Category: International Finance

Obama Claims That Fast Track Will Not Kill Dodd-Frank. Canadian Files NAFTA Complaint to Kill Volker Rule

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Obama calls the claim lubricious, but the government of Canada has moved to exempt its own bonds from the Volker Rule:

In her attacks on Obama’s pending trade deals, Elizabeth Warren has argued that could undermine US financial regulations like Dodd Frank. The Administration has taken to trying to dismiss Warren as not knowing what she was talking about. More skillful defenders of the traitorous trade deals took the tact of saying that Warren could in theory be right, but the odds of her fears playing out were so remote as to not be worth worrying about.

In a long, careful article in the Nation yesterday, George Zornick explains even with the limited information that we have now about the contents of proposed treaties like the TPP and its ugly European step-sister, the TTIP, Warren’s worries are valid. ………

………

But an example of Warren’s concerns came out of left field yesterday, as reported by the Wall Street Journal:

A U.S. rule that prohibits banks from taking risky bets with their own money violates the North American Free-Trade Agreement because it bans U.S. banks from trading triple-A-rated Canadian government debt, Canada’s finance minister said Wednesday…
Canadian concerns about the Volcker rule’s treatment of sovereign debt aren’t new. In 2012, Canada joined European countries and Japan in raising concerns about the law’s reach..

Mr. [Joe] Oliver noted that the Volcker rule reflects concerns about the credit standing of some foreign securities. That concern doesn’t apply to Canada, he said, because Canada’s credit rating is better than the U.S. government and U.S. municipalities…

“I believe—with strong legal basis—that this rule violates the terms of the Nafta agreement,” Mr. Oliver told a securities industry audience in New York that included the U.S. ambassador to Canada, Bruce Heyman. “I hope the United States administration sees that changing the Volcker rule is in its own best interests and that of its biggest trading partner.”

Yep, clearly Obama was right to portray Warren as a hysterical woman over the possibility of the Investor State Dispute Settlement (ISDS) process will never be used to roll back financial regulations.

When juxtaposed with how Mitch McConnell crowing about how a future Republican President will use Fast Track to run impose the Republican agenda:

If we had a Republican president right now, not a single Democrat would vote for Trade Promotion Authority. So what I’ve said to my members, if we want the next Republican president, who we hope will be sworn in less than two years from now, to have a chance to do trade agreements with the rest of the world, this bill is about that president as well as this one.

Fast Track, the TPP, and the TTIP are seen by the Republicans as a weapon to weild.

Call Your Congresscritter

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It looks like the Obama administration is planning to submit a fast track bill next week.

If this passes, expect the TPP (Trans Pacific Partnership) and (TTIP) Trans-atlantic Trade and Investment Partnership to follow soon after, and it both deals will pass under fast track, because there will be no meaningful public discussion:

Senators will introduce trade promotion authority legislation next week, a top Obama administration official said Thursday.

 Commerce Secretary Penny Pritzker expects a “fast-track” bill to be introduced early next week in the Senate and said in a call with reporters that she is “anxiously awaiting to see the language.”

 Pritzker is the first administration official to suggest a firm timeline for legislation that would grant President Obama “fast-track” powers for negotiating trade deals.

 Speculation has been swirling about when the Senate Finance Committee would start moving on a bill.

 Senate aides have said negotiations between Finance Committee Chairman Orrin Hatch (R-Utah) and ranking member Ron Wyden (D-Ore.) are making progress but that no deal had been struck.

The TPP and the TTIP suck.

They favor big big banks, big pharma, and big content over ordinary people, labor rights, environmental protection, and democracy.

As a bonus, it also appears that it would make state owned banks like the Bank of North Dakota, which has saved taxpayers millions, illegal. (It would probably make a US Post Office bank, which would serve to rescue poor Americans from predatory check cashing operations, illegal as well).

Background here.

Call, and tell them to vote no, and tell them that if they vote yes, you will not vote for them ever, in any election, primary or general.

This is particularly important if your Congressmen are Democrats, because there will be a full court press from the Obama administration, which supports fast track, and has negotiated the TPP and TTIP on this. They will argue that the credibility of the President depends on this.

If your Congressmen are Republicans, call and sound like a wingnut who will never forgive them for supporting that Kenyan Muslim Marxist Atheist Tyrant.  (The more unhinged you sound, the better)

You can make email contact from here, but a phone call (The Congressional switchboard number is (202) 224-3121), or a letter sent through the mail probably have more impact.

IMF Violates Its Charter to Loan to the Ukraine

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The IMF charter forbids the making of loans to countries that are either engaged in a civil war, or those who are at war with another member state.

That being the case, how the f%$# does the IMF justify making a massive loan to the Ukraine?

The International Monetary Fund (IMF) has agreed on a scheme of war financing for Ukraine. For the first time, according to Fund sources, the IMF is not only violating its loan repayment conditions, but also the purposes and safeguards of the IMF’s original charter.

IMF lending is barred for a member state in civil war or at war with another member state, or for military purposes, according to Article I of the Fund’s 1944-45 Articles of Agreement. This provides “confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.”

To deter Russian and other country directors from voting last week against the IMF’s loan, and releasing their reasons in public, the IMF board has offered Russia the possibility of, though not the commitment to repayment for Gazprom’s gas deliveries, and the $3 billion Russian state bond which falls due in December.

On March 11 the IMF board agreed to approve an Extended Loan Facility (EFF) for Ukraine for a total of 13.4 billion Special Drawing Rights (SDR), currently equivalent to $17.5 billion. Here are the IMF papers spelling out the details.

………

Take a magnifying glass to the tables titled “Ukraine Capacity to Repay Indicators” in last year’s SBA, and in this month’s EFF: it can be seen the newly scheduled repayments to the IMF are significantly larger from now until 2019 in the new scheme than they were in the old one, and of course they go on for much longer – another decade in fact. . For comparison, go to the SBA document, “Assessment of the Risks to the Fund and the Fund’s Liquidity Position”, page 10; for the EFF document, open this link, and go to the similarly titled document, page 13.

At the IMF Andrew Tweedie (below left) and Mark Flanagan (centre) are responsible for drafting this sleight of hand; Nikolai Gueorguiev (right), a former Bulgarian finance ministry official, has been in charge of negotiating the terms with the government in Kiev. In 2008 Flanagan was much more sceptical in his assessment of Ukrainian government accountability and capacity to repay much smaller liabilities than is plain today.

………

This trio is now making the IMF loan look less onerous for the Ukrainian economy by projecting faster recovery of GDP and exports than they thought was reasonable a year ago; and also by anticipating that other forms of debt relief, including grants, subsidies, and low-cost loans from the US and European Union will reduce the proportion of Ukrainian debt owed to the IMF.

That’s guesswork. It didn’t work in 2014 — because of the war in the east. As Lagarde’s reference to the ceasefire implies, and the EFF papers now confirm, if the war continues, the government in Kiev will be unable to repay; the IMF board’s loan conditions will falter; and disbursement of the EFF cash will stop, just as the SBA cashflow did from last October. So what calculation is the IMF making of the military costs and the war’s impact on what the IMF is calling the Ukraine’s fiscal balance?

There are 163 pages in the dossier released by the IMF to demonstrate that the new loan to Ukraine meets the Fund’s charter, lending conditions, and criteria for repayment. The term “war” appears only once, referring to “war-induced supply shocks”; the terms “defence” and “army”, not at all. Referring to military spending by the government, the IMF dossier acknowledges the “risks to the outlook are exceptionally high and predominantly on the downside. Fighting in the East may resume and spread. This would unravel confidence, increase the direct loss of economic and export capacity while military spending may rise sharply.” This is an admission that the war is what the IMF charter labels “measures destructive of national or international prosperity.”
………

This reveals that past and future spending on the war and the rearmament programme President Petro Poroshenko announced last week are “one-offs”, below the budget line, and not counted by the IMF in the conditions it has set for the release of the scheduled instalments. Since budget funds are fungible, and since the Ukrainian government and Verkhovna Rada (parliament) have agreed to increase military spending substantially, the IMF was asked to say why it is contributing to the war risks by allowing EFF support for military budget outlays at the same time as it is concealing their magnitude in reporting to the IMF board.

………

For the time being, the Russian Finance Ministry is not demurring. Finance Minister Anton Siluanov (right) followed Lagarde’s announcement of board approval for the EFF with this confirmation that Russia will contribute its share to the loan. “The [EFF] program will be financed via the IMF quota resources, and the funding from shareholder countries in the framework of their participation in the so-called New Borrowing arrangements. As such, the Russian Federation will participate in the funding in accordance with its obligations as a participant, and deliver the first tranche of the IMF program for Ukraine in the amount of $13.75 million dollars. The Bank of Russia will carry out the payment on 13 March 2015.”

Although the Obama Administration claims it will not deliver lethal military equipment, it has been offering loans, repayment guarantees, and cash support for Ukrainian military agencies to buy it through third countries. Russian analysts call this a takeover by the Pentagon of the Ukrainian defence budget. Details of the line items totalling UAH 85 billion (about $4 billion) approved this month by the Verkhovna Rada can be read here. International bankers say they cannot think of a precedent in which the treasury of a country at war finances a defeated opponent to renew the fight. Siluanov hints his reason is tactical. Moscow will not call a default of covenants in the December 2013 bond for $3 billion, he says, if Kiev agrees to exclude this debt from its restructuring of other bond obligations, and repays the Russian debt at maturity this coming December.

Let me get this straight:

  • The US is pushing for the IMF loan to fund the war.  
  • The IMF is pretending that there is no war.
  • The Russians are looking the other way, because it has been implied to the IMF loans might be applied to Russian loans to the Ukraine, and the arrears to owed to Gazprom.

 Am I the only one to find this completely f%$#ed up?

H/t naked capitalism.

Quote of the Day

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If you leave office held in high esteem by the Davos set, there are any number of European Commission or IMF or whatnot gigs that you might be eligible for even if you’re absolutely despised by your fellow countrymen.

—Matthew Yglesias

The modern economic regime is a lot like the mob.

You f%$# the citizens that you are pledged, and you secure a cushy sinecure from the Davos set.

You do what the boss wants, and you are a made man.

This explains a lot.

The Trade Deals Being Negotiated Just Got Worse

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In addition to the TPP and the TTIP, we now have the Trade In Services Agreement (TiSA), which looks to vitiate national privacy, net neutrality, and consumer protections:

The US is attempting to secure immunity from investigation for online security breaches by major US companies under negotiations between Washington and Brussels, according to leaked documents seen by the Guardian.

 Such a deal would prevent US companies that were operating inside the EU from being prosecuted by regulators or law officers for data breaches or claims of negligence in the host country, forcing European governments to pursue cases in the US courts.

 Public service unions said the Trade in Services Agreement (Tisa) talks in Geneva revealed how the US planned to protect homegrown businesses from regulations that might hinder their expansion into sensitive areas such as government data handling and healthcare.

 Rosa Pavanelli, general secretary of Public Services International (PSI), which represents 650 unions in 150 countries, said the leaked documents, obtained by the Associated Whistleblowing Press, confirmed her fears that “Tisa is being used to further the interests of some of the largest corporations on earth”.

 She said: “It is now clear the US wants to use its trade agenda to remove restrictions to data being held or processed in other countries.”

The Association of Whistleblowing Press link is here, and an earlier Wikileaks leak is here.

Here is nickel tour of what it all means:

  • Corporations to move any possibility liability to the most weakly regulated venue (“No Party may prevent a service supplier of another Party from transferring, accessing, processing or storing information, including personal information, within or outside the Party’s territory, where such activity is carried out in connection with the conduct of the service supplier’s business.”)
  • It has a broad carve-out for  national security that is a censor’s wet dream (“Nothing in [Articles X.1 – X.6] shall be construed to prevent any Party from taking any action which it considers necessary for the protection of its own essential security interests.”)
  • It would prohibit meaningful net neutrality regulation (“Each Party recognizes that consumers in its territory, subject to applicable laws, and regulations, should be able to: (a) access and use services and applications of their choice available on the Internet, subject to reasonable network management;”)

(emphasis mine)

The cynic in me understands why Obama came out in front of net neutrality regulation:  Once TiSA goes through, any FCC ruling is moot.

He gets to play at consumer protection while taking it all away with a fast track vote on the treaty.

Pass the Popcorn

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The Greek Parliament failed to elect a new President, which means that snap elections need to be held, and it looks like the left leaning Syriza Party, which has been dismissive of the “stay in the Euro zone at all costs” of the mainstream parties looks likely to win:

Greece will hold early national elections on Jan. 25, stoking concerns over the future of the country’s financial bailout, after lawmakers failed to elect a new president in a third and final round of voting Monday.

 The conservative-led coalition government’s candidate for the presidential post, 73-year-old former European commissioner Stavros Dimas, garnered 168 votes from parliament’s 300 seats — short of the 180 votes needed to win.

 According to the country’s constitution, parliament must now be dissolved within 10 days. Prime Minister Antonis Samaras said national elections will be held “at the soonest possible date” — Sunday, Jan. 25.

 ………

 Investors are worried that the main left-wing main opposition Syriza, which is consistently ahead in opinion polls, might try to renege on the terms of the bailout deal that is keeping the country afloat.

 Syriza has pledged to roll back some of the reforms the country has implemented in order to qualify for billions of euros in rescue funds from other eurozone countries and the International Monetary Fund — although it has recently somewhat softened its rhetoric about unilaterally pulling out of the bailout deal.

Seeing as how the “bailout deal” has Greeks chopping down their forests to stay warm in the winter, massive unemployment, and hospitals without necessary equipment or drugs in order to repay German and French bankers, I understand why the Syriza party is a bit skeptical that this is in their best interests.

BTW, the IMF is already trying to influence the election:

The International Monetary Fund announced Monday that it would suspend the disbursement of financial aid to Greece until a new government takes power following next month’s elections.

 In a communique, IMF spokesman Gerry Rice said that talks with Greek authorities over the international financial bailout would be resumed as soon as a new government is chosen after parliamentary polls are held in late January or early February.

 The announcement came shortly after the sharply divided Greek parliament once again failed to elect a consensus candidate to occupy the largely ceremonial office of the presidency, making the legislative elections originally set for 2016 inevitable.

Tell me that this is not a flat out threat from the so-called “technocrats” at the IMF.

If Syriza were smart, they would promise an aggressive program of going after the big name tax evaders and soaking the rich.

Technically, it would fit the requirements of the bailout, and it could very allow for sanctions against the foreign banks who have facilitated the hiding of assets.

A few bounties to people who leak bank data, and some snatch and grabs of particularly egregious offenders among the Greek upper class by the national constabulary, and they would be well on their way to solvency.

Dumb-Ass………

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Taking a page from the Barack Obama book of pre-capitulation as a negotiating tactic, the Syriza party has ruled out any possibility of Greece exiting the Euro:

Last week, the stock market in Athens suffered its worst day in decades, and Greek politicians bickered over the political uncertainty provoked by the presidential vote.

Greece’s largest opposition party, Syriza is currently ahead in the polls. A snap election could find the party into power.

In an interview with EurActiv Greece, Papadimoulis, an influential figure in Syriza, attempted to dash these fears, saying that a Syriza government is committed to keeping the country in the eurozone.

“There is absolutely no case for a Grexit. Those who invoke such a possibility play a propaganda game against the Greek and European economy,” Papadimoulis said.

He added that the actual danger for Greece is its social disintegration and its transformation intoto a “debt colony” and for Europe, a new phase of recession, higher unemployment and poverty.

In an attempt to appease international lenders and possible investors’ fears, Papadimoulis made it clear that there is no Syriza party member who speaks in favour of returning to the drachma.

If you want to avoid Greece becoming a debt colony of Frau Merkel,* you cannot unilaterally disarm.

To the degree that you take a Greek exit from the Euro Zone, or possibly an exit from the EU off of the table, you are weakening your bargaining position.

Look at what Iceland did, and take f%$#ing notes.

*Horses whinnying.

OK, the EU and ECB are in the Banksters” Pockets

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I’ve always wondered why, when Irish banks failed at the beginning of the financial crisis, Ireland decided to make the bond holders whole.

I figured that it was some sort of delusion about being “business friendly.”

Basically, Ireland’s economic strategy at the time was to be an amazingly accommodating 3rd world nation that through an accident of history had access to the European financial system, and that they could not thing beyond this.

I was wrong. The Irish government was blackmailed into accepting a bailout deal that got bond holders 100¢ on the dollar:

Senior European and European Central Bank (ECB) officials agreed to threaten Ireland with national bankruptcy if the government made any attempt to burn bondholders, the Sunday Independent can reveal.

 The threat was made at a high-level teleconference meeting, details of which have been revealed for the first time by the Central Bank governor, Dr Patrick Honohan.

 Mr Honohan, who famously told the nation Ireland would be entering the Troika bailout programme live on radio as government ministers were publicly denying it, also revealed he was kept out of loop about the meeting.

 In a new book about the late Brian Lenihan, Mr Honohan said he only found out about the meeting after the Troika delivered the ultimatum to Mr Lenihan on November 26, 2010.

 “The Troika staff told Brian in categorical terms that burning the bondholders would mean no programme and, accordingly, could not be countenanced,” Dr Honohan writes. “For whatever reason, they waited until after this showdown to inform me of this decision, which had apparently been taken at a very high-level teleconference to which no Irish representative was invited.”

I think that it is time for the Irish to push back on this, and declare that the debts from their bailout to be odious debt, and repudiate it:

In international law, odious debt, also known as illegitimate debt, is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

The Irish government had an obligation to make the depositors whole, up to whatever limit their bank insurance is set, but the bond holders are covered by no such obligation.

When a bank goes under, its bond holders are not supposed to be at the front of the line.

The EU & IMF extorted a bailout to the commercial and investment banks that were born by the Irish citizenry.

This should be repudiated.

Bullsh%$

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Eric holder is now saying that the DoJ will finally start prosecuting bankers:

The Justice Department has launched criminal fraud investigations of individuals at Wall Street firms, with the hopes of filing formal charges in the coming months, Attorney General Eric H. Holder Jr. said Wednesday.

“We are making good progress in these cases, which involve conduct that has undermined the integrity of our markets,” Holder said at New York University Law School.

The nation’s top prosecutor did not go into detail about the inquiries, but people familiar with the cases say the probes involve the possible manipulation of the $5.3 trillion global foreign-exchange markets.

At least seven banks, including JPMorgan Chase, Citigroup and Barclays, disclosed in regulatory filings last year that “various government authorities” had requested information about their trading activities. Bank employees have turned over information to U.S. authorities about the trading scheme, according to people who were not authorized to speak publicly about the ongoing investigations.

If any person is criminally prosecuted, it will be the little fish, and any settlement will be small enough to be dismissed as a cost of doing business, and any admission will be minor enough that no bank will lose their dollar clearing privileges.

This is theater.

Lucy will pull away the football, again.

If Eric “Place” Holder or Barack Obama were interested in prosecuting law breakers on Wall Street, they would already have done it.

There is no interest in this administration in prosecuting the general criminality that is the US financial industry.

H/t CT at the Stellar Parthenon BBS.

Former Bushie Enmeshed in Money Laundering Probe

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I’m shocked, shocked to find that gambling is going on here!

Zalmay Khalilzad’s wife’s bank account has been frozen by Austrian authorities:

A U.S. probe into alleged money laundering by Zalmay Khalilzad has led Austrian authorities to freeze a Vienna bank account linked to the former presidential envoy to Afghanistan.

Khalilzad, who served as U.S. ambassador to Afghanistan and Iraq, allegedly transferred $1.4 million to his wife’s bank account in Vienna, Austrian magazine Profil reported today, citing court documents. The money came from oil and building contracts in Iraq and the United Arab Emirates that allegedly violated U.S. laws, U.S. investigators told their Austrian counterparts, according to the papers cited by Profil.

Austrian court spokeswoman Christina Salzborn confirmed the documents’ authenticity in a telephone interview. Christian Bielesz, the lawyer for Khalilzad’s wife, Cheryl Benard, confirmed that the account was frozen and an investigation under way.

The U.S. had asked Austrian authorities not to seize Benard’s account, Bielesz said in a phone interview. A decision on whether to unfreeze the account is expected “quite soon,” he said.

The documents alleging the misconduct were part of a cache of papers retrieved from a garbage bin earlier this year by a Vienna-based blogger. Austria’s courts have instructed workers to take better care of sensitive information, Salzborn said.

Of course, the response of the judge is to criticize the bank for allowing money laundering to be found by a pesky blogger.

Needless to say, Khalilzad is likely neither to face prosecution, nor to have the accounts seized, because, well, the you can be sure that there is someone on the other side of the aisle who wants to get rich the same way, and they need to lube that revolving door for their turn.

I’m beginning to think that we are living in the last days of the Roman Empire.

Jared Bernstein Calls for Dropping Reserve Currency Status for the Dollar in the New York Times

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His argument is rather similar to the one that I have, that the dollar’s status as a reserve currency artificially inflates the value of the currency, along with contributing to the excessive financialization of our economy, but the fact that a former Obama staffer is doing it in the Times is significant:

There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world’s reserve currency. It’s a core principle of American economic policy. After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve?

But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.

………

In 2013, America’s trade deficit was about $475 billion. Its deficit with China alone was $318 billion.

Though Mr. Austin doesn’t say it explicitly, his work shows that, far from being a victim of managed trade, the United States is a willing participant through its efforts to keep the dollar as the world’s most prominent reserve currency.

………

Note that as long as the dollar is the reserve currency, America’s trade deficit can worsen even when we’re not directly in on the trade. Suppose South Korea runs a surplus with Brazil. By storing its surplus export revenues in Treasury bonds, South Korea nudges up the relative value of the dollar against our competitors’ currencies, and our trade deficit increases, even though the original transaction had nothing to do with the United States.

………

But while more balanced trade might raise prices, there’s no reason it should persistently increase the inflation rate. We might settle into a norm of 2 to 3 percent inflation, versus the current 1 to 2 percent. But that’s a price worth paying for more and higher-quality jobs, more stable recoveries and a revitalized manufacturing sector. The privilege of having the world’s reserve currency is one America can no longer afford.

It’s really nothing new, but the fact that it’s Mr. Bernstein and the New York Times does appear to indicate that this idea is gaining currency.

About f%$#ing time.

Why Ignoring the Marine Insurance Act of 1746 is a Bad Idea, Part MCMXXVII

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For those who don’t remember, the Marine Insurance Act of 1746 required, “Anyone seeking to collect on an insurance contract to have an interest in the continued existence of the insured property.” (Link)

Basically, it means that you cannot purchase insurance on your neighbors home, and collect when you burn it down.

The act was passed because around that time, there was a war between Britain and France, and some people were purchasing insurance on ships, and then send the itinerary and manifest to accomplices in France, who would relay this information to the French navy, who would seize the ship, and the insurance fraudster and his accomplish would divide the spoils.

In 1999, it was decided that the form of insurance known as a Credit Default Swap wasn’t insurance, because, well ……… because.

As a result, we have seen an explosion in speculators who insure things, and then blow them up.

Well it now appears that the Vulture funds who pushed Argentina into default may have engaged in this strategy:

So for Elliott an unseemly legal victory may not mean cold cash. Fear of default and/or eagerness to please Argentina may prompt some in the financial community to buy them out at a good price, but a sure thing that is not. Whatever American courts say, for all the reasons above, Argentina will probably not settle. Those bonds bought cheap (according to sources, Elliott spent close to $50 million purchasing about $220 million of old Argentinian bonds in 2008) may have looked to an informed observer beforehand quite unlikely to produce a decent return.

 So why bother with an exorbitant legal fight? Well, the CDS route would be one reason. The likelihood of CDS triggering (failure to pay on foreign exchange bonds) would have appeared as very high precisely for all the reasons that make the likelihood of a settlement so low.

 This scenario may have seemed plausible, at least more so than expecting Argentina to pay holdouts in full or something close to it. Elliott may have known payment is a long shot, but being a bondholder at least lets it try for a legal solution that could lead to default. That pari passu had been breached would have been a no brainer, for “all” you needed was to show that the country had legally subordinated you versus other creditors, and Argentina did that in 2005 by passing the so-called Lock Law prohibiting itself from making good on the holdouts (this was a key argument to have the courts declare a breach of pari passu; apparently, this kind of explicit de jure discrimination-subordination of creditors is very unusual).

 Obtaining ratable payment as a remedy is unusual, though not unprecedented, but may have seemed like good odds in this case given the specific wording of the pari passu clause in question (which seemed to call for equal payments and not just equal rank) and the uniquely uncooperative character of the debtor; from reading the courts´ statements, one can sense that discomfort with the country´s attitude forced the judges´ hands towards a solution that in any other case may have seemed too harsh. Argentina´s behavior presented a unique opportunity to persuade a court to impose ratable payments; discipline for an unruly country.

 With hindsight, Argentina was the perfect collaborator to have the CDS trigger: the Lock Law, tirades against holdouts, and contempt for court rulings on the way to its final refusal to settle guarantee that a failure to pay event materialised. For all the Kirchner government rage against speculators, in what would be a delicious paradox, it may have made the vultures rich by triggering the CDS.

This is actually a higher percentage strategy than getting 100¢ on the dollar from Argentina.

They make money, and in the process, they inflict enormous pain on the people of Argentina, and does damage to the US as a venue for sovereign debt.

I’m with Paul Volker when he said only the worthwhile innovation of this generation was the ATM.

Well, I Would Prefer a Bounty on the Vulture’s Heads, but this Works Too

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Argentina is offering a voluntary bond swap to exit US jurisdiction:

Argentina’s President Cristina Fernández announced plans on Tuesday to launch a voluntary debt swap aimed at dodging a US court ruling that last month triggered the country’s second default in less than 13 years.

The government is seeking approval from congress for plans that would enable it to service debt in Argentina as well as allow bondholders to exchange their debt issued under foreign law for bonds of the same value governed by local law.

Ms Fernández said Argentina would stop using Bank of New York Mellon as a trustee and instead make payments on its bonds via an account at Banco de la Nación in Buenos Aires, after the default was caused by a US judge preventing BNY Mellon from transferring $539m to bondholders.

The US Supreme Court upheld the judge’s ruling that Argentina must pay its so-called holdout creditors in full at the same time as paying the rest of its bondholders, who accepted a 65 per cent haircut on their bonds after a 2001 default.

One wonders how many of the bond holders will take the deal.

My guess is most of the non-vultures will if Argentina sweetens the deal by a few more basis points on the bonds.

Of course, the alternative is that the court will prevent disbursements to the bond-holders who refuse the swap for a few years so I don’t think that the deal needs to be sweetened by all that much.

Still, I prefer sending bounty hunters after the vultures.

Because Our Government Has Been Completely Captured by the Banksters

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James Kwak asks, “Why Is Credit Suisse Still Allowed to Do Business in the United States?”

Thia has been another episode of simple answers to simple questions.

On a slightly less glib level, Kwak wonders why, if the financial markets are all better, and the banks insist that they are not to big to fail, why we cannot see fit to suspend the banking license of a foreign bank that has spent decades defrauding the American government.

The fundamental point is that if Credit Suisse really is solvent, then there are no losses that have to be absorbed by someone else (other financial institutions or taxpayers). If its assets really are worth more than its liabilities, then it must be possible to close down the bank without harming anyone else (except shareholders), given enough time. The whole point of capital regulation is to make sure that this can always be done. People would lose their jobs, but the whole premise of the financial sector is that it is providing useful services, which means that those jobs would be recreated elsewhere in the industry (except for the jobs based on tax fraud, which should go away for good).

Our finance system is not just corrupt, it is criminogenic.

We gotta figure out a way to shut this all down in an orderly manner, and replace it with something, you know, sane.

Your Ukraine Update

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We now have some on the ground media reports that make it very likely that US security consultants (mercenaries) are on the ground in the Ukraine:

The leaks may have more truth in them than I had assumed. Paris Match, a well regarded weekly French magazine, investigated the recent incidents in Krasnoarmeysk in east Ukraine where some para-military gang disrupted the vote on more autonomy for the region by killing two supporters of the federalists. It finds photographic evidence that the gang was led by functionary from the fascists paramilitary Right Sektor:

These images show Andrey Denisenko, one of the Pravy Sektor chiefs, among a group of mysterious gunmen that attacked a voting station Sunday in the small town of Krasnoarmeysk, some 60 kilometres from the separatist « capital », Donetsk. After occupying the local town hall for several hours, the militiamen shot down point blank one local civilian, and killed two other unarmed protesters.

These Pravy Sektor thugs were hired for the “special battalion Denjpr” of the newly created “National Guard” and are paid by oligarch Ihor Kolomoyskyi.

 But there is an even bigger scoop in this story.

 Jerome Sessini, an experienced war photographer for Magnum who has worked in Iraq, Afghanistan and other places, was in Krasnoarmeysk and made some very interesting observations:

Several witness also said they heard some of the gunmen speaking with strong western Ukraine accents. They also noticed that some of the gunmen appeared to come from the Caucasus area, possibly mercenaries from Chechnya. Other gunmen never spoke a word and seemed foreign to the region. French war photographer Jerome Sessini spent about an hour face to face with the gunmen before they opened fire. « I found that their general attitude and their very precise techniques gave off the impression that they were American mercenaries, or people trained by American mercenaries » said Sessini. « I can’t guarantee this for sure, but I’d give it a 95 per cent, » added the photographer, who frequently interacted with various U.S. security contractors during his years covering the wars in Afghanistan and Iraq.

A long time ago, when I took part in martial arts competitions, I could tell which dojo my opponents had learned at just by watching their warming up rituals. Someone who’s longtime profession is to observe, identify and document people at war should surely be able to categorize special forces he interacted with along the “schooling” and attitude those have.

Also you have to read this essay by Michael Hudson on the underlying motivations for US and EU adventurism in the Ukraine, where asserts the program of destabilization and austerity (austerity being the EU/IMF deal that Yanukovich rejected):

Finance in today’s world has become war by non-military means. Its object is the same as that of military conquest: appropriation of land and basic infrastructure, and the rents that can be extracted as tribute. In today’s world this is taken mainly in the form of debt service and privatization. That is how neoliberalism works, subduing economies by indebting their governments and using unpayably high debts as a lever to pry away the public domain at distress prices. It is what today’s New Cold War is all about. Backed by the IMF and European Central Bank (ECB) as knee-breakers in what has become in effect a financial extension of NATO, the aim is for U.S. and allied investors to appropriate the plums that kleptocrats have taken from the public domain of Russia, Ukraine and other post-Soviet economies in these countries, as well as whatever assets remain.

He then a suggestion of how to fix this:

The cure for a rent-seeking oligarchy is to tax away rent seeking and de-privatize public monopolies. What Ukraine’s kleptocrats have taken (and what foreign investors seek to extract) can be recovered by promoting classical progressive policies taxing land and natural resources, regulating monopolies and providing public infrastructure investment, including a public option for banking and other basic services. That is what drove the U.S. and Western European industrial takeoffs, after all.

When reading Hudson’s essay, I realized something:  the role of international finance as a hostile colonizing is not just limited to the former Soviet Union, or 3rd nations.

When we look at Wall Street, and the City of London, they aren’t just business interests who are f%$#ing up our economy.   They are an occupying colonial power all over the world, which while far less mellifluous than Matt Taibbi’s term, “Vampire Squid,” is a better description.

One only needs to look at things like Timken’s Wall Street driven spin off of its steel business (which will eliminate a core competency in its bearing business) to see how the policies of deindustrialization and looting are being applied here.

Wall Street is not just a corrupt and corrupting part of our economy, it is an invading colonial force.

I Have Mixed Emotions About This

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In response to American sanctions, the Russian Duma passed legislation, ostensibly to secure the actions of foreign bankers.

The result is that the Russian government is now demanding that Visa and Mastercard make a security deposit equivalent to 2 days worth of transactions, $3.8 billion, to continue to operate in the country:

International credit card companies face a “severe impact” on their operations in Russia following a strict new law Moscow has adopted in response to Visa and Mastercard freezing service to banks under US sanctions.

Visa described the regulations as “unprecedented” and Mastercard said it could experience difficulties, the Russian magazine Snob reported, after Vladimir Putin signed a law on Monday to create a rival national payment system.

The law stipulates the creation of a homegrown system to facilitate cashless transactions by 1 July, but also imposes stiff new requirements on international payment systems operating in Russia.

The legislation was spurred on by Visa and Mastercard’s decision on 21 March to stop servicing payments for clients of Rossiya Bank, as well as its daughter company Sobinbank. Rossiya Bank was included in the first round of US sanctions over the Ukraine crisis because it is owned by Putin associate Yury Kovalchuk and is the “personal bank for senior officials of the Russian Federation,” the US Treasury said when announcing the sanctions.

Visa and Mastercard also blocked operations for cards issued by SMP Bank, which is owned by the brothers Arkady and Boris Rotenberg, who are old judo buddies of Putin’s.

The new law forbids international payment systems from cutting off services to Russian clients and obliges them to base their processing centre in Russia. To ensure their good behaviour, international operators will have to place a security deposit in Russia’s central bank equal to the average value of two days’ worth of transactions.

Visa and Mastercard together processed $1.9bn (£1.12bn) in transactions per day last year – 90% of all cashless payments in Russia – equal to a $3.8bn security deposit, the Moscow Times reported.

The security deposit will be due in eight quarterly payments starting on 1 July. The law states that if a payment system unilaterally freezes operations for a Russian client, it is liable for a fee totalling 10% of its security deposit for each day without service.

The credit cards are caught between a rock and a hard place, they have to deal with both US and Russian law, which sucks for them, but they are credit card companies, which means that they spend their time giving people sh%$ sandwichs, so the fact that they are dining on excrement between two slices of white bread, it amuses me no end..

Like I said, mixed emotions.

The Koch Suckers at the Cato Institute Just Came Out Against Investor-State Dispute Settlements

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Yes, Cato has come out against the the ISDS, that secret court that allows private entities to sue countries under arbitrary rules slanted in favor of investors.

This is kind of like Ford recommending General Motors pickup trucks for consumers:

Faced with an increasingly vocal opposition to a landmark EU-US trade agreement, a growing number of backers of the deal are starting to ask a simple question: might the future of transatlantic trade be better served if one of its most controversial provisions was simply dropped?

 Almost nine months after negotiations opened with great hope and fanfare, opponents of the mooted Transatlantic Trade and Investment Partnership, or TTIP, are rallying against a plan that would allow private investors to use the pact to sue governments if they felt local laws threatened their investment.
Environmentalists worry that it would allow big US oil companies to challenge France’s anti-fracking laws and other environmental regulations, while consumer groups fret that it would open the EU’s sacrosanct ban on genetically modified organisms to a challenge from American agribusiness.

 The concerns in Europe over the inclusion of an “investor-state dispute settlement”, or ISDS, mechanism grew so loud earlier this year that Karel De Gucht, the EU’s trade commissioner, announced he would suspend negotiations on the relevant text to hold public consultations.

 But in recent weeks, as both sides have been preparing for Monday’s resumption of negotiations in Brussels, the opposition has spread beyond the traditional sceptics.

 In a paper released last week, Daniel Ikenson, director of the trade programme at the conservative Cato Institute, argued that the investor protection measure had become too toxic. And that in order to defuse the growing opposition, negotiators should simply drop what seemed like a superfluous provision.

 “ISDS is not even essential to the task of freeing trade. So why burden the effort by carrying needless baggage?” Mr Ikenson wrote in his paper, which called for the US to drop ISDS provisions from its push for a 12-country Pacific Rim deal, the Trans-Pacific Partnership, as well.

Cato, and the Kochs, are all about enforcing the primacy of the holders of capital over that of democratically elected government, so this turn around is a big deal, and it’s a good thing.

In an era of historically low tariffs, these increasingly anti-sovereignty provisions in trade deals are being viewed with well justified suspicion.

The old argument, “Because ……… Free Trade,” is simply no longer enough to justify trade deals with draconian IP and investor protections.

It’s a welcome side effect of the financial meltdown.

Thank You Harry Reid

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The Majority Leader of the Senate has come out against fast track authority for trade deals:

President Barack Obama’s push for authority to fast-track trade deals has hit a big setback in the form of opposition from his top fellow Democrat in Congress, but it is far from dead.

Senate Majority Leader Harry Reid’s warning to policymakers on Wednesday “just to not push this right now” reflects concern about the domestic political agenda ahead of November’s congressional elections, when free trade could be a damaging issue for many Democrats.

The unusually blunt public opposition came less than 24 hours after Obama noted the need for fast-track power in his State of the Union address, albeit less forcefully than business lobbyists and pro-trade Republicans would have liked.

The White House called Reid’s office shortly after his comments to voice displeasure, a top Democratic party aide said.

“They were really upset,” the aide said. But the aide said the White House did not try to get Reid to shift his position.

These guys were really upset because they, like the staffers who negotiated NAFTA for Clinton and Bush I, made some serious bank as lobbyists and consultants.

I really hope that it’s not, as Yves Smith’s sources say,  “Another gambit is more likely: to make some cosmetic changes and try to get the bill passed during the lame duck session, on the assumption that some Democrats (particularly those who are leaving office) will use the cover and change positions.”

The TPP, and it’s European equivalent, the TTIP, are egregiously bad deals, not just for the United States, but for the whole world, because they are predicated on the idea that democracy and transparency must be almost completely eschewed in the interest of unregulated global investment flows and IP based looting through draconian copyright and patent provisions.

These are abysmally bad deals for everyone but banksters, big pharma, and the cocaine addicted brothers in law of senior studio and record label executives.

Today’s Must Read

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Felix Salmon has a nice survey on how the proposed new process for sovereign debt restructuring that the IMF is considering represents a major shift:

………The paper raised quite a few eyebrows, since it marked the first time in a decade that the IMF has talked in public about changing the international financial architecture around debt restructuring. Its last attempt to tackle the subject, known as the Sovereign Debt Restructuring Mechanism, or SDRM, died ignominiously, bereft of any US support.

………

Lipton, in his speech, said that he was worried that “official resources, including from the Fund, would be used to pay out other creditors”. He also said that “in cases where the need for debt reduction may be unclear at the outset, in our view the key is to keep creditors on board while the debtor’s adjustment program is given a chance to work”.

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This idea is very close to the “standstill” that was originally proposed as part of the SDRM; another name for it is “default”. And as veteran sovereign debt advisor Rafael Molina patiently explained later on in the panel, sovereign debt managers will, as a rule, do anything to avoid defaulting on their debt. As a result, tensions are naturally very high whenever this idea is brought up, despite the upbeat spin that the IMF puts on it in its paper:

The primary objective of creditor bail-in would be designed to ensure that creditors would not exit during the period while the Fund is providing financial assistance. This would also give more time for the Fund to determine whether the problem is one of liquidity or solvency. Accordingly, the measures would typically involve a rescheduling of debt, rather than the type of debt stock reduction that is normally required in circumstances where the debt is judged to be unsustainable. Providing the member with a more comfortable debt profile would also have the additional benefit of enhancing market confidence in the feasibility of the member’s adjustment efforts, thereby reducing the risk that the debt will, in fact, become unsustainable.

Translating into English, the IMF here is essentially saying this: “Sometimes we don’t know whether a country’s debt is too high. We need time to work that out. But if we’re lending, during that period, then while we’re deciding whether or not the country’s debt is sustainable, we’re going to force it to default on its private debt.”

Read the rest.