BRZEZINSKI: [if Israel attacked Iran]... we would be drawn into a war with Iran. With all of the consequences which I've already mentioned: more American casualties in Afghanistan, probably renewed violence on a large scale in Iraq, a huge spike in the price of oil - and, therefore, huge burdens on the American people. So, this is something, in my judgment, which to be avoided... [it's] not necessary... One, we do not know if the Iranians are building nuclear weapons. All we know is that they have an ambitious nuclear program... And secondly, we can certainly deter them because we have deterred much bigger countries than Iran...Great (temporary) display of honesty by the press (Bernstein) and a member of the world power elite (Brzezinski) in discussing the outright propaganda which is spewed from the press and our Congress (captivated by AIPAC) when discussing the subjects of Iran and Israel.
BUCHANAN: I agree... but the Israeli position is [Iran] cannot be allowed to continue this program and they certainly cannot be allowed to get nuclear weapons. That's an existential threat to the Israeli nation. Now, do you believe? (interrupted by Brzezinski)...
BRZEZINSKI: Look, this "existential threat". What does that mean? The moment the Iranians get their first bomb, they're going to commit national suicide for the pleasure of blowing up Tel-Aviv? I mean that's propaganda; that's not analysis. The fact of the matter is [that] Israel has a nuclear deterrent of its own. If it cannot deter the Iranians, why does it have a nuclear deterrent? In that case, why don't they stage a big propaganda ploy and announce that they'll give up their nuclear weapons if the Iranians categorically and credibly give up their nuclear program if they have a weapons program? The fact of the matter is [that] Israel has a couple hundred nuclear weapons, so what are we talking about here, this "existential threat"? Probably Israel, with its two hundred bombs, is more of an existential threat to Iran than Iran is to Israel.
BUCHANAN: Do you think Netanyahu is bluffing [by threatening Iran]?
BRZEZINSKI: I don't know if he's bluffing... the point I'm making is the American national interest would be very adversely affected. And, thinking about world affairs, my point of departure is the American national interest. And that is also the point of departure for the President, for the Secretary of State, and, hopefully (laughs) for the U.S. Congress...
BUCHANAN: Is that the point of departure for Mr. Netanyahu?
BRZEZINSKI: [No.] So, we have to use whatever leverage we have to make it very clear to him that he shouldn't be damaging American national interest. And I don't think it's in Israel's interest to damage us. Because if we are damaged in the long run, then Israel's future is in jeopardy... without the U.S., Israel would not be as safe as it is today.
BERNSTEIN: What's so interesting about this discussion is how different it is from what we read and see in the press. When you get in to a factual discussion, we see that it is not these ideological, easy simplifications. And, we got to get away from that in our public debate and happily we've done it here. But the print press and television press has got to get away from the simplification.
Monday, July 27, 2009
Brzezinski on Iran and Israel
While getting ready this morning, I caught an exchange between Pat Buchanan and Zbigniew Brzezinski (and Carl Bernstein) on Morning Joe. They were discussing the Iranian nuclear threat.
Sunday, July 26, 2009
Loose Ends... Vol. LIII
In the last week, the mainstream media has begun to pick up on the program trading activity which I touched on in my article on Goldman Sachs last weekend. (I know I had nothing to do with it!)
Have a look at this article from London's Financial Times or this one from the New York Times. A lot of the mainstream publicity has come from a report Themis Trading (their blog). As I've noted before, I first learned about this from Zero Hedge.
*****
I'm beginning to formulate my thoughts on health care. I've noticed that the phrase "health insurance reform" is being used instead of "health care reform" lately. While this is an interesting change, you can be sure it is a subtle attempt at propaganda.
*****
I'm traveling again this week, so my posts may be light.
Have a look at this article from London's Financial Times or this one from the New York Times. A lot of the mainstream publicity has come from a report Themis Trading (their blog). As I've noted before, I first learned about this from Zero Hedge.
*****
I'm beginning to formulate my thoughts on health care. I've noticed that the phrase "health insurance reform" is being used instead of "health care reform" lately. While this is an interesting change, you can be sure it is a subtle attempt at propaganda.
*****
I'm traveling again this week, so my posts may be light.
America at the Craps Table
It has struck me as of late of how much focus is placed on a rising stock market. There is an equal amount of cheerleading focused on the economic recovery. Before I continue, I want to get a few disclosures out of the way. High unemployment is bad. People having their 401(k)s or pensions lose significant value is not a good thing. I want this economy to turn-around and find stability. Unfortunately, in my view, in order to find stability we will have to endure pain. I don't think it is masochistic of me to prefer a painful reset which will pave the way for long-term sustainability.
Before I continue, let me explain a bit further. We have experienced consistent growth in GDP over the years, but over the last thirty years (and especially the last fifteen years) much of the growth has been fueled by debt. There is much to be researched and written on this subject and I will save it for another time. The key point is that debt can only expand so much relative to real economic growth. It is healthy for debt to default leading to winners and losers. We have employed a "kick-the-can" policy which only delays the inevitable and makes the future pain that much worse. This is why I'd prefer to experience this pain now rather than later.
So, what does this have to do with craps? Well, in craps there are two primary bets. One can bet on the "Pass" line or one can bet on the "Don't Pass" line. If you bet on the "Pass" line, then you are betting that the shooter (the person rolling the dice) will win. A bet on "Don't Pass" means that you are betting that the shooter will lose. If you've ever played craps, you'd recognize that people almost universally bet "Pass" and then cheer on the shooter.
There are a ton of other things that one can wager on in craps, but these are the basic bets. When the shooter begins the game, the dice are rolled with three possible outcomes. If a 2, 3, or 12 is rolled, the shooter loses. On a 2 or 3, the "Don't Pass" bets are paid even money; on a 12, the "Don't Pass" bets push with the house (they just get their money back). If the shooter rolls a 7 or 11, then the shooter wins and the "Pass" bets are paid even money. In all other cases, the "point" is made. The "point" becomes the target score for the shooter. The game continues until the shooter makes the point (by rolling the same number as the point) or until he/she "craps out" by rolling a 7. The "Pass" bets are paid even money if the shooter makes the point and the "Don't Pass" bets are paid even money if the shooter craps out.
I've taken the liberty of creating my own little chart to show the probabilities of winning with either a "Pass" or "Don't Pass" bet:
As you can see, the "Don't Pass" bet has a slight edge over the "Pass" bet. While the completely rational decision is to never play craps since the odds are against you, it is more rational to bet on "Don't Pass" than it is to bet on "Pass". Yet, people nearly universally bet on "Pass".
I think it's easy to recognize that this mentality is due to wanting to cheer for the shooter and go with the crowd. We see this with the stock markets where mainstream media commentators and even the President of the United States gleefully cheer for the Dow to go higher. Keep in mind that some people do lose money when the markets go higher and other would like to have stocks stay low so that they can buy low after saving more money.
On a secondary note, most of the stock market activity is nothing too different than gambling anyway. Market participants engage in "trading" where they seek to buy and sell stocks and derivatives for quick profits. A much smaller percentage of market volume is a result of investing.
So, while Wall Street gambles in the markets, most Americans seem to watch or place their bets in a attempt to cheer on an ever-growing market. It's not much different the visitor to Vegas who sidles up to the craps table, places chips on the "Pass" line and cheers on the shooter.
Before I continue, let me explain a bit further. We have experienced consistent growth in GDP over the years, but over the last thirty years (and especially the last fifteen years) much of the growth has been fueled by debt. There is much to be researched and written on this subject and I will save it for another time. The key point is that debt can only expand so much relative to real economic growth. It is healthy for debt to default leading to winners and losers. We have employed a "kick-the-can" policy which only delays the inevitable and makes the future pain that much worse. This is why I'd prefer to experience this pain now rather than later.
So, what does this have to do with craps? Well, in craps there are two primary bets. One can bet on the "Pass" line or one can bet on the "Don't Pass" line. If you bet on the "Pass" line, then you are betting that the shooter (the person rolling the dice) will win. A bet on "Don't Pass" means that you are betting that the shooter will lose. If you've ever played craps, you'd recognize that people almost universally bet "Pass" and then cheer on the shooter.
There are a ton of other things that one can wager on in craps, but these are the basic bets. When the shooter begins the game, the dice are rolled with three possible outcomes. If a 2, 3, or 12 is rolled, the shooter loses. On a 2 or 3, the "Don't Pass" bets are paid even money; on a 12, the "Don't Pass" bets push with the house (they just get their money back). If the shooter rolls a 7 or 11, then the shooter wins and the "Pass" bets are paid even money. In all other cases, the "point" is made. The "point" becomes the target score for the shooter. The game continues until the shooter makes the point (by rolling the same number as the point) or until he/she "craps out" by rolling a 7. The "Pass" bets are paid even money if the shooter makes the point and the "Don't Pass" bets are paid even money if the shooter craps out.
I've taken the liberty of creating my own little chart to show the probabilities of winning with either a "Pass" or "Don't Pass" bet:
As you can see, the "Don't Pass" bet has a slight edge over the "Pass" bet. While the completely rational decision is to never play craps since the odds are against you, it is more rational to bet on "Don't Pass" than it is to bet on "Pass". Yet, people nearly universally bet on "Pass".I think it's easy to recognize that this mentality is due to wanting to cheer for the shooter and go with the crowd. We see this with the stock markets where mainstream media commentators and even the President of the United States gleefully cheer for the Dow to go higher. Keep in mind that some people do lose money when the markets go higher and other would like to have stocks stay low so that they can buy low after saving more money.
On a secondary note, most of the stock market activity is nothing too different than gambling anyway. Market participants engage in "trading" where they seek to buy and sell stocks and derivatives for quick profits. A much smaller percentage of market volume is a result of investing.
So, while Wall Street gambles in the markets, most Americans seem to watch or place their bets in a attempt to cheer on an ever-growing market. It's not much different the visitor to Vegas who sidles up to the craps table, places chips on the "Pass" line and cheers on the shooter.
Tuesday, July 21, 2009
House Leaders Warn Obama on Signing Statements
George W. Bush received a lot of criticism from a lot of people. That is an understatement. Much of the criticism echoed a sentiment that his administration repeatedly operated with a great deal of hubris. One area where this hubris was evident in his use of Presidential signing statements.
Signing statements have been used by Presidents for a long time. However, it has been recent administrations which have begun to push the envelope. A signing statement is authored to accompany the passage of legislation. Presidents have used them to challenge the constitutionality of legislation as well as indicate the administrations' plans to downright ignore certain provisions therein. This has been viewed by many as an attempt by the Executive Branch to ignore the divisions of power vested in the Constitution.
Well, Obama, who was highly critical of his predecessor's use of signing statements, has, like just about every other President, decided to build upon his predecessors' interpretation of executive power. However, some people, even Democrats are openly critical.
With the passage of H.R. 2346, the famous "Omnibus Bill", Obama issued a signing statement which included the following (full text here):
For your further reading pleasure, consider Obama's March 9 memo regarding how the administration plans to use signing statements.
Signing statements have been used by Presidents for a long time. However, it has been recent administrations which have begun to push the envelope. A signing statement is authored to accompany the passage of legislation. Presidents have used them to challenge the constitutionality of legislation as well as indicate the administrations' plans to downright ignore certain provisions therein. This has been viewed by many as an attempt by the Executive Branch to ignore the divisions of power vested in the Constitution.
Well, Obama, who was highly critical of his predecessor's use of signing statements, has, like just about every other President, decided to build upon his predecessors' interpretation of executive power. However, some people, even Democrats are openly critical.
With the passage of H.R. 2346, the famous "Omnibus Bill", Obama issued a signing statement which included the following (full text here):
However, provisions of this bill within sections 1110 to 1112 of title XI, and sections 1403 and 1404 of title XIV, would interfere with my constitutional authority to conduct foreign relations by directing the Executive to take certain positions in negotiations or discussions with international organizations and foreign governments, or by requiring consultation with the Congress prior to such negotiations or discussions. I will not treat these provisions as limiting my ability to engage in foreign diplomacy or negotiations.Barney Frank (D-MA) and three other members of the House who chair various committees authored a letter to Obama expressing their concern with his use of a signing statement with this bill. Consider the following (full text here):
During the previous administration, all of us were critical of the President’s assertion that he could pick and choose which aspects of congressional statutes he was required to enforce. We were therefore chagrined to see you appear to express a similar attitude.I'm not going to attempt to render any of my own constitutional judgment to Obama's actions. However, I am very skeptical of any attempt to usurp the Constitution's intended balance of powers. Kudos to the Democrats willing to call out Obama on the same.
For your further reading pleasure, consider Obama's March 9 memo regarding how the administration plans to use signing statements.
Monday, July 20, 2009
Happy Anniversary
A self-congratulatory "Happy Anniversary" to Stop Taking Soma! Nicole and I started this website one year ago. I'm a bit surprised that we're still going.
Your feedback and comments are welcome as to how we can make this site better. I hope to be able to continue to inform and challenge readers on current events, politics, economics and history.
Thanks to all loyal readers (I know you're out there)!
Your feedback and comments are welcome as to how we can make this site better. I hope to be able to continue to inform and challenge readers on current events, politics, economics and history.
Thanks to all loyal readers (I know you're out there)!
SIGTARP Report Tomorrow
Neil Barofsky is the Special Inspector General for the Troubled Assets Relief Program (SIGTARP). That may be difficult to fit on a business card.
Barofsky is making headlines today on two fronts. First, he has released his latest report from the office of SIGTARP entitled "Survey Demonstrates that Banks Can Provide Meaningful Information on Their Use of TARP Funds" - dang, that's another mouthful. The report is forty-four pages long and can be read here. It is difficult to say exactly how TARP funds are used since money is fungible. If I give you twenty dollars and you go to the grocery store and spend ninety dollars, you probably won't be able to tell me precisely how you spent the twenty dollars.
However, Barofsky's report comes with the following summary:
$23,700,000,000,000.00 - that's $23.7 trillion, almost double the U.S. GDP.
The story can be read here. I'm looking forward to his testimony which I'm sure will be covered on CSPAN.
Now, in the spirit of full disclosure, which we feel is important, it should be noted that this will likely not be the cost of the bailouts. Without seeing the details, I'm sure this covers loan guarantees which will not likely lose 100%. For example, in many cases the Treasury, FDIC, or Fed has provided a loan guarantee for a bank (such as Bank of America or Citigroup). In these circumstances, the government has promised to pay back loans to creditors if the bank is unable to do so. A complete loss on the guarantee would only be recognized if the bank went bankrupt without repaying any of their guaranteed debt. The Treasury Department has been quick to point this out and paint Barofsky's report as hyperbole.
Nonetheless, $24T is outrageous.
Barofsky is making headlines today on two fronts. First, he has released his latest report from the office of SIGTARP entitled "Survey Demonstrates that Banks Can Provide Meaningful Information on Their Use of TARP Funds" - dang, that's another mouthful. The report is forty-four pages long and can be read here. It is difficult to say exactly how TARP funds are used since money is fungible. If I give you twenty dollars and you go to the grocery store and spend ninety dollars, you probably won't be able to tell me precisely how you spent the twenty dollars.
However, Barofsky's report comes with the following summary:
Although most banks reported that they did not segregate or track TARP fund usage on a dollar-for-dollar basis, most banks were able to provide insights into their actual or planned use of TARP funds. Over 98% of survey recipients reported their actual uses of TARP funds.Barofsky is set to testify before the House Committee on Oversight and Government Reform tomorrow morning. This report, however, is not the bombshell. The news media apparently has an advance copy of his prepared testimony where he states the the total cost of our government bailouts could reach... wait for it...
$23,700,000,000,000.00 - that's $23.7 trillion, almost double the U.S. GDP.
The story can be read here. I'm looking forward to his testimony which I'm sure will be covered on CSPAN.
Now, in the spirit of full disclosure, which we feel is important, it should be noted that this will likely not be the cost of the bailouts. Without seeing the details, I'm sure this covers loan guarantees which will not likely lose 100%. For example, in many cases the Treasury, FDIC, or Fed has provided a loan guarantee for a bank (such as Bank of America or Citigroup). In these circumstances, the government has promised to pay back loans to creditors if the bank is unable to do so. A complete loss on the guarantee would only be recognized if the bank went bankrupt without repaying any of their guaranteed debt. The Treasury Department has been quick to point this out and paint Barofsky's report as hyperbole.
Nonetheless, $24T is outrageous.
Sunday, July 19, 2009
Loose Ends... Vol. LII
Volume fifty-two... almost a year in the books...
Shortly after I finished writing my article on Goldman Sachs earlier today, I came across this article by Paul Krugman of the New York Times. It was written a few days ago and is focused on the large profits reported by Goldman Sachs earlier this week and the large payouts it is giving its employees. I don't often agree with Krugman as frequent readers can attest, but I felt he was fairly spot-on in this piece. There is a place for the big boys of finance in an economic system. But, much of their money is made by operating as a large hedge fund with the special privileges of a government-backed bank.
*****
David Nolan, founder of the Libertarian Party, issued an open letter to the members of the Libertarian National Committee as they prepared to kickoff their meetings this weekend in St. Louis. In it, Nolan challenged the LNC to put aside "internal bickering" and focus on their message. He calls for a return to principles and bold action. The following quote is worth consideration:
In response to Nolan, Indiana LP Executive Director Chris Spangle offers a rebuttal on his blog. Spangle offers that if the LP is not interested in applying political science to win elections, then they may as well become a think tank and debate political theory. Well stated, Mr. Spangle. I could not agree more. Based on my own informal research to-date, the Indiana LP is perhaps the most well-organized and practical chapter of the LP in the country. This is the reason why I still may choose to join the LP.
One last point... I find it interesting that Nolan and other prominent members of the LP embrace Ron Paul so much when Paul is a committed Republican. Paul is by no means a radical libertarian in practice. He plays the game enough to get elected. He's willing to compromise staunch libertarian principle and act as a member of a statist party.
Shortly after I finished writing my article on Goldman Sachs earlier today, I came across this article by Paul Krugman of the New York Times. It was written a few days ago and is focused on the large profits reported by Goldman Sachs earlier this week and the large payouts it is giving its employees. I don't often agree with Krugman as frequent readers can attest, but I felt he was fairly spot-on in this piece. There is a place for the big boys of finance in an economic system. But, much of their money is made by operating as a large hedge fund with the special privileges of a government-backed bank.
*****
David Nolan, founder of the Libertarian Party, issued an open letter to the members of the Libertarian National Committee as they prepared to kickoff their meetings this weekend in St. Louis. In it, Nolan challenged the LNC to put aside "internal bickering" and focus on their message. He calls for a return to principles and bold action. The following quote is worth consideration:
As I see it, the Libertarian Party has gone far astray from its original mission. Somewhere along the way, our commitment to being The Party of Principle was replaced by a shallow, opportunistic goal of "winning elections now" -- any election, anywhere. Principles be damned, according to the proponents of this vision. We should back off from "scary" positions, tone down our rhetoric, find out "what voters want," and tailor our message to what they want to hear.This is, in large part, why I am not a member of the Libertarian Party. There is much talk of the need for the GOP to return to a "big tent" strategy. The LP, already a pretty small tent, has prominent members calling for a smaller tent. The LP is fractured, mismanaged, and desperately in need of either leadership or dissolution.
In response to Nolan, Indiana LP Executive Director Chris Spangle offers a rebuttal on his blog. Spangle offers that if the LP is not interested in applying political science to win elections, then they may as well become a think tank and debate political theory. Well stated, Mr. Spangle. I could not agree more. Based on my own informal research to-date, the Indiana LP is perhaps the most well-organized and practical chapter of the LP in the country. This is the reason why I still may choose to join the LP.
One last point... I find it interesting that Nolan and other prominent members of the LP embrace Ron Paul so much when Paul is a committed Republican. Paul is by no means a radical libertarian in practice. He plays the game enough to get elected. He's willing to compromise staunch libertarian principle and act as a member of a statist party.
Goldman Sachs
I was twenty-eight years old before I had even heard of Goldman Sachs. In retrospect, I suppose that's a bit of surprise considering they are one of the largest and most influential companies in the world. On the other hand, I never had much interest in the financial markets when I was younger nor any sort of fascination with Wall Street.
Since the beginning of the height of the financial crisis last September, I have become much more aware of both the markets and Goldman Sachs. I've noted before on this site that Goldman Sachs has not only been the recipient of taxpayer largess via AIG but also has a network of former employees in influential government positions. The so-called mainstream media has been relatively quiet on these facts, but the chatter is beginning to pick up.
Glenn Beck of FoxNews and Matt Taibbi of Rolling Stone have recently begun to expose the tangled web of Goldman Sachs to mainstream audiences. This video of Max Keiser, linked via Taibbi's blog, has begun making the rounds in cyberspace. A follow-up can be viewed here. I'll grant you that Beck, Taibbi, Keiser and others who rant against Goldman Sachs may be considered to be peddlers of hyperbole, but the facts remain true.
Beyond the network of power wielded by former Goldman Sachs executives, there is the question of market manipulation. Taibbi's article places much of its focus on their ability to create and/or take advantage of economic bubbles. However, two other stories which I've been watching consider the potential for market manipulation today.
Goldman Sachs participates in what is called program trading. The New York Stock Exchange (NYSE) defines program trading as "a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1 million or more." The NYSE publishes a weekly report summarizing the volume of program trading and providing data on the top fifteen most active firms. Goldman Sachs is usually number one on the list. In the most recent report, one can see that Goldman Sachs's program trading accounted for 7.7% of all volume on the NYSE. The report which covered activity for the week of June 22-26 was initially missing Goldman Sachs. An NYSE press release explained that the omission was due to "an NYSE system error" which seems a tad implausible to me. This is given that most of the data was correct in the first report (other than missing Goldman Sachs). That week, their program trading activity accounted for 16.9% of all NYSE volume.
The volume of program trading volume was brought to my attention by the blog Zero Hedge. These guys are animals when it comes to following the financial markets and I have learned a lot by reading their blog. I do not know enough about how the markets truly work to know whether or not these volumes of program trading should be a concern. However, another story, which I first read on Zero Hedge, indicates that Goldman Sachs and the FBI are concerned.
Sergey Aleynikov is a former Goldman Sachs employee. He was arrested on July 3 at Newark's Liberty International airport. Aleynikov is accused of stealing "proprietary, high-quantity, high-volume trading" software from Goldman Sachs. As this article from Bloomberg indicates, U.S. Attorney Joseph Facciponte told the court that "[t]he bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways." (More details in this Bloomberg story.)
Now hold on just a second. If this software is in the wrong hands it could be used to manipulate the market? I suppose Goldman Sachs does not use this software to manipulate the market? How can that be determined? This is their own admission! This must be investigated!!
Meanwhile this week, Goldman Sachs reported record earnings of $3.4B in the second quarter of 2009. This is after receiving billions in TARP money, billions more in backdoor bailouts via AIG, massive trading profits from program trading operations using software which might be capable of manipulating the market, and a first quarter profit which was mysteriously missing a month full of writedowns.
Employee compensation at Goldman Sachs for 2009 has risen to record highs with the average employee earning $386,429.
Since the beginning of the height of the financial crisis last September, I have become much more aware of both the markets and Goldman Sachs. I've noted before on this site that Goldman Sachs has not only been the recipient of taxpayer largess via AIG but also has a network of former employees in influential government positions. The so-called mainstream media has been relatively quiet on these facts, but the chatter is beginning to pick up.
Glenn Beck of FoxNews and Matt Taibbi of Rolling Stone have recently begun to expose the tangled web of Goldman Sachs to mainstream audiences. This video of Max Keiser, linked via Taibbi's blog, has begun making the rounds in cyberspace. A follow-up can be viewed here. I'll grant you that Beck, Taibbi, Keiser and others who rant against Goldman Sachs may be considered to be peddlers of hyperbole, but the facts remain true.
Beyond the network of power wielded by former Goldman Sachs executives, there is the question of market manipulation. Taibbi's article places much of its focus on their ability to create and/or take advantage of economic bubbles. However, two other stories which I've been watching consider the potential for market manipulation today.
Goldman Sachs participates in what is called program trading. The New York Stock Exchange (NYSE) defines program trading as "a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1 million or more." The NYSE publishes a weekly report summarizing the volume of program trading and providing data on the top fifteen most active firms. Goldman Sachs is usually number one on the list. In the most recent report, one can see that Goldman Sachs's program trading accounted for 7.7% of all volume on the NYSE. The report which covered activity for the week of June 22-26 was initially missing Goldman Sachs. An NYSE press release explained that the omission was due to "an NYSE system error" which seems a tad implausible to me. This is given that most of the data was correct in the first report (other than missing Goldman Sachs). That week, their program trading activity accounted for 16.9% of all NYSE volume.
The volume of program trading volume was brought to my attention by the blog Zero Hedge. These guys are animals when it comes to following the financial markets and I have learned a lot by reading their blog. I do not know enough about how the markets truly work to know whether or not these volumes of program trading should be a concern. However, another story, which I first read on Zero Hedge, indicates that Goldman Sachs and the FBI are concerned.
Sergey Aleynikov is a former Goldman Sachs employee. He was arrested on July 3 at Newark's Liberty International airport. Aleynikov is accused of stealing "proprietary, high-quantity, high-volume trading" software from Goldman Sachs. As this article from Bloomberg indicates, U.S. Attorney Joseph Facciponte told the court that "[t]he bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways." (More details in this Bloomberg story.)
Now hold on just a second. If this software is in the wrong hands it could be used to manipulate the market? I suppose Goldman Sachs does not use this software to manipulate the market? How can that be determined? This is their own admission! This must be investigated!!
Meanwhile this week, Goldman Sachs reported record earnings of $3.4B in the second quarter of 2009. This is after receiving billions in TARP money, billions more in backdoor bailouts via AIG, massive trading profits from program trading operations using software which might be capable of manipulating the market, and a first quarter profit which was mysteriously missing a month full of writedowns.
Employee compensation at Goldman Sachs for 2009 has risen to record highs with the average employee earning $386,429.
Saturday, July 18, 2009
Small Steps to Big Government
I was out driving today and came to a major intersection. There were several men at each spoke walking up and down the streets, along the medians, between lanes, asking for donations. I'm not sure what they were collecting money for.
I found myself thinking, "this is a little annoying, do they have a permit for this?" Gasp! A permit?! Why should they need a permit? Why do they need the government's permission to try to raise money for their cause.
I quickly realized the error and inconsistency of my thoughts. Sure, I might find it annoying to be bothered while I'm driving. In fact, it was all a bit silly anyways since they did not even "accost" me. They were not doing any harm to anyone. They were not damaging property. There was no violation of basic rights. As such, there is no reasonable need for a permit even if it were required.
There are things in life which may annoy us. But, unless these things are forced upon us and violate our basic rights, there is really no need to create laws or regulations. The overwhelming power of the government and system of laws has become second nature to us. It has come to the point where people are quick to desire a pet law to help manage a pet peeve.
It may seem like a small thing. But, the government has no business with such things. We have allowed government to use force to make our lives easier rather than protect and defend. The U.S. was not meant to be this way. The expansion of democracy through the Progressive Era, a Supreme Court which has endorsed a Living Constitution, and an electoral system designed to protect incumbents and special interests have all contributed to a society which prefers to live by the creation of new laws rather than by freedom and liberty.
Next time you find yourself thinking that we need a new law or that a particular good or service needs to be taxed, take a step back and reflect. Are you trying to manage a pet peeve with a pet law, or are you truly trying to protect your rights to life, liberty or property?
I found myself thinking, "this is a little annoying, do they have a permit for this?" Gasp! A permit?! Why should they need a permit? Why do they need the government's permission to try to raise money for their cause.
I quickly realized the error and inconsistency of my thoughts. Sure, I might find it annoying to be bothered while I'm driving. In fact, it was all a bit silly anyways since they did not even "accost" me. They were not doing any harm to anyone. They were not damaging property. There was no violation of basic rights. As such, there is no reasonable need for a permit even if it were required.
There are things in life which may annoy us. But, unless these things are forced upon us and violate our basic rights, there is really no need to create laws or regulations. The overwhelming power of the government and system of laws has become second nature to us. It has come to the point where people are quick to desire a pet law to help manage a pet peeve.
It may seem like a small thing. But, the government has no business with such things. We have allowed government to use force to make our lives easier rather than protect and defend. The U.S. was not meant to be this way. The expansion of democracy through the Progressive Era, a Supreme Court which has endorsed a Living Constitution, and an electoral system designed to protect incumbents and special interests have all contributed to a society which prefers to live by the creation of new laws rather than by freedom and liberty.
Next time you find yourself thinking that we need a new law or that a particular good or service needs to be taxed, take a step back and reflect. Are you trying to manage a pet peeve with a pet law, or are you truly trying to protect your rights to life, liberty or property?
Thinking About Democracy
The title to this entry suggests a long entry. I'm going to keep this one short. On the way to England, I finished reading H.L. Mencken's Notes on Democracy. It's a fascinating read and I wanted to share some of my thoughts.
Mencken was one of the most prominent journalists of the early 20th century in the U.S. As a resident of Baltimore, he lived through both WWI and WWII as a German-American. His views were often controversial and this book is an amazing piece of work - especially considering it was published in 1926.
I highly recommend this book to anyone; however, I must warn you. First, it is difficult to read. Mencken's prose is very colorful, his vocabulary deep, and the book is filled with contemporaneous references (which are explained well in the notes). Second, it is a scathing attack on democratic principles. He does not necessarily offer alternatives and is quite pessimistic. However, it is eye-opening and well argued.
Read it if you dare.
Mencken was one of the most prominent journalists of the early 20th century in the U.S. As a resident of Baltimore, he lived through both WWI and WWII as a German-American. His views were often controversial and this book is an amazing piece of work - especially considering it was published in 1926.
I highly recommend this book to anyone; however, I must warn you. First, it is difficult to read. Mencken's prose is very colorful, his vocabulary deep, and the book is filled with contemporaneous references (which are explained well in the notes). Second, it is a scathing attack on democratic principles. He does not necessarily offer alternatives and is quite pessimistic. However, it is eye-opening and well argued.
Read it if you dare.
Monday, July 13, 2009
Loose Ends... Vol. LI
I'm in the UK right now and just got to my hotel. I'm not sure how much I'll be able to post this week until I get back to the States.
There have been some interesting stories on Goldman Sachs, the progression of the "Audit the FED" bill, and other goings-on. I'll try to at least get some links up to some articles and provide some commentary on this before the week is out.
There have been some interesting stories on Goldman Sachs, the progression of the "Audit the FED" bill, and other goings-on. I'll try to at least get some links up to some articles and provide some commentary on this before the week is out.
Sunday, July 12, 2009
On Funding Israel
On Thursday, the House voted on an appropriations bill for the State Department. H.R. 3081 provides funding for the department's operations including foreign aid. It checks in at a healthy 200 pages.
I was not following this bill or the action around it, but did catch Rep. Virginia Foxx (R-NC) on CSPAN later that afternoon. The full text of her remarks follows (courtesy of THOMAS):
Interestingly, Foxx is the Republican who Ron Paul (R-TX) most often votes with. He obviously voted against the State Department funding along with 96 other Republicans and 9 Democrats.
I was not following this bill or the action around it, but did catch Rep. Virginia Foxx (R-NC) on CSPAN later that afternoon. The full text of her remarks follows (courtesy of THOMAS):
Mr. Speaker, the vote that I took this afternoon on H.R. 3081 was one of the toughest votes that I have had to take in this House since I have been here in my 4 1/2 years. The problem with the bill and with the decision that had to be made is because the bill contained funding for aid to Israel, our best friend in the world.My translation... "Even though I voted against this, I still love Israel. Please continue to fund my campaign despite this vote!"I have always been and will continue to be an extremely strong supporter of Israel. Israel has always been a good friend to the United States, and the people of this country and the people of Israel share the same values. However, the bill had so many flaws that it made it very difficult for a pro-life fiscal conservative such as myself to vote for the bill despite my very strong support for Israel.
The bill, when emergency supplemental funds were not taken into account, was still 32 percent more than the regular fiscal year 2009 appropriations. I am taking the liberty of using some of the figures from my colleague, the gentleman from Georgia (Mr. Price), which were also presented today on the floor in terms of explaining the bill that we voted on this afternoon.
We are facing a fiscal crisis in this country. This administration and this Congress, led by Speaker Pelosi, are spending this country into a terrible, terrible situation. We are mortgaging our children and grandchildren's future with excess spending; and it has to stop somewhere.
Had this bill merely contained the funding for Israel, it would have been very easy for me to have supported it, although I was quite concerned that the bill reduced the funding for Israel by 7.2 percent below last year's funding level and 23.3 percent below the request. But, as I said earlier, the total bill had an increase of 33.8 percent compared to last year.
One of the most troubling increases in this bill was a 20 percent increase to the United Nations Population Fund and a 19 percent increase to International Family Planning. The United Nations Population Fund aids China's one-child policy, coercive abortion, and sterilization. International Family Planning goes to organizations that promote and provide abortion services through International Planned Parenthood Federation and Marie Stokes International.
In addition, the Democrats had rejected four cost-cutting Republican amendments that had been presented which could have made this bill a lot more palatable to the 97 Republicans who voted against it.
Another problem with the bill is that there was a false assumption that the Obama administration will live up to its promise of no more war supplementals for Iraq and Afghanistan. The President has gone back on every promise that he made during the campaign. He has already asked for a supplemental this year, says it was a carryover from last year, but that won't happen again. However, before the ink was dry on the amended full committee report of this bill, the chairman of the Defense Appropriations Subcommittee, Congressman Murtha, publicly stated that another supplemental is necessary to fund the troops because of the low fiscal year 2010 Defense allocation.
So the promise was that all of the money for the war was going to be here and we wouldn't have to do more supplementals. That isn't going to happen.
This bill also avoids making hard fiscal choices about spending abroad while we face a financial crisis here. This is not the way we should be going. We should be funding our friends and our allies. We should be helping Israel which is the only true democracy in the Middle East and who stands by us year after year, day after day. But funding things like abortion and international family planning is not the way to go.
Interestingly, Foxx is the Republican who Ron Paul (R-TX) most often votes with. He obviously voted against the State Department funding along with 96 other Republicans and 9 Democrats.
The Failures of Central Planning
The talk of a second stimulus is beginning to pick up. It should go without saying that I do not support any additional "stimulus" - but, regardless of my views on the pros and cons, the whole debate needs to be viewed from a different perspective. Instead of Republicans and Democrats debating policy, or economists discussing multipliers and the GDP gap, we should focus on the failure of central planning.
Let's back up for a moment... We need to begin the discussion with the role of government. On one extreme there is anarchy. On the other extreme there is dictatorship under a collectivist economy. I have previously described myself as a minarchist. I'll concede to the anarcho-capitalists out there that constructing an intellectually consistent argument for even a small government is difficult without accepting some form of central planning. However, the scope of government in the U.S. (and just about everywhere else) goes well beyond my definition of "small" making the minarchist/anarchist debate a trivial one in this context.
Any government beyond the smallest of governments implies a degree of central planning. Government cannot operate on its own. It must extract the wealth of its citizens via taxes to function. Government expenditures then "re-distribute" that wealth towards services or projects which it deems necessary (i.e. for the common good). Please note, I am not equating all government spending with socialism. But, nearly all forms of government spending do involve wealth redistribution. The general populace supports this activity because they consent to central planning provided it has the check of democracy. Volumes could be written to discuss this, but it is not the focus of this article.
Why do we support central planning? There can only be two logical explanations. First, it may be conceded that the government has more information and employs the best personnel in order to make the best decisions. This may manifest in decisions on how to spend or invest money to stimulate or enhance the economy. Examples include the FED managing interest rates, true Keynesian stimulus spending, and all other programs designed to correct the free market. Central planning may also be supported on the premise that the government can do more for the common good than the free market. This implies that individuals will not support the common good and intervention is required to provide charity and overcome issues such as the tragedy of the commons.
Now let us review the economic stimulus package - the American Recovery and Reinvestment Act. $787 billion has been committed to save the economy and drive investment. There has been more exposure lately that it has failed to deliver on its promises. The premise of the stimulus was that it would create or save jobs. This is a difficult thing to prove, but is generally done by examining actual results versus a preset forecast of what would happen in the absence of the action. This is precisely what both the White House and the independent CBO did to analyze the potential impact of the stimulus.
Let's review this graph which was supplied by Christina Romer and Jared Bernstein - the Chair of the Council of Economic Advisers and the Chief Economist to Joe Biden. This came from a report which was provided before Obama's inauguration in advance support of the stimulus package.
Source: "The Job Impact of the American Recovery and Reinvestment Plan" (linked above) with my own markups
This graph and my notes (click to enlarge the graph) provide only two possible conclusions. Either the administration seriously overestimated the impact of the stimulus or they underestimated the severity of the recession and the impact it would have on unemployment. Their estimates (which were echoed by the CBO and the Democratic Congress) indicated that the stimulus would have shaved one-half percentage point off of unemployment by now. Additionally, they estimated that unemployment would be under 8%. Given that unemployment is well over 9%, the latter estimate can be dismissed as error. So, this implies that their original forecast for unemployment was either way too optimistic or the stimulus has failed having a severe negative effect.
Did our central planners fail to recognize the severity of the recession? Or did they implement a stimulus package which has made the economy much worse than expected? They will tell you that they underestimated the depth of the recession. But, does this really make you feel more comfortable? Should this lead us to place more faith in central planning?
This is not a "blame Obama" missive. Administration after administration, Republicans and Democrats alike, have all failed in their central planning adventures.
Let's back up for a moment... We need to begin the discussion with the role of government. On one extreme there is anarchy. On the other extreme there is dictatorship under a collectivist economy. I have previously described myself as a minarchist. I'll concede to the anarcho-capitalists out there that constructing an intellectually consistent argument for even a small government is difficult without accepting some form of central planning. However, the scope of government in the U.S. (and just about everywhere else) goes well beyond my definition of "small" making the minarchist/anarchist debate a trivial one in this context.
Any government beyond the smallest of governments implies a degree of central planning. Government cannot operate on its own. It must extract the wealth of its citizens via taxes to function. Government expenditures then "re-distribute" that wealth towards services or projects which it deems necessary (i.e. for the common good). Please note, I am not equating all government spending with socialism. But, nearly all forms of government spending do involve wealth redistribution. The general populace supports this activity because they consent to central planning provided it has the check of democracy. Volumes could be written to discuss this, but it is not the focus of this article.
Why do we support central planning? There can only be two logical explanations. First, it may be conceded that the government has more information and employs the best personnel in order to make the best decisions. This may manifest in decisions on how to spend or invest money to stimulate or enhance the economy. Examples include the FED managing interest rates, true Keynesian stimulus spending, and all other programs designed to correct the free market. Central planning may also be supported on the premise that the government can do more for the common good than the free market. This implies that individuals will not support the common good and intervention is required to provide charity and overcome issues such as the tragedy of the commons.
Now let us review the economic stimulus package - the American Recovery and Reinvestment Act. $787 billion has been committed to save the economy and drive investment. There has been more exposure lately that it has failed to deliver on its promises. The premise of the stimulus was that it would create or save jobs. This is a difficult thing to prove, but is generally done by examining actual results versus a preset forecast of what would happen in the absence of the action. This is precisely what both the White House and the independent CBO did to analyze the potential impact of the stimulus.
Let's review this graph which was supplied by Christina Romer and Jared Bernstein - the Chair of the Council of Economic Advisers and the Chief Economist to Joe Biden. This came from a report which was provided before Obama's inauguration in advance support of the stimulus package.
Source: "The Job Impact of the American Recovery and Reinvestment Plan" (linked above) with my own markupsThis graph and my notes (click to enlarge the graph) provide only two possible conclusions. Either the administration seriously overestimated the impact of the stimulus or they underestimated the severity of the recession and the impact it would have on unemployment. Their estimates (which were echoed by the CBO and the Democratic Congress) indicated that the stimulus would have shaved one-half percentage point off of unemployment by now. Additionally, they estimated that unemployment would be under 8%. Given that unemployment is well over 9%, the latter estimate can be dismissed as error. So, this implies that their original forecast for unemployment was either way too optimistic or the stimulus has failed having a severe negative effect.
Did our central planners fail to recognize the severity of the recession? Or did they implement a stimulus package which has made the economy much worse than expected? They will tell you that they underestimated the depth of the recession. But, does this really make you feel more comfortable? Should this lead us to place more faith in central planning?
This is not a "blame Obama" missive. Administration after administration, Republicans and Democrats alike, have all failed in their central planning adventures.
Wednesday, July 8, 2009
Politicians Can Control the Weather
They at least hope that they can control the weather.
The leaders of the G8 nations (Canada, France, Germany, Italy, Japan, Russia, U.K., and U.S.) are currently meeting in Italy for their annual get together. They released a 40-page declaration today which included the following:
The leaders of the G8 nations (Canada, France, Germany, Italy, Japan, Russia, U.K., and U.S.) are currently meeting in Italy for their annual get together. They released a 40-page declaration today which included the following:
We reaffirm the importance of the work of the Intergovernmental Panel on Climate Change (IPCC) and notably of its Fourth Assessment Report, which constitutes the most comprehensive assessment of the science. We recognise the broad scientific view that the increase in global average temperature above pre-industrial levels ought not to exceed 2°C.Cool. I wish I could control the weather.
Gordon Brown and Spending
If you are a frequent reader of this blog, you know that Nicole and I like to watch Prime Minister's Questions on CSPAN. If you are not familiar, it's a half hour show where members of Parliament get to pepper the Prime Minister with questions. Lately, I've found it amusing how braggadocios Brown is when it comes to spending.
I found this interchange between Brown and Conservative Party leader, David Cameron, particularly amusing:
Gordon Brown is an absolute neo-Keynesian fool. Paul Krugman must be so proud of him. Britain's budget is in worse shape than ours. The deficit is now forecasted to be 12% of GDP (current official estimate in the U.S. is about 9%) and public debt may grow to over 80% of GDP of the coming years. The U.K. does not have the benefit of having its currency as the world's reserve currency either. In other words, printing money is much more dangerous than it is here. Government debt (or the printing of pounds) will only serve to steal potential capital which could be used for investment and stave off long-term fiscal and employment issues.
Brown has also lambasted Cameron and the Conservatives on the basis that they want to cut spending since they believe that unemployment will grow until 2014. He calls them the "party of unemployment" - funny stuff. Ridiculous, of course... but funny. A new report quotes Gordon Brown in advance of the G8 summit saying,
I found this interchange between Brown and Conservative Party leader, David Cameron, particularly amusing:
Cameron: Will the Prime Minister accept that his own figures show that once the Treasury's own forecast for inflation is considered, that total spending will be cut after 2011?I can't get enough of the laughter. Great stuff.
Brown: No, Mr. Speaker, total spending will continue to rise and it will be at a zero percent rise in 2013-14.
Parliament:
Gordon Brown is an absolute neo-Keynesian fool. Paul Krugman must be so proud of him. Britain's budget is in worse shape than ours. The deficit is now forecasted to be 12% of GDP (current official estimate in the U.S. is about 9%) and public debt may grow to over 80% of GDP of the coming years. The U.K. does not have the benefit of having its currency as the world's reserve currency either. In other words, printing money is much more dangerous than it is here. Government debt (or the printing of pounds) will only serve to steal potential capital which could be used for investment and stave off long-term fiscal and employment issues.
Brown has also lambasted Cameron and the Conservatives on the basis that they want to cut spending since they believe that unemployment will grow until 2014. He calls them the "party of unemployment" - funny stuff. Ridiculous, of course... but funny. A new report quotes Gordon Brown in advance of the G8 summit saying,
If we do not take the necessary action now to strengthen the world economy and put in place the conditions for sustainable world growth, we will be confronted with avoidable unemployment for years to come.Now, Brown doesn't state that unemployment will grow until 2014, but he clearly believes that only the government, via massive spending, can take the action to avoid such a calamity. This does sound to me that he does not believe that his own plans for Keynesian stimulus will be enough - he needs coordinated spending efforts from his G8 partners.
Sunday, July 5, 2009
Loose Ends... Vol. L
Indiana passed a budget this week and avoided a partial shut down of state operations. I have not been able to find a nice summary of the budget; I'll keep looking. In the meantime, I'd like to offer the data in the table below.
Source: Bureau of Economic Analysis, Sunshine Review, and Stats Indiana
As you can see, government expenditures have been increasing since 2000. The amount of spending as a percentage of state GDP has also been increasing. Not surprisingly, per capita spending has also been on the rise. This data is in nominal dollars and not adjusted for inflation. I'll keep looking for a good summary of what was passed and how it stacks up related to this data.
*****
California did not pass a budget to close the gap. They have effectively run out of money and are issuing IOU's (registered warrants) instead of cutting checks. You can review the dire situation here at the Controller's website.
This is an important story to follow. There is no comfortable way to close the massive budget deficit in California. They have delayed taking significant steps and are on the verge of default. It's game of chicken between the state and Washington D.C. The talk of California receiving a bailout should heat up soon.
*****
Happy Independence Day! (A day late.)
Have a read of the Declaration of Independence here.
Source: Bureau of Economic Analysis, Sunshine Review, and Stats IndianaAs you can see, government expenditures have been increasing since 2000. The amount of spending as a percentage of state GDP has also been increasing. Not surprisingly, per capita spending has also been on the rise. This data is in nominal dollars and not adjusted for inflation. I'll keep looking for a good summary of what was passed and how it stacks up related to this data.
*****
California did not pass a budget to close the gap. They have effectively run out of money and are issuing IOU's (registered warrants) instead of cutting checks. You can review the dire situation here at the Controller's website.
This is an important story to follow. There is no comfortable way to close the massive budget deficit in California. They have delayed taking significant steps and are on the verge of default. It's game of chicken between the state and Washington D.C. The talk of California receiving a bailout should heat up soon.
*****
Happy Independence Day! (A day late.)
Have a read of the Declaration of Independence here.
Saturday, July 4, 2009
Third and Final Update on S&P Forecast
Independence Day has arrived. It is the day of reckoning for my S&P 500 forecast. (You can review my last update here which has links to the original post and first update if you are interested.)
The S&P closed yesterday at 896.42 which leaves my prediction as a failure. I was calling for the S&P to trade in the 600-640 range by this time. We hit a low of 666.79 in March and rallied back to current levels. I admit and accept defeat.
The latest version of the S&P earnings forecasts can be found here. The picture is about the same as it was in our last update on Memorial Day. The earnings forecast for 2009 now sits at $55.61. The trailing twelve months at the end of June yielded earnings of just $40.15 which implies a huge trailing P/E ratio of 22.9. It is difficult to say whether this is too optimistic at this point or not.
However, despite all the talk about the economy being in the early stages of recovery, I think we are still in for some tough times. California is bankrupt, commercial real estate is about to implode, the housing market has not yet hit bottom, huge volumes of Alt-A and other adjustable mortgages have yet to reset, and we continue to dig ourselves deeper into debt. This is not a typical recession.
The S&P closed yesterday at 896.42 which leaves my prediction as a failure. I was calling for the S&P to trade in the 600-640 range by this time. We hit a low of 666.79 in March and rallied back to current levels. I admit and accept defeat.
The latest version of the S&P earnings forecasts can be found here. The picture is about the same as it was in our last update on Memorial Day. The earnings forecast for 2009 now sits at $55.61. The trailing twelve months at the end of June yielded earnings of just $40.15 which implies a huge trailing P/E ratio of 22.9. It is difficult to say whether this is too optimistic at this point or not.
However, despite all the talk about the economy being in the early stages of recovery, I think we are still in for some tough times. California is bankrupt, commercial real estate is about to implode, the housing market has not yet hit bottom, huge volumes of Alt-A and other adjustable mortgages have yet to reset, and we continue to dig ourselves deeper into debt. This is not a typical recession.
Tegucigalpa, We Have a Problem
I've been keeping an eye on the situation in Honduras which evolved this week. If you have not heard, there is political unrest due to an alleged coup d'etat in the small nation in Central America. President Manuel Zelaya was captured by the military and exiled on June 28. The action has been nearly universally condemned. Here's what's gone down...
Zelaya was elected on November 27, 2005 and took office the following January. In Honduras, the President is limited to serving just one four-year term. Zelaya is a member of the Liberal Party of Honduras (PLH); the National Party of Honduras (PNH) is the other main party in Honduras and leans to the right. The Honduran Constitution explicitly prohibits amendments which would allow for the President to serve more than one term. Zelaya was calling for a referendum in November to allow for the convening of a Constitutional Convention. Despite his low approval ratings, it was considered to be a ploy by which Zelaya would seek an amendment which would allow for Presidents to serve multiple terms.
Latin America has a history powerful heads of state which rule for long periods of time. These often are formed as or devolve into dictatorships. Conscious of this danger, the Honduran Constitution goes as far to revoke citizenship and remove from office anyone who even suggests such an amendment (Article 42, clause 5 and Article 239; link in Spanish). Zelaya wished to move forward with a non-binding vote on June 28 on such a referendum. The military oversees security and logistics for elections in Honduras and, thus, Zelaya had charged General Romeo Vasquez Velasquez to conduct the election. Vasquez refused on the grounds of its perceived illegality; Zelaya had him removed from command.
On June 28, Zelaya awoke surrounded by members of the military who detained (arrested or kidnapped depending on your point of view) him, put him on a plane, and dropped him in San Jose, Costa Rica. The international firestorm began as reports of a military coup began to surface. Meanwhile, the Honduran Supreme Court and the National Congress both indicated that they had authorized the so-called coup.
There is a whole lot more to the details if you are interested. The Wikipedia entry, as usual, is a good source. Although, the neutrality is currently disputed as the events are unfolding.
I have found it very interesting that the international response has been, as far as I can tell, in unanimous support of Zelaya. The Organization of American States issued a resolution to "condemn vehemently the coup d'etat staged against the constitutionally established government of Honduras" - full text here. The United Nations also passed a similar resolution. The Supreme Court of Honduras has fired back (full text in Spanish) stating that the removal of Zelaya was constitutional and in accordance with the rule of law.
It seems clear to me that questionable measures have been taken by the military and those who have ousted Zelaya. There does not appear to be due process and some of his supporters have apparently been detained. However, the overwhelming international support for Zelaya is nonetheless interesting. I'm not sure what I'm missing. This is a Honduran affair and, despite the use of the military, has been a relatively peaceful change of power (no deaths reported) which appears to be consistent with the law in Honduras. It appears to me that the international community is quick to support any existing head of state provided that the government is deemed to be legitimate on the international stage. The international power structure will likely always favor the status quo in these circumstances.
I also did not know of the Organization of American States. This body has adopted the Inter-American Democratic Charter which
Zelaya was elected on November 27, 2005 and took office the following January. In Honduras, the President is limited to serving just one four-year term. Zelaya is a member of the Liberal Party of Honduras (PLH); the National Party of Honduras (PNH) is the other main party in Honduras and leans to the right. The Honduran Constitution explicitly prohibits amendments which would allow for the President to serve more than one term. Zelaya was calling for a referendum in November to allow for the convening of a Constitutional Convention. Despite his low approval ratings, it was considered to be a ploy by which Zelaya would seek an amendment which would allow for Presidents to serve multiple terms.
Latin America has a history powerful heads of state which rule for long periods of time. These often are formed as or devolve into dictatorships. Conscious of this danger, the Honduran Constitution goes as far to revoke citizenship and remove from office anyone who even suggests such an amendment (Article 42, clause 5 and Article 239; link in Spanish). Zelaya wished to move forward with a non-binding vote on June 28 on such a referendum. The military oversees security and logistics for elections in Honduras and, thus, Zelaya had charged General Romeo Vasquez Velasquez to conduct the election. Vasquez refused on the grounds of its perceived illegality; Zelaya had him removed from command.
On June 28, Zelaya awoke surrounded by members of the military who detained (arrested or kidnapped depending on your point of view) him, put him on a plane, and dropped him in San Jose, Costa Rica. The international firestorm began as reports of a military coup began to surface. Meanwhile, the Honduran Supreme Court and the National Congress both indicated that they had authorized the so-called coup.
There is a whole lot more to the details if you are interested. The Wikipedia entry, as usual, is a good source. Although, the neutrality is currently disputed as the events are unfolding.
I have found it very interesting that the international response has been, as far as I can tell, in unanimous support of Zelaya. The Organization of American States issued a resolution to "condemn vehemently the coup d'etat staged against the constitutionally established government of Honduras" - full text here. The United Nations also passed a similar resolution. The Supreme Court of Honduras has fired back (full text in Spanish) stating that the removal of Zelaya was constitutional and in accordance with the rule of law.
It seems clear to me that questionable measures have been taken by the military and those who have ousted Zelaya. There does not appear to be due process and some of his supporters have apparently been detained. However, the overwhelming international support for Zelaya is nonetheless interesting. I'm not sure what I'm missing. This is a Honduran affair and, despite the use of the military, has been a relatively peaceful change of power (no deaths reported) which appears to be consistent with the law in Honduras. It appears to me that the international community is quick to support any existing head of state provided that the government is deemed to be legitimate on the international stage. The international power structure will likely always favor the status quo in these circumstances.
I also did not know of the Organization of American States. This body has adopted the Inter-American Democratic Charter which
"[recognizes] that representative democracy is indespensible for the stability, peace, and development of the region, and that one of the purposes of the OAS is to promote and consolidate representative democracy, with due respect to the principle of non-intervention."This sounds quite noble. However, promoting democracy has not always been very consistent with non-intervention - perhaps that is the point of calling both principles out in this introduction. Consider the short description of non-intervention from Wikipedia: "one state cannot interfere in the internal politics of another state." Or consider this more detailed summary from a Chatham House white paper quoting a 1970 UN declaration:
No State or group of States has the right to intervene, directly or indirectly, for any reason whatever, in the internal or external affairs of any other State. Consequently, armed interventionThe United States is a member of the OAS; so is Cuba and Venezuela. It's hard for me to take any of this seriously. The U.S. hardly practices non-intervention. I'm not sure I'd consider Cuba or Venezuela to be sterling examples of representative democracy. In the worlds of politics and international relations, there is no shortage of hypocrisy.
and all other forms of interference or attempted threats against the personality of the State or
against its political, economic and cultural elements, are in violation of international law.
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