“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."
The Senate's Unanimous Vote to Let 9/11 Victims' Families Sue Saudi Arabia
A bill that would allow the families of 9/11 victims to sue Saudi Arabia for any role in the attacks is one small step closer to law Tuesday, after the Senate passed it unanimously. The bill goes on to the House, but the White House has promised to veto it.
In a statement, the families of several 9/11 victims applauded the Senate’s passage of the measure:
The American people, as well as our families, deserve the truth about 9/11 and those responsible deserve to be held to account. JASTA promises us the truth, accountability and a strong warning that the United States finally will stand behind its promise of justice to those who were injured and the survivors of the three thousand children, mothers, fathers, wives and husbands who were murdered in our homeland on 9/11.
But the White House has remained staunchly against the bill. While Obama has broken with the Saudis on key issues recently, administration officials warn that the proposed law could expose U.S. officials and members of the armed forces to prosecution overseas. That means that even if the House follows suit, the bill’s path to law remains a tough one.
A new economic crisis, which I believe we are on the brink of experiencing, will have similarities, and differences, to 2008. The problem of crowded trades – where market participants all have the same basic positions and strategies, and identical risk models – will be familiar. The effect of new regulations, ironically designed to minimise the risk of a new crash, and a reduction in trading liquidity will create new problems. Extra capital, while welcome, does not alter the level of risk, but merely who bears it. To recapitalise banks, regulators have approved risky hybrid securities, such as contingent capital and bail-in bonds. In the event of a systemic crisis, losses will be transmitted to insurance companies, pension funds and private investors; bailing them out may be politically necessary or expedient. With simpler solutions proving politically difficult, attempts to reduce the risk in the chains of derivative contracts have focused on Central Counter Parties (CCPs), a theoretically bankruptcy-proof guarantor of transactions and collateral. CCPs have added complexity, creating new instability; CCP risk management is unproven under conditions of stress.
The reliance on collateral is likely to prove troublesome under conditions of real stress. The emphasis shifts from the borrower or counterpart’s creditworthiness to the collateral creating different risks. Government securities now are not risk free. It assumes liquid markets for the collateral, which must be realised in case of default. Unexpected changes in the amount of collateral needed create liquidity risks. Collateral use also entails significant modelling, operational and legal risk. Trading liquidity in markets has also diminished markedly since 2008. Traditionally, market makers act as shock absorbers in periods of stress allowing investors to readjust portfolios at a price. But consolidation – through bankruptcies, mergers or acquisition or withdrawal – has reduced the number of dealers. Higher capital charges and specific prohibitions on trading, such as the Volcker rule or narrow banking, have increased the cost of trading. The amounts that can be transacted without moving prices materially have fallen, meaning shocks will be rapidly transmitted.
The decline in liquidity is exacerbated by the changing structure of many markets. There is increased participation by high frequency traders (“HFT”), retail and private investors either directly or through funds. Paralleling the decline in the number of dealers, the number of major asset managers through whom these funds are deployed is small. The combination of size, the nature of the underlying assets and the redemption feature may prove especially toxic. It is simply not possible to transform highly illiquid instruments, using financial engineering into liquid equivalents. This lack of liquidity is not reflected in pricing, with the premium for liquidity risk in most segments having fallen to 2007 levels of below. As the following scenario outlines, these changes in market structure are likely help to create instability in any new crisis. The key drivers will be higher liquidity reserves for banks, more stringent calculations of risk in derivative transactions and use of government securities to lower capital requirements as collateral. Given pre-existing exposures to government bonds via repurchase transactions, investments or trading inventories, the regulations increase bank exposure to sovereign bonds. This coincides with the deterioration in the quality of government securities and unprecedented low rates driven by policy, creating a dangerous source of instability, which will feed market volatility and transmit losses across different markets.
Where rating downgrades or deteriorating credit quality result in falls in the value of sovereign securities, banks suffer losses on their holdings. Where the securities are used as surety for funding or derivatives, banks need to lodge additional collateral, draining liquidity from markets. The deterioration in a sovereign’s credit quality will affect risk calculations, requiring additional capital as well as collateral. Banks may hedge this risk, usually by purchasing default protection on the sovereign or shorting government bonds. This will exacerbate losses as the sovereign bonds’ value falls further. Market constraints may necessitate use of proxies for the sovereign, including shorting or buying insurance on equity indices or major stocks. Banks may short sell the currency as a de facto hedge. Proxy hedges transmit the volatility into other asset markets. They create additional risk where volatility is high and correlation between major asset classes becomes unstable, such as in a risk-on risk-off trading environment. Second round effects focus on the financial position of banks adversely affected by losses on government bond investments and reduced ability of the nation to support its financial institution. The increased default risk of affected banks sets off a chain reaction of additional capital charges increase and loss exposures across international active banks who deal with them , requiring further hedging, compounding the negative spiral. The reduced demand for the affected sovereign’s bonds result in higher funding costs and reduced market access, which is transmitted to banks and other firms in the country. Higher counterparty risk or downgrades may trigger more collateral calls. Financial market shocks flow through into the real economy, affecting the supply of credit, growth, investment and employment. In turn, this feeds back into further sovereign and financial sector weakness. The exact sequence of events is unpredictable because of the complexity of transmission pathways. But once these feedback loops start, they are very difficult to control. Satyajit Das is a former banker and the author of ‘A Banquet of Consequences: Have we consumed our own future?’
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SATYAJIT DAS
Satyajit Das writes the Das Capital Column in The Independent. He has worked in financial markets for over 35 years, as a banker, a corporate treasurer and now as a consultant. His latest book is 'A Banquet of Consequence' (due to be published in February 2016). It will be titled 'The Age of Stagnation' in the US and India to increase confusion and avoid it being mistaken for a cookbook. He is also the author of 'Traders Guns and Money', 'Extreme Money' and in the distant past (which he repudiates) a number of reference books on derivatives and risk-management. He became a financier because he wasn't good enough to be a professional cricketer and no one offered him a job as a cricket commentator or allowed him to pursue his other passion- wildlife (he is the co-author with Jade Novakovic of 'In Search of The Pangolin: The Accidental Eco-Tourist'). He lives in Sydney, Australia.
Bill Clinton’s foundation arranged a $2 million pledge to a power company partly owned by a wealthy blond divorcée — who some say is the frequent visitor to his home nicknamed “Energizer.”
The “commitment” to Julie Tauber McMahon’s firm from the Clinton Global Initiative was placed on its 2010 conference agenda at Clinton’s urging, the Wall Street Journal reported on Thursday.
The initiative “commits $2 million to support the work of Energy Pioneer Solutions, a company founded to deliver energy savings to communities in rural America,” said a 2010 statement from the charity.
Clinton even went to bat for the company when it came to lobbying for federal funds. He helped steer an $812,000 federal grant to it by endorsing the funds via then-Energy Secretary Steven Chu, the Journal said.
McMahon owns 29 percent of Energy Pioneer Solutions, which was given the money to make people’s homes more energy-efficient.
The fit, blond mother of three, who lives just minutes from Bill and Hillary Clinton’s home in Chappaqua, Westchester, is the daughter of Joel Tauber, a millionaire donor to the Democratic Party.
McMahon, 54, is rumored to be the woman dubbed “Energizer” by the Secret Service at the Clinton home because of her frequent visits, according to RadarOnline.
“You don’t stop her, you don’t approach her, you just let her go in,” says the book, based on agents’ accounts.
“Energizer” is described in the book as a charming visitor who sometimes brought cookies to the agents.
The book describes one sun-drenched afternoon when agents took notice of the woman’s revealing attire.
“It was a warm day, and she was wearing a low-cut tank top, and as she leaned over, her breasts were very exposed,” an agent is quoted in the book as saying.
“They appeared to be very perky and very new and full … There was no doubt in my mind they were enhanced.”
“Energizer” reportedly timed her arrivals and departures around Hillary Clinton’s schedule.
McMahon has denied in reports having an intimate relationship with Bill Clinton.
The commitment to McMahon’s company raises red flags for the Clinton Global Initiative.
Other Clinton friends — including former Democratic congressional candidate Scott Kleeb, Democratic National Committee Treasurer Andrew Tobias and Mark Weiner — share ownership of Energy Pioneer Solutions.
Under federal law, tax-exempt nonprofits like Clinton’s are not supposed to act in anyone’s private interest, the Journal reported. Spokespeople for Bill and Hillary Clinton declined to comment.
A foundation spokesperson defended the financial commitment as “a common practice in the broader philanthropic space.”
“No modern precedent exists for the revival of a party so badly defeated, so intensely discredited, and so essentially split as the Republican Party is today.”
Taken from “The Party That Lost Its Head” by Bruce Chapman and George Gilder, this excerpt, about Barry Goldwater’s defeat in 1964, led Thursday’s column by E.J. Dionne of the Washington Post.
Dionne is warning what could happen if the GOP perpetrates the political atrocity of nominating Donald Trump.
For weeks now, the Post’s editorial page has sermonized about the “moral” obligation of all righteous Republicans to repudiate Trump.
The Post’s solicitude for the well-being of the Republican Party is the stuff of legend. Yet it is a bit jarring to see these champions of abortion on demand, same-sex marriage and visitation rights for cross-dressers in the girls’ room standing in a pulpit lecturing on morality.
Yet, there was something off about that Chapman-Gilder quote.
First, both were members of the Harvard-based, Rockefeller-backed, liberal Ripon Society. Second, their prognosis of the party’s future proved to be spectacularly wrong.
The year, 1966, their book on the headless GOP appeared, to press hosannas, Richard Nixon led the party to its greatest off-year victory since 1946, adding 47 new seats in the House.
Two years later, Nixon won the presidency, inaugurating an era in which Republicans won five out of six presidential contests, two by 49-state landslides.
Out of Goldwater’s defeat came the New Majority and Reagan Revolution. And Chapman and Gilder moved rightward to serve with distinction in that revolution.
The prodigal sons were welcomed home, and Gilder would recant:
“The far right – the same men I dismissed as extremists in my youth – turned out to know far more than I did. At least the ‘right-wing extremists,’ as I confidently called them, were right on almost every major policy issue from welfare to Vietnam to Keynesian economics and defense. …”
While the Goldwater campaign, as an insurgency of outsiders, bears comparison with Trump’s, in other ways it does not.
Goldwater never compiled anything near the vote that Trump did. At this point in 1964, Goldwater was behind Johnson 79-18 in the Gallup poll. Trump is behind Hillary Clinton by single digits. New polls have him running even in Ohio, Florida and Pennsylvania.
Now, consider the issues comparison with 1964.
In July 1964, Johnson signed the popular Civil Rights Act that Goldwater had opposed. The GOP convention in San Francisco revealed a deeply divided party, subject to the charge, validated by the rule-or-ruin Rockefeller-Romney faction, that it was receptive to right-wing radicals.
Lyndon Johnson’s decision to bomb North Vietnam after the Gulf of Tonkin incident made him a war leader, and Americans rally to presidents in a time of war.
In 2016, however, Trump holds a fistful of face cards. After eight years of President Obama, he is the candidate of change in 2016, and Clinton is the candidate of same.
Trump may bring more excitement than some folks can handle.
But Clinton has become a crashing bore, until she gets agitated, and then the voice rises to where she sounds like the siren on the hook-and-ladder in “Chicago Fire.”
Other than that she would be the first woman president, what is there about her or her agenda that has popular appeal? That lack of appeal explains why her crowds are a fraction of Bernie Sanders’.
The Clinton of 2016 is not the Clinton of 2008.
As for the issues dividing Trump and Speaker Paul Ryan, Trump appears to have won the argument, if the debate is decided by voter preferences rather than Beltway preferences.
Trump’s denunciation of NAFTA and other “free-trade” deals Ryan supports is echoed by Sanders, who opposed those deals when they were up for a vote. Hillary Clinton no longer rhapsodizes over husband Bill’s NAFTA, and signals she will not support Obama’s Trans-Pacific Partnership in a lame-duck session.
Ryan professes to be a man of principle. Why does he not then stand by his principles, as Goldwater did, and bring up TPP for a vote?
Is Paul Ryan’s “immigration reform” package as popular inside his party as Trump’s tough line? It would seem not. The longer the primaries went on, the closer the other GOP candidates moved toward Trump. And if Ryan believes in it on principle, why not bring it up?
Ryan voted for the Iraq War Trump calls a disaster. The people seem now to agree with Trump that the war was misconceived.
Thursday’s Post reported that, five years ago, Ryan stood on the House floor to declare, “This is our defining moment.”
And what was Ryan’s defining moment?
“On that day in 2011,” said the Post, “the House’s new GOP majority approved Ryan’s budget plan – which … called for cuts in a government program that voters knew and loved: Medicare.
“Ryan … wanted eventually to turn the massive health-benefit program over to private insurers.”
Come to think of it, Barry Goldwater wanted to turn Social Security over to private enterprise. How did that one work out?
Saudi officials were 'supporting' 9/11 hijackers, commission member says
Philip Shenon
A former Republican member of the 9/11 commission, breaking dramatically with the commission’s leaders, said Wednesday he believes there was clear evidence that Saudi government employees were part of a support network for the 9/11 hijackers and that the Obama administration should move quickly to declassify a long-secret congressional report on Saudi ties to the 2001 terrorist attack.
The comments by John F Lehman, an investment banker in New York who was Navy secretary in the Reagan administration, signal the first serious public split among the 10 commissioners since they issued a 2004 final report that was largely read as an exoneration of Saudi Arabia, which was home to 15 of the 19 hijackers on 9/11.
“There was an awful lot of participation by Saudi individuals in supporting the hijackers, and some of those people worked in the Saudi government,” Lehman said in an interview, suggesting that the commission may have made a mistake by not stating that explicitly in its final report. “Our report should never have been read as an exoneration of Saudi Arabia.”
He was critical of a statement released late last month by the former chairman and vice-chairman of the commission, who urged the Obama administration to be cautious about releasing the full congressional report on the Saudis and 9/11 – “the 28 pages”, as they are widely known in Washington – because they contained “raw, unveiled” material that might smear innocent people.
The 9/11 commission chairman, former Republican governor Tom Kean of New Jersey, and vice-chairman, former Democratic congressman Lee Hamilton of Indiana, praised Saudi Arabia as, overall, “an ally of the United States in combatting terrorism” and said the commission’s investigation, which came after the congressional report was written, had identified only one Saudi government official – a former diplomat in the Saudi consulate in Los Angeles – as being “implicated in the 9/11 plot investigation”.
The diplomat, Fahad al-Thumairy, who was deported from the US but was never charged with a crime, was suspected of involvement in a support network for two Saudi hijackers who had lived in San Diego the year before the attacks.
In the interview Wednesday, Lehman said Kean and Hamilton’s statement that only one Saudi government employee was “implicated” in supporting the hijackers in California and elsewhere was “a game of semantics” and that the commission had been aware of at least five Saudi government officials who were strongly suspected of involvement in the terrorists’ support network.
“They may not have been indicted, but they were certainly implicated,” he said. “There was an awful lot of circumstantial evidence.”
The 9/11 commission vice-chairman, former Democratic congressman Lee Hamilton of Indiana, and the chairman, former Republican governor Tom Kean of New Jersey. Photograph: Paul J.richards/AFP/Getty Images
Although Lehman said he did not believe that the Saudi royal family or the country’s senior civilian leadership had any role in supporting al-Qaida or the 9/11 plot, he recalled that a focus of the criminal investigation after 9/11 was upon employees of the Saudi ministry of Islamic affairs, which had sponsored Thumairy for his job in Los Angeles and has long been suspected of ties to extremist groups.
He said “the 28 pages”, which were prepared by a special House-Senate committee investigating pre-9/11 intelligence failures, reviewed much of the same material and ought to be made public as soon as possible, although possibly with redactions to remove the names of a few Saudi suspects who were later cleared of any involvement in the terrorist attacks.
Lehman has support among some of the other commissioners, although none have spoken out so bluntly in criticizing the Saudis. A Democratic commissioner, former congressman Tim Roemer of Indiana, said he wants the congressional report released to end some of the wild speculation about what is in the 28 pages and to see if parts of the inquiry should be reopened. When it comes to the Saudis, he said, “we still haven’t gotten to the bottom of what happened on 9/11”.
Another panel member, speaking on condition of anonymity for fear of offending the other nine, said the 28 pages should be released even though they could damage the commission’s legacy – “fairly or unfairly” – by suggesting lines of investigation involving the Saudi government that were pursued by Congress but never adequately explored by the commission.
“I think we were tough on the Saudis, but obviously not tough enough,” the commissioner said. “I know some members of the staff felt we went much too easy on the Saudis. I didn’t really know the extent of it until after the report came out.”
The commissioner said the renewed public debate could force a spotlight on a mostly unknown chapter of the history of the 9/11 commission: behind closed doors, members of the panel’s staff fiercely protested the way the material about the Saudis was presented in the final report, saying it underplayed or ignored evidence that Saudi officials – especially at lower levels of the government – were part of an al-Qaida support network that had been tasked to assist the hijackers after they arrived in the US.
In fact, there were repeated showdowns, especially over the Saudis, between the staff and the commission’s hard-charging executive director, University of Virginia historian Philip Zelikow, who joined the Bush administration as a senior adviser to the secretary of state, Condoleezza Rice, after leaving the commission. The staff included experienced investigators from the FBI, the Department of Justice and the CIA, as well as the congressional staffer who was the principal author of the 28 pages.
Zelikow fired a staffer, who had repeatedly protested over limitations on the Saudi investigation, after she obtained a copy of the 28 pages outside of official channels. Other staffers described an angry scene late one night, near the end of the investigation, when two investigators who focused on the Saudi allegations were forced to rush back to the commission’s offices after midnight after learning to their astonishment that some of the most compelling evidence about a Saudi tie to 9/11 was being edited out of the report or was being pushed to tiny, barely readable footnotes and endnotes. The staff protests were mostly overruled.
The 9/11 commission did criticize Saudi Arabia for its sponsorship of a fundamentalist branch of Islam embraced by terrorists and for the Saudi royal family’s relationship with charity groups that bankrolled al-Qaida before 9/11.
George W Bush, with Lee Hamilton on the left, speaks to the press after receiving a report of the Iraq study group. Photograph: Larry Downing/REUTERS
However, the commission’s final report was still widely read as an exoneration, with a central finding by the commission that there was “no evidence that the Saudi government as an institution or senior Saudi officials individually” provided financial assistance to Osama bin Laden’s terrorist network. The statement was hailed by the Saudi government as effectively clearing Saudi officials of any tie to 9/11.
Last month Barack Obama, returning from a tense state visit to Saudi Arabia, disclosed the administration was nearing a decision on whether to declassify some or all of the 28 pages, which have been held under lock and key in a secure room beneath the Capitol since they were written in 2002. Just days after the president’s comments however, his CIA director, John Brennan, announced that he opposed the release of the congressional report, saying it contained inaccurate material that might lead to unfair allegations that Saudi Arabia was tied to 9/11.
In their joint statement last month, Kean and Hamilton suggested they agreed with Brennan and that there might be danger in releasing the full 28 pages.
The congressional report was “based almost entirely on raw, unvetted material that came to the FBI”, they said. “The 28 pages, therefore, are comparable to preliminary law enforcement notes, which are generally covered by grand jury secrecy rules.” If any part of the congressional report is made public, they said, it should be redacted “to protect the identities of anyone who has been ruled out by authorities as having any connection to the 9/11 plot”.
Zelikow, the commission’s executive director, told NBC News last month that the 28 pages “provide no further answers about the 9/11 attacks that are not already included in the 9/11 commission report”. Making them public “will only make the red herring glow redder”.
But Kean, Hamilton and Zelikow clearly do not speak for a number of the other commissioners, who have repeatedly suggested they are uncomfortable with the perception that the commission exonerated Saudi Arabia and who have joined in calling for public release of the 28 pages.
Lehman and another commissioner, former Democratic senator Bob Kerrey of Nebraska, filed affidavits last year in support of a lawsuit brought against the Saudi government by the families of 9/11 victims. “Significant questions remain unanswered concerning possible involvement of Saudi government institutions and actors,” Kerrey said. Lehman agreed: “Contrary to the argument advocated by the Kingdom, the 9/11 commission did not exonerate Saudi Arabia of culpability for the events of 11 September 2001 or the financing of al-Qaida.” He said he was “deeply troubled” by the evidence gathered about a hijackers’ support network in California.
In an interview last week, congressman Roemer, the Democratic commissioner, suggested a compromise in releasing the 28 pages. He said that, unlike Kean and Hamilton, he was eager to see the full congressional report declassified and made public, although the 28 pages should be released alongside a list of pertinent excerpts of the 9/11 commission’s final report. “That would show what allegations were and were not proven, so that innocent people are not unfairly maligned,” he said. “It would also show there are issues raised in the 28 pages about the Saudis that are still unresolved to this day.”
Asked on Thursday if he had any comment on Lehman’s claim about individuals working for the Saudi government, White House press secretary Josh Earnest gave a two word answer: “I don’t.”
Philip Shenon is the author of The Commission: The Uncensored History of the 9/11 Investigation
