https://scheerpost.com/2024/01/19/patrick-lawrence-this-is-not-another-phoney-war/
This Is Not Another ‘Phoney War’
It Just Got Very Real.
Amid the tit-for-tats along Israel’s border with Lebanon over the past few weeks, the Houthis’ shelling of Red Sea traffic and repeated assertions that the U.S. does not want to widen the Gaza crisis into a regional war, I started thinking of that twilit interim in 1939–1940 known in history as “the phony war.” Has the world entered another such passage—another war we do not want to think is a war but is a war we do not want to see?
That question seems far away now, an intellectual flinch. America, mindlessly loyal to the frothing dog known as Israel, has wandered into another war the way our president wanders away from podiums and off television news programs while the cameras are still rolling. This is a 21st century war, replete with attacks, denials, proxies and indirection, and with no formal declaration. But we may as well declare it ourselves so we understand our moment properly. America is once more at war.
The U.S. had for weeks refrained from responding to the Houthis, who, in solidarity with the Palestinians of Gaza, have since November staged dozens of drone and missile attacks on commercial ships sailing through the Red Sea. These now include U.S. and British vessels and a U.S. warship. The Biden regime’s stated concern was that it did not want to risk sparking a conflict that would spread through the region and, in particular, provoke the Islamic Republic. The Pentagon, in the role of lumbering giant, also acknowledged that there was little U.S. forces could do to stop the Houthis’ operations.
The weeks of restraint, so uncharacteristic of the Biden White House, ended last Thursday, when the U.S. and a handful of its clients hit more than two dozen Houthi targets—military bases, airports, weapons dumps—in Yemen. Air and naval units struck the Houthis again last Friday, and the world suddenly sat up straight. Here is part of a news analysis The New York Times published Friday evening:
With the American-led strike on nearly 30 sites in Yemen on Thursday and a smaller strike the next day, there is no longer a question of whether there will be a regional conflict. It has already begun. The biggest questions now are the conflict’s intensity and whether it can be contained.
This is exactly the outcome no one wanted, presumably including Iran.
Among the reporters bylined on this piece was David Sanger, a longtime Washington correspondent who is, to keep this polite, very close to the national- security state and faithfully reflects its perspectives. I certainly sat up straight on reading these paragraphs. They struck me as the Biden regime’s first admission, an early warning, that war was on the way. “I will not hesitate,” President Biden had said by the time Sanger et al. published, “to direct further measures to protect our people and the free flow of international commerce as necessary.” Indeed, U.S. attacks on Houthi targets are now something close to routine. On Tuesday the Pentagon announced that Navy SEAL commandos had raided an Iranian vessel bound for Yemen and seized missile components from its cargo.
As of Monday evening (East Coast time, Tuesday morning in the Middle East), Biden and his policy people have exactly what they have insisted they do not want but which Israel probably does. Iran’s Revolutionary Guards, the IRGC, launched at least 11 ballistic missiles into northern Iraq and Syria, where all sorts of U.S. proxies, including the Islamic State, are active. I do not think there is any longer any stepping back from the reality that the U.S. is now in a regional war involving Iran, Iraq, Syria, Yemen and Lebanon.
There are varying accounts of the Iranians’ targets and motives. The Revolutionary Guards, quoted in official media, said the missiles “were used to destroy espionage centers and gatherings of anti–Iranian terrorist groups in the region.” This can be read with confidence to refer to U.S. proxies and (according to some reports) clandestine Israeli targets. In its statement the IRGC said it was responding to the U.S. presence in Iraq and its, Washington’s, support for Israel.
The missile barrage followed by four days Tehran’s assertion that it would avenge a U.S. airstrike in Syria that killed, among others, two members of the IRGC. Al Jazeera reported that the base of a U.S.-led coalition in Erbil was among the targets. RT reported, as did The Times subsequently, that one missile struck very close to the U.S. consulate in the Kurdish capital.
This week the Iranians sent missiles into Pakistan, targeting what it identifies as anti–Iranian militias, and the Pakistanis responded in kind on Thursday. It is true, as the major Western dailies report, that the Iranians are now eager to demonstrate their capability and willingness to defend themselves against adversaries of any kind. I read this as the consequence of many years of American and Israeli violations of Iran’s sovereignty by way of assassinations, covert sabotage operations, piracy at sea and the like. The Islamic Republic’s insecurity is unmistakable at this point. And insecure nations, it goes without saying, are bound to be aggressively defensive.
There is no ambiguity here, no room for alternative interpretations. I am with David Sanger (for once) and his colleagues: Whether the Biden regime has just led America into another war is no longer an interesting question. The interesting question is how big and dangerous the new war will get. Oh, for the days when the mess unfolding across West Asia seemed a phoney war.
The Phoney War (customarily known by its British spelling) began after the Reich invaded Poland on Sept. 1, 1939. Britain and France declared war on Germany two days later, but almost nothing happened for the next eight months. This was an extremely strange interlude, as contemporary accounts make clear. Sartre, to give an idea of the oddity of it all, served in a meteorological unit in Alsace and spent his time smoking his pipe, reading Heidegger, working on a novel (probably one of the Roads to Freedom trilogy) and writing War Diaries. Nobody seems to have thought this at all amiss.
The Phoney War ended abruptly when Germany invaded France and the Low Countries in May 1940. Thenceforth the war was all too horribly real until the Allied victory five springs later. I have long thought that the British and French shuffled their feet for those eight months of unwaged war in part out of a subliminal dread of what they knew was to come. The English, after all, are famous for their habit of muddling messily through difficult circumstances—though in this case, as in some others, clarity and determination followed the indecision.
It is upside down in the case of the Biden regime and its brand-new war: Clarity and determination of the most diabolic kind came first, and out of this the U.S. has muddled into its latest conflict. Biden famously declared years ago, “You don’t have to be a Jew to be a Zionist,” and he has held resolutely to apartheid Israel’s cause ever since. I am convinced that this unswerving loyalty reflects the Man from Scranton’s demonstrated stupidity in all matters to do with foreign relations: He has settled on support for Israel, a sure winner for decades, and simply cannot think through a change of course even in the face of a real-time genocide of historic proportions.
This administration can be a hard read. It seems safe to assume, as I have for some time, that those around Biden—notably Secretary of State Blinken, National Security Adviser Jake Sullivan and CIA Director William Burns—are running the foreign policy side and in essence tell our incompetent commander-in-chief what the plan is in any given case. On the other hand, I read here and there reports that Biden’s adjutants are increasingly nervous about what their boss will decide to do next as the Gaza crisis deepens. My surmise, and it is only that: Biden may leave a lot of policy decisions to those around him, but in the case of Israel the lockstep Zionist rules. He has, after all, taken more money from the Israel lobby over the years than any other political figure in Washington.
This makes Israel’s psychotic—as in detached from reality—obsession with the Palestinians the gravest feature of the post–Phoney War war into which the Biden regime has just led America. The Netanyahu regime professes almost daily its determination to exterminate as many Palestinians as it can and scatter the survivors to the winds. Where will this lead the perversely loyal U.S., we have to ask. The atrocities in Gaza have already kindled all sorts of extremist aggression among settlers in the West Bank. As reported and ably analyzed Monday in The Cradle, published in Beirut by the estimable Sharmine Narwani, “The West Bank is a ticking time bomb.” Indeed. What will Biden and his people do if it detonates?
There are Israel’s other obsessions to consider. It is spoiling for a provocation to justify an attack on Lebanon. It has hankered after an excuse to attack the Islamic Republic for decades. You start to think Israel took October 7 as the beginning of a once-for-all devastation of its periphery. Is Tel Aviv now hoping to recruit Zionist Biden into a campaign against Iran, or at least obtain the White House’s acquiescence as Israel goes it alone, tactical nukes and all?
These are among our questions, as what seemed a Phoney War in 21st century mode gets un–Phoney. Like the Brits and the French 85 years ago, I dread what will come next.
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https://scheerpost.com/2024/01/15/ellen-brown-casino-capitalism-and-the-derivatives-market-time-for-another-lehman-moment/
Casino Capitalism and the Derivatives Market: Time for Another ‘Lehman Moment’
Reading the tea leaves for the 2024 economy is challenging. On January 5th, Treasury Secretary Janet Yellen said we have achieved a “soft landing,” with wages rising faster than prices in 2023. But critics are questioning the official figures, and prices are still high. Surveys show that consumers remain apprehensive.
There are other concerns. On Dec. 24, 2023, Catherine Herridge, a senior investigative correspondent for CBS News covering national security and intelligence, said on “Face the Nation,” “I just feel a lot of concern that 2024 may be the year of a black swan event. This is a national security event with high impact that’s very hard to predict.”
What sort of event she didn’t say, but speculations have included a major cyberattack; a banking crisis due to a wave of defaults from high interest rates, particularly in commercial real estate; an oil embargo due to war. Any major black swan could prick the massive derivatives bubble, which the Bank for International Settlements put at over one quadrillion (1,000 trillion) dollars as far back as 2008. With global GDP at only $100 trillion, there is not enough money in the world to satisfy all these derivative claims. A derivative crisis helped trigger the 2008 banking collapse, and that could happen again.
The dangers of derivatives have been known for decades. Warren Buffett wrote in 2002 that they were “financial weapons of mass destruction.” James Rickards wrote in U.S. News & World Report in 2012 that they should be banned. Yet Congress has not acted. This article looks at the current derivative threat, and at what might motivate our politicians to defuse it.
What Regulation Hath Wrought
Derivatives are basically just bets, which are sold as “insurance” — protection against changes in interest rates or exchange rates, defaults on loans and the like. When one of the parties to the wager has a real economic interest to be protected – e.g. a farmer ensuring the value of his autumn crops against loss — the wager is considered socially valuable “hedging.” But most derivative bets today are designed simply to make money from other traders, degenerating into what has been called “casino capitalism.”
In 2008, derivative trading brought down investment bank Bear Stearns and international insurer A.I.G. Both institutions could not be allowed to fail, because the trillions of dollars in credit default swaps on their books would have been wiped out, forcing their counterparty banks and financial institutions to write down the value of their own risky and now “unhedged” loans. Bear and A.I.G. were bailed out by the taxpayers; but the Treasury drew the line at Lehman Brothers, and the market crashed.
Under the rubric of “no more bailouts,” the Dodd Frank Act of 2010 purported to fix the problem by giving derivatives special privileges. Most creditors are “stayed” from enforcing their rights while a firm is in bankruptcy, but many derivative contracts are exempt from these stays. Counterparties owed collateral can grab it immediately without judicial review, before bankruptcy proceedings even begin. Depositors become “unsecured creditors” who can recover their funds only after derivative, repo and other secured claims, assuming there is anything left to recover, which in the event of a major derivative crisis would be unlikely. We saw this “bail-in” policy play out in Cyprus in 2013.
That’s true for deposits, but what of stocks, bonds and money market funds? Under the Uniform Commercial Code (UCC) and the Bankruptcy Act of 2005, derivative securities also enjoy special protections. “Safe harbor” is provided to privileged entities described in court documents as “the protected class.” Derivatives enjoy “netting” and “close-out” privileges on the theory that they are a major source of systemic risk, and that allowing claimants to jump ahead of other investors in order to net and close out their bets reduces that risk. However, critical analysis has shown that derivative “super-priority” in bankruptcy can actually increase risk and propel otherwise viable financial entities into insolvency.
It is also highly inequitable. The collateral grabbed to close out derivative claims may be your stocks and bonds. In a 2016 American Banker article called “You Don’t Really Own Your Securities; Can Blockchains Fix That?”, journalist Brian Eha explained:
In the United States, publicly traded stock does not exist in private hands.
It is not owned by the ostensible owners, who, by virtue of having purchased shares in this or that company, are led to believe they actually own the shares. Technically, all they own are IOUs. The true ownership lies elsewhere.
While private-company stock is still directly owned by shareholders, nearly all publicly traded equities and a majority of bonds are owned by a little-known partnership, Cede & Co., which is the nominee of the Depository Trust Co., a depository that holds securities for some 600 broker-dealers and banks. For each security, Cede & Co. owns a master certificate known as the “global security,” which never leaves its vault. Transactions are recorded as debits and credits to DTC members’ securities accounts, but the registered owner of the securities — Cede & Co. — remains the same.
What shareholders have rather than direct ownership, then, “is a [contractual] right against their broker…. The broker then has a right against the depository institution where they have membership. Then the depository institution is beholden to the issuer. It’s [at least] a three-step process before you get any rights to your stock.”This attenuation of property rights has made it impossible to keep perfect track of who owns what.
Fifty Years of “Dematerialization”
In a 2023 book called The Great Taking (available for free online), Wall Street veteran David Rogers Webb traces the legislative history of these developments. The rules go back 50 years, to when trading stocks and bonds was done by physical delivery – shuffling paper certificates bearing titles in the names of the purchasers from office to office. In the 1970s, this trading became so popular that the exchanges could not keep up, prompting them to turn to “dematerialization” or digitalization of the assets. The Depository Trust Company (DTC) was formed in 1973 to alleviate the rising volumes of paperwork. The DTCC was established in 1999 as a holding company to combine the DTC and the National Securities Clearing Corporation (NSCC).
The DTCC is a central clearing counterparty (CCP) sitting at the top of a pyramid of banks, brokers and exchanges. All have agreed to hold their customers’ assets in “street name,” collect those assets in a fungible pool, and forward that pool to the DTCC, which then trades pooled blocks of stock and bonds between brokers and banks in the name of its nominee Cede & Co. The DTCC, a private corporation, owns them all. This is not a mere technicality. Courts have upheld its legal ownership, even in a dispute with client purchasers. According to the DTCC website, it provides settlement services for virtually all equity, corporate and municipal debt trades and money market instruments in the U.S., and central safekeeping and asset servicing for securities issues from 131 countries and territories, valued at $37.2 trillion. In 2022 alone, the DTCC processed 2.5 quadrillion dollars in securities.
The governing regulations are set out in Uniform Commercial Code (UCC) sections 8 and 9, covering investment securities and secured transactions. The UCC is a set of rules produced by private organizations without an act of Congress. It is not itself the law but is only a recommendation of the laws that states should adopt; but the UCC has now been adopted by all 50 U.S. states and has been “harmonized” with the rules for trading securities in Europe and most other countries.
The Wikipedia summary of the relevant UCC provisions concludes:
The rights created through these links [up the collateral chain] are purely contractual claims …. This decomposition of the rights organized by Article 8 of the UCC results in preventing the investor to revindicate [demand or take back] the security in case of bankruptcy of the account provider [the broker or bank], that is to say the possibility to claim the security as its own asset, without being obliged to share it at its prorate value with the other creditors of the account provider.
You, the investor, have only a contractual claim against your broker, who no longer holds title to your stock either, since title has been transferred up the chain to the DTCC. Your contractual claim is only to a pro rata share of a pool of the stock designated in street name, title to which is held by Cede & Co.
Rehypothecation: The Problem of Multiple Owners
The Wikipedia entry adds:
This re-characterization of the proprietary right into a simple contractual right may enable the account provider [the “intermediary” broker or bank] to “re-use” the security without having to ask for the authorization of the investor. This is especially possible within the framework of temporary operations such as security lending, option to repurchase, buy to sell back or repurchase agreement.
“Security lending” by your broker or other intermediary may include lending your stock to short sellers bent on bringing down the value of the stock against your own financial interests. Illegal naked short selling is also facilitated by the impenetrable shield of the DTCC, and so is lending to “shadow banks” for the re-use of collateral. As Caitlin Long, another Wall Street veteran, explains:
[T]he shadow banking system’s lifeblood is collateral, and the issue is that market players re-use that same collateral over, and over, and over again, multiple times a day, to create credit. The process is called “rehypothecation.” Multiple parties’ financial statements therefore report that they own the very same asset at the same time. They have IOUs from each other to pay back that asset—hence, a chain of counterparty exposure that’s hard to track. Although improving, there’s still little visibility into how long these “collateral chains” are.
It is this reuse of the collateral to back multiple speculative bets that has facilitated the explosion of the derivatives bubble to ten times the GDP of the world. It should be the collateral of the actual purchaser, but you, the purchaser, are at the bottom of the collateral chain. Derivative claims have super priority in bankruptcy, ostensibly because the derivative edifice is so risky that their bets need to be cleared.
What About the “Customer Protection Rule”?
Broker-dealers argue that their customers’ assets are protected under the “Customer Protection Rule” of the Securities Investor Protection Corporation (SIPC). The SIPC provides insurance for stocks similar to FDIC insurance for bank deposits, maintaining a pool that can be tapped in the event of a member bankruptcy. But a 2008 memorandum on The Customer Protection Rule from the law firm Willkie Farr & Gallagher asserts:
With respect to cash and securities not registered in the name of the customer, but held by the broker- dealer for the customer’s benefit, the customer would receive a pro rata portion of the aggregate amount of the cash and securities actually held by the broker- dealer. If there is a remaining shortfall, SIPC would cover a maximum of $ 500,000, only $ 100,000 of which may be a recovery for cash held at the broker- dealer.
… [M]ost securities are held by broker-dealers in street name and would be available to satisfy other customers’ claims in the event of a broker- dealer’s insolvency.
If the member has a large derivatives book (JPMorgan holds $54.4 trillion in derivatives and a mere $3.4 trillion in assets), derivative customers with priority could wipe out the pool and the SIPC fund as well.
What Webb worries about, however, is the bankruptcy of the DTCC itself, which could wipe out the entire collateral chain. He says the DTCC is clearly under-capitalized, and that the startup of a new Central Clearing Counterparty is already planned and pre-funded. If the DTCC fails, certain protected creditors can take all the collateral, upon which they will have perfected legal control.
Defensive Measures
In the event of a cyberattack that destroys the records of banks and brokers, there could be no way for purchasers to prove title to their assets; and in the event of a second Great Depression, with a wave of 1930s-style bank bankruptcies, derivative claimants with super-priority can take the banks’ assets without going through bankruptcy proceedings. In today’s fragile economy, these are not remote hypotheticals but are real possibilities, which can wipe out not just the savings of middle class families but the fortunes of billionaires.
And there, argues Webb, is our opportunity. The system by which Cede & Co. holds title to all “dematerialized” securities is clearly vulnerable to being exploited by “the protected class,” and Congress could mitigate those concerns by legislation. If our representatives realized that they are not the owners of record of their assets but are merely creditors of their brokers and banks, they might be inspired to hold some hearings and take action.
The first step is to shine a light on the obscure hidden workings of the system and the threat they pose to our personal holdings. Popular pressure moves politicians, and the people are waking up to many issues globally, with protests on the rise everywhere — economic, political and social. Possible action that could be taken by Congress includes reversing the “special privileges” granted to the derivatives casino in the form of “super priority” in bankruptcy. A 0.1% Tobin tax or financial transaction tax is another possibility. For protecting title to assets, blockchain is a promising tool, as discussed by Brian Eha in the American Banker article quoted above. These and other federal possibilities, along with potential solutions at the local level, will be the subject of a followup article.
Comment to article:
" Thanks Ellen for telling us that entire US financial market is a pyramid scheme overwhelmingly benefiting those in control. It may be shocking discovery for believers in financial market capitalism.
Author describes a scheme devoid of any purpose but to coverup crimes of mass looting of world’s treasury from one fabricated financial crisis to another. Financial asset structured derivatives author alluded to are just latest and greatest inventions to engage in looting schemes much more dangerous and insidious than speculative financial trusts’ Ponzi schemes of pre Great Depression era. They are designed to protect few investors while devastating others by imposing looses far exceeding their initial capital investments.
Already Marx pointed out that any exchange markets, and that includes capital markets, that are completely transparent where all fundamentals and impactful externalities including third party considerations are instantly known to all where market players are equal, rules are transparent, egalitarian and equitable are dead markets with no possibility of any meaningful trading profit as all “bets” are rational and the same.
In significant way because of that market rule based obfuscation and operational obfuscation was implemented often along a pyramid scheme to hide the fact of deliberately introduced inequality and inequity of market participants’ positions.
Specifically trade/investment risk is obfuscated, manipulated purposefully by market makers and by those who control it to make sure that market determined price significantly deviates from value traded.
The harvesting of this discrepancy between market price and insufficient information about value of the trade forces market players to take a risk, to bet, to gamble since information required to make rational investment decision is being often purposefully delayed or denied. If there is no complete information to execute rational trade no rational trade can occur.
It is this obfuscation of rules and values as well as uncertainty that turns legitimate markets into gambling parlors and market participants into addicts or cultists controlled by irrational fear and greed.
In many cases degree of obfuscations amounts to pure propaganda for capitalism to cover up its dramatic failure, to pretend that markets are able to offer any value toward rational investment decisions and proper deployment of social capital.
The lie of control and ownership that convicted capitalists swallowed keeps gambling addiction going, fuels cultist beliefs and psychotic delusions that makes money speak truth and wisdom never to be questioned.
it makes “owners” of financial assets happy as they own nothing but weak promise made by a mirage likely never to be fulfilled. And that applies not only to financial assets but to hard assets as proud owners of land own not the land but transferable inheritable lease on land owned for perpetuity by the state.
Just after Bear Stern collapse and bailout in spring 2008 my friend asked me how safe his stock market investments were. I told him that he had no market investments, that he owned no shares but was hanging on solvency of his brokerage and operational market structure. I told him if they failed for whatever reason he lost regardless of what is unreal portfolio of equity shares he didn’t own looked like. I told him to sell all of it, put money under a mattress, wait and pray that hyperinflation wouldn’t come. In three months it was most common client investment suggestion of many savvy financial advisors.
“Ignorance is bliss” should be a motto of market capitalism as 90% of people don’t even know what money really is not to mention financial assets that are complex derivatives of money.
Still they’re Pavlov trained to own more of what they won’t ever own. "
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