is to ever greater levels of economic abundance, however that abundance may happen to be distributed. The belief that ongoing exponential economic growth is normal and beneficent, and that anything else is abnormal and destructive, is perhaps the most widely accepted form of the mythology of progress in contemporary life, not least because most people like to imagine that they themselves will benefit from it.

Open the business section of any newspaper, turn the pages of any economics textbook, scan the minutes of any meeting of any business corporation in contemporary America or most of the modern world, and you’ll get to see a faith in economic progress as absolute and unthinking as any medieval peasant’s trust in the wonderworking bones of the local saint. In the mythic world portrayed by the prophets and visionaries of that faith, economic growth is always good, and comes as a reward to those who obey the commandments of the economists. The fact—and of course it is a fact—that obeying the commandments of the economists has by and large brought more disaster than prosperity to the industrial world’s economies for decades somehow rarely enters into these reverential thoughts.

In recent years, to be sure, faith in economic progress—that is, growth—has come under fire from two sides. On the one hand, there’s the small but gradually expanding body of ecologists, economists, and other scholars who point out the absurdity of perpetual economic expansion on a finite planet, and document some of the ways that an obsession with growth for its own sake produces a bumper crop of problems. On the other, there’s the less coherent but far more widespread sense that economic progress doesn’t seem to be happening the way it’s supposed to, that standards of living for most people are declining rather than improving, and that economic policies that have been sold to the public as ways to fix a troubled economy are having exactly the opposite effect. Even so, most of the critiques coming out of this latter awareness, and no small number of those belonging to the former class, assume that growth is normal, and fixate on how that supposedly normal state got derailed.

Moral progress, scientific and technological progress, and economic progress: those are the three forms that progress takes in the minds of those who put their faith in it: if you will, the three heads of the deity of the Church of Progress. It’s crucial to keep in mind, though, that these three visions of progress often intertwine in complex ways in the minds of believers. To many mainstream American liberals in the late 20th century, for example, the limitless progress of science and technology would guarantee equally limitless economic growth, which would make it possible to abolish poverty, provide equal opportunity for all, and fulfill the hopes of moral progress without requiring any of those who already had access to privilege and economic abundance to give up any of these things.

So complete a fusion of the three modes of progress was once standard. Read any of the vast supply of self-congratulatory literature on progress churned out by popular presses in 19th century Britain or America, for example, and you can count on finding all three twisted tightly round one another, with the supposed moral superiority of Anglo-Saxon civilization serving as the linchpin of arguments that claimed to explain the limitless progress of technology and also to justify the extremely uneven distribution of the benefits of economic growth. The 20th century’s ghastly history made such moral claims a good deal harder to make with a straight face, and so versions of the faith in progress popular in recent decades often avoid the moral dimension and focus on the other two forms of progress.

Far more often than not these days, as a result, the mainstream American version of faith in progress fixates purely on the supposedly unstoppable feedback loop between scientific and technological progress, on the one hand, and economic growth on the other, while moral progress has been consigned to bit parts here and there. It’s mostly on the left that faith in moral progress retains its former place in the blend—one of the many ways in which the leftward end of the American political landscape is significantly more conservative, in the strict sense of the word, than those who call themselves conservative these days—and even there, it’s increasingly a fading hope, popular among the older generation of activists and among those who have moved toward the fringes of society and mix their faith in progress with a good solid helping of its erstwhle antireligion, the faith in apocalypse: it’s from this unstable mix that we get claims that the morally better world will arrive once evil, and most of the planet’s population, are blown to smithereens.

It’s by way of this latter process, I think, that faith in moral progress tends to pop up in the literature of peak oil, and even more often in conversations in the peak oil scene. I’ve long since lost track of the number of times that someone has suggested to me that if industrial civilization continues down the well-worn track of overshoot and decline, the silver lining to that very dark cloud is that the rigors of the decline will force all of us, or at least the survivors, to become better people—“better” being defined variously as more ecologically sensitive, more compassionate, or what have you, depending on the personal preferences of the speaker.

Now of course when civilizations overshoot their resource base and start skidding down the arc of decline toward history’s compost bin, a sudden turn toward moral virtue of any kind is not a common event. The collapse of social order, the rise of barbarian warbands, and a good many of the other concomitants of decline and fall tend to push things hard in the other direction. Still, the importance of faith in progress in the collective imagination of our time is such that some way has to be found to make the future look better than the present. If a future of technological advancement and economic growth is no longer an option, then the hope for moral betterment becomes the last frail reed to which believers in progress cling with all their might.

To many of my readers, this may seem like a good idea; many others may consider it inevitable. I’m far from convinced that it’s either one. For more than thirty years now, the conviction that progress will somehow bail the industrial world out from the consequences of its own bad decisions has been the single largest obstacle in the way of preventing more of those same bad decisions from being made. How many times have we all heard that economic growth was going to take care of resource depletion and environmental degradation, or that scientific and technical advances were going to take care of them, or that a great moral awakening—call it the rise of planetary consciousness, or any of the other popular buzzwords, if you wish—was going to take care of them. As it turned out, of course, none of those things took care of them at all, and since so many people placed their faith on one or the other kind of progress, nothing else took care of them, either.

Nor, for that matter, is faith in progress hardwired into the human psyche. It’s a specific belief system with distinct and well-documented historical roots in the Western world, and most other people in most other places and times have had beliefs about the future that contradicted it in every particular. There have been many cultures in which history was held to have an inherent tendency to move from better to worse, from a Golden Age in the past to an age of darkness and horror somewhere in the future, and individual and collective hope focused on the possibility of holding onto the beneficent legacies of the past as long as possible in the teeth of decline. Nor are these the only options; there have, for example, been many cultures that saw time as a circle, and many more for whom time had no direction at all.

It’s quite common for people raised in a given culture to see its view of things as normal and natural, and to scratch their heads in bewilderment when they find that people in other places and times saw things in very different ways. Modern industrial civilization, for all its self-described sophistication, is no more exempt from this custom than any other human society. To make sense of the future closing in on us, it’s going to be necessary to get past that easy but misleading habit of thought, to recognize that the contemporary faith in progress is a culturally specific product that emerged in a highly unusual and self-terminating set of historical circumstances, and to realize that while it was highly adaptive in those circumstances, it’s become lethally maladaptive now.

To understand these things, in turn, it’s going to be necessary to dig down to the foundations of modern industrial culture, and grapple with one of the core cognitive frameworks our society—like every other—uses to make sense of the inkblot patterns of the cosmos. For want of a better label, we’ll call this framework the shape of time. We’ll talk about that next week.

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http://kulturcritic.wordpress.com/posts/m3-reflections-on-the-massachusetts-marathon-massacre/

Reflections on the Massachusetts Marathon Massacre

God do we Americans love spectacle… we just eat it up. Whether it’s a North Korean standoff, Mexican drug lords, or two young Chechen disaffected intellectuals roaming the streets of Cambridge ready to die rather than be tortured at Guantanamo, we just love spectacle and melodrama. Hollywood can’t keep up with reality! Actually, it can. It does. It creates our reality. You remember ARGO, right? Art is life. Well, most of our daily melodrama is produced and brought to you in large measure by Hollywood, the same ownership, the same investments, the same power players controlling the news, the press, the movies and the music. But, it still eludes the American public — you know, ‘Joe the plumber’ — how the political-military-security-entertainment complex all works in synchronized unison; how they constantly are setting us up for their imperial shenanigans and executing them nearly flawlessly – costumes, props, and all.

Anyone remember Dubya’s Axis of Evil or John McCain’s sudden love of the Beach Boys with his “bomb, bomb, bomb… bomb, bomb Iran?” Or what about those WMDs in Iraq and mushroom clouds hovering over New York, Washington and (O’s favorite resting place) Hawaii? And who will ever forget Osama the Saudi-Wonder-Boy, our erstwhile ally against that ever-looming Red Threat, a.k.a., Ivan-the-Terrible in Afghanistan? Or how about the Libyan Madman? Of course, the crazy Colonel had to be taken out with much drama and spectacle because he dared to suggest trading African oil for a newly minted African gold dinar rather than greenbacks? It was rather convenient to show other pretenders to the international monetary throne not to mess with Uncle Sam. And who can forget the televised manhunt with State and local police, ATF and FBI all tricked-out in their militarized riot-gear for a purported lone pre-pubescent shooter in the Connecticut woods? All spectacle, my friends. And brought to you live 24/7 courtesy of the same folks who profit from the very spectacles they produce. And, I do not distinguish here between producing the event and producing the spectacular media coverage of the event, the two become indistinguishable.

And now we have M3, the Massachusetts Marathon Massacre, allegedly perpetrated by two disaffected immigrant college students, Chechen no less… dangerous terrorist threats in their own right merely by ethnic association? So lets bring to bear all the various tools and weapons of the militarized security State at our imperial disposal. We will show the American public just how dangerous the homeland can be; and how good we are at finding the bad guys and taking them out… Geronimo! Why, the Boston police even brought in their own armored vehicles – tanks – to harass the wounded teenager into surrendering.

False flags and much chatter continues unabated to keep pressure on the American public while continuing to build up the internal security apparatus. And now all of a sudden there are terrorist plots popping up elsewhere, a planned train derailment in Canada with nothing less than an Iranian Al-Queda connection. Hmm, now isn’t that a rather convenient disclosure. Everyone, the overriding agenda has been set, and the players then do their parts as charged – TSA, ATF, FBI, state and local authorities, and of course, the media, to keep the pressure on. Now, I am not suggesting that Boston or 9/11 or anything else is a conspiracy perpetrated by our stately officials and their well-armed thugs. But still, there are questions that need be asked, and propaganda that is routinely delivered… by the pols, the snoops, the police, and the military, as well as by O’s secret army of homeland security forces… filtered, of course, through the press, a press corps itself owned by and beholding to the same cast of psychopaths.

But we further recognize, through this most recent and unfortunate bloodbath, that within the city walls all activity is and must remain well-monitored, not least by the ever-rolling cameras mounted on each and every street corner and warrantless wiretapping on cell and email. We must stay forever vigilant — ‘always be prepared’! Indeed, the monitoring and preparedness itself become self-justifying in light of such incidents; and perhaps that is the point. Whether or not some part of the hegemony had a hand in orchestrating this madness, it surely behooves them to play it up to the hilt, to make it spectacular! All the while, the increased security, surveillance and militarization of our ‘homeland’ retreats into a shadowy background as we remain enthralled and enraptured by the drama before us, forever vigilant of the the spectacles unfolding one after another in rapid succession. The expenditures on military and security, and the apparatchiks who control it all, can never be too extravagant when at any moment terror can strike at the heart of empire, and chaos loosed upon the land — the sacred homeland. The necessity of militarization, and the evaporation of “civil” rights, is granted without question or calculation of the costs.

No matter, we have got to stop the Reds, the Terrorists, the Islamists, the Chinese, the Mexican Druggies, the Al Qaeda, the Taliban, the North Koreans, the Iranian Theocrats, the Pakistani Pashtun, the Waco Wackos, the lunatic fringe, and any other regime, lone wolf, or self-described savior that threatens our “New American Century” and its sacred life-style. The owners of the means of production (of arms, entertainment, and consumables) will make certain of it. But who will stop the empire? What will stop this impervious machine, drone-ing on and on into the dark night of our planet and giving life to an emerging darkness in our own souls?

The answer, I think, is to be found in repetitive cycles of of nature, of return and renewal. Like the mythological Uruboros eating its own tale, Empire will consume itself in attempting to satisfy its diverse and ravenous appetites — for more oil, more resources, more consumers, more wage-slave laborers, more growth, more imperial expansion more control; the greed and hubris will consume itself. In this act of self-consumption, something new will emerge; but as in all natural cycles, the new will be an instantiation of the old. Nature will rectify the imbalance created by such artifice and seek to return itself to a balanced – homeostatic – condition.

Wait for it. Watch as it unleashes its own spectacle. Watch the earthquakes, the droughts, the vanishing of wildlife, the spoiling of the seas, the fouling of the air, the depletion of the soils, the melting of the ice caps, the storms, the floods, the vanishing coastlines. Watch the death, destruction, and disease as the spectacle unfolds and engulfs our cherished citadels of civilization. Watch the New American Century as it consumes itself in its ravenous acts of consumption; watch as the end approaches. Watch! And continue to tend your garden.

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http://www.globalresearch.ca/derivatives-managed-by-mega-banks-threaten-your-bank-account-all-depositors-secured-and-unsecured-may-be-at-risk/5330700

Derivatives Managed by Mega-Banks Threaten Your Bank Account. All Depositors, Secured and Unsecured, May Be at Risk

Cyprus-style confiscation of depositor funds has been called the “new normal.” Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk. Derivatives have “super-priority” status in bankruptcy, and Dodd Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.

Shock waves went around the world when the IMF, the EU, and the ECB not only approved but mandated the confiscation of depositor funds to “bail in” two bankrupt banks in Cyprus. A “bail in” is a quantum leap beyond a “bail out.” When governments are no longer willing to use taxpayer money to bail out banks that have gambled away their capital, the banks are now being instructed to “recapitalize” themselves by confiscating the funds of their creditors, turning debt into equity, or stock; and the “creditors” include the depositors who put their money in the bank thinking it was a secure place to store their savings.

The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the US, UK, EU, Canada, New Zealand, and Australia, as detailed in my earlier articles here and here. “Too big to fail” now trumps all. Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks.

Why Derivatives Threaten Your Bank Account

The big risk behind all this is the massive $230 trillion derivatives boondoggle managed by US banks. Derivatives are sold as a kind of insurance for managing profits and risk; but as Satyajit Das points out in Extreme Money, they actually increase risk to the system as a whole.

In the US after the Glass-Steagall Act was implemented in 1933, a bank could not gamble with depositor funds for its own account; but in 1999, that barrier was removed. Recent congressional investigations have revealed that in the biggest derivative banks, JPMorgan and Bank of America, massive commingling has occurred between their depository arms and their unregulated and highly vulnerable derivatives arms. Under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.

The tab for the 2008 bailout was $700 billion in taxpayer funds, and that was just to start. Another $700 billion disaster could easily wipe out all the money in the FDIC insurance fund, which has only about $25 billion in it. Both JPMorgan and Bank of America have over $1 trillion in deposits, and total deposits covered by FDIC insurance are about $9 trillion. According to an article on Bloomberg in November 2011, Bank of America’s holding company then had almost $75 trillion in derivatives, and 71% were held in its depository arm; while J.P. Morgan had $79 trillion in derivatives, and 99% were in its depository arm. Those whole mega-sums are not actually at risk, but the cash calculated to be at risk from derivatives from all sources is at least $12 trillion; and JPM is the biggest player, with 30% of the market.

It used to be that the government would backstop the FDIC if it ran out of money. But section 716 of the Dodd Frank Act now precludes the payment of further taxpayer funds to bail out a bank from a bad derivatives gamble. As summarized in a letter from Americans for Financial Reform quoted by Yves Smith:

Section 716 bans taxpayer bailouts of a broad range of derivatives dealing and speculative derivatives activities. Section 716 does not in any way limit the swaps activities which banks or other financial institutions may engage in. It simply prohibits public support for such activities.

There will be no more $700 billion taxpayer bailouts. So where will the banks get the money in the next crisis? It seems the plan has just been revealed in the new bail-in policies.

All Depositors, Secured and Unsecured, May Be at Risk

The bail-in policy for the US and UK is set forth in a document put out jointly by the Federal Deposit Insurance Corporation (FDIC) and the Bank of England (BOE) in December 2012, titled Resolving Globally Active, Systemically Important, Financial Institutions.

In an April 4th article in Financial Sense, John Butler points out that the directive does not explicitly refer to “depositors.” It refers only to “unsecured creditors.” But the effective meaning of the term, says Butler, is belied by the fact that the FDIC has been put on the job. The FDIC has direct responsibility only for depositors, not for the bondholders who are wholesale non-depositor sources of bank credit. Butler comments:

Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors of failing institutions are to be arbitrarily, de-facto subordinated to interbank claims, when in fact they are legally senior to those claims!

. . . [C]onsider the brutal, unjust irony of the entire proposal. Remember, its stated purpose is to solve the problem revealed in 2008, namely the existence of insolvent TBTF institutions that were “highly leveraged and complex, with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.” Yet what is being proposed is a framework sacrificing depositors in order to maintain precisely this complex, opaque, leverage-laden financial edifice!

If you believe that what has happened recently in Cyprus is unlikely to happen elsewhere, think again. Economic policy officials in the US, UK and other countries are preparing for it. Remember, someone has to pay. Will it be you? If you are a depositor, the answer is yes.

The FDIC was set up to ensure the safety of deposits. Now it, it seems, its function will be the confiscation of deposits to save Wall Street. In the only mention of “depositors” in the FDIC-BOE directive as it pertains to US policy, paragraph 47 says that “the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.” But protected with what? As with MF Global, the pot will already have been gambled away. From whom will the bank get it back? Not the derivatives claimants, who are first in line to be paid; not the taxpayers, since Congress has sealed the vault; not the FDIC insurance fund, which has a paltry $25 billion in it. As long as the derivatives counterparties have super-priority status, the claims of all other parties are in jeopardy.

That could mean not just the “unsecured creditors” but the “secured creditors,” including state and local governments. Local governments keep a significant portion of their revenues in Wall Street banks because smaller local banks lack the capacity to handle their complex business. In the US, banks taking deposits of public funds are required to pledge collateral against any funds exceeding the deposit insurance limit of $250,000. But derivative claims are also secured with collateral, and they have super-priority over all other claimants, including other secured creditors. The vault may be empty by the time local government officials get to the teller’s window. Main Street will again have been plundered by Wall Street.

Super-priority Status for Derivatives Increases Rather than Decreases Risk

Harvard Law Professor Mark Row maintains that the super-priority status of derivatives needs to be repealed. He writes:

. . . [D]erivatives counterparties, . . . unlike most other secured creditors, can seize and immediately liquidate collateral, readily net out gains and losses in their dealings with the bankrupt, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor, all in ways that favor them over the bankrupt’s other creditors.

. . . [W]hen we subsidize derivatives and similar financial activity via bankruptcy benefits unavailable to other creditors, we get more of the activity than we otherwise would. Repeal would induce these burgeoning financial markets to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG-, Bear Stearns-, or Lehman Brothers-style financial meltdown, thereby helping to maintain systemic financial stability.

In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences, David Skeel agrees. He calls the Dodd-Frank policy approach “corporatism” – a partnership between government and corporations. Congress has made no attempt in the legislation to reduce the size of the big banks or to undermine the implicit subsidy provided by the knowledge that they will be bailed out in the event of trouble.

Undergirding this approach is what Skeel calls “the Lehman myth,” which blames the 2008 banking collapse on the decision to allow Lehman Brothers to fail. Skeel counters that the Lehman bankruptcy was actually orderly, and the derivatives were unwound relatively quickly. Rather than preventing the Lehman collapse, the bankruptcy exemption for derivatives may have helped precipitate it. When the bank appeared to be on shaky ground, the derivatives players all rushed to put in their claims, in a run on the collateral before it ran out. Skeel says the problem could be resolved by eliminating the derivatives exemption from the stay of proceedings that a bankruptcy court applies to other contracts to prevent this sort of run....