What Europe and America Have in Common

December 8, 2011 by · Leave a Comment 

By Harold Bob Jones

Europe and the USA have many things in common, one of which noted currently is the massive debt crisis both are experiencing because of politicians who fail to learn from history.  George Santayana noted that those who fail to learn from the mistakes of the past are doomed to repeat them.  In both Europe and the United States, power-hungry politicians have been trying to buy votes with money we don’t have, taxing not only this generation but every generation in the future, guaranteeing a lower standard of lviing for our children, grandchildren, and great-grandchildren.  These short-sighted politicos, thinking only of the present, seem to think they can go on forever, steadily increasing the public debt, by just printing more and more money without an equal increase in goods and services, hoping to find someone to buy our consequently less and less valuable bonds.  As history has repeatedly shown us, this does not work.  Every society that has tried this has collapsed.  A prime example is the Soviet Union.  If socialism were a better system, we would all be speaking Russian.  Previousy democratic civilizations and nations that have tried this have collapsed into dictatorship.  Some noteworthy examples are the Greeks, the Romans,and the post-World War I Weimar Republc of Germany, the latter printing so much money that its currency became virtually worthless, bankrupting the country, and resulting in the establishment of Hitler’s Nazi (National Socialist) party dictatorship that brought on the horrors of World War II.

It is time to rid ourselves of such histroy-ignoring, out-of-touch-with-reality, power-mad politicians, ousting them from power, and never let them in office again.

13-50

Wall Street and Islamophobia

November 3, 2011 by · Leave a Comment 

By Geoffrey Cook, TMO

Oakland–October 31st–I lived in this curious city across from San Francisco for most of my thirty-one years here in the East Bay.  Unlike that City across the Bay, which is more of a dreamland where one goes when one is young, but Oakland is a gutsy –mainly Black – working class city.  It is, also, the third largest port on the West Coast.  Most of the Muslims here, too, are native born Afro-American converts with a considerable number of Eritrean refugees and a noticeable contingent Yemeni with Palestinian and other miscellaneous groupings.

What created Oakland in the Nineteenth Century was the fact that the trans-Continental railway ended here and its passengers would get off, and be put on ferries to the City on the Golden Gate.

Curiously, in the recent “Occupy Wall Street” Movement, more than New York or even the Western financial hub across San Francisco Bay, the seemingly provincial and small (400,000) peripheral urban space of Oakland has become a center of the battle against the financial collapse of “free” enterprise that the George W. Bush Administration accelerated through his anti-Islamic Colonial Wars.  As evil as that was, the administration of those Wars, were managed so incompetently that they failed to finance their martial adventures – contrary to the history of Foreign adventurism which usually leads to a stimulation of a national economy temporarily – in that the Bush Regime gave financially unsound tax-breaks to the upper 1% of the population – the economy shrank instead — as the national debt plummeted.  (Now, let it be noted, that I do not advocate preventative War in any way!)  

Many in the Muslim community here have suffered even more than the general citizenry.  Homes have been foreclosed, jobs have been lost and not regained, lifetime savings have slithered away, and, yes, despite residency in this land of plenty, there is even hunger.

Notwithstanding, President Barrack Hussein Obama’s attempted to prod a budget through Congress earlier this year that would begin to alleviate the suffering of the grand majority of Americans, which was obfuscated by the largely anti-Muslim “Tea Party.”  The latter have hindered relief to suffering American citizens / residents including those who attend the Mosques. 

Under Section Four of the Fourteenth Amendment, which was largely instituted as one of the Reconstruction Amendments, to prevent any future attempts to reverse the Thirteenth Amendment passed during the U.S. Civil War (1860s) to irradiate the deplorable institution of slavery, also, raises the question of what monetary powers Section Four of the Fourteenth Amendment gives to the President.  “The validity of the public debt of the United States, authorized by law…shall not be questioned…”  Therefore, it is argued that Section 4 gives the President unilateral authority to raise or ignore the national debt ceiling (like in a national such as World War II, the Great Depression or the current financial crisis).

President Obama made a grave error in not invoking Section 4, and regulating by decree last February, and, hopefully, when the budget comes up again, and (economic) Keynesian solutions are called for, the Administration will block the reactionaries of the Lower house, for, according to the Economist Intelligence Unit, an upcoming worldwide economic collapse is brewing due to the Euro-zone National Debt Crisis and the “Tea Party” fiscal interference in the States.  Therefore, to avoid this, drastic measures are indicated.

To counter this, a populist movement has arisen in America in protest against the corruption of the American system deregulated over the past several decades by interspersed right-wing governments.  In a letter, Keith Ellison of Minnesota, the only Muslim in Congress sarcastically writes, “…if you exercise your right to free speech against the excessive power and greed of Wall Street…they say you’re ‘dangerous’ and engaging in ‘class warfare.’”

The disproportionate importance of the Oakland demonstrations to the national movement is the reaction by incompetent elite who essentially stole an election by a conspiratorial manipulation of rank-choice voting.  (This minor city’s last two mayors had remarkable resumes – one a former Governor and the last a leading former Congressman.  It was expected that the last President Pro Temp of the California [State] Senate in Sacramento who represented Alameda County of which Oakland is the seat, who won a plurality of the first round vote, would be the next Mayor, but lost because three of the other candidates campaigned to have their supporters list two of the others as their second and third choices; thus, thwarting democracy with incompetency.  The result of which is that the current Mayor represents only one small ethnic element of the city; therefore, Muslims, who largely belong to the ethnic plurality, are denied political recognition here.)

Be that as it may, this Op-Ed is to state that the “Occupy Wall Street” Movement is related to Islamophobia because the same crisis that created hatred against Muslims in the States gave reign to the greed in America’s financial structure.  In a way, maybe Islam’s non-usury system has a lot to teach the West which, by the way, renounced a similar system in the Renaissance.

Some commentators have equated the “Occupy Wall Street” Movement to America’s version of the Arab “Spring.”  It is true that Islam and democracy can find a compatible form, but – like the case with Soviet Socialism – it may not be able to co-exist with American Capitalism as “written.”   I believe that the Koran and Hadith have much to teach the West in ways to reform its financial institutions and dealings.

13-45

Gold, Silver Shine as US Falters

July 28, 2011 by · Leave a Comment 

By Alix Steel

NEW YORK (TheStreet) — Gold prices were soaring to record highs Wednesday as investors rushed to the safe haven after House Speaker John Boehner’s debt plan hit a brick wall.

Gold for August delivery was adding $9.20 to $1,626 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,626.80 and as low as $1,617 while the spot gold price was rising $7.10 according to Kitco’s gold index. Silver prices were climbing steadily higher as well, up 70 cents to $41.40 an ounce. The U.S. dollar index was adding 0.18% at $73.65 while the euro was shedding 0.22% vs. the dollar.

The House of Representatives had been gearing up to vote on Speaker Boehner’s debt plan in which the debt ceiling would be raised in two tranches based on spending cuts, but the plan hit a snag. The Congressional Budget Office said that his plan to cut $1.2 trillion over 10 years fell almost $400 billion short. This puts the Senate Democrat plan front and center, which also must face Budget Office scrutiny.

Although most experts think that a high gold price does not reflect a U.S. default, uncertainty over an agreement is a green light for investors to buy gold.

David Banister, chief investment strategist at ActiveTradingPartners.com, thinks that gold will hit $1,730 in a few weeks and maybe even soar to $1,800 an ounce. Banister doesn’t think the U.S. will default, however, but that global fiscal issues and negative real interest rates — the interest rate minus inflation — will continue to support high gold prices.

“Any reaction to the downside on gold will be temporary,” argues Banister. “Traders might be unwilling to make a commitment until they see the short term reaction,” explaining why gold hasn’t skyrocketed, “but I would say any short term pullback in gold on successful debt talks I would be a buyer.”

Stan Dash, vice president of applied technical analysis at TradeStation, also sees prices at $1,730. Dash, in measuring rallies since gold’s low in October of 2008, says that gold can typically move 20% in a leg of a bull market. A move to the $1,730 level would be a 17% rise from the May support level of $1,480 an ounce. “You can’t argue with price,” says Dash. “It’s making new highs. It’s still a bull market”

13-31

Getting to Crazy

July 21, 2011 by · Leave a Comment 

By Paul Krugman

debtceilingThere aren’t many positive aspects to the looming possibility of a U.S. debt default. But there has been, I have to admit, an element of comic relief — of the black-humor variety — in the spectacle of so many people who have been in denial suddenly waking up and smelling the crazy.

A number of commentators seem shocked at how unreasonable Republicans are being. “Has the G.O.P. gone insane?” they ask.

Why, yes, it has. But this isn’t something that just happened, it’s the culmination of a process that has been going on for decades. Anyone surprised by the extremism and irresponsibility now on display either hasn’t been paying attention, or has been deliberately turning a blind eye.

And may I say to those suddenly agonizing over the mental health of one of our two major parties: People like you bear some responsibility for that party’s current state.

Let’s talk for a minute about what Republican leaders are rejecting.

President Obama has made it clear that he’s willing to sign on to a deficit-reduction deal that consists overwhelmingly of spending cuts, and includes draconian cuts in key social programs, up to and including a rise in the age of Medicare eligibility. These are extraordinary concessions. As The Times’s Nate Silver points out, the president has offered deals that are far to the right of what the average American voter prefers — in fact, if anything, they’re a bit to the right of what the average Republican voter prefers!

Yet Republicans are saying no. Indeed, they’re threatening to force a U.S. default, and create an economic crisis, unless they get a completely one-sided deal. And this was entirely predictable.

First of all, the modern G.O.P. fundamentally does not accept the legitimacy of a Democratic presidency — any Democratic presidency. We saw that under Bill Clinton, and we saw it again as soon as Mr. Obama took office.

As a result, Republicans are automatically against anything the president wants, even if they have supported similar proposals in the past. Mitt Romney’s health care plan became a tyrannical assault on American freedom when put in place by that man in the White House. And the same logic applies to the proposed debt deals.

Put it this way: If a Republican president had managed to extract the kind of concessions on Medicare and Social Security that Mr. Obama is offering, it would have been considered a conservative triumph. But when those concessions come attached to minor increases in revenue, and more important, when they come from a Democratic president, the proposals become unacceptable plans to tax the life out of the U.S. economy.

Beyond that, voodoo economics has taken over the G.O.P.

Supply-side voodoo — which claims that tax cuts pay for themselves and/or that any rise in taxes would lead to economic collapse — has been a powerful force within the G.O.P. ever since Ronald Reagan embraced the concept of the Laffer curve. But the voodoo used to be contained. Reagan himself enacted significant tax increases, offsetting to a considerable extent his initial cuts.

And even the administration of former President George W. Bush refrained from making extravagant claims about tax-cut magic, at least in part for fear that making such claims would raise questions about the administration’s seriousness.

Recently, however, all restraint has vanished — indeed, it has been driven out of the party. Last year Mitch McConnell, the Senate minority leader, asserted that the Bush tax cuts actually increased revenue — a claim completely at odds with the evidence — and also declared that this was “the view of virtually every Republican on that subject.” And it’s true: even Mr. Romney, widely regarded as the most sensible of the contenders for the 2012 presidential nomination, has endorsed the view that tax cuts can actually reduce the deficit.

Which brings me to the culpability of those who are only now facing up to the G.O.P.’s craziness.

Here’s the point: those within the G.O.P. who had misgivings about the embrace of tax-cut fanaticism might have made a stronger stand if there had been any indication that such fanaticism came with a price, if outsiders had been willing to condemn those who took irresponsible positions.

But there has been no such price. Mr. Bush squandered the surplus of the late Clinton years, yet prominent pundits pretend that the two parties share equal blame for our debt problems. Paul Ryan, the chairman of the House Budget Committee, proposed a supposed deficit-reduction plan that included huge tax cuts for corporations and the wealthy, then received an award for fiscal responsibility.

So there has been no pressure on the G.O.P. to show any kind of responsibility, or even rationality — and sure enough, it has gone off the deep end. If you’re surprised, that means that you were part of the problem.

13-30

Financial Problems in America

June 30, 2011 by · Leave a Comment 

By Justin Webb

Is America in denial about the extent of its financial problems, and therefore incapable of dealing with the gravest crisis the country has ever faced?

This is a story of debt, delusion and – potentially – disaster. For America and, if you happen to think that American influence is broadly a good thing, for the world.

The debt and the delusion are both all-American: $14 trillion (£8.75tn) of debt has been amassed and there is no cogent plan to reduce it.

The figure is impossible to comprehend: easier to focus on the fact that it grows at $40,000 (£25,000) a second. Getting out of Afghanistan will help but actually only at the margins. The problem is much bigger than any one area of expenditure.

The economist Jeffrey Sachs, director of Columbia University’s Earth Institute, is no rabid fiscal conservative but on the debt he is a hawk:

“I’m worried. The debt is large. It should be brought under control.

The longer we wait, the longer we suffer this kind of paralysis; the more America boxes itself into a corner and the more America’s constructive leadership in the world diminishes.”

The author and economist Diane Coyle agrees. And she makes the rather alarming point that the acknowledged deficit is not the whole story.

The current $14tn debt is bad enough, she argues, but the future commitments to the baby boomers, commitments for health care and for pensions, suggest that the debt burden is part of the fabric of society:

“You have promises implicit in the structure of welfare states and aging populations that mean there is an unacknowledged debt that will have to be paid for by future taxpayers, and that could double the published figures.”

Richard Haass of the Council on Foreign Relations acknowledges that this structural commitment to future debt is not unique to the United States. All advanced democracies have more or less the same problem, he says, “but in the case of the States the figures are absolutely enormous”.

Mr Haass, a former senior US diplomat, is leading an academic push for America’s debt to be taken seriously by Americans and noticed as well by the rest of the world.
He uses the analogy of Suez and the pressure that was put on the UK by the US to withdraw from that adventure. The pressure was not, of course, military. It was economic.

Britain needed US economic help. In the future, if China chooses to flex its muscles abroad, it may not be Chinese admirals who pose the real threat, Mr Haass tells us. “Chinese bankers could do the job.”

Because of course Chinese bankers, if they withdrew their support for the US economy and their willingness to finance America’s spending, could have an almost overnight impact on every American life, forcing interest rates to sky high levels and torpedoing the world’s largest economy.

Not everyone accepts the debt-as-disaster thesis.

David Frum is a Republican intellectual and a former speech writer to President George W Bush.

He told me the problem, and the solution, were actually rather simple:

“If I tell you you have a disease that will absolutely prostrate you and it could be prevented by taking a couple of aspirin and going for a walk, well I guess the situation isn’t apocalyptic is it?

“The things that America has to do to put its fiscal house in order are not anywhere near as extreme as what Europe has to do. The debt is not a financial problem, it is a political problem.”

Mr Frum believes that a future agreement to cut spending – he thinks America spends much too big a proportion of its GDP on health – and raise taxes, could very quickly bring the debt problem down to the level of quotidian normality.

‘Organised hypocrisy’

I am not so sure. What is the root cause of America’s failure to get to grips with its debt? It can be argued that the problem is not really economic or even political; it is a cultural inability to face up to hard choices, even to acknowledge that the choices are there.

I should make it clear that my reporting of the United States, in the years I was based there for the BBC, was governed by a sense that too much foreign media coverage of America is negative and jaundiced.

The nation is staggeringly successful and gloriously attractive. But it is also deeply dysfunctional in some respects.

Take Alaska. The author and serious student of America, Anne Applebaum makes the point that, as she puts it, “Alaska is a myth!”

People who live in Alaska – and people who aspire to live in Alaska – imagine it is the last frontier, she says, “the place where rugged individuals go out and dig for oil and shoot caribou, and make money the way people did 100 years ago”.

But in reality, Alaska is the most heavily subsidised state in the union. There is more social spending in Alaska than anywhere else.

To make it a place where decent lives can be lived, there is a huge transfer of money to Alaska from the US federal government which means of course from taxpayers in New York and Los Angeles and other places where less rugged folk live. Alaska is an organised hypocrisy.

Too many Americans behave like the Alaskans: they think of themselves as rugged individualists in no need of state help, but they take the money anyway in health care and pensions and all the other areas of American life where the federal government spends its cash.

The Tea Party movement talks of cuts in spending but when it comes to it, Americans always seem to be talking about cuts in spending that affect someone else, not them – and taxes that are levied on others too.

And nobody talks about raising taxes. Jeffrey Sachs has a theory about why this is.

America’s two main political parties are so desperate to raise money for the nation’s constant elections – remember the House of Representatives is elected every two years – that they can do nothing that upsets wealthy people and wealthy companies.

So they cannot touch taxes.

In all honesty, I am torn about the conclusions to be drawn. I find it difficult to believe that a nation historically so nimble and clever and open could succumb to disaster in this way.

But America, as well as being a place of hard work and ingenuity, is also no stranger to eating competitions in which gluttony is celebrated, and wilful ignorance, for instance regarding (as many Americans do) evolution as controversial.

The debt crisis is a fascinating crisis because it is about so much more than money. It is a test of a culture.

It is about waking up, as the Americans say, and smelling the coffee.

And – I am thinking Texas here – saddling up too, and riding out with purpose.

BBC News

13-27

Playing With Default

June 9, 2011 by · Leave a Comment 

By Joe Conason

The current puppet play in Congress—where Republicans sponsored a bill to raise the nation’s debt ceiling only because they wanted to vote it down—would be funny, if only they weren’t risking economic disaster. Unfortunately they’re not joking, as they push the country closer and closer to a potentially ruinous default.

If the showdown over debt and spending between the House majority and the White House isn’t resolved before the first week of August, the federal government will no longer be able to send out Social Security checks, run Veterans Administration hospitals, pay Medicare costs or operate the national park system, to mention just a few significant items. Hundreds of thousands of federal workers would be furloughed without pay, and millions of seniors would stop spending money, slamming an economy that already seems stalled.

But the consequences of that unprecedented situation would reverberate around the world, as nearly every expert—from the top bond trader, Mohamed El-Rian, to former Fed Chair Alan Greenspan—has warned.

Because both the U.S. dollar and U.S. Treasury notes are so important to world trade and investment, a default on U.S. debt could drive the global economy into a recession worse than that from which we have been slowly emerging. The same experts have warned against the Republicans’ insistence on forcing more budget cuts before they will pass a higher debt ceiling.

Indeed, Greenspan is so concerned with the prospect of a debt default, either now or in the future, that he had advocated increasing taxes to the same level as before the George W. Bush tax cuts. Congress must approve a higher debt ceiling, said the conservative fiscal guru—or risk catastrophe if the United States does not meet its obligations. The brinksmanship that had led to the current impasse in Washington, he told CNBC, is “an extraordinarily dangerous problem for this country.”

Why is it so perilous for Republicans and their tea party backers to push toward default? The rating firm Moody’s, following a similar warning weeks ago from Standard & Poor’s, is threatening to downgrade U.S. Treasury securities if an agreement isn’t reached within the coming month. Such a historic event would be much worse than embarrassing—and the Moody’s analysts now believe that a default is increasingly likely.

“Although we fully expected political wrangling prior to an increase in the statutory debt limit,” said a statement issued by the ratings firm, “the degree of entrenchment into conflicting positions has exceeded expectations.”

Political polarization over the debt limit “has increased the odds of a short-lived default,” it said, meaning that Moody’s doesn’t believe even the Republicans would permit the default to continue. But the nasty reverberations of even a brief default could last far longer, with sharply rising interest rates, crashing stock prices, a plunging dollar, and yet another blow to America’s prestige and power.

Most economists also believe that the Republican insistence on cutting spending in a slowing recovery is simply wrong because it will reduce demand and cost jobs. The party’s congressional leaders have yet to explain how they will boost the economy by throwing yet more people off federal and contractor payrolls, which will further depress the housing market, as well.

Remember that these are the same geniuses who opposed the auto bailout two years ago—which has now proved not only to have saved hundreds of thousands and perhaps millions of jobs, but at a very low cost. Somehow they seemed to believe that Europe and China should build cars while we let our auto industry wither.

While cutting spending and restraining the debt sound appealing, they must be done with great care. The Republican claim that there will be no harm in approaching default, or actually defaulting, is ridiculous to anyone who actually understands how markets work—and the damage they can sometimes wreak.

13-24

The Cost of One Man

May 12, 2011 by · Leave a Comment 

$3 Trillion Over 15 Years–Osama bin Laden cost America more than any villain, ever—which is exactly the way he wanted it.

by Tim Fernholz and Jim Tankersley

media.nationaljournal.comThe most expensive public enemy in American history died Sunday from two bullets.

As we mark Osama bin Laden’s death, what’s striking is how much he cost our nation—and how little we’ve gained from our fight against him. By conservative estimates, bin Laden cost the United States at least $3 trillion over the past 15 years, counting the disruptions he wrought on the domestic economy, the wars and heightened security triggered by the terrorist attacks he engineered, and the direct efforts to hunt him down.

What do we have to show for that tab? Two wars that continue to occupy 150,000 troops and tie up a quarter of our defense budget; a bloated homeland-security apparatus that has at times pushed the bounds of civil liberty; soaring oil prices partially attributable to the global war on bin Laden’s terrorist network; and a chunk of our mounting national debt, which threatens to hobble the economy unless lawmakers compromise on an unprecedented deficit-reduction deal.

All of that has not given us, at least not yet, anything close to the social or economic advancements produced by the battles against America’s costliest past enemies. Defeating the Confederate army brought the end of slavery and a wave of standardization—in railroad gauges and shoe sizes, for example—that paved the way for a truly national economy. Vanquishing Adolf Hitler ended the Great Depression and ushered in a period of booming prosperity and hegemony. Even the massive military escalation that marked the Cold War standoff against Joseph Stalin and his Russian successors produced landmark technological breakthroughs that revolutionized the economy.

Perhaps the biggest economic silver lining from our bin Laden spending, if there is one, is the accelerated development of unmanned aircraft. That’s our $3 trillion windfall, so far: Predator drones. “We have spent a huge amount of money which has not had much effect on the strengthening of our military, and has had a very weak impact on our economy,” says Linda Bilmes, a lecturer at Harvard University’s John F. Kennedy School of Government who coauthored a book on the costs of the Iraq and Afghanistan wars with Nobel Prize-winning economist Joseph Stiglitz.

Certainly, in the course of the fight against bin Laden, the United States escaped another truly catastrophic attack on our soil. Al-Qaida, though not destroyed, has been badly hobbled. “We proved that we value our security enough to incur some pretty substantial economic costs en route to protecting it,” says Michael O’Hanlon, a national-security analyst at the Brookings Institution.

But that willingness may have given bin Laden exactly what he wanted. While the terrorist leader began his war against the United States believing it to be a “paper tiger” that would not fight, by 2004 he had already shifted his strategic aims, explicitly comparing the U.S. fight to the Afghan incursion that helped bankrupt the Soviet Union during the Cold War. “We are continuing this policy in bleeding America to the point of bankruptcy,” bin Laden said in a taped statement. Only the smallest sign of al-Qaida would “make generals race there to cause America to suffer human, economic, and political losses without their achieving anything of note other than some benefits for their private corporations.” Considering that we’ve spent one-fifth of a year’s gross domestic product—more than the entire 2008 budget of the United States government—responding to his 2001 attacks, he may have been onto something.

The Scorecard

Other enemies throughout history have extracted higher gross costs, in blood and in treasure, from the United States. The Civil War and World War II produced higher casualties and consumed larger shares of our economic output. As an economic burden, the Civil War was America’s worst cataclysm relative to the size of the economy. The nonpartisan Congressional Research Service estimates that the Union and Confederate armies combined to spend $80 million, in today’s dollars, fighting each other. That number might seem low, but economic historians who study the war say the total financial cost was exponentially higher: more like $280 billion in today’s dollars when you factor in disruptions to trade and capital flows, along with the killing of 3 to 4 percent of the population. The war “cost about double the gross national product of the United States in 1860,” says John Majewski, who chairs the history department at the University of California (Santa Barbara). “From that perspective, the war on terror isn’t going to compare.”

On the other hand, these earlier conflicts—for all their human cost—also furnished major benefits to the U.S. economy. After entering the Civil War as a loose collection of regional economies, America emerged with the foundation for truly national commerce; the first standardized railroad system sprouted from coast to coast, carrying goods across the union; and textile mills began migrating from the Northeast to the South in search of cheaper labor, including former slaves who had joined the workforce. The fighting itself sped up the mechanization of American agriculture: As farmers flocked to the battlefield, the workers left behind adopted new technologies to keep harvests rolling in with less labor.

World War II defense spending cost $4.4 trillion. At its peak, it sucked up nearly 40 percent of GDP, according to the Congressional Research Service. It was an unprecedented national mobilization, says Chris Hellman, a defense budget analyst at the National Priorities Project. One in 10 Americans—some 12 million people—donned a uniform during the war.

But the payoff was immense. The war machine that revved up to defeat Germany and Japan powered the U.S. out of the Great Depression and into an unparalleled stretch of postwar growth. Jet engines and nuclear power spread into everyday lives. A new global economic order—forged at Bretton Woods, N.H., by the Allies in the waning days of the war—opened a floodgate of benefits through international trade. Returning soldiers dramatically improved the nation’s skills and education level, thanks to the GI Bill, and they produced a baby boom that would vastly expand the workforce.

U.S. military spending totaled nearly $19 trillion throughout the four-plus decades of Cold War that ensued, as the nation escalated an arms race with the Soviet Union. Such a huge infusion of cash for weapons research spilled over to revolutionize civilian life, yielding quantum leaps in supercomputing and satellite technology, not to mention the advent of the Internet.

Unlike any of those conflicts, the wars we are fighting today were kick-started by a single man. While it is hard to imagine World War II without Hitler, that conflict pitted nations against each other. (Anyway, much of the cost to the United States came from the war in the Pacific.) And it’s absurd to pin the Civil War, World War I, or the Cold War on any single individual. Bin Laden’s mystique (and his place on the FBI’s most-wanted list) made him—and the wars he drew us into—unique.

By any measure, bin Laden inflicted a steep toll on America. His 1998 bombing of U.S. embassies in Africa caused Washington to quadruple spending on diplomatic security worldwide the following year—and to expand it from $172 million to $2.2 billion over the next decade. The 2000 bombing of the USS Cole caused $250 million in damages.

Al-Qaida’s assault against the United States on September 11, 2001, was the highest-priced disaster in U.S. history. Economists estimate that the combined attacks cost the economy $50 billion to $100 billion in lost activity and growth, or about 0.5 percent to 1 percent of GDP, and caused about $25 billion in property damage. The stock market plunged and was still down nearly 13 percentage points a year later, although it has more than made up the value since.

The greater expense we can attribute to bin Laden comes from policymakers’ response to 9/11. The invasion of Afghanistan was clearly a reaction to al-Qaida’s attacks. It is unlikely that the Bush administration would have invaded Iraq if 9/11 had not ushered in a debate about Islamic extremism and weapons of mass destruction. Those two wars grew into a comprehensive counterinsurgency campaign that cost $1.4 trillion in the past decade—and will cost hundreds of billions more. The government borrowed the money for those wars, adding hundreds of billions in interest charges to the U.S. debt.

Spending on Iraq and Afghanistan peaked at 4.8 percent of GDP in 2008, nowhere near the level of economic mobilization in some past conflicts but still more than the entire federal deficit that year. “It’s a much more verdant, prosperous, peaceful world than it was 60 years ago,” and nations spend proportionally far less on their militaries today, says S. Brock Blomberg, a professor at Claremont McKenna College in California who specializes in the economics of terrorism. “So as bad as bin Laden is, he’s not nearly as bad as Hitler, Mussolini, [and] the rest of them.”

Yet bin Laden produced a ripple effect. The Iraq and Afghanistan wars have created a world in which even non-war-related defense spending has grown by 50 percent since 2001. As the U.S. military adopted counterinsurgency doctrine to fight guerrilla wars, it also continued to increase its ability to fight conventional battles, boosting spending for weapons from national-missile defense and fighter jets to tanks and long-range bombers. Then there were large spending increases following the overhaul of America’s intelligence agencies and homeland-security programs. Those transformations cost at least another $1 trillion, if not more, budget analysts say, though the exact cost is still unknown. Because much of that spending is classified or spread among agencies with multiple missions, a breakdown is nearly impossible.

It’s similarly difficult to assess the opportunity cost of the post-9/11 wars—the kinds of productive investments of fiscal and human resources that we might have made had we not been focused on combating terrorism through counterinsurgency. Blomberg says that the response to the attacks has essentially wiped out the “peace dividend” that the United States began to reap when the Cold War ended. After a decade of buying fewer guns and more butter, we suddenly ramped up our gun spending again, with borrowed money.

The price of the war-fighting and security responses to bin Laden account for more than 15 percent of the national debt incurred in the last decade—a debt that is changing the way our military leaders perceive risk. “Our national debt is our biggest national-security threat,” Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, told reporters last June.

All of those costs, totaled together, reach at least $3 trillion. And that’s just the cautious estimate. Stiglitz and Bilmes believe that the Iraq conflict alone cost that much. They peg the total economic costs of both wars at $4 trillion to $6 trillion, Bilmes says. That includes fallout from the sharp increase in oil prices since 2003, which is largely attributable to growing demand from developing countries and current unrest in the Middle East but was also spurred in some part by the Iraq and Afghanistan conflicts. Bilmes and Stiglitz also count part of the 2008 financial crisis among the costs, theorizing that oil price hikes injected liquidity in global economies battling slowdowns in growth—and that helped push up housing prices and contributed to the bubble.

Most important, the fight against bin Laden has not produced the benefits that accompanied previous conflicts. The military escalation of the past 10 years did not stimulate the economy as the war effort did in the 1940s—with the exception of a few large defense contractors—in large part because today’s operations spend far less on soldiers and far more on fuel. Meanwhile, our national-security spending no longer drives innovation. The experts who spoke with National Journal could name only a few advancements spawned by the fight against bin Laden, including Predator drones and improved backup systems to protect information technology from a terrorist attack or other disaster. “The spin-off effects of military technology were demonstrably more apparent in the ’40s and ’50s and ’60s,” says Gordon Adams, a national-security expert at American University.

Another reason that so little economic benefit has come from this war is that it has produced less—not more—stability around the world. Stable countries, with functioning markets governed by the rule of law, make better trading partners; it’s easier to start a business, or tap national resources, or develop new products in times of tranquility than in times of strife. “If you can successfully pursue a military campaign and bring stability at the end of it, there is an economic benefit,” says economic historian Joshua Goldstein of the University of Massachusetts. “If we stabilized Libya, that would have an economic benefit.”

Even the psychological boost from bin Laden’s death seems muted by historical standards. Imagine the emancipation of the slaves. Victory over the Axis powers gave Americans a sense of euphoria and limitless possibility. O’Hanlon says, “I take no great satisfaction in his death because I’m still amazed at the devastation and how high a burden he placed on us.” It is “more like a relief than a joy that I feel.” Majewski adds, “Even in a conflict like the Civil War or World War II, there’s a sense of tragedy but of triumph, too. But the war on terror … it’s hard to see what we get out of it, technologically or institutionally.”

What we are left with, after bin Laden, is a lingering bill that was exacerbated by decisions made in a decade-long campaign against him. We borrowed money to finance the war on terrorism rather than diverting other national-security funding or raising taxes. We expanded combat operations to Iraq before stabilizing Afghanistan, which in turn led to the recent reescalation of the American commitment there. We tolerated an unsupervised national-security apparatus, allowing it to grow so inefficient that, as The Washington Post reported in a major investigation last year, 1,271 different government institutions are charged with counterterrorism missions (51 alone track terrorism financing), which produce some 50,000 intelligence reports each year, many of which are simply not read.

ConWe have also shelled out billions of dollars in reconstruction funding and walking-around money for soldiers, with little idea of whether it has even helped foreigners, much less the United States; independent investigations suggest as much as $23 billion is unaccounted for in Iraq alone. “We can’t account for where any of it goes—that’s the great tragedy in all of this,” Hellman says. “The Pentagon cannot now and has never passed an audit—and, to me, that’s just criminal.”

It’s worth repeating that the actual cost of bin Laden’s September 11 attacks was between $50 billion and $100 billion. That number could have been higher, says Adam Rose, coordinator for economics at the University of Southern California’s National Center for Risk and Economic Analysis of Terrorism Events, but for the resilience of the U.S. economy and the quick response of policymakers to inject liquidity and stimulate consumer spending. But the cost could also have been much lower, he says, if consumers hadn’t paid a fear premium—shying away from air travel and tourism in the aftermath of the attacks. “Ironically,” he says, “we as Americans had more to do with the bottom-line outcome than the terrorist attack itself, on both the positive side and the negative side.”

The same is true of the nation’s decision, for so many reasons, to spend at least $3 trillion responding to bin Laden’s attacks. More than actual security, we bought a sense of action in the face of what felt like an existential threat. We staved off another attack on domestic soil. Our debt load was creeping up already, thanks to the early waves stages of baby-boomer retirements, but we also hastened a fiscal mess that has begun, in time, to fulfill bin Laden’s vision of a bankrupt America. If left unchecked, our current rate of deficit spending would add $9 trillion to the national debt over the next decade. That’s three Osamas, right there.

Although Bin Laden is buried in the sea, other Islamist extremists are already vying to take his place. In time, new enemies, foreign and domestic, will rise to challenge America. What they will cost us, far more than we realize, is our choice. 

13-20

Sukuk Market Starved of Benchmark Sovereign

March 25, 2010 by · Leave a Comment 

By Carolyn Cohn and Shaheen Pasha

LONDON/DUBAI, March 23 (Reuters) – Sovereign borrowing still eludes the Islamic bond, or sukuk, market, leaving investors hungry for a benchmark issue to reinvigorate trading after the credit crunch and the Dubai World crisis.

Where issuance from euro zone and emerging market borrowers in 2010 has been fast and furious, with emerging market borrowers alone issuing over $50 billion, there have been no sovereign sukuk issues at all.

Only one international sukuk has been issued so far this year, a $450 million Islamic bond for Saudi property developer Dar al-Arkan.

A resolution of debt woes at state-owned Dubai World, the mounting of domestic regulatory hurdles for issuers and improved liquidity could bring sovereigns to the sukuk market from around the third quarter.

But for now borrowers have been deterred by thin trading, the extra premium which borrowers have to pay to attract investors into this relatively small and specialist market, question marks over sovereign guarantees and regulatory conundrums.

“There is genuine need for issuance,” said Muneer Khan, partner and head of Islamic finance at law firm Simmons & Simmons in Dubai.

“Government-related issuances and good credit corporate issuances can often open the gates for further corporates.”

A sukuk is similar to a bond but complies with Islamic law, which prohibits the charging or payment of interest.

The typical path for any debt market is that the initial borrowers are sovereigns, seen as relatively risk-free, followed by state-owned entities, and then by corporate borrowers who will offer a higher yield.

“If sovereigns get deals away at a certain level, corporates should trade 30-40-50 basis points above,” said a London-based Islamic finance specialist.

But without sovereign deals, it is hard for corporates to follow.

The Philippines last week shelved plans for a debut sukuk issue, citing legal hurdles.

Indonesia, which has previously issued in the sukuk market, has no plans to issue again before September.

Gulf borrowers such as Bahrain and Dubai have also previously issued sukuk. But trading is weak after the shock payment standstill on Dubai World debt, which includes Islamic debt, and other defaults in a market once boasting a zero default rate.

In addition, the lack of a government guarantee for some state-owned Dubai World debt came as a shock to many investors.

Sukuk prices are generally trading below par and the market is highly illiquid, market participants say, even as benchmark emerging sovereign debt spreads are trading at their tightest over U.S. Treasuries in nearly two years.

Global sukuk issuance is likely to range between $15-17 billion in 2010, down from $19 billion last year, a recent Reuters poll shows. Currently even those forecasts look ambitious — in 2009, nearly all sukuk issues were made by states and quasi-sovereign entities.

“The sukuk market has been doubly affected by the downturn and the situation in the Middle East, so people are not pushing ahead — it’s not an easy market for a first-time borrower,” said Farmida Bi, partner at law firm Norton Rose in London.

European sovereigns have failed to issue any sukuk at all.

The UK was at the forefront of plans for sukuk issuance, and has the legal framework in place. But its original plans coincided with the outbreak of the global financial crisis, and the country has since saddled itself with huge amounts of debt.

“The reality is that the UK government has to fund a 178 billion pound ($266 billion) deficit,” said the Islamic finance specialist.

“To come to the market with a $500 million to $1.0 billion sukuk is not the highest on their priority list.”

France was also hoping to issue a sukuk but has become bogged down in legal changes, and market participants say sukuk issuance in countries such as Turkey remains some way off.

However, there are a few signs of light.

Investors are awaiting a restructuring any day of $26 billion in Dubai World debt, which will draw a line under the four-month old problem.

“The more positive news that comes for resolutions, the better,” said Khan. “It can’t hinder further issuances, but it could help.”

Sovereigns such as Jordan and Kazakhstan have said they want to issue sukuk for the first time, although there is no set timing.

And as markets around the world recover, led by emerging debt which is seeing strong demand, sukuk could yet attract investors.

According to a Gulf regional banker at a major investment bank: “The sukuk market is a natural follower of the debt capital markets and we’re starting to see more activity there. There is liquidity in the bond market.”

12-13

Gold’s Bull Market Turns 9 Years Old

March 18, 2010 by · Leave a Comment 

By Mary Anne & Pamela Aden

Gold, silver and the metals group are coming down from their January highs, on the eve of gold’s nine year bull market run. Considering the gold price has had nine consistent yearly gains, and it’s still above $1000 is a feat in itself. Gold’s bull market is solid, a new phase has begun and it’s currently declining in a sharp, yet normal downward correction.

Corrections tend to cause fear. And considering the volatility we’ve seen in recent years, the fear level rises fast. The word bubble is the buzz word, and it’s understandable since we’ve had so many over the last decade. The tech bubble was followed by the housing bubble, the credit bubble, and the debt bubble that continues to grow.

The debt bubble is an ongoing reality; it’s international in scope and it’s the biggest ever. This is hanging over our heads and over the markets, and it isn’t going away, it’s just getting bigger.

GOLD RISES WITH UNCERTAINTY

Debt monsters of the past have tended to end in deflationary depressions, but it’s important to understand that gold can rise in this kind of environment. Remember, gold rises during economic uncertainty. In the early 1930s, for example, during the Great Depression, President Roosevelt raised the price of gold almost 70% from $20.65 to $35 an ounce in a struggle to bring back inflation.

Gold is money. It’s the currency of last resort when monetary times are difficult. So when gold rises in all currencies, as it’s been doing for several years, you know the rise is enduring and superior (see Chart 1). So even though gold has no yield or earnings to measure like the other markets do, it has true value.

The central banks are flooding the markets with their own currencies, and competitive devaluations will continue to grow. Many countries depend on exports for economic survival. This means the best price in the current deflationary environment wins, which is what a cheaper currency does.

This situation originally started with globalization and it’s bullish for gold. The U.S. is still in a delicate situation. It needs a weaker dollar to compete and stimulus measures must continue, which are both ultimately bullish for gold.

This is one important reason why we do not think gold or commodities are in a bubble. We believe they are rising within a mega trend that could last several more years, perhaps a decade. Some say that China is in a bubble and if they are, the demand for commodities will fall. China may be overheated but we don’t think it’s in a bubble. Their growth, even if it’s only a part of what they claim, is solid.

Commodities are in demand and this continues growing with each passing month. China is the engine for demand. It’s the biggest consumer of many raw materials, like aluminum, copper and iron ore. In fact, just last month the number of iron ore and coal ships hired to carry cargo to China jumped 38%.

Rio Tinto, the second largest resource company in the world, forecasts that China’s consumption will be more than double by 2020. That’s only 10 years away.

China and other countries are also buying gold. It currently only makes up about 2% of the reserves in emerging markets. With the average being 10%, there is interest and a need to continue adding gold to their reserves.

Aside from central banks, mutual funds are adding gold to their portfolios as well. This month, the second biggest U.S. public pension, the California State Teachers retirement system, is considering investments in commodities in order to boost returns and provide a hedge against inflation.

Yes, gold is slowly making its way into mainstream investing, in large part thanks to the Exchange Traded Funds, ETFs. They have made it easy to invest in gold and commodities.

BAD NEWS COINCIDES WITH DECLINING MARKET

Debt and how it’s handled will be the driving force in the markets looking out to the years ahead. And interest on the debt, compounded, will be the biggest problem.

This is why there are so many doubts that the economic recovery will be sustained. The commodities, metals and energy fell sharply in recent weeks on concern that rising job losses in the U.S., and mounting debt in Europe, will slow economic growth and, therefore, curb demand.

Interestingly, this type of news becomes more common when the markets are due for a downward correction anyway. The great rises in the metals and crude oil were overextended and they’ve been poised for a downward correction.

With copper being the global economic barometer, the fact that it fell sharply for the first time since the rise began a year ago, provided a good example of bad news hitting an overextended market. A bull market decline is now underway.

Gold is a good example too. Its seven month rise that peaked in November, which we call the C rise, was a bullish one that had reached maturity. By gaining 40% and meeting our original target level, we knew the bulk of the rise was over, for the time being.

GOLD: “D” decline underway

A D decline is now underway. These declines tend to be the sharpest intermediate declines in a bull market, and so far this one is following the pattern. Chart 2 shows that gold’s leading indicator (B) declined clearly below its uptrend and it could now fall to the low area while the gold price itself stays under downward pressure.

The $1000 level is a key support area, which is near the prior C peak in 2008. The 65 week moving average, now at $975 is rising and it’s set to reach the $1000 level in a few months, which will further reinforce the support at $1000. For now, $975 to $1000 is the strong support level for gold.

Interestingly, gold at $975 would be a 20% decline from the November $1218 peak. The worst D decline so far in the current bull market was in 2008 during the financial meltdown. Gold fell almost 30% from March to November. This was an extreme case in an extreme situation. A decline to the $950 level would be similar to the 2006 D decline, which was the second worst decline since 2001.

In other words, the extent of the decline is about half over. As for timing… since 2004, the D declines have been lasting about twice as long compared to the first years of the bull. This means we could see the decline end any time from here on out, if it’s on the shorter end, but more likely it could last until April.

Pressure is likely to stay on gold and the metals in the weeks ahead, which means it’s time to take advantage of weakness by adding or buying new positions. Gold’s major trend remains up, indicating it’s headed higher. But for now, it will temporarily remain under downward pressure by staying below $1110.

12-12

Monem Salem of Peaceful Communications Addresses Important Financial Issues

March 11, 2010 by · Leave a Comment 

By Adil James, MMNS

P3068744

Rochester Hills-March 10–Religious people are forced to confront directly decisions about their financial practices. Where people without religion have the luxury of making financial and other decisions without resort to a regime of discipline other than whatever feels right to them, religious people and especially Muslims have a strong structure of discipline into which they must integrate their financial lives.

How much to give as sadaqa? Is it halal to save money? And what about contemporary financial issues like debt–let alone the highly charged subject of riba.

Mr. Salam spoke at length about these issues to the Saturday night monthly dinner at IAGD.

The monthly dinner began after maghrib with Qur`an recitation and some demonstrations by IAGD children including a brief Qur`an recitation and a mock debate on the issue of Valentine’s Day and whether it is acceptable for Muslims.

Salam explained that in the environment of an economy that is hemorrhaging jobs, with a government that is borrowing money hand over fist, where all people are confronted with serious concerns about their economic well being, it is appropriate to ask what financial practices on an individual level are healthy and Islamically correct.

He had several main points which he emphasized carefully.  First, he emphasized balance.  He quoted a saying of Sayyidina Ali (kw) who said “spend neither extravagantly nor miserly.” This middle way, Salam explained, is dependent on what your personal wealth is.  But a sign of extravagance is buying things to compete with one’s neighbors or friends.  And don’t forget sadaqa and charity, he emphasized, saying sadaqa earns a reward far beyond what a person gives.  Spend less than what you earn, Salam said.

Also, he gave clear and convincing evidence from ahadith that debt is a terrible burden that must be avoided, pointing out that the level of debt of an American person, for example with a mortgage, is orders of magnitude beyond the debt avoided by Companions.  And his arguments about the terrible burdens of debt were powerful without his even touching on the subject of interest or riba.

P3068745 He explained that the word for debt in Arabic has the same root as the words “submission” and “humiliation.”

Also, Mr. Salam explained again with convincing arguments that saving is necessary.  He emphasized examples of Companions including Sayyidina Abu Bakr as Siddiq (ra) who gave a large amount of money to free Sayyidina Bilal (ra) from slavery–Salam’s argument was that this example of generosity must have meant that Abu Bakr (ra) had been saving in order to have such a large sum of money available to him when he needed it.

He gave examples from Qur`an also, including from Surat Kahf, where Sayyidinal Khidr (as) and Sayyidina Musa (as) rebuilt a wall to protect the savings of a pious man for his inheritors–therefore this means the pious man had saved money and was not spending all of it for sadaqa.

Another example from Qur`an was Sayyidina Yusuf’s dream of seven fat years and seven lean years–the principle being to save from prosperous times for “rainy days.”

Salam emphasized saving a significant amount, whether enough to live on for one full year or enough to survive a significant personal tragedy or catastrophe.

Mr. Salam is Director and Vice President of Islamic Investing and Amana’s deputy portfolio manager.  He was raised in Texas and earned degrees from the University of Texas.  After working with other firms, he joined Saturna Capital in 2003 and manages many of Saturna’s Islamic private acccounts. 

Mr. Salam was the subject of a documentary about learning to pilot a plane as a Muslim subsequent to 9/11, “On a Wing and a Prayer,” a review of which movie was featured in this newspaper.

12-11

Abu Dhabi’s Dubai aid shrinks to $5 bln

January 21, 2010 by · 1 Comment 

By Amran Abocar and Nicolas Parasie

2010-01-08T095618Z_1575008665_GM1E6181DQ601_RTRMADP_3_EMIRATES

Expert sky diver and BASE jump enthusiast Omar Al Hegelan (C) descends on to Burj Park Island after free falling from Burj Khalifa in Dubai, January 5, 2010. Al Hegelan and Nasser Al Neyadi both expert divers, have broken the record for the world’s highest BASE jump after free falling from the tallest building in the world, and made their landing on Burj Park Island after covering a vertical descent of 672 metres (2,205 ft). Picture taken January 5.

REUTERS/Stringer

DUBAI, Jan 18 (Reuters) – Dubai said on Monday that half of a $10 billion bailout from Abu Dhabi last December came from an older debt deal, highlighting what analysts said was the emirate’s poor market communications and lack of transparency.

Investors said news that Abu Dhabi directly lent less new money than previously thought also indicated the wealthy emirate wanted more evidence of Dubai’s fiscal probity, after helping it avert an embarrassing default on a state-linked bond.

“The government works behind a high degree of opacity and I think market players have factored that in,” said Khuram Maqsood, managing director of Emirates Capital.

The UAE is not known for exercising best practice transparency but that doesn’t mean they’re not trying. But I don’t think they’re there yet and I think people recognise that.”

A Dubai government spokeswoman said the last minute lifeline last Dec. 14 included $5 billion raised from Al Hilal Bank and National Bank of Abu Dhabi which was announced on Nov. 25.

“Obviously it’s a lot less cash than we had assumed,” said Raj Madha, an independent analyst based in Dubai.

“The interesting thing is what it says about the behaviour of Abu Dhabi: whether they are just rushing through a large amount of money or whether they are providing funding where required.”

Five-year credit default swaps for Dubai stood at 426 basis points, up from 423 basis points on Friday.

Dubai rocked global markets last Nov. 25 when it requested a standstill on $26 billion in debt linked to its flagship conglomerate Dubai World and its two main property developers, Nakheel and Limitless World.

The $5 billion raised from the two Abu Dhabi banks was part of a $20 billion bond programme announced early last year. The UAE central bank signed up for $10 billion of that in February.

But it was unclear whether Abu Dhabi’s $10 billion bailout on Dec. 14 — which enabled Dubai World to repay a $4.1 billion Islamic bond, or sukuk by developer Nakheel — was entirely new money or included the bond to the Abu Dhabi banks.

The government spokeswoman, who spoke on condition of anonymity, said the Gulf Arab emirate had already drawn down $1 billion of the $5 billion from the banks, provided under a five-year bond priced at 4 percent, with the rest yet to be used.

The remainder of the funds, some $4.9 billion, may come from the banks’ or the Abu Dhabi government directly, the spokeswoman said, through another of its investment vehicles.

“The question is whether there will be more funds coming in; because as things stand today, Dubai without further support will find it very difficult to drive a favourable bargain with its creditors,” said a Gulf-based banker.

Asked whether Dubai would seek more funds, the spokeswoman declined to comment.

Abu Dhabi’s support in December came nearly three weeks after the standstill news and amid a lack of communication by Dubai which shook global markets and may have caused lasting damage to the reputation of the Gulf business hub.

CREDITOR TALKS

Dubai World is in the midst of talks with its creditors to finalise a formal standstill agreement that would last for six months, during which the conglomerate will restructure its remaining debt burden, estimated at some $22 billion.

The conglomerate has insisted the restructuring is limited only to certain units and has ringfenced its jewels such as ports operator DP World.

In a research note on Monday, UBS said there was a high probability Dubai World would have to offer “sweeteners” to creditors to bring them onside in the debt talks.

That could include higher interest rates or equity swap options to persuade creditors to give up claims to key assets, like the profitable port operator.

“It is unlikely that Abu Dhabi’s support has peaked just yet and the probability of further balance sheet assistance is high,” UBS economist Reinhard Cluse said.

But he said Abu Dhabi, the biggest and wealthiest of the seven member United Arab Emirates federation, would not want to act solely “as a channel for cash” and would demand systemic changes.

Dubai has said the Abu Dhabi lifeline is contingent on Dubai World reaching an acceptable standstill with creditors.

Uncertainty over the restructuring has weighed on UAE markets as investors fret about the outcome amid a dearth of information.

The conglomerate said this month it is “some time away” from presenting its formal plan to creditors, though it is expected in coming weeks.

“Clearly there were critical time deadlines last year that required extraordinary measures,” said Mashreq Capital Chief Executive Abdul Kadir Hussain, of Abu Dhabi’s bailout.

“But whatever form is required, whether it’s the federation or Abu Dhabi, what is critical now is a well-documented plan for repayment and … a strategy that will show how all of this will be taken care of.” On Monday, the Financial Times said some creditors to the conglomerate are seeking to offload loans to reduce their exposure to the conglomerate.

(Additional reporting by Chris Mangham and Dinesh Nair; Editing by John Irish and David Cowell)

12-4

FTC Announcement Regarding Debtor’s Rights

January 10, 2010 by · Leave a Comment 

The FTC has announced the largest penalty ever imposed on a debt collection agency for allegedly threatening and harassing consumers; disclosing their debts to third parties, and depositing postdated checks early, in violation of federal law.  The FTC has also released this consumer education video on debt collection so that consumers can be aware of their rights and debt collectors can be aware of their responsibilities under federal law.  The video is also available in Spanish.  The press release below provides details of the case and another link to the video. 

Please let me know if you have questions and if you plan on running a story about this. 

Regards,

Lisa

Lisa Lake

Bureau of Consumer Protection/Division of Consumer and Business Education

The Federal Trade Commission

601 New Jersey Avenue, NW — Drop:  NJ-2267

Washington, DC  20580

Direct:  202.326.2345; Fax:  202.326.3574

www.ftc.gov

January 7, 2009

Debt Collection Supervisors Settle FTC Charges

New FTC Video Explains Consumer Rights

Concluding a case that drew the largest civil penalty ever imposed on a debt collection business, the Federal Trade Commission settled with the two remaining individual defendants who allegedly misled, threatened, and harassed consumers; disclosed their debts to third parties; and deposited postdated checks early, in violation of federal law. The settlement order requires each of these senior managers to pay a civil penalty and bars them from future violations.

“The FTC wants to remind debt collectors of their responsibilities and obligations under the law. Abusive collection actions are illegal, and if debt collectors use abusive tactics they could face legal action,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “At the same time, we want consumers to understand their rights if their debts go into collection. Money matters, and the more people know about managing their debt and dealing with debt collectors, the better off they will be.”

According to the FTC’s complaint, filed by the Department of Justice on the FTC’s behalf, the defendants participated in, or controlled, the actions of debt collectors whose unlawful practices included false or deceptive threats of garnishment, arrest, and legal action; improper calls to consumers; frequent, harassing, threatening, and abusive calls; and unfair and unauthorized withdrawals from consumers’ bank accounts. The complaint also alleged that the defendants failed to adequately investigate consumer complaints or discipline collectors, and collectors who were terminated for violating the Fair Debt Collection Practices Act (FDCPA) often were rehired within a few months.

In 2008, Academy Collection Service, Inc. and its owner, Keith Dickstein, paid $2.25 million to settle FTC charges that Academy collectors violated the FTC Act and the FDCPA while collecting debts, and that Dickstein failed to stop the violations. The settlement order announced today, negotiated by DOJ and the FTC, imposed civil penalties of $375,000 and $300,000, respectively, on Albert S. Bastian and Keith L. Hurt III, who oversaw Academy’s Las Vegas collection center. The judgments were suspended upon payment of $7,500 each, based on their ability to pay. The full judgments will become due immediately if the defendants are found to have misrepresented their financial condition.

The order bars Bastian and Hurt from making false, deceptive, or misleading representations in debt collection efforts, such as that nonpayment will result in garnishment of wages, seizure of property, or lawsuits, or that they or their agents are attorneys. They also are prohibited from withdrawing money from consumers’ bank accounts without their express informed consent, and from depositing or threatening to deposit postdated checks before the date on the check. In addition, the pair are barred from improperly communicating with third parties about a debt; communicating with a consumer at any unusual time or place, including the
workplace; and harassing, oppressing, or abusing any person in connection with debt collection.

The Commission vote to authorize DOJ to file the consent decree was 4-0. The consent decree was entered in the U.S. District Court for the District of Nevada.

The Commission has released a video, at www.ftc.gov/debtcollection and www.youtube.com/ftcvideos, explaining consumer rights regarding debt collection. Consumers with questions about their rights under the FDCPA should refer to Debt Collection FAQs: A Guide for Consumers at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm.

NOTE: This consent decree is for settlement purposes only and does not constitute an admission by these defendants of a law violation. A consent decree is subject to court approval and has the force of law when signed by a judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and
unfair business practices and to provide information to help spot, stop, and avoid them. To
file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

California Dodges Bullet with Budget Deal–for Now

July 23, 2009 by · Leave a Comment 

By Peter Henderson and Jim Christie

SAN FRANCISCO (Reuters) – California’s state budget deal is a bet its economy, the world’s eighth-largest, will rebound — but that’s not likely to happen soon.

Governor Arnold Schwarzenegger and top lawmakers agreed Monday to close a $26 billion budget gap, largely with $15 billion in spending cuts, with many pushed into future years.

“They are waiting for the economy to bail them out,” said Chris Ryon, a fund manager at Thornburg Investment who sees “a lot of risk” for investors in California debt.

The budget deal would let the state start traditional borrowing again, although state officials were waiting for the legislature to pass the deal before saying when they will tap the debt market.

Meanwhile, the state is still paying its way with IOUs and must contend with the financial effects of double-digit unemployment and foreclosures dominating its housing market.

“Unemployment, unfortunately, probably hasn’t peaked yet,” said Nuveen Investments fund manager Paul Brennan, who views the budget as a bet that better times are around the corner.

California’s revenues rely heavily on personal income taxes and tend to swing strongly. Google Inc’s initial public offering helped fuel a bumper year for taxes, so if the state economy recovers, revenue could grow quickly.

But economist Steve Levy says California’s economy likely will remain weak for some time and the state government’s main problem will persist — that its citizens and government can not agree on the level of public services to provide.

“We are a state in gridlock, in disagreement,” said Levy, director of the Center for the Continuing Study of the California Economy.

Lawsuits Ready

Around the state, uncertainty greeted the budget agreement. Its details were sparse while rank-and-file lawmakers reviewed the deal for potential votes in the state Assembly and Senate by Thursday.

But opposition formed quickly to some of the plan’s proposals, such as taking roughly $4 billion from cities and counties for state needs. The Los Angeles County Board of Supervisors, for instance, voted Tuesday to sue the state to stop proposed cuts to the county’s share of the state highway tax and community redevelopment funds.

The California State Association of Counties said it would mull a lawsuit as well and San Jose Mayor Chuck Reed told Reuters that his city, the 10th-largest in the nation, also is “committed to participating in a lawsuit” to keep the state from grabbing its money.

“They are probably in violation of the (state) Constitution in taking our redevelopment funds, in violation of the law in taking our highway users tax,” Reed said.

In addition to concerns about losing money to the state, county officials fear losing state aid for health and human service programs they must provide.

“Make no mistake, under this budget scenario counties cannot uniformly ensure the delivery of critical health, public safety and other vital local services,” said Paul McIntosh, executive director of the California State Association of Counties.

To Buy or Not

Once a budget is signed, state finance officials will decide on the kind of short-term debt the state will need to sell to raise money for cash-flow purposes.

Until then, plans for selling either revenue anticipation notes or revenue anticipation warrants are on hold, said State Treasurer Bill Lockyer.

Nevertheless, the budget deal came just in time, Lockyer told Reuters, and he sees lawmakers endorsing it. “Most of them understand we’re getting real close to the edge of the cliff here and we’d better wrap it up quickly.”

Standard & Poor’s analyst Gabriel Petek said the deal averted a certain downgrade next month by his rating agency, which has the state’s general obligation debt at A and CreditWatch with negative implications. “That was the trajectory it was on,” Petek said.

Investment analysts were split over the budget agreement and whether to buy California’s existing or new debt.

Dick Larkin, director of credit rating analysis at Herbert J. Sims Co Inc, said he suspects the agreement will end up deferring hard decisions about the state’s finances and a budget deficit will reemerge. “This is a pretty crappy budget to try to make the case to borrow billions of dollars over the next three months,” Larkin said.

Tom Tarabicos, a financial adviser at Wells Fargo Financial Advisors, said the deal failed to sway him from his dim view of California’s finances and their effect on the state’s bonds.

“This appears to me to be just a short-term reprieve,” Tarabicos said. “We’re going to maintain our distance.”

By contrast, Ken Naehu, head of fixed income at Bel Air Investment Advisors in Los Angeles, said the agreement should end speculation over whether California would not make payments on its debt service to bondholders.

Naehu said debt service payments were never in doubt as they are the state’s No. 2 payment priority as required by law and because the state’s revenues, albeit weak compared with a year earlier, were strong enough to support them.

“Why in the world would you cut your arm off and not make debt service payment when it’s such a small part of the budget?” Naehu said.

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