das Michael Lewis

Micahel Lewis, the literary brilliance who brought us The Big Short, an opened the internals of the Synthetic CDO market like a little spring roll, pointing out the carrots and the rice vermicelli, has apparently lost his goddamn mind. His latest essay, on the German economy, starts out with a multi-paragraph diatribe about how Germans are obsessed with all things fecal.

It may be true, it may be funny, but linking it to the German economy is a little ... ... well let me put it this way. When I am under sleep deprivation, and I foolishly log onto some website, and start typing random crap out through the keyboard, sometimes people will tell me I sound like a deluded person screaming on the street.

Other times, people will say my writing is wonderful and brilliant, or at least mildly amusing. What is the difference? How do you know when you are writing something good versus something insane? How do you know when you are reading something good versus something insane?

When you describe there being 'good evidence' that Hitler loved sexual games involving feces (scat), without providing a reference, and then link this to the German banks and the CDO market, I don't know. I think you have teetered over into the insane-dude-on-the-street category a little bit.

Partway through the article. He writes:

"The only financial disaster in the last decade German bankers appear to have missed was investing with Bernie Madoff. (Perhaps the only advantage to the German financial system of having no Jews)"

Now, that is supposed to be a joke. But it comes off all wrong and twisted... like if Larry David told it at a party and a room full of people stopped eating and stared at him.

Then he describes the history of German banking as 'conservative' and lacking 'innovation'. I ... find this hard to believe. The Nazi Party grew from nerdy chicken farmers toodling around on motorcycles to 'spread the word', to a mass behemoth that killed 40 million+ people, involving practiaclly every leading industrialist on the planet, and carrying on every kind of subterfuge and underhanded hidden financial transfer imaginable, an example of which is their use of Swiss bankers and the Bank for International Settlements. Another example is to be found in the Nerthlands, when they forced all Jews to move their savings to special 'Jewish banks', and then after the Jews were killed, they simply seized the assets. When the war was over, the Nazis did not retire, many of the leaders in the Nazi government kept right on working in the new state, in both East and West Germany.

In the modern era, one of the first CDO lawsuits was done by one German bank, HSH Nordbank, against Barclays, back in 2005. It was in reference to a Synthetic CDO that Landesbank Kiel had purchased back in the year 2000. In the year 2000, the Synthetic CDO had barely even been invented, and it's precusor, the BISTRO, had only come out of Blythe Master's group at JP Morgan a year or few earlier. I.E. some of the German banks were not entirely out of the modern CDO innovation game in it's earlier days.

And what about his own book? Deutschebank is the ultimate shadowy figure in The Big Short, and it's man Greg Lippman lurks beyond the horizon of the story Lewis wants to tell. It was up to it's ears in creating Synthetic CDOs. Of course it claims that it lost money too. But so did American banks - the question is about their executives at the propietary trading desks within the banks, and the size of their bonuses.

I also have questions about Lewis' lexicographic argument. His assistant lists various German prhases involving 'shit', and Lewis implies that the German language itself therefore displays an anal obsession. But there are numerous phrases in English with a similar bent.

Bescheissen: “Someone shit on you.”
English similarity: "They fucked us in the ass"

Klugscheisser: “an intelligence shitter.”
English: Bullshitter, Bullshit artist

"And if you find yourself in a bad situation you say, Die Kacke ist am Dampfen: the shit is steaming.”
English: Up shit creek without a paddle. The shit hit the fan. That was a real shit show.

Scheissegal - "I don’t give a shit"
English: It's a direct translation!

“Scheisse gl√§nzt nicht, wenn man sie poliert" - Shit won’t shine, even if you polish it
English: You can't polish a turd

More English Phrases:

That guy doesn't know shit from shine-o-la (shoe polish)

That fellow doesn't know the difference bewteen his own asshole and a hole in the ground

Opinions are like assholes: Everyone has one, and thinks their's doesnt stink.

When she hears what happened, she will shit a brick

That politician is really awful, he wiped his ass with the constitution

The one I can't seem to find a direct equivalent for is "Geldscheisser.”, or 'gold shitter'.
Although in English you might say "That guy is a rich asshole".

In the end of the article, Lewis, for some reason, tries to visit a mud wrestling fight. He can make all the flowery arguments he wants about the 'German national character', but it would appear that his real motive in this Vanity Fair article was to fulfill the dream of every 15 year old boy - to have your job being visiting strip clubs and making jokes about poop. Not that I'm hating. Go forward, God bless.


It's the economy, Dummkopf, Michael Lewis, Vanity Fair, 2011 September

Nomura fixed income research, Feb 22 2005 , from securitization.net

Barclays sued over $150m bond loss, Grant Ringshaw 19 Sep 2004, The Telegraph (UK)

mentions of Craig Murray in the Wikileaks dumps

Craig Murray was a UK ambassador to Uzbekistan, where he witnessed violence, torture, murder, rape, and corruption on a massive scale in the repressive police state. He wrote two books, "Murder in Samarkand" and "Dirty Diplomacy" about his experiences.

One thing that really upset him was that Uzbekistan was a US-UK ally in the 'War on Terror', including the creation of the K2 airbase for the use of US forces.

When Wikileaks dumped it's full stash of US State Department cables, one is of course interested in what they have to say about Murray. It turns out, not much. I found only 4 cables that mention him.

1. STAPLETON - Paris Embassy - quotes Murray in Le Monde article about CIA renditions

2. TUTTLE - London - describes Jack Straw's election troubles due to Iraq War, Murray's run, and the split of the anti-war vote between different parties, allowing Straw's win.

3. NORLAND - Tashkent - Article about the RRG human rights group.

6. (C) The RRG activists observed that they have had difficulty
arranging a similar meeting with the British Ambassador in Tashkent
and asked the Ambassador to intervene on their behalf with the
British Embassy, which he did later that day. The activists noted
that in general, the British Embassy in Tashkent appears to have
disengaged somewhat on human rights. The Ambassador noted that the
current British Ambassador, a talented and experienced diplomat who
most recently served as the British Ambassador to Belarus, is
intensely interested in human rights but has adopted a more
cautious profile in Tashkent, following the Craig Murray debacle,
in which a previous British Ambassador\'s confrontational stance on
human rights issues all but severed UK relations with Uzbekistan.

4. NORLAND - Tashkent - Article about 'human rights and police conference' - 2008

1. (SBU) Summary: The USAID-funded Open Dialogue Project,
under the auspices of the Institute for New Democracies (IND)
and the University of Eastern Kentucky, in conjunction with
the state-supported Foundation for Regional Policy, sponsored
an international conference in Tashkent on March 5-6 focusing
on law enforcement and human rights issues. Despite some
international criticism that the event was merely a talk
shop, the conference was a chance for a wide range of
American and European law enforcement and legal experts to
engage a key group of Government of Uzbekistan officials on
important issues. As expected, the Uzbek side highlighted
major steps such as the abolition of the death penalty and
the adoption of a law transferring arrest warrants from
prosecutors to the courts. Nevertheless, officials from
power ministries, the parliament, supreme court, and academic
organizations listened intently as a U.S. Federal Judge
analyzed the strengths and weaknesses of the new habeas
corpus law. Uzbek police officials also heard relevant case
studies about forensic examinations, community policing
techniques, and conflict avoidance.

. . .

18. (SBU) Former British Ambassador to Uzbekistan Craig
Murray, who has gained international media recognition for
his recent book about Uzbekistan, criticized from afar this
conference as a gathering of \"talking heads.\" (His remarks
were picked up by the website ozodlik.org.) However, as with
previous events sponsored by the few USG-supported NGOs in
Uzbekistan, the conference provided an important opportunity
for Western law enforcement experts to share ideas, advice,
and experiences with an important group of Uzbek officials
which needs exposure to outside viewpoints.

19. (SBU) Reforms may happen slowly in Uzbekistan, where
there remains a penchant to do things from the top-down, but
this conference underscored the fact they do sometimes
happen. The two key legal reforms discussed in detail at
this conference were made possible in large part by the
previous work of U.S.-supported entities. Sustained
engagement now may likewise lead to desired further reforms,
especially of the recent habeas corpus law. The sensitive
topics included on this agenda could not have been discussed
just one year ago, and the Government of Uzbekistan has
already asked Open Dialogue to organize a roundtable
addressing torture as quickly as possible. We believe the
talking heads have some important things to say and the talk
is not in vain. The conference recommendations have been
circulated to Government of Uzbekistan ministries with a
response time of one week. The Ambassador told the closing
plenary that implementation is key. Quoting an Uzbekistan
human rights lawyer, the Ambassador emphasized the importance
of progress on the ground in order to avoid the lyrical
conclusion about legal reform: \"you can see it, but you
can\'t eat it.\"

After reading Murray's books, the thought of US police 'engaging' with the Uzbek state makes me a little nauseous. It would be like the FBI meeting with Reinhard Heydrich in the 1930s to discuss how to reform the Nazi legal system. Yes. I'm sure the Nazis will get right on that.

OK, but how then, did Interpol form? I don't know. That's another story, for another time.

Another funny anecdote - the head of the US intelligence agency the OSS, Wild Bill Donovan, actually wanted to invite Soviet NKVD (KGB) police officers to the US to do 'exchange' work in the country. J. Edgar Hoover at the FBI nixed that idea.


Wikileaks cable dumps, namely http://cryptome.org/z/z.7z, Sep 2011

Did Canada's withholding tax save it's banks?

The Canadian "Withholding Tax" on interest income kept credit derivatives from making big waves in the Canadian financial system in the early 2000s. Is this why Canadian banks fared so much better than US banks in the Great Recession?

I ask this question, becasue a wikileaks cable from the US Consulate in Toronto, in 2005, tells a story about how the Canadian withholding tax was preventing derivatives from coming to the Canadian banking market.

Cable: 05TORONTO2634

There is a lot of jargon involved, but it's really not that complicated. Start by asking simple, basic questions.

What brought down the US banks in 2008?

Derivatives, especially 'credit derivatives' like subprime mortgages and CDOs. And especially the Synthetic CDO, a bundle of derivatives based on other derivatives, which many people have described as flat out gambling (like Lawrence McDonald).

But why did the US banks have all these investments if they were so awful?

Because various bank executives made huge bonuses and imaginary short-term profits by selling these products to investors, to other banks, or to other departments in their own banks.

So why didn't the Canadian banks hold a lot of this stuff, when the US banks did?

This is where the Wikileaks cable is helpful.

Canada, basically, had taxes that were too high for these sorts of products to be profitable for bankers and investors and other parties, and so these sorts of products were not widely held by Canadian banks.

What do you mean?

Start with a mortgage on a house. You pay off the mortgage -- whoever owns it makes a profit, because your house cost $200,000 but you are gonna pay them back $200,000 plus interest. The interest is the profit.

This profit gets taxed. In the US it is taxed low, but if you were an American and got 'interest income' from a Canadian mortgage, the tax was much higher.

Ok so what does that have to do with derivatives that destroyed the US banks?

Well, the derivatives were made of products like mortgages. And the investors and bundlers and sellers, looking for profits from these products, wanted to do business where the taxes were lowest, because thats where the profits would be highest.

So that kept these CDOs and subprime mortgages out of Canada? The high taxes?

Essentially, yes, this is exactly the argument that the bankers made to the government in the wikileaks cable.

Look at the cable text:

(SBU) In late September, two CEOs and one senior
representative of Bank of America (Canada), Citibank
(Canada), and JP Morgan Chase (Canada) approached the
Consul General privately to complain bitterly about the
Canada-U.S. withholding tax on income paid to non-
residents. At issue is paragraph 212 (1) (b) of the
Canadian Income Tax Act (ITA), which deals with
withholding tax on interest paid to non-residents. The
U.S. bankers said current bilateral withholding taxes
on cross-border interest payments have a very
detrimental effect on liquidity and, therefore, a
correspondingly negative impact on the possibility of
establishing a strong Canadian secondary loan market.
They argued that they would be strong players in the
Canadian secondary loan market, if it were permitted to
become as dynamic as it is in the U.S. In practice,
the Canadian ITA keeps U.S. investors all but out of
the secondary loan market, hitting U.S. banking
interests, robbing the Canadian market of liquidity,
and adversely affecting the strength and depth of North
American integration in financial services.

. . .

(U) The withholding tax impedes the development of
a dynamic secondary loan market in Canada by
effectively shutting U.S. investors out. For example,
one of the deepest and most liquid markets in the U.S.
is the Public and Conduit Asset Backed Securitization
market. In 2002 this market represented approximately
US$730 billion of liquidity in the U.S. By contrast,
the Canadian Securitization market was some US$60
billion in 2002. According to the FBEC members of the
CBA, the withholding tax is one of the main reasons why
U.S. liquidity does not flow to Canada.

¶7. (U) Credit cards, auto loans, leases, and mortgage-
backed securities are some of the most actively
financed interest-bearing assets in this market.
Currently, a Canadian financial institution desiring to
boost its liquidity by selling a bundle of similarly
priced and timed interest bearing assets in this market
will find that U.S. banks, with deep pockets of
liquidity, are not interested in buying because the
interest earnings on Canadian assets will be too low to
make the deal fly once the withholding tax on those
interest earnings is factored in

. . .

But that's just a bunch of jargon. I can't understand it!

Sure you can. Break it down piece by piece. You know what a subprime mortgage is. Work backwards. Canadian banks wanted to sell alot more subprime mortgages, and even the products built on them like RMBs and CDOs, but they couldn't find US investors. Why not? Taxes were too high. US investors didn't want to buy. So what?

So, Canadian banks didn't do things like buy entire subprime-mortgage companies (Countrywide) or entire housing editions (Lehman Brother's McAllister Ranch), hoping they could 'flip' them to investors. If you saw 'Wall Street 2:Money Never Sleeps", think about Susan Sarandon's character , an ex-nurse buying and selling houses for a living. Imagine who her bankers were, and then imagine there was no Shia Lebouf to bail her out when the market tanked.

Canadian banks were unable to partake of this particular form of financial 'innovation', because if they tried to slice and dice and resell mortages, the cross-border taxes would have been too high, so there'd be no buyers. No buyers for this trash, means no reason to create the trash in the first place, and no executives inside the bank trying to game the bonus system by holding onto the 'good bits' of the trash.

When the cable says this 'secondary market' provided 'US$730 billion of liquidity' to the US banks, what its really saying is that US financial markets were loaded with 730 billion dollars of garbage, while the Canadian financial markets only were loaded with 60 billion dollars worth of garbage.

Why does it matter how many garbage they were 'loaded' with

Because in 2008, people began to realize that the garbage existed and was truly garbage. Beforehand, the bank told everyone it owned 100 billion dollars of good quality 'asset backed securities'. People began to find out the 'good quality' bank assets were really garbage with a real value of 1/100th what was claimed. This caused a run on the bank. Everyone would pull their money out at once. The bank would collapse. That's a very short, condensed version of what happened to Bear Stearns and Lehman Brothers.

So the Canadian banks had some of this stuff too...

Right. But not as much. They were able to swallow the losses. A US bank like Lehman Brothers, though, was almost entirely built of garbage, so there was no way it could swallow it's losses.

But couldn't the Canadian banks just sell to Canadian investors? There's no 'border tax' if they do that

Yes. But the vast majority of 'investor money' at the time was in other countries. Especially the United States and it's mass of innovative financial markets, hedge funds, funds of funds, pension funds, retirement funds, etc etc etc, all of whom gobbled up these subprime 'investments'. Canada is kind of a small population country as countries go.

So that little paragraph 212 (1) (b) of the Canadian Income Tax Act basically saved their banks?

Well, that's what it looks like to me. Then again, I'm not an expert.

So... is that Canadian interest income withholding tax still in effect?

No. Actually they repealed that tax in 2008, but by then the US banks were already doomed - they had gorged themselves on the junk, and the Canadian banks, if the crisis had happened in say 2010, might have gorged on it too.

Aren't you leaving out huge parts of the story? Aren't some of your basic facts wrong, and your descriptions of financial relationships completely bogus?

I am not a super-experienced financial whiz. But I think the basic gist of my story is pretty spot on. I'm not making up the cable - the cable says quite clearly that the Tax prevented toxic assets, aka credit derivatives, aka "the secondary market", from becoming big in Canada. And many sources have pointed out that Canadian banks survived the crisis better than American banks.

As for the nooks and crannies of the story? Of course there is more to it! The motives for the Canadian government officials are probably myriad and diverse. The names of the CEOs and executives who lobbied for this are easily obtainable with a bit of research. I bet those backstories are fascinating. For example. Take Jessica LeCroy.

Jessica LeCroy

Jessica LeCroy is the alleged author of the cable. Her wikipedia article is full of dazzling accomplishments. But here is what she wrote in the cable:

Comment: Time to Ax this Tax

Thus, LeCroy, with several diplomas from the world's best schools, vast experience in financial companies and the government, wanted to 'Ax the Tax' that seems to have actually saved the Canadian banks, to some extent, from the certain doom of the CDO market, credit derivatives, subprime mortgages, etc. It seems like maybe, possibly, hers was a voice at one with the executives of the very same banks that would, 3 years after her cable, go belly up, bailed out by taxpayers in 2008. How did this happen? Why, in her cable, did she not present critical viewpoints? Why did she not analyze and dissect and ponder and examine? Maybe that was not her job?

By the way. She also helped Paul Bremer in his running the Coalition Provisional Authority right after the US Invasion of Baghdad in 2003. By most accounts, Mr Bremer left much room for improvement in his activities as a leader. PBS Frontline, and many others, have chronicled this story, which ends with Baghdad being covered in flaming pools of shit, truck bombs, and anarchy.


So, there are lots of things to dig out around this story. But I am not a professional journalist, I am a peon with no life, blogging in my underwear.


EConned, Yves Smith, 2010, published by Palgrave Macmillan

US govt cable: 10/12/2005 15:46","05TORONTO2634","Consulate Toronto", 2005, by LECROY, from wikileaks.

English Wikipedia: Jessica LeCroy, alot of which was originally copied from the US Consolate in Toronto.

Welcoming Jessica LeCroy, Eesti.ca , 2005

Egypt's Espionage Act

A number of Egpytian bloggers and other usual suspects (journalists, writers, activists, etc, like for example Maikel Nabil Sanad) have been arrested for the crime of 'insulting the military' and 'spreading false information'.

It recalls Edward Chaffee's 1919 booklet, "Freedom of Speech in War Time", which was written in response to the United States newly minted Espionage Act of 1917, and especially its 1918 amendment the Sedition Act.

One of Chaffee's central points is that in the old monarchies of Europe, the crime of 'slandering the crown' was used to destroy all sorts of legitimate criticism of the governemnt. In essence, a democracy turns on it's head the notion that the people can slander the government - Chaffee's analogy is that the government becomes a servant to the people in a democracy, and a servant cannot 'slander' a master.

He ties this into the American Revolution and the first amendment of the constitution. Freedom of Speech means that it is perfectly acceptable to 'slander the government', and a good history of case law (case law being the clay that courts work with to build decisions) backed up that philosophical foundation.

The Egyptian military, apparently, does not believe in the philosophy of the government being 'public servants'. It has, it would seem, ressurected the old monarchical notion of 'slandering the crown', in it's various imprisonments of bloggers and journalists for 'spreading false information and insulting the military'.

If the military were the servant of the people, would it ever be able to make a case for 'slander' in a military court - in absentia?

A fun fact.... Chaffee's essay helped influence Supreme Court Justice Oliver Wendell Holmes to change his mind about the Sedition Act. He even invited Chaffee to discuss the matter with him. Could this happen in Egpyt?

Holmes was within a century old legal system built on a habit of civil society and intellectual adherence to the ideals of the Enlightenment. The Egyptian government is still holding civilians in military courts in absentia - - one wonders if any sort of Oliver Holmes type could ever rise to a position of much influence in such a system.

Another note: the Sedition Act of 1918 expired soon after it was passed - with a public not quite impressed by the Palmer Raids (even after a spate of Anarchist bombings of officials). The system of Congress, and elections of congressmen (direct election of Senators had only recently come into existence), again, a piece of the civil society puzzle in which Holmes, and Chaffee, played parts. Would this happen in Egypt? Do they have a congress? Is it elected? What about the media? Are they free to report on 'Palmer Raid' style operations by the Egyptian government? Are people allowed to express outrage?


Egypt: Military Intensifies Clampdown on Free Expression Human Rights Watch, aug 17 2011

Coptic Blogger Jailed for Criticizing Egyptian Military Goes on Hunger Strike
, Human Rights Watch, 2011 8 17

Maikel Nabil Sanad. The usual suspect that governments fear (a pacifist who won't shut up)

Jailed Egyptian blogger on hunger strike, Committee to Protect Journalists, 2011 August

Freedom of Speech in War Time Edward Chaffee, 1919, from Google Books

John O'Neill vs Sandy Berger

According to the PBS Frontline episode 'the man who knew' (recently rebroadcast), John O'Neill was caught with classified documents in a briefcase - and this greatly harmed his position in the FBI. Why did he have classified documents in his briefcase? Well, he was probably reading them to do his job - catch Al-Qaeda terrorists.

Nevermind that he had actually prevented Al Qaeda from bombing Times Square in New York City (the Millenium Bomb Plot). He was a bit of a 'mavercik', as the Frontline documentary put it, and the professional bureaucrats hated him for it.

When someone 'leaked' "briefcasegate" to a reporter, coincidentally for a story co-written by James Risen of the New York Times, that was the end for John. He was basically kicked out of the Bureau in 2001. Not the first time Risen had helped attack someones career in relation to classified documents - he earlier had written horribly biased stories against Wen Ho Lee, who was later vindicated when he won a million+ dollar lawsuit against several newspapers and the government for their mistreatment of him. But that's another story - ironically Risen got into hot water in 2010/2011 becasue he wrote a book full of allegedly classified information (the Jeffrey Sterling case). Again, another story.

How did this O'Neill case happen? How did the reporters find out the FBI was after him for 'mishandling' classified info in a briefcase? A man at FBI named Thomas Pickard allegedly 'leaked' the story to a reporter. Pickard also had a quote in an Esquire magazine story where he harshed on O'Neill for mishandling classified information.

O'Neill was pushed out. He got a job working security for the World Trade Center, and died on September 11.

Sandy Berger, on the other hand, mishandled classified information in his pants... and he got a slap on the wrist. He took them out of the National Archives - and basically suffered very little punishment whatsoever.

But it doesn't stop there. Reagan's head of CIA was a scatterbrain and mishandled classified info all the time. So have many other presidents and administration officials over the years. Furthermore, Pickard's alleged 'leaking' of internal FBI investigative information to a reporter was, in and of itself, a mishandling of possibly classified information.

With all we have learned about the strange nature of the word 'classified' means in the government, with everything from innocuous memo's to picnic menus being put under some kind of special distribution stamp, and with overclassification running rampant, the O'Neill case comes into sharper focus.

O'Neill was taken down for bureaucratic political reasons. He was taken down by the means of the cult of secrecy, the overclassification culture, in the federal government. This was the tool they used to get him.

It is a tool that appears to be increasingly used for political fights instead of for actual reasons of national security - the Thomas Drake case being one of the most egregious examples. State Secrets privilege is supposed to exist to protect the secrets of the nation, not the careers or reputations of various individuals in management positions.

The hard thing to accept here is that O'Neill had a good chance of stopping 9/11 before it happened. He had, after all, been tracking Bin Ladin for years, and helped stop the Millenium bomb plot.

But there is more. There were two FBI agents inside the CIA, one named Mark Rossini, working at Alec Station, who knew about al-Hazmi and al-Mihdhar heading to the United States. They wanted to alert the FBI headquarters, but their CIA chief said No. This is from James Bamford's book Shadow Factory, and other sources.

On top of this, there is Robert Wright, an FBI man who had been working on terrorist financing. He allegedly had some personal issues, and was then prevented, on threat of criminal prosecution by the FBI, from publishing a book telling his story, about his belief that the FBI was completely botching it's investigations of terrorist groups within the United States in the late 1990s.

Add these three together, and the picture is not a pleasant one. All three were intimidated not becasue they were bad employees or broke the law, but because of petty politics, and misguided managers. If Rossini and his associate had been able to send a message to the FBI HQ, and if that had gotten to O'Neill, then al-Hazmi and al-Mihdhar would probably never have been able to board the flight 77 and attack the Pentagon. The guys were living in the US for years before the attacks, at one point even living with an FBI informant (who found nothing suspicious about them at the time), and even before the attacks, were living a stone's throw away from NSA headquarters.

NSA was listening to millions of converastions all over the planet - but not the guys in a hotel room just down the highway.

This mismanagement and malfeasance apparently continues to be covered up. The head of the CIA, George Tenet, on duty in the late 1990s and early 2000s, got a presidential medal of freedom. I don't know what John O'Neill got but I'm guessing he got nothing. The people doing the wrong things were rewarded, and the people doing the right things were punished. Why is that? How did it happen?

And why are they still covering it up? We still don't know the name of the CIA agent who told the FBI agents (Rossini & his associate) to not pass-on information to FBI HQ about Hazmi and Mihdhar. We still don't know, for 100% certain, who all was involved in 'leaking' O'Neills briefcase story to Risen &c at the New York Times (Pickard apparently won't talk). We still don't know the exact depth and breadth of the bureaucratic decision making and management philosophy that led to a situation where the people who were tracking al-Qaeda were prevented from talking to each other.

We may have sent 4,000 people to die, and killed 100,000 or more, and created millions of refugess all over the middle east, and eroded our entire foundation of civil liberties ... but have we actually changed any of the stuff that allowed al-Qaeda to slip through in the first place? What do I mean by 'the stuff'? What stuff?

If Carl Sagan were studying it, perhaps he would say the 'reptilian brain' stuff. Submission to authority, obsession with hierarchy. He places this, in his history of thought, in opposition to to science - "[arguments from authority mean nothing]". One must question existing theories to see if they meet existing data; if not, search for something better. And gathering new data without bias or predilection to a particular set of results.

What would Thomas Drake, or Eric Schneiderman, or Elizabeth Warren, or many others say is going on in our modern world? Have we embraced science, the way of thinking? Or have we just embraced a few of the results, and disregarded the method itself?

Michael Hayden's philosophy in one sentence

BBC reporter Tom Mangold managed to find his way onto a cruise ship that boasted a large number of former intelligence officials, including Porter Goss, and Michael Hayden. A Caribbean cruise with former CIA chiefs, 13 January 11, bbc.co.uk

Hayden, of course, was running the NSA when Thomas Drake, Diane Roark, and others tried to stop the Trailblazer project and other wastes and abuses inside the NSA. Hayden came down on them very hard, and many of them quit. It is unknown if he directly influenced the failed government prosecution of Drake for Espionage.

What drove Hayden? What was his philosophy? Perhaps we can see an inkling of it as Hayden explained to Mangold why he talks to the press so much.

"We exist in a society that distrusts secrecy and power most of all. In order to be successful espionage services have to be only two things - secretive and powerful. So you've got that cultural tension and I feel a certain sense of responsibility to try to defuse that."

In trying to explain his media philosophy, he seems to have inadvertently explained his management philosophy.

Some people might argue that espionage services have to be inquisitive, insightful, creative, intelligent, highly educated, self correcting, lacking in arrogance, dedicated, hard working, loyal to the constitution, etc. But not General Hayden. For him, espionage services have to be secretive and powerful. That's it.

Maybe that explains why he sent out this memo regarding his failed Trailblazer project and the dissenters inside NSA.

"individuals, in a session with our congressional overseers, took a position in direct opposition to one that we had corporately decided to follow.... Actions contrary to our decisions will have a serious adverse effect on our efforts to transform N.S.A., and I cannot tolerate them." (from The Secret Sharer, Jane Mayer, June 2011 New Yorker.)

It might also explain why, when the Department of Defense investigated the project, it had diffculty finding people who would talk.

"Several contractors for the project were worried about cooperating with DoD's audit for fear of "management reprisal""(from the IG report, available in redacted form at POGO Obtains Pentagon Inspector General Report Associated With NSA Whistleblower Tom Drake, Project on Government Oversight, Nick Schwellenbach, 2011 June).

If management truly believed that the organization depended on secrecy and power above all else, then of course people were afraid to talk. Look at what happened to Drake, Roark, and the others. How much influence did Hayden have directly on their case? Unknown.

Then again, all the secrecy and power in the world cannot hide the truth forever, and some day we will know the specific role that Michael Hayden played in taking us over into the Dark Side.


Anna Akhmatova was evacuated from Leningrad and lived in Tashkent for two years. Tashkent, "Central Asia" according to the introduction to Poems of Akhmatova, translated by Max Hayward and Stanley Kunitz.

Tashkent, Uzbekistan.

Uzbekistan... where Craig Murray also lived, for a few years. Uzbekistan where women sold handicrafts in bars and then became prostitutes. Where belly dancers were loved by the children because they, unlike their parents, had money and bought them food and clothes. Uzbekistan, where everyone you knew could be punished if the government disliked you. Where crime scenes and bombing sites were hosed down within an hour or two, so that no questions could be asked.

Uzbekistan, also of Anthony Bourdain. Did Anna Akhmatova pour tea into a cup, and back into the kettle, and into the cup again, three times? Did she witness a wedding? Did she eat the bread?

Today, if she lived in Tashkent, would she have to evacuate to Saint Petersberg?

The true cost of persecuting whistleblowers

In 2008, China underwent the poisoned baby milk scandal. There had been problems with the global food crisis of that year, cattle feed was too expensive for China's poor farmers. The "solution" to this problem was to put melamine, a poison industrial chemical, into the supply chain, in order to boost the measured protein content in the milk. This melamine wound up, eventually, in baby formula. Several babies died, and houndreds of thousands of others were sickened, often with kidney stone ailments and other serious problems.

One man, Zhao Lianhai, decided to do something. He had been an official in the Chinese food safety department. His own child had become ill from the tainted milk, and so he began to form a movement.

He created a website called 'Home for Kidney Stone Babies'. Other parents gathered there and exchanged advice and stories, and started to plan on ways to get redress from the government. He exposed corruption, such as posting allegedly leaked documents from a hospital that proved that officials were being pressured by the government to downplay the consequences of the scandal upon the health of infants. He organized meetings and protests with the other parents.

The government came down on him, hard. He was arrested and sentenced to several years in prison. His family members and his associates were harassed and persecuted by the state officials. His website was shut down.

After a great deal of pressure, the government let him go, after he agreed to some sort of false confession of his 'crimes'. After he was released, he recanted the confession, unable to bear the cognitive dissonance swirling around inside his head.

Melamine was also discovered in Chinese eggs.

Now, Chinese companies have been producing fake plastic rice, and selling it to poor people. The solution given by the government is to increase regulation. They claim that this will solve the problem.

It is baffling. They have the answer at their fingertips - their own population is wanting to participate in the regulation, like Zhao Lianhai, but instead they are persecuted. It is enough to make one agree with Alan Greenspan in his book Age of Turbulence. His argument went something like this: More regulation doesn't necessarily accomplish much. It allows corruption to become more 'legitimized' by the institutions that are supposed to be regulating it. Greenspan, instead, spoke of the importance of whistleblowers, from inside organizations, coming out and airing the injustices being perpetrated within organizations. Only then could regulators really go after wrongdoing.

This is a bit ironic and topsy-turvy, considering what Greenspan did to Brooksely Born at the Commodities Futures Trading Commission in the 1990s. She wanted to study whether we should make Credit Default Swaps and other credit derivatives more transparent and open to public scrutinty. Greenspan, Larry Summers, Arthur Levitt, and several others shouted her down and destroyed her government career. The Commodities Futures Modernization Act of 2000 passed, with her input being largely ignored.

Those Credit Default Swaps would later become the heart of the Synthetic CDO, which enabled trillions of dollars of subprime mortgage loans to be created for house flippers and cash-out refinances in the middle of the largest speculative financial bubble in recent memory. It was like Tulipmania in 1600s Netherlands, but instead of Tulips we had mortgages. This led directly to the crash of 2008, the Great Recession, and the bailouts of the big banks by the taxpayer.

So although Greenspan might believe in the principle of whistleblowing as an effective means of preventing wrongdoing, his own wrongdoing provides one of the best examples of why whistleblowers should be protected.

Again and again, we see the consequences of persecuting whistleblowers. It goes far beyond a simple violation of human rights, or a petty political squabble between two differing camps inside an organization. In the absence of whistleblowers, corruption becomes endemic, it becomes rampant. The ecosystem of the well run organization is overturned and destroyed, and replaced with incompetence and reckless decision making that goes forward unbothered by honest discussion or dissent.

This is how you have a country that continues to churn out poisoned food, even with a massively, centralized police state that monitors the twitters of hundreds of millions of people, yet cannot monitor the products of it's own food factories, even after poisoning hundreds of thousands of it's own children.

It is not a problem of regulation, China is one of the most regulated societies on the planet. It is a lack of human rights, the right to free speech, the right to petition the government, the right to criticize corporations and officials, and the right to blow the whistle.


China’s poor treated to fake rice made from plastic: report By David Edwards Tuesday, February 8th, 2011, rawstory.com

Age of Turbulence, Alan Greenspan, 2008

A chinese dissident is freed, but he's still not free Simon Says by Scott Simon, npr.org, 2011 6 25

China’s poor treated to fake rice made from plastic: report By David Edwards, Tuesday, February 8th, 2011 , rawstory.com

China milk scandal: Families of sick children fight to find out true scale of the problem, Malcom Moore, 3:56PM GMT 03 Dec 2008, The Telegraph (UK)

The Masters

The Asylum, by Leah McGrath-Goodman, is an amazing book about commodities traders... the phrase may sound boring, until you burrow into it. The proof is a film like Trading Places, with Dan Aykroyd and Eddie Murphy, which is basically a movie about commodities trading. People will argue, and say it is about human relationships, conflicts between levels of income, crime, race. But that's like saying Finding Nemo was about fish. Sure it was about fish, but they all swam in the ocean. We all live in the world of the commodities trader. Every time we take a bite of food, or put gasoline in the car, we are interacting with the commodities traders. That is what, to me, makes it so fascinating.

We all wonder why the price of commodities, like gasoline or potatos, skyrockets in certain years, but not in others. Nobody seems to really know, ever. But the commodities traders have an inkling - because it is their business to know. And some of them use this knowledge to manipulate the markets themselves, which Goodman describes in great detail.

In Goodman's interview with Jerr DiColo on C-SPAN, he asks her how she managed to get into the world of the commodities traders in order to write about them. How was it possible? It is a closed group, almost a closed society.

One of the people who helped her was named Danny Masters. She describes him as being "on the trading floor". If you dig around the internet a little bit, you find a little more about him, like this, from "Incisive Media Investments Limited" (they also do Risk magazine and others):

The Oil Baron who Digs Gold , Hedge Funds Review, September 2004

Masters went to JP Morgan in 1994 with his "trading expertise" and worked on their "proprietary trading program" and then their "global energy trading business" in 1997. Soon after he started a hedge fund. What did his hedge fund do? It bought and sold "energy and metals derivatives".

Goodman mentions in the CSPAN interview that Masters was married to Blythe Masters, who runs JP Morgan's commodities group. She says they were a sort of 'commodities family'.

. . .

Blythe Masters? The Blythe Masters?

Blythe Masters was in the small JP Morgan crew who created the Credit Default Swap in the 1990s. She was not just 'on the crew', she was one of the prime movers. The group also created the BISTRO, a marketing tool to sell hundreds of Credit Default Swaps in one product. This was the foundation of the 'credit derivatives' business. This was written about in exquisite detail by Gillian Tett in her book Fool's Gold. The BISTRO would later evolve into the Synthetic CDO, which would play such a primary role at the heart of the financial speculative bubble of the zeroes, the subprime mortgage industry, the crash of 2008, and the subsequent Great Recession, as detailed in books like The Big Short by Michael Lewis.

Here is a fascinating article, especially in hindsight, written by Phillip Zweig back in 1997, talking about Blythe Masters, at the time the "global head of credit derivatives" at JP Morgan:

Dizzying new ways to dice up debt: Suddenly, credit derivatives--deals that spread credit risk--are surging, July 21, 1997, Phillip Zweig, Businessweek

Blythe Masters was at the vanguard of the derivatives business for many, many years. It was only later that she became head of JP Morgan's commodities business.

Years later, Bob Pisani of CNBC asked Masters this question:

"Do you think commodities prices are being manipulated by speculators?"

"No, in the long run it's not possible for investors to manipulate commodity prices, unless they interfere with the underlying forces of supply and demand, and we have no evidence to to suggest that causality. In the short term of course investor flows can affect futures prices, but in the long run you've got to look at underlying fundamentals."

The interview is available on youtube here: CNBC BLYTHE MASTERS. Around the same timeframe as this interview, JP Morgan was secretly massively buying copper, a commodity. Here is a story from the Telegraph:

JP Morgan revealed as mystery trader that bought £1bn-worth of copper on LME Louise Armitstead and Rowena Mason, Dec 4 2010, The Telegraph (UK)

"This pushed up the price for the immediate delivery of copper to $8,700 – its highest level since the financial crisis in October 2008. . . . Traders noted that there was no physical shortage of copper in the markets . . . Last month metal traders wrote to the Financial Services Authority (FSA) claiming that licensing the funds, which are also likely to be launched by BlackRock, Goldman Sachs and Deutsche Bank, may amount to "approving the next financial bubble"

Many big banks, including JP Morgan, wound up buying warehouses, purposely to store mass amounts of metal. Other traders alleged this was for purposes of market manipulation, as described in this story:

Resource Storage Gives Lenders Profits in Tough Times, but Some Clients Complain of Bottlenecks By Carolyn Cui and Tatyana Shumsky, The Wall Street Journal, Tuesday, July 5, 2011

In her C-SPAN interview, Leah McGrath Goodman called Blythe and Daniel Masters a 'commodities family'. I am wondering if it wouldn't also be accurate to also call the Masters a 'derivatives family'? NYMEX, in fact, was trading 'oil futures', which are basically, derivatives. Daniel Masters talked about his hedge fund trading metals and energy derivatives. Did he and Blythe never discuss this over the dinner table? Did they not give each other an insider education into how the various businesses worked?

Isn't the relationship between commodities and derivatives inextricably linked together in the modern world? What is the difference between an "investor" (Blythe Master's word) and a "speculator" (Pisani's word)? What is the difference between 'hedging' and 'gambling'? What is the difference between 'trading' and 'manipulation'?

Is it strange to wish for media inquiries into this amazing couple and their story? Wouldn't they be more interesting to cover than the people on the reality TV shows... since this couple have been leaders in the financial industries that touch every aspect of our daily lives? By understanding them, could it perhaps help uncover some of the mysteries of the modern economy? What is it like to live in a world where you are excoriated as a failure for 'only' making your company 189 million dollars in a year, as described in this Wall Street Journal article: J.P. Morgan Commodities Chief Takes the Heat, By Dan Fitzpatrick And Carolyn Cui, October 9, 2010?

Goodman points out in her book that the government banned NYMEX from trading in potatos, because of the awful consequences for the ordinary consumer and the potato farmers. That, in fact, is how NYMEX got involved in oil - it was looking for something else to trade after the ban. But today, it would appear, the government will not ban the trading of anything. In fact, it pays money to institutions who would otherwise go bankrupt by their bad trades - taking taxpayer money and giving it away to them. As anthropologist David Graeber alludes to in a recent interview posted on nakedcapitalism.com, it is an interesting contrast with the 'Jubilee' notion of ancient cultures. Debt, being a sort of entity created in the mind, can be wiped away - but in our modern case, we only wiped away the debt of huge institutions, banks, and massively wealthy people, while everyone else was saddled with more and more of it. The Masters must surely be only one example of people who number in the thousands or more involved in the top echelon of these industires over the past 20+ years. Couldn't the story of their lives and emotions unlock the mystery of how this 'reverse Jubilee' happened, and why it happened when it did?

After Words with Leah McGrath Goodman, Jerry A DiColo, interviewer, about McGrath-Goodman's book, The Asylum.