Archive for June, 2009

Foreign Policy Nincompoops

Tuesday, June 23rd, 2009

The Inheritance, David E. Sanger, 2009

Here is a country-by-country account of the disastrous foreign policy under W with particular emphasis on the issue of nuclear proliferation. It is also the account of the ineffectiveness of Condoleezza Rice as NSA and of Colin Powell and his sidekick Richard Armitage at State to control or even counter the influence of the hawkish, unilateralist, regime changer, neocon coalition led by Dick Cheney, with Donald Rumsfeld, Paul Wolfowitz and others supporting him.

W’s Obsession george-w-bush sadhussein

Missing from this account is the family dynamic of the Bushes and why W would have an obsession with Saddam Hussein. (That speculation is left to Sanger’s colleague Maureen Dowd.) Sanger relates a visit to Crawford before W takes office in which W indicates he really wants a minimal foreign policy footprint and absolutely does not believe in regime change or nation building. Incredibly naive for Sanger to buy this drivel.

This reader was not at all surprised with the Iraq focus after 9/11 and feels W telegraphed his obsessions with Sadam during the campaign despite these other isolationist sentiment expressions which were intended to appeal to certain voters. Its hard to imagine that an intelligent reporter like Sanger could have missed all these early signs of the Iraq obsession.

The ark of the story is an indecisive National Security group led by Rice unable to give any advice to W until 9/11 changes the game, giving the shock doctrine guys led by Cheney the opening they need. Their laundry list of regimes needing change include Iraq, Iran, Syria, North Korea, Venezuela, Burma, Palestine, etc., oh maybe we need to include Afghanistan where the 9/11 attack originated, but we’re not very interested in Afghanistan. Our good allies in this neocon led world order remaking are Saudi Arabia, Egypt, and Pakistan where the terrorists originated and were supported.

Designated Liar colin_powell_my_lai colin-powell-un

Colin Powell is compromised beyond redemption by being forced to give the bad intelligence report to the UN and gets his revenge by leaking the story that Iran is so terrorized by W’s “Axis of Evil” speech they secretly ordered a stop to nuclear weapon development while continuing to enrich uranium. The effect of this leak is to freeze European (and Russian and Chinese) support for continuing pressure on Iran to stop their enrichment program.

Nap Time at the White House – Changing of the Guard condoleezza-rice-sleeping

Cheney loses control of foreign policy when Iraq descends into deadly insurgency and W is forced to fire Rumsfeld. Wolfowitz left DOD to head the World Bank til a scandal involving a job for his girl friend removes him from the post. Other neocons left the administration or were hopelessly compromised by their bad predictions of events. Powell and Armitage leave State and the most indecisive National Security Adviser in history becomes the most indecisive Secretary of State in history. Talk about the Peter Principle where in any organization the members rises to their level of incompetence.

A Q Kahn Gold Medal for Successful Nuclear Test aqkhan98

We now follow Rice and W and they mess up one foreign policy area after another. The intelligence community does its part by missing the A.Q. Kahn network in Pakistan (no doubt with government assistance including planes to deliver material) selling nuclear secrets to anyone with money; missing the Korean built uranium enrichment plant in Syria (They watched this strange building for years until Israel supplies photos of what is inside.); and missing Korea moving ahead until they manage to detonate a small nuclear weapon and join the nuclear club. Intelligence was so fearful after the Iraq WMD disaster that they tried to hide their intelligence showing Iran had stopped its weapon development until Powell got a hold of the information and leaked it.

As if all this is not depressing enough, Sanger rubs it in by printing several hypothetical scenarios of terrorist groups getting a hold of 1) a nuclear weapon which they have not trouble smuggling into the US. They even use UPS to deliver it once it crosses the border; 2) a deadly pneumonia virus Yersenia pestis that is spread during nationwide demonstrations via air horns; (you can substitute Anthrax is you like) and expertise to launch 3) a cyber attack via the internet that shuts down the financial community, blows up the power grid, and disables the military. We can’t defend ourselves from any of these attacks.

And what about conventional power politics and the threat of China? China has realized that a huge nuclear arsenal is useless and is focusing its attention on an expanded navy and missile capability. They shot down one of their own dying satellites to demonstrate they can and the US retaliated by shooting down one of its own. These two “demonstrations” increased the amount of junk in space by more than 10% and a space station nearly collided with a piece of junk recently. They also clearly indicate that each country has the capability of totally disrupting military and civilian communications without which neither the economy nor the military can function. Why don’t we invent a few more ways to end human life on earth as we know it? Good luck Barrack! Pretty sad read.


Monday, June 15th, 2009

The Housekeeper and the Professor, Yoko Ogawa, 2009


A charming little novel from Japan. A single mom raising a 10 year old boy works as a housekeeper at an agency. Her new assignment is with a mathematics professor who has already gone through eight previous housekeepers at the agency. She discovers the professor suffered brain damage from an auto accident many years ago and has a memory that lasts exactly 80 minutes. To remind himself of important things, the professor pins little notes to his suit.

Pierre de Fermat Stamp fermat-stamp

For the new housekeeper, he draws a rough sketch and pins it along all the other notes. She remains nameless in the story. The professor’s mathematical skills remain undiminished, and though he can no longer teach, he spends his time solving mathematical puzzles published in the journals. He earns prizes and awards with his solutions. When the professor learns the housekeeper has a son who is left home alone after school, he insists she bring him to the professor’s house. The boy has a flat head, reminding the professor of the square root sign and he calls the boy “root” the only name ever used in the novel. The boy and professor share an interest in Japanese professional baseball, albiet the professor’s interest is purely for the statistics of the game. The professor’s knowledge of baseball is frozen in 1975, the time of his accident. Both housekeeper and son become interested in mathematics to the point that the housekeeper, who never finished high school, starts going to the library to find formulas she has seen the professor write and learn about great unsolved problems. Ogawa carefully researched her mathematics subject including many of the mysterious and magical aspects such as prime numbers and Fermat’s last Theorem (solved only recently).

Sir Andrew John Wiles Proved Fermat’s Theorem wiles

Reagan Bush Fraud

Monday, June 8th, 2009

The Best Way to Rob a Bank is to Own One, William K Black, 2005

Widow Predator Michael Milken Falls milken

During the Reagan and 1st Bush administrations, criminals took control of most of the S&L industry and defrauded individual investors (via junk bonds from Drexel Burnham and Michael Milken) and American taxpayers (via FSLIC funds needed to pay depositors of failed S&Ls. These criminals bought politicians (most notoriously the Keating Five plus House speaker Jim Wright), who with the help of the Administrations, gutted regulatory controls and appointed regulators who did not believe in regulation.

Fraud’s Best Friend Speaker of the House jim-wright

This book, written by an insider who was on the Bank Board responsible for regulating S&Ls and at the FHLB (Federal Home Loan Bank), reveals the details of the fraud schemes, the actors, the politicians, and the regulators who played key rolls in this American tragedy. Written in 2005, after the failure of the world’s largest hedge fund, LTCM, and after the collapse of Enron, but before the current financial crisis, we are finally able to get the details of what went wrong in the 1980’s to lead to the collapse of the entire S&L industry. Will we have to wait 20 years to find out what went wrong this time? This work is hard going at times and uses insider terminology and assumptions but is worth the struggle.

Wrong Stuff John Glenn john_glenn

It is not a coincidence that most of this story considers companies based in Texas (Bush) and California (Reagan) where efforts to deregulate the S&L industry were most prominent. The most notorious criminal in the disaster, Charles Keating, had his offices in Phoenix. Former astronaut John Glenn was most vocal in support of Keating leading Black to joke that we need to redefine “the right stuff”. Only Glenn and John McCain politically survived the scandal.

The book is centrally concerned with the phenomenon of “control fraud”, fraud where a criminal runs a company and uses the company as a weapon and shield to defraud others and make it difficult to detect and punish the criminal. They have such widespread effects they can threaten the economy of the US and even the world. Black points out that the CEO is in a unique position to defeat any regulatory controls that operate in a normal business environment; they buy and influence politicians and regulatory policy; they find professional assistance of the highest reputations (big 8 accountants, top lawyers, appraisers, etc.) who cover their fraudulent activities with clean bills of health. In this way they can massively overvalue assets to create fictitious income and hide losses. At the same time, they can “lend” to themselves and pay themselves extravagantly while their companies are driven into insolvency. When cornered by regulators, they can “sell” their companies to each other at inflated values and keep going for years.

The S&L meltdown involved criminal elements, particularly bad real estate developers, but occasionally by known mobsters; acquiring failing S&L for no money. Black spends time explaining common fraud techniques of these new owners such as the ADC (acquisition development and construction) Ponzi scheme used primarily to “finance” commercial real estate. The schemes are too complex to understand fully but seem to involve S&L funds being drained to the owning developer in return for hugely overvalued equity stakes in the development which cooperative accountants can use to show that the S&L is profitable with a portfolio of valuable real estate assets. In reality the S&L is insolvent and the FSLIC deposit insurance will be on the hook to make the depositors wholes when the S&L fails. These “loans” are really equity investments and are illegal.

Charles Keating Mugs keating

The problem for the regulators were many. Congress repeatedly refused to increase the FSLIC pool which meant the Bank Board couldn’t shut down all insolvent S&Ls because they lacked the funds to make the depositors whole. Once the Bank Board itself was under the control of Keating, incompetent regulators sent to examine Keating’s Lincoln Savings couldn’t find enough Ponzi ADC loans to prove that Lincoln was insolvent. Purely by chance, an accountant at ORPOS (Office of Regulatory Policy Oversight and Supervision) stumbled across a $94 million cash payment from Lincoln to Keating’s ACC. This hidden “loan” was completely illegal but beyond that, the size of the cash payment meant that Lincoln needed to show at least $300 million in profits from ADC “cash for trash” transactions with developers. Competent regulators descended on Lincoln, this time armed with information that could put both ACC and Lincoln out of business. They found that Lincoln, far from being profitable as certified by Lincoln’s Big 8 accountants, was insolvent to the tune of $2 Billion. Had the incompetent examiners been able to give Lincoln their clean bill of health, Lincoln could probably have survived for another couple of years at enormous additional cost to taxpayers. One of these regulators bragged about the luxurious private jet that Keating flew him around on while he conducted his “examination”.

The heroes here are Edwin Gray, friend of Reagan, who had the courage to re regulate the S&Ls as Chairman of the Bank Board in the face of enormous pressure from the administration and congress; the accountant and regulators who uncovered the frauds needed to shut down Keating; and author Black himself, who also survived numerous attempts to get him fired and a personal lawsuit for $400 million brought by Keating and his army of high priced lawyers.

Black wrote this book to document the S&L meltdown, but also to advocate his view that all professional who train to work with corporations, whether MBA’s who will work directly for the corporation, corporate lawyers, corporate accountants and auditors, and regulators, need to receive extensive training in fraud detection and criminology. Black now heads the Anti-Fraud Institute at the U of Texas in Austin. So far, almost no school training business professionals includes fraud and criminology training. Black does not believe that we can rely on whistle blowers to uncover fraud within corporations, but must rely on professional regulators trained to detect fraud and illegal activities. Judging from Enron, Madoff, and Stanford, we haven’t learned much from the S&L disaster. Now the first indictments are coming out against employees and executives at Bear Sterns and Countrywide Mortgage. The deluge will follow.

Reagan Bush In 1981 Ready to Dismantle Regulation reaganbush_1981

Black summarizes his history with this litany of failures of the Reagan and 1st Bush administrations when they took the following actions:

    Insisted on deregulating at a time of mass insolvency
    Insisted on covering up the scope of the crisis
    Barred Pratt (Chairman of Bank Board) from briefing the cabinet finance committee
    Argued in favor of running insolvent S&Ls like Ponzi schemes
    Repeadely cut the number of examiners
    Fought the agency’s use of the FHLB system to double the number of examiners and supervisors at no cost to the Treasury
    Opposed Gray’s (the Chairman of the Bank Board and personal friend of Reagan) efforts to reregulate
    Refued to allow the FSLIC to obtain any money from Treasury (for deposit insurance losses)
    Tried to give Keating majority control of the Bank Board
    Appointed Keating’s mole, Henkel, to the Bank Board
    Accepted (through Bush) a $100,000 contribution from Keating even after Senator Riegle had returned his contributions in light of the Keating Five scandal
    Reappointed Henkel to the Bank Board after he tried to immunize Lincoln Savings violations
    Tried (through Don Regan) to embarrass Gray into resigning
    Threatened to prosecute Pratt and Gray for closing insolvent S&Ls
    Threatened to prosecute FDIC chairman Seidman for closing banks
    Reached a deal with speaker Wright to support forbearance and not reappoint Gray
    Conducted a criminal investigation of the FHLBSF at Keating’s request
    Provided no White House support for the FSLIC recap until Gray left office
    Regan testified that while Gray warned of the coming crisis, he, Regan, ignored the warnings
    Not only did President Reagan never request a briefing from Gray about the debacle, but they never discussed it personally after Reagan appointed Gray.
    President Bush (H.W.) insisted on appointing Wall as director of the OTS (replaces the Bank Board) without the advice and consent of the Senate, which was ruled unconstitutional
    Bush appointed Wall OTS director even after he had appeased Keating

A sad history of politicians acting in service of criminal elements.

Bhopal Remembered

Monday, June 1st, 2009

Animal’s People, Indra Sinha, 2007

Bhopal Plant bhopal_plant

A work of fiction set in an Indian city twenty years after the worst industrial accident in human history. The central narrator, a disfigured boy who walks on all fours because his back was damaged in the explosion, dictates his story into a tape recorder left him by a “Jarnalis” (journalist). The boy was orphaned by the blast and was raised by a French nun who lost all language except her own childhood French and who awaits the “Apokalis” with anticipation. The boy, who is known only as animal, is her only interpreter in the city. Central characters are a young girl who’s famous classical singing father has lost his voice in the incident, that Animal is in love with, the middle aged activist who has been fighting a losing battle against the “Amrika Kampani” who’s plant blew up and whose executives refuse to accept that Indian courts have any jurisdiction over them, and a mysterious Amrika woman doctor who opens a free clinic to help the sick and damaged of the city. Unknown Chemicals from the Kampani’s plant have now poisoned the ground water of the city.

Plant Condition bhopal_plant2

When the activist finally gets a judge to order that all Kampani property in India will be seized unless the Kampani appears in court, the games begin. Four Amrika lawyers come to city to bribe the politicians into an out of court deal (no honest Indian goes into politics), the activist and friends start a waterless hunger strike, riots begin, the judge is removed, and the nun awaits the great Apokalis.

Well written and a reminder that Union Carbide was never brought to justice in the Bhopal chemical pesticide incident after 1984.

Bhopal Victims bhopal_victims

The author has spent the last fifteen years helping to raise money for the victims of the disaster. He has written this novel to help us remember. For an account of the real Bhopal incident see Bhopal Disaster. Safer but more costly chemicals could have been used in the plant; maintenance was non existent; and the plant had stopped production but the chemicals were left in large corroding tanks at the time of the incident in 1984. Union Carbide was required to pay only $350 million (the insurance limit) plus interest and only after a long court battle. An estimated 200,000 people were killed or injured in the incident and more than a million lawsuits were filed. A typical award was $20 which meant that much of the insurance money was never distributed by the Indian government. When Union Carbide decided to sell its share in the joint company, the Indian government in 1998 required the company to open and operate a hospital for eight years to treat victims. Dow Chemical, who now owns Union Carbide, maintains a bizarre theory that the plant was sabotaged and denies any responsibility for the incident. They even maintain a permanent web site denying their responsibility for the incident.