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 Whistleblowers Need Protection



August 05, 2010

New York State legislators had a growing incentive to pass the state’s budget, albeit four months past the official deadline; for as long as it wasn’t passed, they weren’t getting paid. 

The xenophobia directed at BP after the Gulf of Mexico oil spill ignores the fact that six of its  directors are American & almost 40% of its shares are owned by American interests.  

Wheat prices in the past couple of months have skyrocketed at the fastest pace in decades on news of a lower USDA output forecast, by large rain-driven acreage reductions in Canada’s largest grain-producing province, Saskatchewan, & drought conditions in China & Russia (where they are now threatening the start of planting the winter wheat that makes up two-thirds of its wheat production). And they may be driven still higher by the floods in Pakistan’s ‘bread basket’ region - while rainfall there averages 212 millimetres in July, the monsoons dumped 312 millimetres of it in a one day! This is good news for Western Canadian farmers except for the many in Saskatchewan who won’t have any to sell.     

After 64 consecutive quarters of sales increases & record sales in the previous four quarters, Toronto’s Second Quarter condo sales slumped by 8%, to 4,991 units.  

Damage control by Calgary-based Enbridge after its oil pipeline spill in Michigan seems more adroit than BP’s  in the Gulf of Mexico (although admittedly it is on vastly smaller). A sample thereof was by its latest move, an offer to buy out any or all home owners along the rivers polluted by the oil (although this was facilitated by house prices in Michigan being so depressed, & the employment outlook so lousy, that many home owners may jump at any reasonable cash offer & by the fact that Enbridge’s real downside financial risk may be limited if house prices were to recover even moderately).  But take note : the pipeline was laid down 41 years ago, while the useful life of the pipe used is deemed to be only 30 years, and a significant number of pipelines crisscrossing the North American continent are of a similar, if not earlier, vintage.  


No. 372 - August 5th, 2010 


    · While once its iconic figures were urbane visionaries William F. Buckley Jr, Irving Kristol & Father Richard John Neuhaus, all now deceased. But today’s more representative figure is potty-mouthed Internet entrepreneur Andrew Breitbart who has a following of millions & whose most recent triumph was to push the USDA into firing one of its officials with a deceptively edited video clip of her supposedly endorsing racism against white people, a move for which the Secretary himself later had to publicly apologize. 

What about Sarah Palin & the Tea Party crowd? 


    · Seeking to dilute proposed new rules, that the Basel-based Bank for International Settlements (BIS) is preparing for consideration at the November G-20 meeting in South Korea (that would make banks hold more capital & ‘liquid funds’ to cut the risk of another banking crisis), the industry has argued this would curtail its ability to lend & jeopardize economic growth; for so the argument goes, if they had to raise more capital, its cost would rise & so would the interest it would have to charge its customers [with a study by the Washington-based IIF (Institute for International Finance) concluding “Higher lending rates reduce bank credit, and, thus the aggregate supply of credit to the economy ... This, in turn, lowers GDP and employment” & saying it would knock 3% of the collective GDP of the US, EU & Japan by 2015].

    · Now three separate recent studies have cast doubt on this banking industry shibboleth. One by three researchers at Harvard & the University of Chicago found that going back to 1840, a “surprising, even paradoxical” phenomenon had emerged : the absence of a statistical correlation between higher capital buffers & pricier loans. 

This was perhaps due to the bank absorbing the higher cost of capital. But this is anathemous to today’s bankers who must deliver, & feel entitled to, ever-rising profits.   


    · Vacant residential properties in the Second Quarter numbered 18.9MM, vs. 18.6 MM a year earlier, the number of householder-owned homes, at 66.9%, was down from 67.1% in the First Quarter, a post-1990 low, foreclosures ran at a 1+MM annualized rate.  

Home ownership rate peaked at 69.2 % in the Second & Fourth Quarter of 2004. 


    · James Bullard, President of the Reserve Bank of St. Louis, believes the US is closer to a Japanese-style outcome today than at any other time in recent history. 

In all likelihood its probability is closer to 0% than to 100%. But, whatever it is, the longer Washington keeps dodging the fiscal situation, the more it is that it will rise.  

GM, FORD TRAIL ESTIMATES (EJ, Business Browser) 

    · US sales in July trailed estimates as economic concerns spooked buyers; in GM’s case,  after adjusting for the number of selling days, they were up 1½%, vs an expected 10%. 

And this was from a level that was nothing to write home about in the first place. 


    · Kevin Timoney, a Ph.D. in ecology, on July 30th published a list of 6,600 “routine disclosures” gleaned from, often heavily censured, government documents obtained under the Freedom of Information Act about environmental infractions by oil sands operators over 13 years that showed no sign of the government ever having taken any action. As he puts it, “The main thing Alberta Environment was doing was recording these incidents ... These companies were producing large amounts of pollutants and we could find no evidence of enforcement.” But the Department claims most of his information was taken “out of context ...We have a huge amount of information to go through ... We are in the process of becoming more transparent. It just takes more time ... There’s different levels of allegations and complaints and whatnot, and not every one ... warrants regulatory action.” 

The Department’s response is vintage evasive bureaucratic bafflegab. Earlier this year one of its senior officials had to publicly apologize to Timoney for having accused him at a scientific conference of withholding date from a study examining mercury levels in fish in the Athabasca River (a key source of water for oil sands operators - it uses three barrels of water, or more, to produce one of bitumen - & the depository of some of their effluent). But it is no secret the government operates on the premise the industry, & especially the oil sands operators, can do no wrong & must have what it wants (unless it is forced into action by international outrage, as it was by the death of some 1,600 ducks on a oil slicked tailings pond a few years ago.          


    · The August 3rd clash along their volatile frontier which involved infantry on the Lebanese side and Israeli tanks & a helicopter gunship on the other, was prompted by trees, after IDF soldiers sought to trim branches of trees along the border fence on the grounds they supposedly interfered with its electronic anti-infiltration devices, while Lebanon claimed they were on their side of the border. Israel has grown more & more fretful over its Northern border in the belief that Hezbollah has received tens of thousands of rockets from Iran & Syria. Afterwards the Israeli Foreign  Ministry warned “Israel views the government of Lebanon as responsible for this grave event, and ... of possible consequences if these violations continue”, while the  head of the IDF’s Northern Command, Maj.-Gen. Gadi Eisenkot, said “I believe this is a one-time event ... we received requests from the highest ranks in the Lebanese Army to cease fire.”    

The Foreign Ministry all but invites extremists in Lebanon to do something stupid hoping Israel will, as it is wont to do, overreact & do something even more stupid, thereby hampering the peace process, eroding Israel’s fount of global goodwill & furthering the Islamist cause.



    · According to the People’s Bank of China the slowdown in the economy will stabilize &   be beneficial to the restructuring of the economy & to sustainable growth. 

China’s banking system poses a medium term risk. In the past five years loans to non-government entities have more than doubled (which an IMF report called “unprecedented” & damned with faint praise by noting “At this point, the banking system looks well placed to withstand a significant deterioration in credit quality”). And the risk comes from Beijing having marketed the idea in the developing world since the US financial crisis that this proved its free market economic model is inferior to its state controlled model. Longer term there is 100% certainty that its one child policy-driven, rapidly rising ‘aged dependency ratio’ will prove a hindrance to continuing to achieve double digit growth in the not-too-distant future, the more so since the absence of a social safety net & the erosion of the tradition of children providing for their elders, will encourage saving by those still working. Might there be a parallel developing in Beijing, albeit for different reasons, of what happened in Moscow in the 80's when the Soviet Union imploded & reform got out of hand? 


    · The builders of China’s economic miracle have been the tens of millions of labourers from the countryside, many from the Western outreaches of the country, who came to the cities in the Eastern part of the country willing to work long hours & endure hardships to put food on their families’ tables back home. Called ‘nong min gong’, farmer  workers, they were expected to go back at some point to where they had come from; but now their frustration at wages & working conditions is fueling a wave of labour unrest that may invalidate China’s economic model & raise prices on store shelves across the world 

According to Zuo Xiaosi, a labour expert at the Guangdong Academy Academy of Social Sciences, “The new generation migrant workers ... in the cities are treated ... no better than the last generation. This is a big problem ... These strikes are about pay, but ... also about better treatment.” And there is evidence that some of the 20MM first generation migrant workers forced by the economic slowdown to go back home found their new-found skills were marketable there & have been replaced by a better educated, more upwardly mobile-ambitious & savvy generation that plans to stay permanently to grab the brass ring of the ‘good life’, and these people didn’t come for low pay and poor working- & living conditions.  


    · Recently 1,187 low-income residents of Shanghai were the first selected to buy a house they could afford in this city where buying a house is beyond the reach of most residents, incl. many middle class professionals. They will be the first of many. For Beijing has allocated 60BN yuan (US$9.07BN) to build 3MM affordable apartments this year in cities for low income earners & shanty town residents, and another 2.8MM in rural areas. Beijing has tried the affordable housing gig before but many of the units built ended up in the hands of corrupt officials, who quickly sold them for a profit, or of people who lied about their incomes as a result of which the Mercedes Benzes & BMWs proliferated in the neighbourhoods where they were built. So now there are severe restraints on the buyers. Their monthly household income cannot exceed 2,300 yuan (US$348) per person. Household savings cannot exceed 70,000 yuan (US$10,600). Their present accommodation must be < 15 square metres (165 sf) per person. And owners cannot sell for five years &, when they do, the government gets 70% of the profit. 

This program has two objectives. To help pick up slack in a construction industry that, due to their recent price weakening has put the building of high-end homes on hold, but that employs 250MM workers & is a major factor in GDP growth. And to reduce the risk of social unrest   among the hundreds of thousands of workers flocking to the cities & among rural residents.   


    · The really useful aspect of Wikileaks’ revelations is how it documented that the Pakistan Army is the main driver of the Afghan conflict through Afghan proxies in strongholds in Baluchistan & Waziristan (that are flourishing & largely off-limits to the Army). The idea is to keep Pashtun nationalism down, Karzai weak & India out. The Army’s Chief of Staff, General Ashfaq Kayani said as much when he told a Washington audience he was committed to “strategic depth” : an Afghanistan that is a  Pakistani vassal, free of Indian or other outside influence, as it had been from 1992 to 2001 under the Taliban.

    · Afghanistan is doing OK. Its economy is growing at high double digit rates, inflation is non-existent, rising farm output is replacing costly food imports, government revenues are up 60% over 18 months, schools, clinics & new rural infrastructure make life better for the hoi polloi &, despite some thickets of corruption, some ministries combine integrity with delivery. 

The writer is not without bias : he was Canada’s Ambassador to Afghanistan in 2003-2005 & then, for four years the UN Secretary-General’s Deputy Special Representative for Afghanistan. Still it is useful to hear a view other than the common wisdom in the media (that knows that bad news sells newspapers & seeks to take advantage of the Western grass roots’ ennui with a long & drawn-out affair incompatible with an instant gratification mindset).   

NATO LOSING WAR : PAKISTAN PRESIDENT (Bloomberg, Gregory Viscusi) 

    · After meeting with President Sarkozy, & before going to Britain to meet Prime Minister Cameron, which he hopes will restore “a bit of calm” after the latter said on July 28th in India, Pakistan cannot be allowed to “look both ways ... in the fight against terrorism”), he told Le Monde on August 3rd “The international community, of which Pakistan is a part, is losing the war against the Taliban because we have lost the battle for hearts and minds ... Military reinforcements are only part of the response ... To win the support of the Afghan population, you must bring economic development and prove you cannot only change their lives, but improve them ... the game is lost once you think there is a rapid solution. The action of the international community must be based on the long term. The success of the insurgents is knowing how to wait” (while also opining the Taliban “don’t have any chance of retaking power.”) But White House spokesman Robert Gibbs told the press “I don’t think the president would agree ... the actions and the efforts that ... the international forces and American forces have taken over the last several months have very much the hearts and minds of the Afghan people at the forefront.”  

Given the “strategic depth” objective, President Zardari was talking “his own book” (even though his observations were ‘on the mark’). Saying the Taliban won’t have “any chance of retaking power” sought to fuel the growing disillusionment in the US & elsewhere with the war effort so as undermine the ISAF coalition’s continued presence, thereby giving Pakistan a freer hand to further this objective. But the Taliban recent activities seem inconsistent with ‘the war is lost mantra’; for it failed to stage an attack on the recent conference in Kabul attended by senior representatives from 68 nations, the August 3rd ground attack on Kandahar airfield, home to 20,000 ISAF personnel, was called “amateurish” by airfield commander Gordon Moulds of the RAF compared to the May 22nd attack : all ten or so attackers died, incl. the suicide bomber who blew himself up to breach the perimeter fence, while the only damage was “$70 dollars worth of fence.” And it recently told its fighters to avoid killing civilians & forbade them to seize weapons or money. So the staff-type General Petraeus may well still emerge from all this smelling like rose due to a strategy conceived & promoted by the politically inept ‘boondock soldier’-type Gen. McChrystal.   


    · This city of 16MM is Pakistan’s commercial hub & a key to the flow of supplies to ISAF in Afghanistan. It has long been run by the Muttahida Qaumi Movement (MQM) whose core support is among the descendants of the Urdu-speaking people that fled India after its independence in 1947. Its main rival is the nationalist Awami National Party of mostly ethnic Pashtun from the Northwest where the Taliban is based. But in recent years there has been an inflow of Pashtun fleeing the Pakistani Army’s offensives against the Taliban, prompting the MQM to warn of a “Talibanization” of the city. On August 4th, a senior member of the MQM, Raza Haider, was assassinated, the latest party activist slain in the past month, and within hours buildings were being torched & gun fire erupted in many parts of the city, and some  killed execution-style. 

The Interior Minister didn’t help things by being quoted as saying Islamist extremists were the  suspects since Mr. Haider was on their hit list (giving both sides an excuse to move into action).      


    · For 80 years the military has been the guarantor of the constitution, enabling the generals to make or break governments with impunity for since WW II (to the point their role in society became an obstacle to Turkey’s bid for EU membership). Displeased with President Erdogan’s Islamic bent, the generals sought to block his nominee for president in 2007 & then snubbed him by not showing up for his swearing-in ceremony.

    · Now the powers of NATO’s second-largest military’s powers are being trimmed. Military appointments to regulatory bodies have been cut back. A civilian now heads the National Security Council. Civilian judges now try human rights- & Kurdish activist cases military courts once did. A constitutional amendment to be voted on in a September referendum would reduce the military’s role in the choice of high court judges. And the clearest sign of change is the success civilian prosecutors have had indicting high-ranking officers : 196 military,  incl. 100+ generals & admirals, are to stand trial, accused of involvement in four plots since 2002 to destabilize President Erdogan’s Justice and Development party government (& many mid-level officers have been detained in other investigations). 

While some observers welcome this as a prerequisite to EU membership & to enable it to play a key role as a bridge between the Western & Muslim worlds, President Erdogan’s foreign policy has all but turned its back on the EU (& the military thing was a bit of an excuse anyway) & towards the Arab world, and an openly Islamist regime may not make the best bridge with the Muslim world.  While all this has reduced the army’s “hard power”, its “soft power” remains : people still trust the army as an institution & many people are frightened by the prospect of a civilian-controlled army & of a once secular & anti-Islamist judiciary becoming politicized. 


    · Small shop keepers, taxis drivers & other traditionally cash-only business owners must now give receipts, or risk a 200 Euro if tax inspectors catch them, as part of the government’s effort to cut the size of the underground economy that accounts for 25% of its GDP. Once secure do-nothing government jobs are now tenuous. People lose jobs & & homes are lost. The new reality means saving & paying for things rather than using cheap & endless credit and having to declare all forms of income, a universal retirement age of 65, rather 50 as was the rule in some fields, & lower retirement benefits. And for many merchants, the 23% VAT is hugely painful since they never paid any before. One hairdresser says she may as well go to Toronto & an electrician got a notice from the government demanding he pay three years’ of health care premiums totalling 10,000 Euros that he had never paid because no one had asked him to. But outside the state-dominated economy there is jubilation among many returnees from abroad who had left because they couldn’t compete with a government with seemingly endless resources.       

Ireland quickly ceased to be newsworthy because its government acted early & brutally to restore a measure of confidence. But Greece is really the canary in the gold mine, if only because its government is only one of many government that went ‘one bridge too far’.

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