Sunday, April 28, 2013

How to Debunk George W. Bush’s Attempts at Revisionism


How to debunk George W. Bush’s attempts at revisionism

Your definitive guide to the Bush cronies' talking points, and why all of them are insane


How to debunk George W. Bush's attempts at revisionism
(Credit: Reuters/Jason Reed)
Every dog goes to heaven and every former president should get a shot at repairing his legacy, especially when it’s as tattered as George W. Bush’s. With the opening of his presidential library and museum this week, observers from former Bush officials to mainstream outlets were taking a fresh, rosy look at the Bush legacy. Some offered dopey and facially ridiculous cheerleading, while others offered more compelling suggestions to return to the Bush era with an open mind. After all, other presidents left office in a cloud only to be redeemed by history years later.
So, is this week making you feel a bit nostalgic for the Bush era? Don’t. It’s been almost half a decade since the 43rd president left office, and he’s looking as bad as ever. Of course, that won’t stop a small circle of admirers (many of whom used to be on his payroll) from trying, so here’s your guide to taking on the five biggest specious pro-Bush talking points put forward this week:
1) Bush kept us safe: The biggest myth of the Bush presidency, by far, is that the president kept the country safe. As Charles Krauthammer wrote this week in the Washington Post in a typical example: “It’s important to note that he did not just keep us safe. He created the entire anti-terror infrastructure that continues to keep us safe … Which is why there was not one successful terror bombing on U.S. soil from 9/11 until last week.”
Just no. First of all, why does 9/11 not count? It’s not like the U.S. government was completely unaware of the threat from al-Qaida and Osama bin Laden until 9/11. After all, bin Laden had already helped orchestrate the U.S. Embassy bombings in Kenya and Tanzania that killed hundreds in 1998, and Bill Clinton launched cruise missiles into Sudan and Afghanistan to try to kill bin Laden three years before 9/11. And then there’s that CIA briefing that warned Bush: “Bin Laden Determined to Strike in U.S.” — 36 days before Sept. 11. Bush’s response to the briefer giving him the news? To say, “All right. You’ve covered your ass, now.” Then he went fishing. Literally.
As for the claim that there were no terror attacks on U.S. soil after 9/11 under Bush — also bogus. Conor Friedersdorf writes:
“Bush’s tenure included anthrax attacks that killed five people (more than died in the Boston marathon bombing) and that injured between 22 and 68 people. Bush was president when Hesham Mohamed Hadayet killed two and wounded four at an LAX ticket counter; when the Beltway snipers killed 10 people; when Mohammed Reza Taheri-azar injured six driving his SUV into a crowd; and when Naveed Afzal Haq killed one woman and shot five others in Seattle.”
Also, there was the bombing of the USS Cole in Yemen, just before the 2000 election, which should have brought an extra warning about the al-Qaida threat, and later on, bombings in London, Madrid, and Jordan. Meanwhile, thanks to the wars there, much of the attention from international terror went to Iraq and Afghanistan, where al-Qaida and sympathetic groups found it easier to kill American soldiers than to attack Americans on U.S. soil.
2) Bush was fiscally responsible: Here’s Republican strategist Ed Gillespie, writing in the National Review this week, “Over Mr. Bush’s tenure, our national debt averaged 38 percent of GDP, a result of holding average annual deficits to 2 percent of GDP, and federal spending remained below 20 percent of GDP in six of his eight years in office. (Only one other president in the past 40 years was able to reach such a low level, and for fewer years).” Jennifer Rubinadded in the Washington Post: “He is responsible for one of the most popular and fiscally sober entitlement plans, Medicare Part D.”
Former Bush White House Chief of Staff Andy Card even had the chutzpah to claim that President Bush “probably has the best track record of any modern president in terms of fiscal discipline.”
The only way to make that claim is to be willfully dishonest, as the numbers are cut and dried. Notice that Gillespie cites the average debt over the course of the eight years, instead of the progression. Here’s another way of looking at Bush’s fiscal legacy: When he entered office, the U.S. government was running a surplus (and was projected to do so for the next several decades) and when Bush left office, the government was running its biggest deficit since World War II.
Part of this can be attributed to the collapse in tax revenue during the Great Recession, and even if we don’t blame Bush for letting Wall Street collapse the economy, you can certainly blame him for ruining the fiscal bulwark built up under the Clinton years with massive tax cuts that mostly benefited the rich and two hugely expensive wars. Here’s a chart from the Center for Budget and Policy Priorities about what’s driving the debt:
As for Medicare Part D, which helps seniors pay for prescription drugs, while the cost of the program is less than was originally projected, it’s still higher than it should be. The savings came from lower drug spending overall, but while overall spending is 35 percent lower than expected, Medicare Part D spending was only 22 percent below expectations. And drug costs are still higher under Medicare Part D than they should be.
And during most of this time, there was no reason for the debt to explode; the economy was doing pretty well (unless you were poor). Much of the debt raised under Bush was purely elective. Even Republicans say this all the time. “Many of us, myself included, got into politics because we were appalled at the Bush record on spending,” South Carolina Rep. Mick Mulvaney told the Hill.
3) Iraq wasn’t so bad: While even the people who were responsible for executing it admit there were problems with the Iraq War, they always blame it on faulty intelligence. And who could have predicted the uprising following the invasion? Meanwhile, Afghanistan wasn’t so bad, they say.
Here’s Krauthammer:  “Bush’s achievement was not just infrastructure. It was war.” He goes on to note that Democrats voted for the Iraq War, and that while there were no nuclear weapons, the war did prevent Saddam Hussein from regaining his “full economic and regional power.” Karl Rove added, “I do believe that the Iraq War was the right thing to do and the world is a safer place for having Saddam Hussein gone.”
More whitewashing. Bush officials threw the CIA under the bus for allegedly misleading them on weapons of mass destruction, but what seems more likely is that the White House and other key officials “cherry-picked” key pieces of intelligence to bolster their claim and discarded the rest. Intelligence is messy and produces lots of divergent and sometimes conflicting information from sources of varying reliability, but the White House pushed the boundaries of intellectual honesty in building the case for the war. While many argue it’s a bridge too far to say he lied and knew there were no nuclear weapons, it’s clear that officials chose an outcome they wanted and then found the evidence to get them there, and then misled the American people and world by not honestly representing the doubts in the intelligence.
As for the aftermath, as James Fallows wrote in his seminal 2004 account, “The U.S. occupation of Iraq is a debacle not because the government did no planning but because a vast amount of expert planning was willfully ignored by the people in charge.”
Is Iraq better off without Saddam Hussein? One could make the argument, but the country is hardly the model of peace and democracy. The war tipped off a brutal civil war that left an estimated 125,000 dead and millions displaced. Bombings and attacks continue to this day and the country seems to be heading back toward widespread violence. Meanwhile, the government the U.S. installed is trending toward autocracy.
And while Iraq may no longer be the regional powerhouse it once was, the war served toempower Iran, its longtime rival, by eliminating the main check on Tehran’s power. Now it’s Tehran’s nuclear program that we’re worrying about.
The fact that Democrats also supported the war does not make it right; it means that they were wrong too.
4) Bush is Back — and popular now! At the beginning of the Week of Bush Revisionism, the Washington Post and ABC News released a poll showing that Bush’s poll numbers have recovered since leaving office. As Dan Balz wrote, “Days before his second term ended in 2009, Bush’s approval rating among all adults was 33 percent positive and 66 percent negative. The new poll found 47 percent saying they approve and 50 percent saying they disapprove.”
This has been a jumping-off point for every Bush revisionist article and argument of the past five day and presented as proof positive that Americans are finally realizing that Bush was OK. As Rubin wrote, “It took less than 4 1/2 years of the Obama presidency for President George W. Bush to mount his comeback.” Her phrasing suggests this is an unusually short amount of time for a former president to stage a comeback, as if presidents inevitably leave office in disgrace, as hundreds of thousands of people sing “Kiss Him Goodbye.”
But this simply isn’t the case. Americans are a pretty forgiving people and generally like their presidents, so if it takes almost five years for fewer than half of Americans to like you, the problem isn’t the public — it’s you. When Bill Clinton left office, he had a 65 percent approval rating (reminder: This is the guy who was impeached). Today, according to a Fox News pollfrom last week, 71 percent of Americans view Clinton favorably and just 25 hold an unfavorable view of the former president.
And the poll is just a single data point, hardly enough to say definitively that Bush has bounced back. A Wall Street Journal/NBC News poll from earlier in April found that only 35 percent of Americans view Bush in a positive light, while 44 percent viewed him negatively.
Even the relatively positive Washington Post poll found that Bush’s approval rating on key decisions is still deep underwater. And as recently as November, most Americans still blamed Bush for recession, almost four years after he left office.
5) Bush was a historically great president: Karl Rove went for the big picture, saying at the dedication of the Bush Center in Dallas, “I’d put [Bush] up there” with “George Washington, Abraham Lincoln, Ronald Reagan, FDR.”
Hmm. Is that really where Bush ranks in the history of American presidents? If you ask historians, it’s somewhere near the very bottom. A Siena College survey of 238 presidential scholars in 2010 put Bush at 39th out of 43 presidents. A 2009 C-SPAN ranking put him at 36th.
If you ask the American people, they say something similar. In 2012, Gallup asked Americans how former presidents will go down in history. Nearly half — 47 percent — said Bush will be remembered poorly or below average. Just 25 said above average or “outstanding.” By contrast, just 12 percent said Clinton would go down as below average or poor.
If you ask the data, they paint an ugly picture. Unemployment, federal debt, consumer debt and poverty all went up, while income inequality, GDP, wages, tax revenues all went down. Here’s what Neil Irwin wrote in 2010:
For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation’s growth.
Add to that the bungled wars in Iraq and Afghanistan, the preventable failure to catch Osama bin Laden at Tora Bora, the absolutely horrendous handling of Hurricane Katrina, the outing of acovert CIA officer in a political vendetta, the illegal wiretapping of Americans’ phones, theimproper firing of U.S. attorneys for political reasons, the use of taxpayer dollars to pay columnists, and “misrepresenting and suppressing scientific knowledge for political purposes,” to name a few — and, well, then you know why Dana Perino, Bush’s former press secretary, was forced to lead her ode to the ex-president by recounting that he “shar[ed] his peanut butter and honey sandwiches with me.”
Alex Seitz-Wald
Alex Seitz-Wald is Salon's political reporter. Email him at aseitz-wald@salon.com, and follow him on Twitter @aseitzwald.


Saturday, April 27, 2013

The Ignoramus Strategy [Austerity]


A while back Noah Smith described one common strategy for arguing against Keynesian economics, and yours truly in particular: “Relentlessly pretend to be an ignorant simpleton.” Of course, as always, this strategy is most effective if you aren’t pretending, and really are an ignorant simpleton.
Which brings me to this rant by Ken Langone, in which he answers my arguments by saying,
Let’s stop all this crap with all of these high fallutin’ thoughts and ideas. You know what happens to people their eyes glaze over, I don’t know what the hell he’s saying.
This may, by the way, be the first time I’ve ever heard anyone say “high fallutin” outside of an old Western.
Anyway, this wounds my vanity. I like to imagine that I’m pretty good at making economic arguments as simple as possible, and stating them in plain English. True, I never get to the simplicity of “People are having to tighten their belts, so the government should tighten its belt too.” But that’s because the world isn’t that simple, and some lines sound good but are just wrong.
Now, I don’t know if Langone is really as dumb as he sounds; my guess is, probably not — the attempt to sound like a regular guy, while actually sounding like an actor in a 1950s B-movie, is a giveaway. Still, maybe this is an occasion to restate what is really going on in the economy, and why I advocate the things I do.
So, in order:
1. The economy isn’t like an individual family that earns a certain amount and spends some other amount, with no relationship between the two. My spending is your income and your spending is my income. If we both slash spending, both of our incomes fall.
2. We are now in a situation in which many people have cut spending, either because they chose to or because their creditors forced them to, while relatively few people are willing to spend more. The result is depressed incomes and a depressed economy, with millions of willing workers unable to find jobs.
3. Things aren’t always this way, but when they are, the government is not in competition with the private sector. Government purchases don’t use resources that would otherwise be producing private goods, they put unemployed resources to work. Government borrowing doesn’t crowd out private borrowing, it puts idle funds to work. As a result, now is a time when the government should be spending more, not less. If we ignore this insight and cut government spending instead, the economy will shrink and unemployment will rise. In fact, even private spending will shrink, because of falling incomes.
4. This view of our problems has made correct predictions over the past four years, while alternative views have gotten it all wrong. Budget deficits haven’t led to soaring interest rates (and the Fed’s “money-printing” hasn’t led to inflation); austerity policies have greatly deepened economic slumps almost everywhere they have been tried.
5. Yes, the government must pay its bills in the long run. But spending cuts and/or tax increases should wait until the economy is no longer depressed, and the private sector is willing to spend enough to produce full employment.
Is this impossibly complicated? I don’t think so. Now, I suppose that someone like Langone will just respond that it’s all gibberish he can’t understand. But unless he really is stupid, which as I said I doubt, that’s only because he doesn’t want to understand.

Friday, April 26, 2013

Netflix Looks Back on Its Near-Death Spiral

Netflix Looks Back on Its Near-Death Spiral

For Reed Hastings, the chief executive of Netflix, the worst part of the company’s 2011 self-inflicted Qwikster debacle, in which Netflix tried to both raise prices and spin off its DVD-by-mail business, wasn’t the parody by “Saturday Night Live,” the scathing media criticism or even the dizzying plunge in the company’s stock price from almost $299 in July 2011 to about $53 last September.
It was the thousands of e-mails that poured in from angry and disappointed customers.
“I realized, if our business is about making people happy, which it is, then I had made a mistake,” Mr. Hastings told me this week, in a rare public comment on an episode that could have destroyed the company. “The hardest part was my own sense of guilt. I love the company. I worked really hard to make it successful, and I screwed up. The public shame didn’t bother me. It was the private shame of having made a big mistake and hurt people’s real love for Netflix that felt awful.”
This week, Netflix announced that it gained three million subscribers globally in the first quarter and that revenue for the quarter exceeded $1 billion, a record for the company. On Tuesday, the stock jumped 22 percent, the first time it has traded over $200 since the Qwikster episode, and it is up 135 percent so far this year, making Netflix the best-performing company in the Standard & Poor’s 500-stock index. The company is basking in the critical glow of its original series, “House of Cards,” and this month narrowly surpassed HBO in total subscribers.
In the annals of corporate missteps, there are few parallels to such a rebound from what once looked like a death spiral, especially in the momentum-driven world of technology. Zynga, the online game maker, and Groupon, the Internet coupon company, are struggling with brutal competition. In an old-economy industry like retail, J. C. Penney was in the midst of a similarly bold attempt to reposition the company when it fired its chief executive, and is now fighting to survive.
How did Netflix simultaneously manage both a fundamental transformation of the company and a public relations disaster?
Mr. Hastings said he realized that the company’s attempt to both raise prices and separate into two companies, one the legacy DVD-by-mail business and the other the up-and-coming broadband streaming business, was trying to do too much too fast. Angry subscribers abandoned the company in droves (800,000 in the fourth quarter of 2011 alone), revenue missed estimates and the stock plunged.
“I messed up,” Mr. Hastings wrote in an unusually forthright September 2011 blog post. Citing the precedents of AOL and Borders Books, which struggled or failed to make the digital transition, “my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming.” But in the rush to accelerate the transition, he wrote, “In hindsight, I slid into arrogance based upon past success.” He also made a video apology.
Mr. Hastings said he didn’t expect the apology alone to “turn it around,” adding, “I wasn’t na├»ve enough to think most customers care if the C.E.O. apologizes, but I thought it was honest and appropriate.”
The mea culpa resonated, though, with some important constituencies, including some Wall Street analysts, who were punishing the company’s stock. Richard Greenfield, an influential media analyst at BTIG, said that he was impressed that Mr. Hastings “realized his mistakes and openly admitted them.”
“He dusted himself off, stood back up and started running,” Mr. Greenfield said. “Very few people can do that.”
Still, Mr. Hastings said, “The situation made me nervous and very focused.
“I couldn’t say with confidence that we’d recover. We were in a place that was quite risky. We didn’t have the reserves to make a second stumble.”
On the other hand, he didn’t panic, and he didn’t lose confidence. Although he made some big changes, like scrapping Qwikster, he never questioned his original vision for the company, which he helped found in 1997. Nor did he lunge at supposedly transformative opportunities that were pressed upon him — a lesson he learned from a four-year war with Blockbuster that began in 2004, when Blockbuster, then the dominant and much larger DVD distributor, tried and failed to crush its upstart competitor.
“There were elements of panic in my reaction back then,” Mr. Hastings said. “We got desperate and we did some dumb things.” (He cited online advertising on the Web site; starting Red Envelope, an independent film producer and distributor, since shut down; and buying DVDs out of the Sundance Film Festival.) “After we eventually won the Blockbuster battle, I looked back and realized all those things distracted us. They didn’t help, and they marginally hurt. The reason we won is because we improved our everyday service of shipping and delivering. That experience grounded us. Executing better on the core mission is the way to win.”
Plenty of people were urging him to take drastic steps to show the company was regaining momentum, like buying sports programming, offering a pay-per-view service or buying a hardware maker like Roku, which makes streaming players for televisions. “There was amazing pressure to come up with the shiny object that would make everything better,” he said. “But the phrase I used was, ‘There are no shortcuts.’ We weren’t going to find an idea or gesture that would make people love us again overnight. We had to earn their trust by being very steady and disciplined. And we had to be careful because we were on probation. We had to stick to what we do well and not lose confidence. I couldn’t say for sure we’d recover. But I was confident that our best odds were to be very steady and focus on improving the service.”
Mr. Hastings, now 52 years old, stayed out of the public eye, the better to focus on day-to-day management. By the end of the first quarter of 2012, the subscriber exodus had subsided and began to show slow but steady improvement. Still, Wall Street was unimpressed as international expansion and content costs soared. In September, a year after Mr. Hastings’s apology, Netflix shares dropped to $53.80. Mr. Hastings said he found the stock plunge “a little unnerving, but we don’t manage for the stock price.” He went on: “Wall Street people may be friendly, but then they’ll turn around and short you. It’s not personal. They’re trying to make money. And if I was in their shoes, I might have felt the same way. Once the wheels come off a company, it’s hard to recover.”
Then, in January, the company announced it had added two million streaming subscribers during the fourth quarter of 2012, beating estimates, as consumers embraced tablet computers and Internet televisions during the holiday season. The activist investor Carl Icahn disclosed he’d acquired a 10 percent stake in the company, calling the shares undervalued. The stock began to climb.
“House of Cards,” Netflix’s venture into original programming, starring Kevin Spacey and directed by David Fincher, made its debut to critical acclaim in February and attracted millions of new subscribers. “Netflix is following along the path of the cable networks,” BTIG’s Mr. Greenfield said. “HBO did it; AMC did it; FX did it. Eventually Netflix will own and control its own content. It’s a natural evolution.” Mr. Greenfield issued a buy recommendation on Netflix on April 15, just ahead of this week’s rally.
Netflix may also have benefited from more fundamental factors. “One reason they bounced back is that Netflix has the same dual competitive advantages that characterize all of the great media franchises, which are scale and customer captivity,” said Jonathan A. Knee, senior managing director at Evercore Partners and director of the media program at Columbia Business School. “The unfortunate events of 2011 notwithstanding, those structural advantages are complemented by a real culture of operational excellence, which isn’t often the case in media or digital companies.”
With this week’s developments and the stock over $200, “in one sense I can say this is behind us,” Mr. Hastings said. “But it’s like a partially healed bone. It’s still quite fragile. Were we to make a similar mistake, we’d be right back in the penalty box. So we’re not really out of the woods. We’re growing and we’re making good progress, but we’re still not fully back to where we were.”
What advice does he offer? “Don’t get distracted by the shiny object,” he said. And if a crisis comes, “execute on the fundamentals.”

Stains on a Legacy, by Eugene Robinson

Stains on a Legacy

By Eugene Robinson - April 26, 2013
 
WASHINGTON -- In retrospect, George W. Bush's legacy doesn't look as bad as it did when he left office. It looks worse.
I join the nation in congratulating Bush on the opening of his presidential library in Dallas. Like many people, I find it much easier to honor, respect and even like the man -- now that he's no longer in the White House.
But anyone tempted to get sentimental should remember the actual record of the man who called himself The Decider. Begin with the indelible stain that one of his worst decisions left on our country's honor: torture.
Hiding behind the euphemism "enhanced interrogation techniques," Bush made torture official U.S. policy. Just about every objective observer has agreed with this stark conclusion. The most recent assessment came earlier this month in a 576-page report from a task force of the bipartisan Constitution Project, which states that "it is indisputable that the United States engaged in the practice of torture."
We knew about the torture before Bush left office -- at least, we knew about the waterboarding of three "high-value" detainees involved in planning the 9/11 attacks. But the Constitution Project task force -- which included such respected eminences as Asa Hutchinson, who served in high-ranking posts in the Bush administration, and William Sessions, who was FBI director under three presidents -- concluded that other forms of torture were used "in many instances" in a manner that was "directly counter to values of the Constitution and our nation."
Bush administration apologists argue that even waterboarding does not necessarily constitute torture and that other coercive -- and excruciatingly painful -- interrogation methods, such as putting subjects in "stress positions" or exposing them to extreme temperatures, certainly do not. The Constitution Project task force strongly disagrees, citing U.S. laws and court rulings, international treaties and common decency.
The Senate intelligence committee has produced, but refuses to make public, a 6,000-page report on the CIA's use of torture and the network of clandestine "black site" prisons the agency established under Bush.
One of President Obama's worst decisions on taking office in 2009, in my view, was to decline to convene some kind of blue-ribbon "truth commission" panel that would bring all the abuses to light.
It may be years before all the facts are known. But the decision to commit torture looks ever more shameful with the passage of time.
Bush's decision to invade and conquer Iraq also looks, in hindsight, like an even bigger strategic error.
Saddam Hussein's purported weapons of mass destruction have yet to be found, of course; nearly 5,000 Americans -- and untold Iraqis -- sacrificed their lives to eliminate a threat that did not exist. We knew this, of course, when Obama took office. It's one of the main reasons he was elected.
We knew, too, that Bush's decision to turn to Iraq diverted focus and resources from Afghanistan. But I don't think anyone fully grasped that giving the Taliban a long, healing respite would eventually make Afghanistan this country's longest or second-longest war, depending on what date you choose as the beginning of hostilities in Vietnam.
And it's clear that the Bush administration did not foresee how the Iraq experience would constrain future presidents in their use of military force. Syria is a good example. Like Saddam, Bashar al-Assad is a ruthless dictator who does not hesitate to massacre his own people. But unlike Saddam, Assad does have weapons of mass destruction. And unlike Saddam, Assad has alliances with the terrorist group Hezbollah and the nuclear-mad mullahs in Iran.
I do not advocate U.S. intervention, because I fear we might make things worse rather than better. But I wonder how I might feel -- and what options Obama might have -- if we had not squandered so much blood and treasure in Iraq.
Bush didn't pay for his wars. The bills he racked up for military adventures, prescription-drug benefits, the bank bailout and other impulse purchases helped create the fiscal and financial crises he bequeathed to Obama. His profligacy also robbed the Republican Party establishment of small-government credibility, thus helping give birth to the tea party movement. Thanks a lot for that.
As I've written before, Bush did an enormous amount of good by making it possible for AIDS sufferers in Africa to receive antiretroviral drug therapy. This literally saved millions of lives, and should weigh heavily on one side of the scale when we assess The Decider's presidency. But the pile on the other side just keeps getting bigger.
eugenerobinson@washpost.com
(c) 2013, Washington Post Writers Group

Politics: Everything is Rigged: The Biggest Financial Scandal Yet BY MATT TAIBBI


Politics: Everything is Rigged: The Biggest Financial Scandal Yet

BY MATT TAIBBI
APRIL 25, 2013 | 1:00PM EDT
[Image]Full Size Image
Illustration by Victor Juhasz
Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.
You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."
That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.
Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.
It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.
The Scam Wall Street Learned From the Mafia
Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.
"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."
The bad news didn't stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry," CFTC Commissioner Bart Chilton said.
But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.
"A farce," was one antitrust lawyer's response to the eyebrow-raising dismissal.
"Incredible," says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.
All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it's increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.
If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it's no secret. You can stare right at it, anytime you want.
The banks found a loophole, a basic flaw in the machine. Across the financial system, there are places where prices or official indices are set based upon unverified data sent in by private banks and financial companies. In other words, we gave the players with incentives to game the system institutional roles in the economic infrastructure.
Libor, which measures the prices banks charge one another to borrow money, is a perfect example, not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and what you get is unstoppable corruption.
Every morning, 18 of the world's biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks. The 18 banks together are called the "Libor panel," and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges, every morning at 11:30 London time, are the daily Libor figures.
Banks submit numbers about borrowing in 10 different currencies across 15 different time periods, e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to commercial loans (both short- and long-term) to swaps.
Gangster Bankers Broke Every Law in the Book
Dating back perhaps as far as the early Nineties, traders and others inside these banks were sometimes calling up the company geeks responsible for submitting the daily Libor numbers (the "Libor submitters") and asking them to fudge the numbers. Usually, the gimmick was the trader had made a bet on something – a swap, currencies, something – and he wanted the Libor submitter to make the numbers look lower (or, occasionally, higher) to help his bet pay off.
Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor submitter at the Royal Bank of Scotland:
SWISS FRANC TRADER: can u put 6m swiss libor in low pls?...
PRIMARY SUBMITTER: Whats it worth
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?...
PRIMARY SUBMITTER: ok low 6m, just for u
SWISS FRANC TRADER: wooooooohooooooo. . . thatd be awesome
Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it's hard to imagine an image that better captures the moral insanity of the modern financial-services sector.
Hundreds of similar exchanges were uncovered when regulators like Britain's Financial Services Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes embarrassed for the banks. "It's just amazing how Libor fixing can make you that much money," chirped one yen trader. "Pure manipulation going on," wrote another.
Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution.
Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to "collateral consequences" in the economy.
The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers. So it was left to towns and cities like Baltimore (which lost money due to fluctuations in their municipal investments caused by Libor movements), pensions like the New Britain, Connecticut, Firefighters' and Police Benefit Fund, and other foundations – and even individuals (billionaire real-estate developer Sheldon Solow, who filed his own suit in February, claims that his company lost $450 million because of Libor manipulation) – to sue the banks for damages.
One of the biggest Libor suits was proceeding on schedule when, early in March, an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York to argue an extraordinary motion to dismiss. The banks' legal dream team drew from heavyweight Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer.
The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, "Our goal here is not to destroy a major financial institution."
In any case, this all-star squad of white-shoe lawyers came before Buchwald and made the mother of all audacious arguments. Robert Wise of Davis Polk, representing Bank of America, told Buchwald that the banks could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was competitive. "It is essential to our argument that this is not a competitive process," he said. "The banks do not compete with one another in the submission of Libor."
If you squint incredibly hard and look at the issue through a mirror, maybe while standing on your head, you can sort of see what Wise is saying. In a very theoretical, technical sense, the actual process by which banks submit Libor data – 18 geeks sending numbers to the British Bankers' Association offices in London once every morning – is not competitive per se.
But these numbers are supposed to reflect interbank-loan prices derived in a real, competitive market. Saying the Libor submission process is not competitive is sort of like pointing out that bank robbers obeyed the speed limit on the way to the heist. It's the silliest kind of legal sophistry.
But Wise eventually outdid even that argument, essentially saying that while the banks may have lied to or cheated their customers, they weren't guilty of the particular crime of antitrust collusion. This is like the old joke about the lawyer who gets up in court and claims his client had to be innocent, because his client was committing a crime in a different state at the time of the offense.
"The plaintiffs, I believe, are confusing a claim of being perhaps deceived," he said, "with a claim for harm to competition."
Judge Buchwald swallowed this lunatic argument whole and dismissed most of the case. Libor, she said, was a "cooperative endeavor" that was "never intended to be competitive." Her decision "does not reflect the reality of this business, where all of these banks were acting as competitors throughout the process," said the antitrust lawyer Sokol. Buchwald made this ruling despite the fact that both the U.S. and British governments had already settled with three banks for billions of dollars for improper manipulation, manipulation that these companies admitted to in their settlements.
Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit, declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and other manipulation cases now in the pipeline.
"It's now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive," he said. "And that's not just surmising. This is just based upon what they've been caught at."
Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds of manipulation more inevitable. "There's no therapy like sending those who are used to wearing Gucci shoes to jail," he says. "But when the attorney general says, 'I don't want to indict people,' it's the Wild West. There's no law."
The problem is, a number of markets feature the same infrastructural weakness that failed in the Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor, although the investigation into these markets reportedly focuses on some different types of improprieties.
Though interest-rate swaps are not widely understood outside the finance world, the root concept actually isn't that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make your loan payments fixed, you've got the basic idea of an interest-rate swap.
In practice, it might be a country like Greece or a regional government like Jefferson County, Alabama, that borrows money at a variable rate of interest, then later goes to a bank to "swap" that loan to a more predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers.
Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of these privately calculated benchmarks. ISDAfix's U.S. dollar rates are published every day, at 11:30 a.m. and 3:30 p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays, etc.) submits information about bids and offers for swaps.
And here's what we know so far: The CFTC has sent subpoenas to ICAP and to as many as 15 of those member banks, and plans to interview about a dozen ICAP employees from the company's office in Jersey City, New Jersey. Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated. Oliver Wyman is the same company that the British Bankers' Association hired to review the Libor submission process after that scandal broke last year. The upshot of all of this is that it looks very much like ISDAfix could be Libor all over again.
"It's obviously reminiscent of the Libor manipulation issue," Darrell Duffie, a finance professor at Stanford University, told reporters. "People may have been naive that simply reporting these rates was enough to avoid manipulation."
And just like in Libor, the potential losers in an interest-rate-swap manipulation scandal would be the same sad-sack collection of cities, towns, companies and other nonbank entities that have no way of knowing if they're paying the real price for swaps or a price being manipulated by bank insiders for profit. Moreover, ISDAfix is not only used to calculate prices for interest-rate swaps, it's also used to set values for about $550 billion worth of bonds tied to commercial real estate, and also affects the payouts on some state-pension annuities.
So although it's not quite as widespread as Libor, ISDAfix is sufficiently power-jammed into the world financial infrastructure that any manipulation of the rate would be catastrophic – and a huge class of victims that could include everyone from state pensioners to big cities to wealthy investors in structured notes would have no idea they were being robbed.
"How is some municipality in Cleveland or wherever going to know if it's getting ripped off?" asks Michael Masters of Masters Capital Management, a fund manager who has long been an advocate of greater transparency in the derivatives world. "The answer is, they won't know."
Worse still, the CFTC investigation apparently isn't limited to possible manipulation of swap prices by monkeying around with ISDAfix. According to reports, the commission is also looking at whether or not employees at ICAP may have intentionally delayed publication of swap prices, which in theory could give someone (bankers, cough, cough) a chance to trade ahead of the information.
Swap prices are published when ICAP employees manually enter the data on a computer screen called "19901." Some 6,000 customers subscribe to a service that allows them to access the data appearing on the 19901 screen.
The key here is that unlike a more transparent, regulated market like the New York Stock Exchange, where the results of stock trades are computed more or less instantly and everyone in theory can immediately see the impact of trading on the prices of stocks, in the swap market the whole world is dependent upon a handful of brokers quickly and honestly entering data about trades by hand into a computer terminal.
Any delay in entering price data would provide the banks involved in the transactions with a rare opportunity to trade ahead of the information. One way to imagine it would be to picture a racetrack where a giant curtain is pulled over the track as the horses come down the stretch – and the gallery is only told two minutes later which horse actually won. Anyone on the right side of the curtain could make a lot of smart bets before the audience saw the results of the race.
At ICAP, the interest-rate swap desk, and the 19901 screen, were reportedly controlled by a small group of 20 or so brokers, some of whom were making millions of dollars. These brokers made so much money for themselves the unit was nicknamed "Treasure Island."
Already, there are some reports that brokers of Treasure Island did create such intentional delays. Bloomberg interviewed a former broker who claims that he watched ICAP brokers delay the reporting of swap prices. "That allows dealers to tell the brokers to delay putting trades into the system instead of in real time," Bloomberg wrote, noting the former broker had "witnessed such activity firsthand." An ICAP spokesman has no comment on the story, though the company has released a statement saying that it is "cooperating" with the CFTC's inquiry and that it "maintains policies that prohibit" the improper behavior alleged in news reports.
The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. "It's almost hilarious in the irony," says David Frenk, director of research for Better Markets, a financial-reform advocacy group, "that they called it ISDAfix."
After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced to trust.
"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly.
That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.
All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they'll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. "In general," it wrote, "those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion."
Translation: When prices are set by companies that can profit by manipulating them, we're fucked.
"You name it," says Frenk. "Any of these benchmarks is a possibility for corruption."
The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It's not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever's in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it's only just coming into view.
This story is from the May 9th, 2013 issue of Rolling Stone.


Tuesday, April 23, 2013

Walmart Workers Banding Together Again?


Walmart Workers Plan Wednesday Scheduling Showdowns in 100 Stores


A Walmart worker on strike, October 4, 2012. (Flickr/Matt Hamilton)
On Wednesday, workers in at least 100 Walmart stores plan to confront local managers with demands for change in the retail giant’s scheduling system.
Scheduling issues have been a recurring focus for the union-backed retail workers group OUR Walmart since its founding. Workers have charged that insufficient and erratic work schedules consign them to poverty, wreak havoc on their personal lives and shortchange customer service. At an October forum, backroom receiving associate Lori Amos said that because of understaffing at her Washington State store, 2,000 pounds of Halloween candy didn’t make it onto the shelves until it had expired and changed color.
At a January address to the National Retail Federation, Walmart US President Bill Simon announced that the company was “working on clarifying the opportunities that we offer,” and would act to “bring more transparency into our scheduling system,” and “make sure that part-time associates have full visibility” for full-time openings. Three months later, OUR Walmart charges that the situation hasn’t improved. “I haven’t seen any associates that were part-time, that were requesting more hours, getting more hours,” Lancaster, Texas, worker activist Colby Harris told The Nation. Rather, he said, his store has been increasing its use of temps, and “I’ve actually seen associates get less hours.” Walmart did not respond to a Monday morning request for comment.
If organizers’ estimates hold, Wednesday’s coordinated worker delegations will represent the largest mobilization of OUR Walmart members since last November’s Black Friday strikes, in which organizers say some 400 workers walked off the job. In some stores, workers will go together to talk to management before or after their shifts; in others, workers will do so during the work day. (Federal law generally protects the right of workers to engage in such “protected concerted activity” when aimed at improving working conditions.) While the delegations’ shared date and message may amplify attention, their greatest significance will be as the latest test of rank-and-file OUR Walmart leaders’ ability to mobilize co-workers amid fear of retaliation.
Tomorrow’s planned action echoes the store-by-store skirmishes with local Walmart managers in 2011 and 2012 that developed worker leaders, distinguished the OUR Walmart campaign from recent failed efforts and laid the groundwork for last year’s strikes. The number of new leaders who pull off delegations Wednesday, and the number of newly-mobilized co-workers who join them, will offer some sense of the campaign’s progress towards building a mass movement within Walmart’s 1.4 million-strong US retail workforce. Wednesday’s delegations will follow protests last week over conditions in Walmart’s global supply chain, and the submission today of a new round of internal ethics complaints regarding alleged bribery in Mexico and elsewhere.
“The morale of the associates is down because they don’t feel like they have a career,” said Harris. “Just the increase of hours alone would cause people to feel like they’re worth something.”
From the Bronx to Brooklyn, New York’s low-wage workers are rising. Read Lizzy Ratner’s report.