Republicans Vow to Hunt Down Flint Emergency Manager Responsible for ‘Government-Made Catastrophe’

Justin AmashAt a Congressional hearing on the Flint water crisis, Republican Rep, Jason Chaffetz vowed to “hunt down” emergency manager Darnell Earley and drag him to Washington, D.C. to explain why he did nothing while citizens drank poisoned water for months.

“We’re calling on the U.S. Marshals to hunt him down and give him that subpoena,” said Chaffetz.

Rep. Justin Amash was equally critical of Earley, as well as the emergency financial manager law—which allowed Republican Gov. Rick Snyder to install unelected administrators in positions of extreme power in failing cities like Flint.

“It’s outrageous that this sort of government-mad catastrophe would happen anywhere in the United States,” said Amash, who maintained that the state of Michigan and not the federal government should cough up the money to fix the problem.

Two bureaucrats testified at the hearing: Keith Creagh, the new head of the Michigan Department of Environmental Quality, and the EPA’s Joel Beauvais, who blamed each other’s agencies for myriad failures that created the disaster. LeeAnne Walters, a former resident of Flint, and Marc Edwards, a Virginia Tech engineering professor who helped uncover the truth about Flint’s water, also testified.

Edwards was unfailingly critical of the manner in which the government oversaw the crisis. He repeatedly claimed that the DEQ and EPA simply refused to follow the law and obey their own standards, and are directly responsible for the damage they caused.

Edwards expanded on those thoughts in a recent interview with The Chronicle of Higher Education in which he accused government agencies of stifling dissent. Scientists and experts have every incentive not to criticize the government, he said, because they rely on government funding for their research:

In Flint the agencies paid to protect these people weren’t solving the problem. They were the problem. What faculty person out there is going to take on their state, the Michigan Department of Environmental Quality, and the U.S. Environmental Protection Agency?

I don’t blame anyone, because I know the culture of academia. You are your funding network as a professor. You can destroy that network that took you 25 years to build with one word. I’ve done it. When was the last time you heard anyone in academia publicly criticize a funding agency, no matter how outrageous their behavior? We just don’t do these things.

If an environmental injustice is occurring, someone in a government agency is not doing their job. Everyone we wanted to partner said, Well, this sounds really cool, but we want to work with the government. We want to work with the city. And I’m like, You’re living in a fantasy land, because these people are the problem.

In summary, Flint’s environmental regulators were asleep at the wheel, but nobody wanted to call them out, because bad things happen to people who criticize the government. The horribly mismanaged water system was the result of government planning born of economic ignorance. So far, relief has come in the form of private corporations donating millions of bottles of water.

Has there ever been a more compelling case for privatization of publicly-run government services?

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US Factory Orders Plunge As Inventories Ratio Soars To Recession Cycle Highs

With the Services economy now catching down to Manufacturing's demise (in its lagged – not decoupled – manner), this morning's news that US Factory Orders tumbled 2.9% in December (worse than expected and the biggest MoM drop since Dec 2014) offers little hope for any bounce anytime soon. This is the 14th monthly drop in YoY factory orders – something has not happened outside of a broad US economic recession. Even more concerning is the surge in inventories-to-shipments to cycle highs seen in 2000 and 2008.

 

 

And inventories soar to cycle highs…

 

Still the excuses pile up… weather… foreign not domestic… services will save us (oh wait!)


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“Recovery” Fable Unravels As BOE Cuts Growth Forecast, Eurozone Slashes Inflation Outlook

As you might have noticed, the “recovery” story is starting to fall apart.

Central banks across the globe are running out of excuses for why trillions upon trillions in global QE have been an abject failure when it comes to resuscitating global demand and trade.

Far from creating the type of robust “recovery” Ben Bernanke envisioned when he set the stage for what has become an eight-year-old foray into Keynesian insanity, round after round of monetary madness has only set the world on a race to some nightmarish Krugman “bottom” where the effective lower bound is breached only to see cash banned so PhD economists can strip citizens of their economic autonomy.

On Thursday we get the latest admissions from central bankers who are increasingly forced to admit that things aren’t going as (centrally) planned.

The Bank of England on Thursday cut its growth forecasts to 2.2% from 2.5% in its latest inflation report and also released minutes from its latest monetary policy meeting. Inflation will remain below 1% for the balance of the year, the bank says, and will not hit 2% until Q1 2018.  Or as Haruhiko Kuroda would say: “We see signs that inflation is moving towards our target.”

Growth in 2017 was also revised lower to 2.4% from 2.7%. “The softer forecasts imply tougher times ahead for chancellor George Osborne’s deficit reduction plan,” FT writes. “Weaker growth would translate into lower tax receipts, making closing the gap between expenditure and revenues harder.”

In his letter to the chancellor, Mark Carney opened the door for MOAR. “Were these downside risks to materialise, market expectations of the future path of interest rates could adjust further to reflect an even more gradual and limited path for bank rate increases than is currently priced,” he said. “The committee could also decide to extend the asset purchase facility or to cut the bank rate further towards zero from its current level of 0.5 per cent.”

“[China’s economic rebalancing, more capital flows, tighter financial conditions, and increased market volatility] pose downside risks to growth in the United Kingdom via trade, financial and confidence channels,” Carney told a news conference,” Carney told reporters on Thursday. “The outlook for trade is particularly challenging with net exports expected to drag on UK growth over the forecast period.”

The newly released minutes show that Ian McCafferty, the only voting member arguing for a hike, abandoned his dissenting view to join his compatriots in a decision to remain on hold.

So, yeah. So much for that BOE rate hike.

Meanwhile, in the deflationary paradise that is the eurozone, the EU Commission has cut its 2016 growth forecast to 1.7% from 1.8% citing worsening performances from Germany, France, and Italy. 

More worrisome was the inflation outlook. The commission slashed its outlook for inflation by half to just 0.5% this year

“Europe’s moderate growth is facing increasing headwinds, from slower growth in emerging markets such as China, to weak global trade and geopolitical tensions in Europe’s neighborhood,” Commission Vice President Valdis Dombrovskis said in a statement.

“With the assumed path of energy prices, inflation should remain very low in the first half of this year,” Pierre Moscovici said in Brussels. “It should then rise slightly in the second half when the impact from the past sharp falls in oil prices abates.”

Sure it will. That’s of course assuming oil doesn’t continue to slide. 

For his part, Mario Draghi blames a “conspiracy.” “There are forces in the global economy today that are conspiring to hold inflation down,” the former Goldmanite said in a speech in Frankfurt on Thursday. “Those forces might cause inflation to return more slowly to our objective,” he added.

That’s ok. Maybe the refugees will boost consumer spending. 

Of course you shouldn’t expect any of this to derail policy makers in their lunatic quest to “fix” what’s holding back global growth and trade and what’s keeping inflation stuck in neutral. On that note we close with comments from the ECB’s Yves Mersch:

“I cannot tell you what we will be doing because this depends on 22 other colleagues who also have their opinion.”

 

“We have further possibilities, our toolbox is not exhausted, but I will not fuel any expectations by giving you comment one instrument rather than another one.”


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European Bank Risk Soars To 3 Year Highs, US Risk Rising

We are going to need more “whatever it takes.” And with Draghi’s efforts to shove sovereign bonds down the throat of Europe’s banks, the sovereign-to-financial linkage is now systemically as worrisome as it has ever been…

 

Deutsche Bank’s CDS continues to push higher…smashing European bank risk to its highest since 2013…

 

Unicredit remains the most risky among EU banks…

 

And it is spreading to America…


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German DAX Plunges To 1 Year Lows As Deutsche Bank CoCos Crash

The collapse of Deutsche Bank continues to not just accelerate but to contagiously spread

 

Deutsche Bank's CDS continues to push higher…smashing European bank risk to its highest sicne 2013…

 

And now Deutsche Bank's Contigent Capital securities are crashing – these are among the lowest securities on DB's capital structure and are screaming that problems loom.

In English – CoCo bonds are contingent convertible bonds, and are converted into equity first in case of a bail-in.

 

Dragging the entire German market down – DAX down to 1-year lows…

 

As Bloomberg reports,

This focus on potential credit risk at some of the biggest banks is a shift from recent years, when they seemed resilient from a credit standpoint even as analysts raised doubts about their future profitability. After all, regulations that prompted them to cut costs and reduce risk-taking would probably make them better able to meet their debt obligations, at least in theory.

 

But that theory only goes so far, and not enough apparently to justify buying subordinated financial debt that could get wiped out in a worst-case scenario. Investors seem to be rapidly selling lower-ranked bank securities, particularly notes tied to European firms with significant exposure to commodities companies and borrowers in China.

 

Investors really don’t have a sense of just how much pain banks will feel from souring energy prices and the global growth slowdown. Many are not waiting around to find out.

Is it time to panic yet?


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One Of The Biggest High Frequenecy Traders Warns Of Potential Market “Catastrophe”

Back in April 2009, we wrote what may be the first seminal article predicting the failure of capital markets as a result of widespread predatory high frequency trading and fragmented market structure when we laid out “The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans.” Several years later, and countless flash crashes, we have been proven right, however one thing is missing: “the catastrophe” that finally wakes up people to the dangers of all the individual things we have warned about over the years.

Today, we are one step closer to that day, when none other than the head of one of the biggest high-frequency trading companies, Mark Gorton of Tower Research, warned that there are several faultlines in the structure of increasingly electronic, automated financial markets that could lead to a “catastrophe” in the long run, according to the FT. 

To be sure, Mark Gorton, has a clear conflict of interest: being one of the largest HFT members himself, with his company dominating program trading on the NYSE with his Latour Trading subsiiary, the founder and head of Tower Research Capital argued that exchanges have become far more efficient with the advent of more computerised markets, but “cautioned that increasing complexity brought new dangers that needed to be mitigated.”

In other words, don’t blame the HFTs, blame the markets, which is to be expected from a person who will be out of a job if HFT is banned.

He further adds that “The recent evolution of markets from manual to electronic trading has had huge benefits and investors save money every day due to the lower cost of trading. But electronic trading brings with it a number of new risks, and we need to continue to strengthen the resiliency of electronic markets,” Mr Gorton told the Financial Times.

What keeps Gorton up at night? The short answer: the lack of safeguards at exchanges to prevent HFT firms like his from dragging the whole thing down:

The high-frequency trader is particularly concerned over the lack of risk controls at exchanges, which he said constituted a “large hole in the middle of the system that needs to be filled”.

 

HFT outfits and investment groups that use algorithmic strategies say they have a latticework of different safeguards to prevent ultra-fast computerised strategies from running haywire, which has been further reinforced after one high-profile market maker, Knight Capital, imploded in 2012 after losing $10m a minute in a 45-minute electronic trading rampage.

 

Regulators and bourses such as the New York Stock Exchange and Nasdaq have introduced a clutch of reforms and firebreaks in recent years — especially in the wake of a “flash crash” in 2010 that underscored how automated markets have become — such as circuit-breakers when stocks or markets fall by a certain amount.

 

Nonetheless, exchange-level risk controls remain “limited at best” and should assume there will inevitably be glitches, bugs and errant trading algorithms that could cause problems in the wider market, according to Mr Gorton.

Glitches from algorithms, he forgot to add, such as the one Tower uses each and every day to scalp and frontrun billions of trades in order flow.

However, his warning, conflicted as it is, is spot on: the market will crash again, it is only a matter of time, simply because the HFTs have captured market regulators so well, nobody has any idea what is going on any more: “We need a regulatory framework that assumes that any single system in the market will fail and insures that we have multiple redundant levels of checks that can catch failures in other parts of the system,” he said.

What is Gorton’s suggestion?

Mr Gorton highlighted in particular the lack of a centralised position-tracking mechanism for the US stock market, the need to refine and synchronise market circuit-breakers between highly correlated markets, such as cash equities and futures, and the absence of clarity over what it takes for trades to be declared invalid.

In other words, focus on the symptoms, shutting down markets when things go haywire, not the underlying cause, which as we have said since 2009 is simple: broken markets, designed to benefit just one group of traders.

Exchanges can in certain cases cancel trades when there is “clearly erroneous execution”. Usually this happens automatically when someone tries to trade at a clearly illogical price, but bourses are given more latitude in times of extreme turbulence.

For HFT that help make markets by trading constantly at lightning speed, that can be problematic as it “creates a situation where market participants are forced to pull back during times of extreme stress due to uncertainty about their positions due to potential trade breaks, and this weakness can contribute to a crash in the future”, Mr Gorton said.

 

While electronic, computer-driven markets have been a boon to investors, some of these holes should be addressed, the former Credit Suisse trader and electrical engineer said.

 

“We’re creeping in the right direction, but unless we proactively address these issues, sometime in the next several decades we are going to experience a catastrophe due to runaway computerised trading,” Mr Gorton said.

One question remains, the biggest one: why come public with this warning, which even the most naive traders can between the lines on? The answer is simple – as we have predicted long before the Sarao debacle, once the next big crash happens, everyone will be looking for the scapegoat, and one will be readily available: the same market parasites who have long abused the broken market on the way up, getting rich beyond their wildest dreams, will be those blamed for everything that went wrong on the way down, if only to deflect from the farce that central bankers have unleashed upon capital markets: the High Frequency Traders. And judging by this FT piece, they now know it very well…


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Oil Spikes Near $33 After Turkey-To-Invade-Syria Rumor

Yesterday it was chatter of 6 (non-Saudi) OPEC members agreeing to an emergency meeting (to do what exactly?) that ramped crude (despite dismal production, inventories, and demand data). Today it is talk of Turkey potentially invading Syria from the Russian defense minister…

“We have serious grounds to suspect intensive preparations by Turkey for a military invasion on the territory of the sovereign state of Syria,” Major General Igor Konashenkov, Defense Ministry spokesman, told journalists.

And crude is spiking back toward $33..

 

As RT reports, developments on the Turkish-Syrian border give serious grounds to suspect that Ankara is planning a military invasion in Syria, the Russian Defense Ministry said.

“We are recording more and more signs of concealed preparations by the Turkish military,” he added.


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The Heirs to Bush-Obama Militarism: New at Reason

There’s no point splitting hairs over whether Texas Sen. Ted Cruz or Florida Sen. Marco Rubio is the more egregious warmonger. Both love the bloody and costly U.S. empire. Both believe in American exceptionalism. Both want to pour money into the military, as though America were militarily threatened. Both want to prevent detente with Iran, which poses no danger, and both hype terrorism as an existential threat.

If you need further proof of the essential sameness of Cruz and Rubio, writes Sheldon Richman, you need only observe their attempts to portray Barack Obama as a peacenik determined to dismantle the American empire. Considering that Obama is bombing at least seven Muslim countries; sending more troops to Afghanistan, Iraq, and Syria; and backing the Saudis’ genocidal war in Yemen—and that he supported Secretary of State Clinton’s disastrous regime-changing intervention in Libya—we can imagine what Cruz and Rubio think a hawkish foreign policy should be. 

View this article.

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Martin Shkreli, Valeant CEO Testify In Congressional Hearing On “Skyrocketing” Drug Prices – Live Feed

Everyone’s favorite pharma “bro” Martin Shkreli is set to testify before the House Committee on Oversight and Government Reform on Thursday morning. 

The purpose of the hearing, as delineated on the committee’s website is as follows: 

  • To discuss methods and reasoning behind recent drug price increases.
  • To discuss the role of pharmacy benefit managers in negotiating drug prices, and address concerns about the lack of transparency in pricing contracts. 
  • To discuss impediments to a timely review and approval of generic drug applications, and how the government can improve the efficiency and competitiveness in the market. 

Live feed:

Also present will be Howard B. Schiller, interim CEO of Valeant and Janet Woodcock Director, Center for Drug Evaluation and Research for the FDA. Here are the background bullet points:

  • The wholesale price for thirty of the top-selling U.S. drugs increased 76 percent between 2010 and 2014, which represents eight times the general inflation rate.
  • Pharmaceutical companies cite, among other things, shareholder accountability and high research and development costs as reasons for price increases.
  • Industry analysts have cited “declining market competition” as one of the factors driving recent drug price increases.  
  • Generic drugs, which can cost eighty to eighty-five percent less than their brand equivalents, historically have played an important role in the health care marketplace by offering a lower-cost alternative to brand drugs.
  • However, the number of generic drug applications submitted to the U.S. Food and Drug Administration (FDA) is outpacing approved applications by a three to one margin with approximately 3,800 applications still awaiting action.  
  • Under the Generic Drug User Fee Amendments of 2012, the FDA will receive approximately $1.5 billion over five years from industry fees to speed the public’s access to safe and effective generic drugs.

Below, find a new memo which traces Shkreli’s decision to jack up the price of Daraprim by 5,000% last September.

Memo on Turing Documents


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