The Agonist - Analysis

Recession shows shortcomings in U.S. economic data

Fri, 20 Nov 2009 08:49:27 -0800

By Emily Kaiser and Nancy Waitz - Analysis

WASHINGTON (Reuters) - The U.S. government is having a tough time guesstimating how many small businesses failed in this recession, casting doubt on the reliability of vital data on employment and economic growth.

The formula the U.S. Labor Department designed to help it deliver timely, thorough monthly employment reports broke down in the heat of the financial crisis, miscounting the number of jobs by an estimated 824,000 in the year through March.

The most likely culprit is the so-called "birth-death" model, which the Labor Department uses to estimate how many companies were created or destroyed.

That model appears to have misjudged how many companies went out of business during the recession, meaning the labor market was even weaker than initially thought when President Barack Obama took office in January. More recent figures may still be underestimating job losses now, but it will be many months before the Labor Department is certain.

One characteristic of this recession is that it has hit small businesses especially hard, driving down demand and choking off vital sources of credit at the same time.

Obama's administration is scrambling to try to prop up small business -- it hosted a summit on that topic on Wednesday -- because those companies are essential to bringing the jobless rate down from its current 10.2 percent, having accounted for the lion's share of new job growth in recent years.

Government data has difficulty gauging the health of smaller firms because there are simply too many of them, leaving officials to rely on surveys and models that are hit and miss.

Jan Hatzius, an economist at Goldman Sachs in New York, thinks that is distorting not only the employment data, but also figures for retail sales, durable goods and even the biggest economic indicator of all -- gross domestic product.

What Really Happened with the AIG Swaps? It's Not What You Think

Thu, 19 Nov 2009 08:01:11 -0800

By now most people who follow Goldman Sachs in the news know that it received $13 billion from the Federal Reserve to liquidate its portfolio of derivatives with AIG. Because the Fed was willing to pay Goldman par value on these derivatives, even though the market valued them at about 48 cents on the dollar, Goldman walked away with no loss whatever from the AIG collapse. This has been described as a great gift for Goldman and all the other banks who dealt with AIG and who were treated the same way. Many others have described this as a colossal rip-off of the taxpayers.

How did this come about? We know a lot more this week about these transactions because of a report that has been issued by Neil Barofsky, the Special Inspector General for the bank bailout programs. The press has described this report as particularly damning of the NY Federal Reserve which negotiated these deals with the banks, and which was led at the time by Timothy Geithner, the current Treasury Secretary. These press reports, however, have mischaracterized what happened and what went wrong. The NY Fed acted properly and entirely as one would expect under the circumstances when they negotiated these contract abrogations. To see what really went wrong, follow along on the details below.

The AIG Transactions

First, a little bit of background on what got AIG into trouble. The insurance giant had a subsidiary in London called AIG Financial Products (AIGFP). This company developed a business that offered customers financial protection on a derivatives contract known as a Collateralized Debt Obligation (CDO). These derivatives packaged together various debt instruments, such as loans, bonds, mortgage-backed securities, even other CDOs, into a single security. When you bought the security, you received a regularly scheduled set of cash flows generated by these debt instruments as interest payments were made. You paid an up-front premium for these cash flows, which usually took place over a three to five year period during the life of the security.

It is interesting to note that the buyer of the security, and for that matter the seller/creator of the security, had no legal interest in the debt instruments. The bonds or loans could be any debt of this nature where public information was known about the interest rate, and whether or not a default had occurred by the debtor. There could be dozens, or even hundreds of different debt instruments bundled into one security.

These CDOs carried a public rating from Moody’s or S&P or Fitch, any of the three big ratings agencies. Also, you could get a daily price on the CDOs from a third party pricing agent located in London. If the price was 100, the security traded at its par value, meaning all payments were highly likely to take place over the life of the security as required by the contract. If the price was 48, on the other hand, it meant the market believed the security was seriously impaired due to defaults occurring on some of the debt instruments in the security.

Big banks loved to create CDOs up until the market crashed in 2007. CDOs were very lucrative. Banks had loan books that gave them a natural portfolio of debt as a start in creating a CDO, but there also was the booming housing market bubble that allowed for the creation of mortgage-backed securities. A huge amount of CDOs were created based on these mortgage instruments. Banks also realized that when they created and sold these securities to earn the profitable premiums involved, they were still on the hook in case any of the debt instruments in a security experienced a default. They wanted to get rid of this risk as much as possible, and pay away a little bit of their lucrative premiums for the privilege.

Here is where AIGFP comes in. AIGFP invented a derivative that acted like an insurance contract. Banks would pay AIGFP a premium, and AIGFP would promise to indemnify the banks in the event they experienced any losses on a specified CDO. The company used a derivative called a Credit Default Swap (CDS, unfortunately easy to confuse with a CDO) to structure this insurance product.

AIGFP was not regulated by any financial oversight agency. It didn’t even have to keep reserves on potential payouts on these CDSs, and even if it did, it has stated that the reserve amount would have been very small because it did not anticipate significant losses on the underlying debt instruments it was insuring. What AIGFP had going for it, and what the banks liked, was that it was a wholly-owned subsidiary of AIG, which carried a Aaa rating in its own name for everything it did. By virtue of this rating, AIG was viewed as one of the highest quality companies in the financial world – almost as safe and sound as a government.

The most common type of CDOs brought to AIGFP were called multi-sector: they had a little bit of everything mixed into them – loans, bonds, mortgage-backed securities on sub-prime mortgages as well as higher-quality instruments like prime mortgages. As long as none of these different types of instruments experienced unusual rates of default, the entire CDO would be traded on the market at a price close to par, and the ratings agencies would have no cause to downgrade the security.

What began to cause AIGFP trouble with its portfolio of credit default swaps backing up about $72 billion of multi-sector CDOs, was not that there were so many defaults on the CDOS that AIGFP had to make large payments under the swaps. The real problem was a series of collateral obligations AIGFP undertook every time it entered into a CDS, and the collateral conditions varied from one swap to the next.

There were three possible triggers for a collateral payment from AIGFP to the banks that bought insurance in the form of CDSs. The first occurred if the underlying CDOs being insured in the swap experienced a drop in price on the market – say from par value to 48 cents. The second occurred if the ratings given by Moody’s or some other agency on the CDOs were downgraded. The third occurred if AIG’s Aaa rating itself was downgraded.

You can now begin to see the sequence of liquidity disasters that befell AIGFP, and soon engulfed its parent AIG, starting in the summer of 2007 and extending until September 16, 2008 when AIG was near death. First, as the market realized that the US sub-prime mortgage business was experiencing very high and unexpected defaults, everyone looked at multi-sector CDOs that carried a significant percentage of these debt instruments in the security. These CDOs began to trade at lower and lower levels in the market as no one was sure just how impaired they would become.

Second, the ratings agencies began to downgrade dozens of CDOs because of the heightened default risk, and the lower prices in the market.

Third, the ratings agencies realized by 2008 that AIG stood behind the CDO market as insurer for the tune of $72 billion. At first, the long term rating of AIG was lowered, and this began a series of collateral calls from AIGFP’s swap customers. Then, by the summer of 2008, the ratings agencies were looking at downgrading AIG’s short term ratings, and doing so by several notches, which brought into question whether AIG could meet all of its obligations under these swaps. This accelerated the demands for collateral on AIG, which was experiencing a very unexpected triple whammy of collateral calls. By September, 2008, AIG had already coughed up an astounding $30 billion in collateral, and was really only half way through what ultimately it would need to satisfy contractual demands for collateral from the market. It simply ran out of resources to raise any more liquidity, and it faced inevitable default under its swap contracts, which would have led to bankruptcy.

This was the situation facing the Fed by the second week of September, 2008.

The Fed Steps In

The Fed already had its hands full in the summer and fall of 2008. First, Bear Stearns collapsed and was thrown into the arms of JP Morgan Chase, but only after the Fed agreed to take over the Bear Stearns real estate portfolio worth $30 billion in dodgy real estate assets. The quasi-government giants Fannie Mae and Freddie Mac had to be taken over by the government, then Countrywide Financial collapsed and also was pushed into a forced sale to a bank.

There was so much criticism directed at the government for the way in which these rescues were being done, and the amount of taxpayer money spent in the process, that when it came time to deal with the collapse of Lehman Brothers, the Treasury and the Fed threw this firm to the wolves on September 15, 2008. It received no help from the government and was thrown into the bankruptcy courts. This precipitated a global market meltdown.

The trigger for this meltdown occurred at the oldest mutual fund in the US, American Reserve Fund, which took a writedown of $785 million on Lehman Bros. bonds it held in its money market fund. This was announced on the afternoon of September 15, and by the close of business that day massive amounts of withdrawals were taking place at American Reserve since no money market fund had ever experienced such a loss (money market funds were supposed to be as safe as checking accounts).

When the market opened the next morning, mutual funds everywhere couldn’t cope with the withdrawals. The commercial paper market ground to a halt, as did the Eurodollar market for short term loans in London. Stock markets around the globe tanked. The global financial system was nearly paralyzed.

The US government stepped in and guaranteed the safety of all money market funds. It allowed Goldman Sachs and Morgan Stanley, the last two surviving old-line investment banks, to become commercial banks and enjoy the benefits of Fed liquidity. The Fed had been working since the previous week on the dire liquidity situation at AIG, and it had asked JP Morgan Chase and Goldman Sachs to form a bank syndicate to provide AIG with a massive $75 billion loan to solve its liquidity problem.

JP Morgan Chase came up with a package that charged AIG an onerous 11.3% on the $75 billion loan – a full $9 billion a year in interest alone. The banks would take an 80% ownership interest in AIG’s assets. This loan package was also intended to stop the ratings agencies from yet again lowering AIG’s ratings, which would have cost the company yet another round of collateral calls from the market.

There was one big problem, though. When the banks looked at AIGFP’s portfolio of swaps, and the potential collateral demands that could still occur, they realized that AIG, if it could sell all of its assets at decent market prices, still wouldn’t be able to meet the liquidity demands. In other words, the way the market was developing, AIG was headed straight towards default and the bankruptcy courts. Making this situation even worse was the global market collapse occurring at the same time as the result of the Lehman bankruptcy. The banks told the Fed that the loan package had collapsed. The banks effectively threw the AIG problem on to the laps of the regulators, none of whom by the way had any legal responsibility, regulatory oversight, or historical familiarity with AIG. It was an insurance company that had somehow become bigger and more important than even the biggest banks.

In deciding what to do, the Fed had about 24 hours from September 15 to 16 to analyze with the Treasury the AIG situation. They discovered that AIG would default on $103 billion in loans from state and local governments, $50 billion in bank loans and derivatives, $20 billion in commercial paper, and $40 billion in insurance covering 401k retirement packages across the US. The problems ranged from the horrendous to the horrific. The municipal bond market stood to be devastated by state and municipal loan losses. The Lehman bankruptcy involved $8 billion in commercial paper losses, which led to the Reserve Primary Fund disaster, but AIG’s commercial paper losses were much bigger at $20 billion. The 401k losses would affect tens of millions of Americans. AIG’s loan losses spread to banks all around the world.

The Fed and Treasury, standing in the middle of a global financial collapse the day after the Lehman Brothers bankruptcy, felt they had no choice but to save AIG, a much bigger player with far greater reach and implications for economic and financial disaster. The Treasury authorized an $85 billion line of credit at the Federal Reserve NY for the purpose of lending to AIG the amounts needed to post collateral behind its swaps at AIGFP. The Fed had no plan in place on how to do this, so it simply lifted the term sheet conditions from the JP Morgan failed loan package, and used those terms to lend to AIG.

From September 16 through October, the Fed lent $61 billion to AIG, over half of which found its way into the market as collateral to support its swaps. At the same time, AIG was instructed to begin reducing its swap book. This required AIG to turn to all the big banks with which it had a swap portfolio, and ask to close out, or abrogate the swap contracts. The banks would consider doing this, but would not want to be then left with the CDO risk that caused it to enter into the swaps in the first place. There was some talk of AIG therefore taking over the CDOs as well, which had sunk substantially in value because of the default risk, but it was very difficult to agree with each bank on what these CDOs were worth. In fact, the banks weren’t willing to sell these CDOs at any discount whatsoever, despite what the market said they were worth, so AIG turned to the Fed for help, and authorized the Fed to negotiate on their behalf.

Here is where we come to the gist of the Barofsky report and the criticisms of the Fed. But let us recap two critical facts up to this point. As of September 15, AIG was certainly heading for bankruptcy, within a manner of days. The banks stood to lose billions on their swaps with AIG, because they would be under-collateralized if the CDOs fell further in value, and because they could not easily all at once get replacement CDS coverage for their CDOs.

Second, shortly after September 16, the banks began receiving collateral from AIG, courtesy of the Fed via the $85 billion loan authorization. For the next two months, the banks were made whole as necessary whenever their CDOs fell in value. The banks could look at their portfolio with AIGFP and consider it safe and secure because of the collateral, and as important, because of the guaranty of more collateral to come as necessary, courtesy of the federal government.

The Fed Tries Its Hand at Negotiating

In early November the Fed assigned a team of managers to begin negotiating for the abrogation of the CDSs. They chose the eight largest bank counterparties to talk to, including Goldman Sachs, BOA, JP Morgan Chase, Deutsche Bank, UBS, and top of the list was Societe Generale in Paris. The plan was to ask the banks to tear up the CDS contracts through a legal abrogation agreement. It was common for banks to do this in the derivatives market from time to time, though never before on a large scale. The banks always required the customer to pay them for any potential real market losses they may incur in abrogating the contract, plus interest and a bit of a fee for all the trouble. Abrogations have never been cheap, especially if the customer was desperate to get out of a deal.

What would the banks want? Collectively, they held CDOs worth a face value of $62.1 billion, and these were the underlying CDOs behind the swaps bought from AIGFP. The banks wanted to give these over to the Fed and get $62.1 billion back, because otherwise the banks would be stuck with CDOs that were unhedged for further default problems.

The market price for this collective group of CDOs was in early November $29.6 billion, which tells you just how badly the market had trashed these instruments. But the banks held cash collateral of $35.0 billion to protect against just this contingency, and if you add the two numbers up, you come to a bit over the $62.1 billion in face value. In other words, the banks were sitting pretty. They were 100% covered for the existing market losses on these CDOs, and the market pricing was beginning to stabilize.

Remember that all this collateral came from the Fed on behalf of the now moribund AIG. The banks wanted to do a simple deal. They would give the Fed all the CDOs in exchange for $29.6 billion in cash – their current market value. They would keep all the existing cash collateral, so they would be perfectly whole. They would then abrogate the CDSs and have no further claim on AIGFP, as if the whole mess never occurred. The Fed, meaning the taxpayers, would be out $62.1 billion in cash to clean this mess up.

In preparing talking points for the negotiations, the Fed reminded each bank that it would be appropriate to give back some of the collateral to the Fed rather than keep it all. The Fed, by stepping in a month earlier, had saved the banks from billions of losses had AIG gone into bankruptcy, and these losses might have included a systemic crisis in which a few other banks went under and couldn’t pay their obligations as well. “”Be nice to us, given all that we have done for you,” was the Fed motto.

The Fed then tied the hands of their negotiators in several ways. First, the Fed would not threaten to throw AIG into bankruptcy if they didn’t get a “haircut” on the $35 billion in collateral. This would be unethical because the Fed had no plan to put AIG into bankruptcy and everybody knew it. Second, the Fed negotiators would have to do the same haircut deal with everybody. If Goldman Sachs agreed to return 30% of the collateral, JP Morgan Chase would have to agree to the same thing. Third, the banks were told up front that their participation in the negotiations was entirely “voluntary”; nobody was going to be forced to do anything or accept any haircut.

You should not be surprised that seven of the eight banks refused to take any haircut on the collateral and would therefore return none of it. They argued the cash was theirs, not the Fed’s, and they owned it by the sanctity of a legal contract that the Fed was proposing to violate. Second, AIGFP was not in default and there was no bankruptcy, and there wouldn’t be any, so giving back collateral when there was no legal requirement would constitute a breach of fiduciary duty that the banks had to their shareholders. Unstated in all this was the fact that the Fed wasn’t threatening any consequences if the banks refused to give back any of the collateral.

The kicker that destroyed any possibility of the Fed getting some of the collateral back occurred with the French bank. They told the Fed that it was not simply a fiduciary responsibility they had to follow in keeping cash that was rightfully theirs – it was decidedly against French law to give back the collateral because there was no bankruptcy. The French regulators confirmed this in no uncertain terms to the Fed, with the implication that if the Fed pushed on this point relationships with the French government would be damaged. Remember that all the banks had to agree to the same deal, so each bank had a veto power over any deal, and the French bank had the ultimate veto – it was illegal for them to give back the collateral.

The negotiating team reported all this back to Timothy Geithner, and recommended that the Fed settle all the swap abrogations by allowing the banks to keep all the collateral and thereby effectively receive par value on contracts that in the market were worth less than half that. Geithner agreed and the deal was done. The Fed then promptly kept all these details secret, including the names of the banks involved, and even went to court to maintain this secrecy under the financial equivalent of a “state secret” argument. They recently lost this argument on appeal to a higher court, and the Barofsky report severely berated the Fed for this because no terrible consequences have occurred now that the details are known.

What Went Wrong Here?

The Barofsky report lays a pretty heavy blanket of criticism on the Fed for not just the secrecy of their actions, but the actions themselves. The Fed didn’t have to treat everyone all the same. It could have accepted different levels of haircuts. It didn’t have to put so much faith in the sanctity of contracts when AIG was in virtual suspended animation – bankruptcy in all but name.

These criticisms do not show an understanding of how the Fed works. Like any large American organization, it pays considerable attention to the law. Timothy Geithner had a high powered, high-priced General Counsel sitting as his right side all the way. Geithner was told clearly that as long as AIG was not in bankruptcy, the Fed might damage its reputation by violating the terms of perfectly sound legal contracts and insisting on repayment of collateral when it was not legally required. He was also told the Fed had no ethical right to threaten bankruptcy when the threat could not be backed up later in court with proof it was real. He was probably told – though there is no proof of this in the report – that giving any bank preferential treatment on haircuts exposed the Fed later to lawsuits of unfair treatment.

Timothy Geithner is like most American executives – he is a technocrat. He respects technical advice, especially of the legal kind, and he abides by it. Past presidents of the NY Fed might be different – Gerald Corrigan comes to mind during the Drexel Burnham bankruptcy. He would bang some heads together to get an outcome that satisfied the political pressure on the Fed, even if it meant overriding legal advice. Gerald Corrigan, by the way, now works for Goldman Sachs. He might have in this situation taken Goldman Sachs and JP Morgan Chase aside and said, “I want you guys to get your consortium of banks to agree on a haircut – something like 30% would be nice – and I want all of you to come back and voluntarily request that the CDS collateral provisions be waived in favor of paying back to the Fed some amount of the collateral. I don’t care how you do this, and it is not going to be the Fed asking for it – it is going to be voluntarily offered to us.” The banks would not need to be told that there was a steel hand underneath the Fed’s velvet glove.

Maybe Timothy Geithner would have done this, technocrat though he is, if there were enough political pressure on him to save the taxpayers billions of dollars, but there wasn’t. No one in the Bush administration – certainly not Henry Paulson at Treasury – was demanding fairness for the taxpayers. There was public disgust over the whole bailout process, but this disgust got bottled up in a Congress paid for by the financial industry. Barofsky might have mentioned that lack of political pressure, and the consequent insensitivity to taxpayer needs that the Fed and the Treasury displayed, but he didn’t, maybe because his current paymaster, the Obama administration, isn’t showing any such sensitivity either.

Which brings us to the crux of the problem, only hinted at in the Barofsky report. The real problem for the taxpayers didn’t occur when the NY Fed failed to negotiate the return of some of the collateral in November, 2008. The problem occurred on September 16, when the Fed and the Treasury were suddenly faced with a collapsing AIG. Had there been any forethought and planning for such an event, the reaction could have been very different and far less panicky.

The first response should have been: ”Financial markets worldwide are frozen, and they are going to stay frozen for a long time no matter what we do with AIG." In hindsight, this is exactly what happened. The commercial paper market has taken nearly a year to recover a fraction of its previous activity, and this was only after the Fed had to guarantee transactions. Credit spreads took nine months to begin coming down to normal levels. Banks are lending to each other only because governments around the world now guarantee their bank activity, but banks are still not lending to corporations, small businesses, or individuals. The housing market in the US exists entirely on the generosity of Federally-managed firms like Fannie Mae, Freddie Mac, and FHA. In other words, the disaster that the Fed faced on September 16 rolled on despite the rescue of AIG.

If AIG had been allowed to fail, the market would have learned a serious lesson about dealing with companies that act like banks but really have no controls or regulatory oversight like banks. The pain would have been greatest at the banks themselves. Some banks like Citigroup and Bank of America would have been even more crippled than they are now, but their current status as zombie banks would not be any different. The damage done to 401ks could have been mitigated by additional federal government guaranties, but even here the cost while enormous would have been less than what was spent paying off AIGFP’s credit default swaps at par.

Suppose you say that it is impossible to expect government bureaucrats to react on September 16 in any different manner. You can argue that any normal person would have panicked too, and that tough-nosed regulators like Gerald Corrigan don’t come around all that often – in fact these days they are all working for Goldman Sachs. Fine. Where, then, was the prudential planning for this catastrophe. All it would have taken is someone in advance of the crisis – a clever lawyer for example – inserting one clause in the agreements with banks before any collateral was posted with them. It would have said “The Federal Reserve Bank of New York reserves the right at any time to demand immediate repayment of any or all amounts of collateral posted with Bank X, with no compensation required to be paid to Bank X in any form by the Federal Reserve Bank of New York, and Bank X hereby waives all rights to petition for a legal stay of said repayment.” If the banks didn’t like this clause, they wouldn’t get their collateral. They could go ahead and sue the government for breach of contract, but in the meantime they would be experiencing real pain with their CDO portfolio and the pressure would be on them to settle. Once the collateral was out the door, the Fed lost all leverage with the banks, and this is why the November negotiations were a foregone conclusion and a waste of time.

Finally, what is fundamentally missing at the Fed and the Treasury, and certainly now with two successive administrations and almost all 535 public servants in Congress, is the sense that the big financial institutions which have created this monstrous mess are dispensible. The problems that have arisen due to their avarice and misjudgments are only going to be solved over time, and are best solved in bankruptcy courts or through FDIC closure processes, not by making these institutions wards of the state until 10 or so years later they are nursed back to health. The public can and has been protected through deposit insurance, but the collapse of lending and credit in general has not been mitigated one whit by anything done so far to rescue these institutions. Let them die a merciful, quick death if death is their fate anyway. We will all of us individually benefit from such mercy as well.

A Tale of Two Belles

Wed, 18 Nov 2009 14:42:28 -0800

I'm going to say right up front that I don't come to any conclusions in this post. I was simply struck the contrasting outcomes in these otherwise very similar stories.

First there is the news that the pseudonymous call-girl and author "Belle Du Jour" has revealed her true identity, as a PhD level cancer researcher named Brooke Magnanti. Check out how her illicit activities have paid off for Dr. Magnanti:

The Belle du Jour blog became a hot media property, spurring speculation about the true author, a lucrative book deal. The book was serialized on UK prime time television in 2007’s “Secret Diary of a Call Girl,” starring actress of Billie Piper, and eventually played on pay cable in the US.

When I read this story, I couldn't help but recall the sad story of Brandy Britton, an American college professor who similarly dabbled in prostitution, but with a very different outcome:

More after the jump.

With Brandy Britton's trial planned to start next week, the former University of Maryland Baltimore County professor apparently took her own life over the weekend, hanging herself in her living room, Howard County police say. A family member found the body Saturday afternoon. Police say they do not suspect foul play.

It was a grievous end to a life that friends and colleagues say was once filled with remarkable promise and ambition.

Britton, 43, was the first in her family to go to college, double-majoring in biology and sociology. Her first sociology professor, Sheila Cordray, told The Washington Post last year that Britton was "one of the brightest students I've ever had."

I'm not even going to raise the fact that Britton was swept up in the D.C. Madam scandal (which also ended with the principle, Deborah Jeane Palfrey, committing suicide) or the likelihood that both cases were related to the Bush administration crack down on high end prostitution that also brought down New York Governor Elliot Spitzer.

Admittedly, Dr Magnanti plied her trade in the UK where prostitution is not quite illegal so she didn't have to face the criminal prosecutions that destroyed Britton and Palfrey, but our societies aren't so very different. There are numerous educated American women who have worked as prostitutes, written about their experiences and profited while facing no legal consequences.

It seems to me that there is a tacit approval in our society for any kind of criminal conduct that is gotten away with and used to produce a series of media properties.

Britton and Palfrey had the misfortune to have powerful Washington D.C. political figures on their client lists which dramatically changed the tenor of their cases, but I still can't help having the nagging feeling that had they had the presence of mind and chutzpah necessary to transform their experiences into something the media-industrial complex could promote and profit from they might have survived.

This feeling is dramatically intensified by watching the documentary "Very Young Girls" whose central dilemma is summarized in this NY Sun review:

"Very Young Girls" explores a loophole in the justice system that is frequently exploited for profit. According to the law, underage girls are protected from adult men trying to have sex with them; but if money is exchanged, they are held quite accountable.

In "Very Young Girls," one mother's complaint gets to the heart of the matter: "Instead of taking her to the hospital," she laments, "they took her to the jailhouse." After her child was kidnapped and forced into prostitution, she escaped the control of her pimp only to be taken into police custody and charged with prostitution.

Our pop culture currently lionizes pimps as the apex of shrewd capitalist masculinity. But watching "Very Young Girls" exposed just what a horrifying trade pimping really is. I was first struck by the psychological brutality of pimping when I read Pimp by Iceberg Slim. I'm a certifiable crime buff who's read hundreds of true crime books at every level from pulp trash to academic studies on every aspect of crime from pick pocketing to serial murder, and I have to say that Iceberg Slim's memoir is the most chilling I've ever read.

The recent case of Jaycee Dugard, kidnapped by Phillip Garrido in 1991 and forced to endure 19 years of sexual slavery provides an interesting contrast. Garrido is rightly reviled as the most loathed kind of criminal -- a child molester. But if he had followed the much more common practice of the pimp and forced the underage Dugard into prostitution rather than simply tormenting her for his own pleasure, she would instantly have partaken of his criminality. Had she been sold to other men by her kidnapper, she would have been subject to arrest and prosecution just like the girls in "Very Young Girls". And Garrido would have instantly transformed himself from the lowest on the criminal hierarchy to the highest. No longer a child molester and pedophile he would instead be a pimp and a playa, the category of criminal whose feats are celebrated in story and song.

It reminds me of the old Cyndi Lauper song, "Money Changes Everything". If you're a call girl, you can transform the social stigma into social and financial capital by turning yourself into a media property. If you're a sexual sadist with a taste for young women, you can transform yourself into the toast of criminal and pop culture by selling your victims to others.

Trolling for Assassins

Wed, 18 Nov 2009 04:08:52 -0800

Rachel Maddow had Frank Schaeffer on again. The rhetoric from the far right has become more "incite"-full.

Video after the jump.

Via DU: Frank Schaeffer warns against fundamentalist christians wanting to harm President Obama

MADDOW: "'Let his days be few and let another take his office. Let his children be fatherless and his wife a widow.' This is such strong language in secular terms about President Obama. Can you tell me if this means something less threatening to people hearing this in a Biblical context?"

SCHAEFFER: "No, actually it means something more threatening.

I think that the situation that I find genuinely frightening right now is that you have a ramping up of biblical language, language from the anti-abortion movement, for instance, death panels, and this sort of thing, and what it's coalescing into is branding Obama as Hitler, as they have already called him, as something foreign to our shores -we're reminded of that, he was 'born in Kenya' - as Brown, as Black, above all, as not us. He is Sarah Palin's 'not a real American.'

But now, it turns out, that he joins the ranks of the unjust kings of ancient Israel, unjust rulers, to which all these Biblical allusions are directed, who should be slaughtered, if not by God, then by just men.

[...]

Really, this is trawling for assassins. And this is serious business. It's un-American, it's unpatriotic, and it goes to show that the religious right, the Republican far-right, have coalesced into a group that truly wants American revolution, and if it turns out to be blood in the streets and death, so be it. This is not funny stuff any more. They cannot be dismissed as just crazies on the fringe. It only takes one."

Biblical anti-Obama slogan: Use of Psalm 109:8 funny or sinister?

Psalms 109:8 says, 'Let his days be few; and let another take his office.' The citation is being passed around the Internet as a rallying cry against President Obama.

Christian Science Monitor, By Tracey D. Samuelson, November 16

There’s a new slogan making its way onto car bumpers and across the Internet. It reads simply: “Pray for Obama: Psalm 109:8”

A nice sentiment?

Maybe not.

The psalm reads, “Let his days be few; and let another take his office.”

Presidential criticism through witty slogans is nothing new. Bumper stickers, t-shirts, and hats with “1/20/09” commemorated President Bush’s last day in office.

But the verse immediately following the psalm referenced is a bit more ominous: “Let his children be fatherless, and his wife a widow.”

On the other hand, Threats Against Obama Drop to Normal Levels

Newsweek "Declassified" Blog, By Mark Hosenball, November 9

The mass shooting at Fort Hood by an Army doctor with an Islamic background has raised new anxiety about terrorism and threats to government personnel and installations. But the people assigned to protect President Barack Obama say that in recent months, the number of threats against him has decreased significantly. In a book about the U.S. Secret Service published earlier this year, author Ronald Kessler reported that after Obama took office, threats against the president rose by 400 percent from a rate of around 3,000 per year during the tenure of George W. Bush. According to one widely circulated elaboration on Kessler’s reporting published in August by London’s Daily Telegraph, this means that Obama has been facing 30 death threats each day. In March, Secret Service chief Mark Sullivan told a House Appropriations subcommittee that threats to individuals protected by the Secret Service “remain at high levels.”

Secret Service spokesman Ed Donovan told NEWSWEEK that those figures are now out of date. According to Donovan, there were “substantial spikes” in the rate of threats the service received against Obama before and after last year’s presidential election, and then again before and after Obama’s inauguration last January. Over succeeding months, however, the rate of threats has dropped substantially, Donovan said—so substantially that while the average number of threats received is running at about the same level as it did during the presidencies of George W. Bush and Bill Clinton, on some recent days the rate of threats received against Obama has actually been lower than the rate during the reigns of Clinton and W.

Donovan said that it was almost unprecedented for the Secret Service to discuss threat levels in such detail, but said the agency is going public because it is concerned that outdated information continues to circulate regarding a tidal wave of Obama-related threats. For his part, Kessler told NEWSWEEK in an e-mail that while “threats go up and down … the 400 percent increase is correct on average” and added that the Secret Service has been “covering up its deficiencies and dissembling to the media in the face of increased threats against the president.”

Minnesota notes: Punk the tea party, then a grand jury detains people without trial

Wed, 18 Nov 2009 00:33:58 -0800

Strange days up here in Minnesota. A guy by the pseudonym Robert Erickson spoke to an anti-immigrant Tea Party rally at the State Capitol on Saturday. Turns out he punk'd them and demanded "Columbus Go Home" and the deportation of all these European immigrants. The videos were hits on YouTube. I got the reverse angle of the crowd in HD, now we've got a bit of a viral event unfolding!

Far from this prank, meanwhile, a much darker story is happening in town. A couple days later, two Twin Cities activists refuse to testify at a grand jury in Davenport, Iowa. A little over a month ago I was walking around south Minneapolis & I saw Carrie Feldman who has done a lot of prisoner support at the RNC and for the Green Scare (the feds' so-called eco-terrorist thing). She said she'd just been pulled over by a black SUV with FBI agents from Iowa. They gave her a subpoena to appear in a couple days. She went there and told them she wouldn't comply. They told her to come back in a month. Another subpoena came for Scott DeMuth a few weeks later.

DeMuth and Feldman had a rally in Iowa today. After defying the grand jury (which can demand information about anything), they had a contempt hearing. A prosecutor demanded to know from Feldman's dad if she was an anarchist, which the judge allowed upon objection. The prosecution brandished a photo of Feldman wearing a shirt with "LF" visible and said it must have been ELF or ALF. And Feldman even had a white pet rat -- thusly somehow implying she supported the 'terrorism' ALF vandalism incident at the University of Iowa when Feldman was 15, living in Minneapolis. The federal judge threw Feldman and DeMuth in jail yesterday without a trial, for up to 11 months.

That's all it takes, folks. There is a nationwide network of grand juries running in parallel, fishing around radical communities across America. An Indiana grand jury demanded all of Indymedia.US' server logs in January. A New York 'complex and multi-state' grand jury is after anarchists who Twitter, Iowa is pursuing vandalism. At least one more is happening out west.

Bankers and powerful people don't get these subpoenas. On CSPAN I just saw a presser from that day: cynical journalists ask Attorney General Eric Holder why they haven't shut down more financial criminals, after he and Geithner just propped up a new task force... Who cares about billions in bank fraud when there's anarchists a-twittering, doing prisoner support and in DeMuth's case, confidential sociology research?

Aung San Suu Kyi, Omar Khadr, and Barack Obama: A Dreadful Tale Of What America Has Become

Mon, 16 Nov 2009 06:33:29 -0800

November 16, 2009 | John Chuckman

Aung San Suu Kyi, Omar Khadr, and Barack Obama: A Dreadful Tale Of What America Has Become

During his trip to Asia, President Obama called for the government of Burma to release Aung San Suu Kyi, a noted dissident who has spent years under house arrest.

It made headlines, a fact which tells us more about the role of media as an outlet for government press releases than in communicating genuine news.

Obama’s was hardly a brave or innovative act when you consider that it is a universally-condemned military junta keeping Aung San Suu Kyi penned up.

But when you appreciate the full context of Obama’s call, you may agree with me that it was more a cowardly act than anything else.

A year ago, after eight years of mind-numbing stupidity, countless public lies and bloody war crimes, Obama’s arrival on the American political scene thrilled the world. His intelligence, his grace, and his sense of decency were striking. His like as an American politician, quite apart from his race, had not been seen in the lifetime of many.

But the hopes raised by Obama, like so many flickering little candles in a fierce wind, already are largely extinguished. This polished, educated, liberal-minded and decent man, after only one year in office, has been overwhelmed by America’s military-industrial complex, a terrible machine which grinds on night and day, chewing people in its gears, no matter who is elected ostensibly to be in charge of it.

Much as I resent Burma’s treatment of Aung San Suu Kyi, it shines as genuinely humane compared to America’s treatment of Omar Khadr.

The key facts in the case of this young man, a prisoner at Guantanamo, are easily told.

Omar Khadr was born to a fundamentalist Muslim, highly political family whose father knew and died fighting for Osama bin Laden. In an era whose ruling myths are a clash of civilizations and a war on terror, Omar would seem to have been doomed from birth.

Under intense pressure from his family, fifteen-year old Omar went to fight in Afghanistan when America invaded it. In doing that, he was doing nothing that tens of thousands of Americans hadn’t done, both as idealists for causes and as soldiers of fortune in countless wars from the Spanish Civil War to the Cuban Revolution or the turmoil of the Congo.

Omar’s experience reminded me a little of American Ron Kovic’s Born on the Fourth of July, a story where the need for maternal approval helped drive his destructive participation in America’s Vietnam holocaust (three million Vietnamese slaughtered, many hideously with napalm, and the legacy of soil saturated with Agent Orange and littered with millions of landmines more than justifies that term).

The American claim against Omar is that he shot an American soldier, a medic no less, a fact seemingly almost designed to increase his infamy.

The story, as I heard it in an interview a few years ago with an American soldier, a friend of the dead medic’s, was that after a small firefight, Omar hid himself, then leapt up, heartlessly killing the medic whose only interest was the wounded. Omar was then captured and eventually sent to Guantanamo.

Even were that story true, and it is not, there would still be no excuse for sending a fifteen-year old child to Guantanamo. That act violated all international conventions on the treatment of child soldiers, but then almost everything America has done over the last eight years has violated international conventions, international laws, common decency, and the spirit of its own Bill of Rights.

For years, Omar, like hundreds of inmates at Guantanamo, was held incommunicado: he was allowed no contact with his family, he was allowed no visits from the International Red Cross (again in contravention to international conventions) and he was allowed no legal counsel. Omar was allowed no rights of any kind: being kept shackled in a secret prison ninety miles offshore was considered adequate to efface the entire spirit and meaning of America’s own rights and laws.

We now know that the soldiers who captured Omar, in fact, shot him twice in the back as the frightened boy tried to run. Despite life-threatening wounds and his young age, Omar was consigned to years of imprisonment and torture at Guantanamo. Indeed, his worst torturer, a soldier with a reputation at Guantanamo as perhaps its most vicious interrogator, deliberately contrived his sessions with Omar so that the boy had to sit in a position which pulled at his slowly-healing and painful wounds.

We also know now, evidence having just been published in Canadian newspapers, that Omar could not possibly have killed the medic: Omar was photographed hiding under a pile of rubble as the soldiers passed.

So who killed the medic? One perhaps should recall the case of Pat Tillman, an American football player killed by his own forces in Afghanistan, a case at first covered up the military, but even now full of unanswered questions.

And why did the Americans shoot Omar, twice, in the back? One simply cannot avoid the suggestion that the American soldiers involved acted with cowardice and savagery.

Some readers may object that American soldiers are incapable of such behaviour, but let’s go back to that time in Afghanistan, reviewing some things we now know as facts, and think about what they suggest about the ethos prevailing there when a fifteen-year old was shot in the back and sent to be tortured.

America’s carpet bombing in Afghanistan was destructive beyond anything Americans have ever been told. Just as was the case in the First Gulf War when uncounted tens of thousands of poor Iraqi recruits were bulldozed into the desert after having been literally pulped into tailing ponds of human bits and fluids by B-52s, the true horror of what massive bombing did in Afghanistan was understandably not well advertised..

The public has been led to believe that, compared to the horrors inflicted upon Iraq, the invasion of Afghanistan was almost bloodless. But I learned recently from an expert journalist – an American no less - with many years of experience in that country that a great deal of blood was shed. In Kabul alone, fifty to sixty thousand Afghans died in America’s brutal bombing and artillery cover for its Northern Alliance proxy army, itself a gang of thugs many of whom are not one wit more ethical or civilized than the Taleban.

We knew too, those who cared to search, of the brutal tactics of American special forces in the mountains after the initial “victory”: tales of heavily-armed goons marching into remote towns, throwing stun grenades, breaking down the doors of homes, holding women and children at gunpoint while their male family members were marched away with no explanation. The men were often kept for considerable periods to be “questioned.”

At the least suspicion, air strikes were called in, and in dozens and dozens of cases, those air strikes wiped out whole families or groups of villagers who had done nothing to oppose Americans. They were the victims, thousands of them, of young Americans filled with irrational resentments over 9/11, anxious to prove how good they were with their high-tech killing machines, and let loose on someone else’s country.

And we knew, at least again those who cared to search, the story of America’s hideous treatment of Taleban prisoners in the early days of occupation, of Secretary of Defence Rumsfeld’s Nazi-like public demand that all prisoners should be killed or walled away forever. One of America’s ghastly allies of the Northern Alliance, General Dostum, took Rumsfeld in deadly earnest: he had his men round up three thousand prisoners, seal them in vans and drive them out onto the desert to suffocate in the heat. The bodies were then buried in shallow mass graves. All this was watched by American soldiers who somehow failed to act the way Jimmy Stewart did in war movies. Instead they picked their noses or smoked cigarettes as they gawked.

We also knew of the terrible tales of boys being raped while American troops never lifted a finger to help them. In a strict fundamentalist country like Afghanistan, where young women are kept guarded and almost hidden, the sexual behaviour of men often takes on the character of that common in prisons everywhere: that is, young and vulnerable men are brutally raped and often treated as “bitches” by older, tougher prisoners.

Only recently, I heard the horrible stories of a Canadian soldier with post traumatic stress who told of seeing a boy with blood running down his legs as two Afghan allies raped him. The soldier could do nothing and was told later only to buck it up. He told too of a translator, a hired Afghan, gleefully relating to him about the way he liked to use a knife on boys he raped.

We all saw the ghastly pictures from Abu Ghraib prison in Iraq. Only now we know far uglier pictures and recordings have been suppressed, images and sounds of young Iraqis being raped and sodomized by American soldiers at the prison.

Those facts give us some realistic sense of the atmosphere in Afghanistan when American soldiers shot Omar in the back, falsely accused him of killing a medic, and sent a fifteen-year old boy off to years of torture.

Omar remains a prisoner in Guantanamo, although the torture mercifully has stopped, but it was announced only a couple of days ago that he would be among those who would stand trial in New York.

Trial for what? For trumped-up charges of murder? Trial for acts in war? Trial for being an abused child soldier? Trial under American laws which never applied to Afghanistan? A trial where every scrap of government evidence is tainted with years of torture and human-rights abuse? Where the government doing the trying itself has acted against countless laws and treaties in invading and occupying two countries?

If there were one breath of decency left in America’s establishment, Omar and the other abused prisoners would all be released and allowed to live the rest of their lives in peace. They are no threat to anyone, most did nothing deserving imprisonment, and those who may have committed something we would regard as a crime have been viciously punished already.

Only days ago, Obama’s White House Counsel Greg Craig was let go. Craig, an old friend of the President’s, had promised to make his administration the most transparent in history. Craig was the main force behind the Obama’s promise to close Guantanamo in one year.

Well, there is no sign Guantanamo is to be closed any time soon, and the policy’s chief advocate is gone. But more importantly, when we speak of American torture chambers, it is easy to forget that Guantanamo is only the most publicized of many. What horrors go on at places like America’s secret base at Diego Garcia in the Indian Ocean or at Bagram Air Base in Afghanistan, or in a number of other locations, all part of the CIA’s vast international torture gulag, is anybody’s guess.

Obama has not uttered a whimper about the CIA’s euphemistically-named extreme rendition, a practice whereby thousands of people have been kidnapped off streets and sent bound to some of the world’s hell-holes for months of torture. Afterwards, having been discovered innocent of anything, they find themselves dumped in some obscure place like Bosnia without so much as an apology for their treatment.

Obama told people repeatedly during his campaign that American forces in Iraq would be withdrawn promptly, saying “you can bank on it,” and people believed him because Obama did not vote in the Senate for that illegal war, but most of America’s soldiers remain there still.

Obama appointed a commander in Afghanistan, General Stanley McChrystal, who has a background swirling with suggestions of black operations and dirty business, and now that ghastly man has said he needs forty-thousand more troops.

American Predator drones, guided by buzz-cut, faceless men with computer screens in locked rooms in America, now frequently invade Pakistan’s airspace. One can just imagine them hooting and pumping their arms like young men playing a computer game when one of their terrible Hellfire missiles strikes its target, the home of someone not legally charged with anything, killing everyone who happens to be nearby.

No, I only wish the ugly stain on America’s flag was keeping a dissident under house arrest.

US finally wise to Pyongyang's ways

Sun, 15 Nov 2009 18:39:58 -0800

Asia Times, By Andrei Lankov, November 12

SEOUL - In the past few weeks, North Korean watchers have been confronted with a sight they do not see frequently: Americans outsmarting North Koreans.

Usually, the opposite is the case. North Korea might be a failing state, balancing on the verge of famine, but when it comes to diplomatic games, North Korean politicians are second to none.

They have studied the dangerous art of manipulating great powers since the 1960s, when they played Russians and Chinese against one another. They perfected their skills in the 1990s, when they managed to manipulate the US, South Korea and China into providing large amounts of food and energy aid while giving essentially nothing in return.

This was a remarkable achievement, and it seemed that the North Koreans would always have the upper hand when confronting Washington. However, this time things are different. North Korea's attempts to use tried-and-tested methods have backfired.

[...]

So, for a while, things seemingly worked in the usual way. However, by October, North Korean diplomats made an unpleasant discovery: the Americans, while smiling broadly and expressing their willingness to talk, were in no hurry to start actual negotiations, let alone shower North Korea with money.

Ambassador Stephen Bosworth, special representative for North Korea policy, is much-waited in North Korea, but he has not visited Pyongyang yet (and, in a telling gesture, did not even retire from his academic job). One can also expect that once negotiations finally begin, the North Koreans will make another unpleasant discovery: it is now far more difficult to squeeze concessions and money from the US.

There are at least two reasons for this change in mood. First, Americans are learning from their experience. This time, they have a much better understanding of both North Korean methods and the likely outcome of negotiations. When in 1993-94 the North Koreans drove tensions high, many people really expected a war and there was even talk about a preemptive strike.

[...]

However, this is an old story by now. It seems that after the second nuclear test in May and all associated statements, virtually nobody in the US government still clings to the belief that denuclearization of North Korea is possible. In other words, the Americans have come to realize the obvious: North Korea will stay nuclear.

Obama, Vietnam, and Afghanistan

Sat, 14 Nov 2009 06:05:07 -0800

I've spent a good part of the last week re-reading Neil Sheehan's book, A Bright Shining Lie: John Paul Vann and America in Vietnam. Partly, this is just happenstance; I found a nicely annotated hardback copy in a local used book store. But it's also because I wanted to look again at the 1962-64 period of the Vietnam War to see how much it resembles our current situation in Afghanistan. I don't have good news to report.

Starting in earnest in 1962, the U.S. began arming the Viet Cong inadvertently through the strategic hamlet and strategic outpost programs. The communist side in the South was not relying on Chinese or Soviet supplies, except for heavy weapons that could not easily be captured. They got all the guns and ammo they needed simply by taking them from the people the U.S. handed them out to. The strategic hamlet program turned the peasants against the Saigon regime for good. Indiscriminate bombing of villages turned the rural populace into mortal foes of the United States. The cities were lost because the Catholic regime was brutal, corrupt, and attempted to crush the power of the Buddhist leadership.

The parallels to Afghanistan are not perfect, but the situations have enough commonality to give serious pause. The most worrisome feature is the corruption and illegitimacy of the Karzai Regime. If this was 1963, our ambassador would be plotting a coup to make sure Karzai and his opium-selling brother were assassinated and replaced by a (hopefully) more competent and popular successor. But, with hindsight, we know that that gambit didn't save South Vietnam and it probably wouldn't save Afghanistan either.

Another commonality is the weakness of the Afghan National Army. Like the ARVN before it, the Afghan Army is losing the countryside to a more determined and dedicated foe. It's undermanned, most of its troops are AWOL, and it serves a corrupt and incompetent government. We tried to turn the ARVN into a lethal fighting force for two decades, and we failed. If the Afghan Army is going to turn out better, we need to know why.

Like Lyndon Johnson, President Obama has to take over the war planning from a previous president. He still has some of the same advisers that Bush relied upon. He's being urged to make a major investment in troops to salvage a deteriorating situation. It's no wonder he's just rejected all of the options presented to him by his national security team. Obama is demanding the kinds of answers that were never answered in 1964-65 when the decision was made to escalate in Vietnam. Namely, how are these investments going to change the basic reality that the central government is weak, corrupt, and illegitimate?

Now, the one big difference between Afghanistan and Vietnam is that the Taliban are not considered to be heroes like Ho Chi Minh's Viet Minh armies were by the Vietnamese. The Taliban don't have nationwide legitimacy, and they are openly feared and loathed by most of the Afghan population. In that sense, we can be sure that we aren't fighting on the wrong side of this war. But we can't be sure that we will be any more successful, because there is little evidence that we can be at any realistic price.

I hope Obama holds out until he has a plan that makes sense and has a definite end point.

Boy Does Wall Street Have a Deal For You!

Thu, 12 Nov 2009 07:56:40 -0800

American cowboy capitalism at its finest is on display today as Kohlberg, Kravis & Roberts (KKR), one of the country’s largest leveraged buy-out firms, is proposing to bring the Dollar General company back on to the public market. You – yes you, oh innocent investor – can buy a piece of this company for just $22 a share! Any why not? Dollar General is one of those stores where everything is on sale for $1, and cash-poor, recession plagued Americans have been flocking to stores just like these.

This is the only part of the retail sector that has been doing well. Wal-Mart, Dollar General and similar low cost vendors have been holding their heads above water while everyone else has been sinking. But before you plunk down your $22/share, come along with me on a ride through the fine print of the prospectus, to learn just what is going on here. You’ll understand better that the role the Wall Street boys want you to play is that of the sucker – the person who gets them out of a tight jam for a mistake they made.

That’s what everybody said about KKR 2-1/2 years ago when they bought all the shares of Dollar General and took them private. KKR, along with Citigroup and Goldman Sachs and a few other Wall Street firms, bought Dollar General for $7.3 billion, of which $2.8 billion was cash, and the rest - $4.5 billion - was borrowed from banks using Dollar General’s own assets as collateral.

If KKR can get $22/share for their Initial Public Offering this week (IPO), Dollar General will be valued at $7.8 billion, so that looks at first like a modest profit for KKR and its fellow buy-out partners. But this is a leveraged buy-out deal, so the real question is, what happened to all the debt taken on to buy this firm?

The answer is, it’s still there. The Dollar General company the public is being asked to buy this week has $4.1 billion in debt, down just slightly from the $4.5 billion that KKR dumped on it when it took the company private. Every quarter the company has to service this debt by paying interest to the banks, and that interest amount consumes 39% of the company’s operating earnings. This is ten times the debt burden of the average retail company.

The first thing you have to know, therefore, is that you are buying a company that may have kept its head above water in this recession when it comes to sales revenue, but it is drowning nonetheless in debt.

The second thing you should look at in an IPO like this is the price/earnings ratio, or P/E ratio. The price per share divided by the earnings per share tells the multiple of annual earnings investors are willing to pay for a company. For example, Wal-Mart trades at a P/E of 15, meaning at its current stock price investors are willing to value the company at 15 times its annual income. This is a company much larger than Dollar General, but in somewhat the same business, so investors treat the two companies as comparable.

You would think, therefore, that the P/E implied for Dollar General at an initial public price of $22/share would be about 15 times earnings, but it is not. By setting the price at $22/share, KKR is asking investors to buy the company at a P/E of 29. KKR is claiming that the Dollar General franchise is twice as valuable as Wal-Mart’s franchise, not so much in terms of size, but in terms of growth potential.

You have every right to believe this if you wish, and buy Dollar General at $22/share if you wish, but check out first some more fine print. In May of this year, Dollar General granted 732,000 shares as stock options to management, and it used two models to figure out what the company was worth and what price to set for these options. One model estimated the present value of all future cash flows for the company, and the other looked at market prices for comparable companies. The average of the two models valued the company at $12.95/share.

To defend its new price for the IPO, KKR says that the stock market has rallied over 60% from its lows this year, so naturally Dollar General must be worth much more too. Certainly the stock market has put on an impressive rally, but using the other model – the cash flow model – it cannot possibly be the case that Dollar General’s future cash flows will now have doubled in such a short period of time.

Something is wrong here, unless you are a Dollar General executive, because you are going to make a quick $9/share profit if investors snap up the company stock at $22/share. And if you are KKR, the company is worth about $13/share when it comes time to valuing the executive stock options, but $22/share when it comes time to asking the public to buy into the company.

Are you still tempted? How about this delicious morsel in the fine print of the prospectus. Last month, knowing they were going to take Dollar General public, KKR, Goldman Sachs, Citigroup and the other owners paid themselves a dividend out of Dollar General’s earnings. The amount - $239 million – exceeded the quarterly operating earnings of the company, so some of it had to come from the company’s remaining equity. How convenient that the owners enriched themselves royally just before the IPO, and thereby reduced the equity cushion of a company already loaded up with too much debt.

As a final straw, guess which Wall Street brokers are going to bring the IPO to market and earn all the fees from underwriting this offering? How about KKR, Goldman Sachs, and Citigroup? As if they haven’t already earned enough money off this company.

There are dozens and dozens of companies like Dollar General that were taken private by leveraged buy-out firms during the market frenzy that peaked in 2007. They were all bought with little cash and enormous amounts of debts, and they are sitting like time bombs on the balance sheets of the leveraged buy-out firms that misjudged the market. As the months go by and the buy-out firms watch their fees from their investors get eaten up by high interest costs, they are getting more and more desperate to dump these companies back on to the public markets and naïve individual investors.

How wonderful, then, that we’ve had a 60% rally in the stock market since March. Do you think, maybe, Wall Street has a vested interest in keeping this rally going and exciting you and me about green shoots?

(Many of the facts on this IPO can be confirmed in this article on Bloomberg:

http://www.bloomberg.com/apps/news?pid=20601087&sid=awIsi0HV9G34&pos=6)

How we got to Zero: General Eikenberry's Hail Mary

Thu, 12 Nov 2009 05:11:13 -0800

Michael Collins

U.S. Afghan Envoy Urges Caution on Troop Increase

"WASHINGTON -- The United States ambassador to Afghanistan, who once served as the top American military commander there, has expressed in writing his reservations about deploying additional troops to the country, three senior American officials said Wednesday.

"The position of the ambassador, Karl W. Eikenberry, puts him in stark opposition to the current American and NATO commander in Afghanistan, Gen. Stanley A. McChrystal, who has asked for 40,000 more troops. New York Times, Nov. 11

This isn't just any envoy. General Karl Eikenberry has served two tours of duty in Afghanistan, the second as head of the Combined Forces Command. After the second Afghan tour, Eikenberry was Chairman of the NATO Joint Military Committee. He's a West Point graduate with advanced degrees from Harvard and Stanford and is fluent in Mandarin Chinese.

General McChrystal has asked for 50,000 troops in early October. By October 28, the president was said to favor a "McChrystal light" number as low as 15,000. On Nov. 7, just four days before Eikenberry's statement, McClatchy Newspapers put Obama's preferred number at 30,000. At this moment, the president is reported have rejected all of the troop increases on the table, according to Associated Press at 12:02 am EDT, today, November 12.

How did we get from McChrystal's request for 50,000 troops in early October to Eikenberry's "written reservations about deploying additional troops" just days before President Obama's planned decision?

The only thing we know for sure is that Eikenberry's statement was no accident. Clearly, there is dissent in the Pentagon and White House as evidenced by this publicly reported assessment by a serving ambassador and distinguished officer. Of interest, on troop levels, the Eikenberry statement agrees with the much criticized assessment of Vice President Joe Biden on made after a trip to Afghanistan

Two Paths - Obama's Hedge

When General Stanley McChrystal was appointed to command combined forces in Afghanistan, he put together his own team for the long haul:

"General McChrystal is assembling a corps of 400 officers and soldiers who will rotate between the United States and Afghanistan for a minimum of three years. That kind of commitment to one theater of combat is unknown in the military today outside Special Operations, but reflects an approach being imported by General McChrystal, who spent five years in charge of secret commando teams in Iraq and Afghanistan." New York Times, June 10

Little was know of the five year of secret commando work in the two nations until a Seymour Hersh gave a speech at the University of Minnesota on U.S. Intelligence policies. Hersh said:

"Right now, today, there was a story in the New York Times that if you read it carefully mentioned something known as the Joint Special Operations Command -- JSOC it’s called. It is a special wing of our special operations community that is set up independently. They do not report to anybody, except in the Bush-Cheney days, they reported directly to the Cheney office. … Congress has no oversight of it. It’s an executive assassination ring essentially, and it’s been going on and on and on." MinnesotaPost.Com March 11

According to Time Magazine, from 2003 through 2008, McChrystal "led the Pentagon's Joint Special Operations Command (JSOC)."

The March 11 description of Joint Special Operations Command, and its leader, General McCrystal, was seemingly contradicted by Hersh on May 19 (See analysis) but the cat was out of the bag on the general's tactics. Unless Hersh was referring to some other Joint Special Operations Command that McChrystal ran, we have a special type of general in charge of the war in Afghanistan.

A report in March validated the problems with the JSOC mission of commando actions eliminating enemies of the state: "The commander of a secretive branch of America’s Special Operations forces last month ordered a halt to most commando missions in Afghanistan, reflecting a growing concern that civilian deaths caused by American firepower are jeopardizing broader goals there" New York Times, March 9. In the same article, Iraq commander General David Petraeus was said to have "supported the decision to suspend the Special Operations missions."

Despite his record or, perhaps, because of it, General McChrystal was appointed to the Afghanistan command after these statements and controversies over JSOC.

Just two weeks later, President Obama appointed General Eikenberry as U.S. Ambassador to Afghanistan. In addition to his career achievements, Eikenberry's good relationships with the Karzai government and NATO were mentioned prominently.

Eikenberry was a logical choice as ambassador to Afghanistan given the ongoing military missions and his emphasis on improvements in living conditions for citizens. He'd held high level and top level command in the country for a total of thirty six months. During that time, he had concentrated on a multi level approach with an emphasis on building a strong civil base of for a government and military run by the people.

In testimony before Congress in February, 2007, Eikenberry outlined progress in the military effort and civic governance and the largest threat to success:

"The long-term threat to campaign success, though, is the potential irretrievable loss of legitimacy of the Government of Afghanistan. If the Afghan Government is unable to counter popular frustration with the lack of progress in reform and national development, the Afghan people may lose confidence in the nature of their political system." Congress, Feb. 17, 2007

Eikenberry listed progress in public education, infrastructure, and training efforts for Afghan police and military but stressed the need for more support for civilians in the forgotten war. He stressed the stakes for NATO in the largest ever non European military effort. While not "make or break," the stakes were high. He also made this highly significant point: "Pakistan’s military and security forces have taken significant casualties against the same enemy that we in Afghanistan face" Feb. 17, 2007

Eleven months into the new administration, we have radically different choices for policy in Afghanistan advanced by diametrically opposed military professionals appointed by the same president.

Why the Radical Split in Advice and Why Now

It seems that General McChrystal is on a special mission based a specific philosophy of warfare and that General Eikenberry is performing his duty according to his current assignment with an ongoing evaluation of the various players and facts at hand. McCrystal job has been killing what Seymour Hersh called "enemies of the state" in Afghanistan and Iraq. He's not finished. They're still out there. He made commitments to the 400 officers and soldiers that he hand picked. He doesn't want to let them down.

Given his history and assignments before his command role, everything he's done suggests that he would want to finish the job. Why wouldn't he push for as many more troops as he can get?

But the real questions are: does finishing that job make any sense and will more troops help finish the job?

Eikenberry's position has evolved over time. He once got along with Karzai but, as ambassador, during the recent presidential campaign, he appeared with the opposition candidates who accused Karzai of election fraud in the first election and pushed Karzai to overturn the initial disputed results that would have ruled out a runoff election.

Can you recall any U.S. ambassador ever showing up at a press conference with opposition candidates challenging the legitimacy of an election?

Eikenberry was interviewed on NPR just two days after he testified before Congress in 2007. He said, "The Taliban military forces remain a much weaker enemy. Whenever the Taliban masses on the battlefield, those Taliban forces are defeated, always in very short order." He went on to offer this: "… the challenge has been building the state of Afghanistan, extending the writ of governance. That has been a very steady growth of progress that we've had with the government of Afghanistan over the last six years" NPR Feb. 13, 2007.

Two and a half years later, General Eikenberry has "expressed in writing his reservations about deploying additional troops to the country" just at the point when President Obama was said to be announcing some level of troop increases. The key to success, as outlined by the general previously, was real progress in responsive and trustworthy civil governance that delivers for the people.

In his congressional testimony, Eikenberry quoted a poll in which, "almost 90% of the Afghan people consider reconstruction and economic development the most important requirement to improve their quality of life."

It is fair to assume that the illegitimate election played a major role in Eikenberry's questions about the future of the Afghanistan military mission. His recommendations represent a huge step given the stakes for the NATO military effort and the larger concerns about the nation. Other factors may have included the McChrystal emphasis killing "bad guys" and the inevitable deaths of innocents paired with lackluster U.S. financial support for Afghan rebuilding and development.

General Eikenberry is both a soldier and scholar of history and political science. He knows the history of occupations that fail to deliver for the populace and he's telling us right now that the U.S. can't succeed with more military forces in a nation run by an illegitimate president who has been exposed for election fraud. More troops are not the solution. In his view, success requires stronger governance and real democracy which means transparent elections free of fraud.

Had the attempt to capture Osama Bin Laden been just that, he'd have been captured or found dead and the United States would not be in this dilemma. But that begs the question. Of the choices this administration will make, which do not include immediate withdrawal, General Eikenberry's is the most clearly reasoned position and has the strongest immediate and historical basis by far, in my opinion.

But what kind of ongoing evaluation can we expect from an administration that split the policy difference in the first place by appointing General McChrystal as military commander and General Eikenberry as Ambassador? That's too much of a difference to split.

The White House's rapid downward trend in troop commitment from, 40,000 to zero for the moment indicates that an alarm bell is ringing. If they just face the truth, they'll announce that we've "hit bottom" and, as a result, we can't afford any more of this because we're flat broke. If they just listen to the people through public polling, they'll come up with something palliative that will allow the president to stay above 50% approval, at least until the next banking crisis. That something was to rely on the advice of General Eikenberry, at least for now.

This is almost the same process President Obama put the military through just after his inauguration when General Petraeus tried his push for more troops in Iraq (see analysis).. Obama's a very good poker player. Let's hope that we move beyond gaming to a foreign policy based on recognizing our limitations and inserting fundamental respect for the lives and well being of all citizens wherever they might be.

It would be helpful to review this 2007 testimony and apply the democratic principles at home as well as abroad:

"In closing, allow me to emphasize that we are now at a critical point where a strategic investment in capabilities is needed to accelerate the progress toward the desired goal of helping establish a moderate, stable, and representative Government of Afghanistan." General Karl M. Eikenberry, Congress, Feb 11, 2007.

That's what the general did. He tried to "help establish" a "representative government" by insisting on fair elections. When he discovered they weren't fair, he stood with the opposition in protest and used his influence to get another vote. When the "winner" of that runoff won because the process was so crooked, Eikenberry then advised there was no point in providing more troops since more troops were not the answer. The first step in the answer requires an honest election. He's right. The citizens of Afghanistan have the same needs and rights and deserve the same respect we deserve, the same that all people deserve. What a refreshing philosophy. It's almost cause for "hope."

END

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Jesuits Breach the Perimeter! And "Negative Security Assurances"

Thu, 12 Nov 2009 02:39:22 -0800

THE DEPROLIFERATOR -- Nuclear disarmament is usually approached from three directions. They who pursue the middle way might, by definition, be capable of appreciating the charms of those following the two paths which diverge from it. But chances are that each of those parties -- one of which is an outlier; the other an in-lier -- views the other with a jaundiced eye.

An example of a group that approaches disarmament head-on is the Nuclear Age Peace Foundation. In his most recent letter, its worthy president David Krieger writes:

The starting point for ending the omnicidal threat of nuclear weapons is the recognition that the threat is real and pervasive, and requires action. … We are called upon to end our complacency and respond to this threat by demanding that our leaders develop a clear pathway to the total elimination of nuclear weapons.

This straightforward faction seems to predicate its actions on the notion that not only is it speaking truth to power but on behalf of a sizeable segment of the public. As for the other two, the inlying group comprises realists, who, because many have worked in the government, military, or nuclear labs, operate on the assumption that they're capable of influencing policy. Before we examine its m.o., let's first review that of its opposite -- activists such as the Berrigan brothers, who in 1980 penetrated a nuclear weapons base and damaged warheads as well as pouring blood on documents and files.

For those who think that incident was of a time, it might surprise you to learn that the Berrigans' group, Plowshares Nuclear Resistance -- however long in the tooth its leading members are -- still pull off actions. In fact, though it garnered scant attention in the media, the most recent was November 2 at the Trident submarine base called Kitsap-Bangor near Seattle, Washington.

The base houses over 2,000 nuclear warheads -- more "than China, France, Israel, India, North Korea and Pakistan combined," reads the group's news release, which continues:

Bill "Bix" Bischel, S.J., 81, of Tacoma, Washington; Susan Crane, 65, of Baltimore MD; Lynne Greenwald, 60, of Bremerton, Washington; Steve Kelly, S.J., 60, of Oakland, CA.; Anne Montgomery RSCJ, 83, of New York, New York. … entered the Base in the early morning hours of November 2, 2009, All Souls Day, with the intention of calling attention to the illegality and immorality of the existence of the Trident weapons system. They entered thru the perimeter fence, made their way to the Strategic Weapons Facility. . . cut through the first chainlink fence [and] the next double layered fence. . . onto the grounds of [the facility, leaving] a trail of blood [not their own -- RW] and hammered on the roadways [and] fences [and] scattered sunflower seeds throughout the base. [All symbolic acts, they explained -- RW] They were then thrown to the ground face down, handcuffed and hooded, and held there for 4 hours on the wet, cold ground. [Bear in mind their ages. -- RW] They were. . . cited as of now, for trespass and destruction of government property, given a ban-and-bar letter and released.

Another excerpt gives us a glimpse into their mentality:

We walk into the heart of darkness. [The nuclear weapons] are sheathed in stainless steel and metal coverings that conceal the evil incarnate lying within. They are filled with death-dealing agents that tear apart humans and leave survivors scarred for life.

As you can see, to those using this approach, nuclear weapons teem with evil. Tolerating the possession of even a handful, whether for deterrence or out of political considerations such as reassuring our allies in Europe, is playing a devil's game.

For an example of how the mind of a nuclear realist works, watch one tackle the subject of whether or not the United States should continue to insist it has the right to nuclear first-use (a preventive or preemptive strike, that is). Turns out it's an even hotter topic than I knew when when writing about it last week.

The U.K. publication Survival: Global Politics and Strategy featured an article (subscription only) on the subject in its June-July 2009 issue by noted nuclear writer Scott Sagan. An excerpt from its summary reads:

Is the threat of the first use of US nuclear weapons still necessary to deter the use of non-nuclear WMD [as well as a] large-scale conventional military force? Or can Washington move toward a policy of no-first-use, limiting the role of nuclear weapons to deter the use of other states' nuclear weapons? … previous government and academic analyses have both exaggerated [its] potential military and diplomatic costs [as well as] underestimated its potential benefits.

The mind of the disarmament realist in question is the renowned Morton Halperin, who responded to Sagan's article with a letter (which is online) in the October-November issue of Survival. He notes the "serious domestic political storm a president [seeking a no-first-use policy] would confront."

Why? Because "Opponents of no first use. . . believe that. . . a no-first-use promise will increase the political cost of using nuclear weapons only for the United States, undermining the credibility of the US deterrent," for not only the United States, but Europe, too. Also, "There is no doubt that some allies" -- again, in Europe -- "would be nervous if the United States made a no-first-use pledge."

But isn't no-first-use integral to disarmament? To Halperin's way of thinking, "there are other proposals to pursue this objective which would be [as] effective as a. . . no-first-use policy and which might produce less controversy." He continues:

In his Prague speech. . . Obama committed himself in the short run to four other measures which. . . advance the same objectives as the no-first-use proposal: reducing the role of nuclear weapons in US national security. . . negotiating a new Strategic Arms Reduction Treaty (START) with Russia. . . pursuing US ratification of the Comprehensive Test-Ban Treaty (CTBT), and starting negotiations to end the production of fissionable material [plutonium and enriched uranium] for weapons purposes. …

Seeking three treaties on nuclear arms control in his first term will not be easy. … Under the circumstances, no first use can and should be put off for another day.

How Can an Assurance Be Negative?

Instead, according to Halperin, the United States:

. . . should update and simplify the so-called negative security assurance. . . that Secretary of State Cyrus Vance issued in 1978. [It would read] 'The United States reaffirms that it will not use nuclear weapons against non-nuclear-weapon [states that have signed and are in compliance with] the Treaty on the Nonproliferation of Nuclear Weapons'. … This would preserve the president's right to threaten or use nuclear weapons first against any state with nuclear weapons [and] also highlight the importance the United States attaches to the Non-Proliferation Treaty.

Halperin sums up: ". . . universal no-first-use. … is a good idea whose time has not yet come."

While those in the other two camps might think that Halperin is turning no-first-use into a sacrificial offering for hawks, his desire to expedite disarmament can't be questioned. While one is tempted to assert that all three approaches constitute synergy, it's more likely that the realists and the blood-sowers cancel each other out. Meanwhile, the question of whether the disarmament race will go to the tortoise or the hare -- or end up clutched in the talons of the hawk -- remains open.

First posted at the Faster Times.

A Dream Interpretation: Tuneups for the Brain

Tue, 10 Nov 2009 19:30:26 -0800

New York Times, By Benedict Carey, November 9

It’s snowing heavily, and everyone in the backyard is in a swimsuit, at some kind of party: Mom, Dad, the high school principal, there’s even an ex-girlfriend. And is that Elvis, over by the piñata?

Uh-oh.

Dreams are so rich and have such an authentic feeling that scientists have long assumed they must have a crucial psychological purpose. To Freud, dreaming provided a playground for the unconscious mind; to Jung, it was a stage where the psyche’s archetypes acted out primal themes. Newer theories hold that dreams help the brain to consolidate emotional memories or to work though current problems, like divorce and work frustrations.

Yet what if the primary purpose of dreaming isn’t psychological at all?

[...]

Drawing on work of his own and others, Dr. Hobson argues that dreaming is a parallel state of consciousness that is continually running but normally suppressed during waking. The idea is a prominent example of how neuroscience is altering assumptions about everyday (or every-night) brain functions.

[Another Scientist opines...]

“I argue that dreaming is not a parallel state but that it is consciousness itself, in the absence of input from the senses,” said Dr. Llinás, who makes the case in the book “I of the Vortex: From Neurons to Self” (M.I.T., 2001). Once people are awake, he argued, their brain essentially revises its dream images to match what it sees, hears and feels — the dreams are “corrected” by the senses.

More detail on the HR3962

Mon, 09 Nov 2009 19:24:30 -0800

I've written this in reference to Michael Collins's diary post One More Reason to Kill this Bill and some of the confusion over sections and what is in the bill as far as coverage requirements and penalties.

I'm looking here (.pdf file) for the new Health bill and somewhere around here for the IRS Tax Code. Will post more precise links (possibly to other sources) as needed.

1) HR3962 Sec. 501 (p. 297) If you fail to purchase insurance you will pay 2.5% of (modified adjusted gross income - gross income) but, if that value is higher than the “average premium for self-only coverage under a basic plan which is offered in a Health Insurance Exchange…” you will pay that average premium instead. So, there is a cap on the 2.5%, set at the average premium of a plan on the exchange. Not sure how high that average will be. HR3962 Sec. 501 (p.298) This amount is pro-rated based upon the fraction of the year that you go without coverage.

Note that a “basic plan” is outlined in HR3962 Section 303(c) on page 168.

Modified Adjusted Gross Income is defined as adjusted gross income increased by (A) any amount excluded from gross income under section 911 of IRS Code (see the link below) and (B) any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.

2) HR3962 Sec 501 (p.299). For Americans living overseas, you are exempt from paying this tax if you have been living abroad and are a resident of a foreign country for at least one taxable year. Relevant IRS code is here (scroll down a bit to sec. 911(d)(1)). I assume the prorating would apply if you’ve only been living overseas for less than a year.

3) You can apparently file an exemption from the requirement to purchase insurance based upon religious beliefs, though you must document your adherence to a faith that would want this. There’s a bit more in there, starting on HR3962 Sec. 501, pages 299-300.

4) HR3962 Sec 501, p. 304. Seems to state that small lapses in coverage are not going to result in taxes. I would assume this means a few days, but I don’t see any specific numbers. The bill just calls them “de minimis lapses of acceptable coverage.”

Now, if you don’t pay the tax in point (1) above then you will be subject to normal IRS rules and regulations. I would assume this is where IRS Code sections 7201 and 7203(see links below) come in. They feature up to $25,000 in fines and no more than 1 or 5 years in jail (depending on which is applicable). I’m not sure how these are applied in practice.

So, it looks like no specific penalties are outlined in the bill, but the 2.5% is designed as a tax and so would fall under IRS rules for non-compliance.

IRS Code Section 7201
IRS Code Section 7203

Nuclear-Power Fuel Too Close to Nuclear-Weapon Fuel for Comfort

Sun, 08 Nov 2009 08:27:14 -0800

THE DEPROLIFERATOR -- Recent statements by its chief representative to the International Atomic Energy Agency suggest that Iran may be backing away from an agreement to ship its low-enriched nuclear fuel to Russia for further enriching. Even, though, after agreeing to the deal, President Ahmadinejad, ever the master of the sweeping gesture, said the West had "moved from confrontation to cooperation."

Among reasons to hope that Iran relents is a fact of which many who proclaim Iran has a right to a nuclear program seem ignorant. Turns out that transubstantiating the fuel used for nuclear energy into nuclear-weapon fuel, far from a miracle, is all too commonplace.

The Hudson Institute's Christopher Ford explains (sorry, misplaced the link).

Reactor fuel production is worrisome enough all by itself, because in enriching uranium to LEU [low-enriched uranium] reactor fuel levels the Iranians would have already done most of the work necessary to enrich to weapons-usable HEU [highly-enriched uranium].

At Huffington Post, Bruno Pellaud, former deputy director general of the International Atomic Agency, adds some seasoning to Ford's remarks:

. . . [LEU] (some 4% enriched) is already a long way towards the weapon-relevant [HEU] (some 90%), much more than these two figures seem to indicate. In the physics of enrichment, it's like a pre-cooked cake, so well pre-cooked that a few minutes in the micro-oven suffices to bring it to the table.

Ford again (emphasis added):

. . . it takes a certain number of [Sleep-Inducing Technical Term, or SITT -- RW] to enrich uranium all the way to weapons-usable levels, but by the time one gets to [LEU] most of that work has already been accomplished. It takes fewer [SITT] to finish the job than to get to [LEU] in the first place, so possessing a supply of uranium that is already LEU makes it much easier to enrich to HEU levels [but] at a secret additional facility.

This is nothing new, Ford explains in a previous paper. Describing the early U.S. nuclear years, he writes: "Thinkers of the period were painfully aware of what we might today call the problem of the 'latent' or 'virtual' nuclear weapons programs [which can be ramped up in case of a threat -- RW] afforded by possession of nuclear fuel-making capabilities. As U.S. Secretary of State Dean Acheson put it, the true 'measure of atomic armament'. . . was to be found less in what [a country] actually had 'put into a bomb'" than in the sum-total of its fissionable material.

Therefore, writes Pellaud:

For the time being, this shipment to Russia. . . eliminates the [risk of a nuclear weapons breakout]. Some would argue that Iran would only send to Russia part of its LEU stockpile and keep hidden any past clandestine production of LEU. Not so easy. The IAEA would indeed detect such dissimulation, [like it] kept track [of the] 350 tonnes of raw uranium that Iran had purchased from Namibia in the seventies.

Besides, wrote Andreas Persbo in March at Verification, Implementation, and Compliance, winner of the award for Highest-Traffic-Generating Blog Title three years running (not):

A break-out at this stage would be very risky for the Iranian government. The amassed low-enriched material is about right for one uranium-based weapon, but in order to get that processed into weapons-grade, Iran would need to reconfigure the cascade and run the material through the facility again. Then, the weapons grade material would need to [go through a Tedious Technical Process, or TTP -- RW].

How long will that process take?

… a minimum of two months. Add another four to five months to [endure yet another TTP] and we're up to half a year. Even if the Iranians have done their weaponization homework, they'll have to move from theory to practice for the first time. [What's more] they only have enough material for one weapon. It is literally a one-shot deal. …

If Iran really wants to acquire a nuclear weapon, the best strategy would be to bypass safeguards altogether and to build a clandestine enrichment facility.

Which, of course, it since did -- the Fordo facility near Iranian holy city Qom, from which an International Atomic Energy Agency inspection team just returned. "We had a good trip," said the mission head.

First posted at the Faster Times.

Afganistan Debacle

Sat, 07 Nov 2009 08:31:12 -0800

From the Guardian

"The dimensions of the unfolding disaster in Afghanistan are becoming bigger and more daunting by the day. Once-staunch defenders of the "good war" are starting to break ranks. "

"Flanked by two vice-presidents, including a notorious warlord that Mr Karzai accepted as a running mate, Mr Karzai vowed yesterday to tackle corruption. This was rather like a cat promising abstinence on the subject of mice."

http://www.guardian.co.uk/commentisfree/2009/nov/04/afghanistan-political-failure-kim-howells

Emprire building and occupation are such messy tasks. If Gibbon were alive he could have writted the Decline and Fall of the British, French, Portugese, and American Empires in my lifetime.

Will the US as a continential empire survive its collapse? I thinj it could not, I live in the wet, in CA. There is little east of Nevada (Las Vegas) that is of interest, and little that we buy that comes from the east. Taxes flow east, money better used at home.

We have little need for a dozen aircraft carriers, foreign advertures, for our needs are more fundamental. Water.