Did Police Just Take Down the Biggest Dark Web Drug Market in History?

Alphabay, the largest drug market on the dark web, has been offline since July 5. It’s still unclear why it’s gone, but new evidence is fueling speculation that law enforcement may have been responsible.

Initially, participants on the site’s subreddit suspected that one of two things had happened: Either administrators had taken the servers offline for maintenance—perhaps to address the kind of security flaw that led to the release of user data earlier this year—or they’d conducted what’s called an “exit scam,” in which a site’s proprietors shut down a market without warning and disappear with whatever cash is stored in their users’ on-site wallets. A cryptomarket called Evolution conducted just such an exit scam in 2015, when two administrators allegedly made off with 40,000 in bitcoin, then equivalent to about $12 million. (It would be roughly $94 million in U.S. currency today.)

But now a new theory is emerging: The site may have been brought down by a globe-spanning law enforcement operation.

On July 5, the first day users found themselves locked out of Alphabay, the Montreal Gazette got wind of two Montreal raids conducted by the Royal Canadian Mounted Police and the FBI. The crackdown, the Gazette reported, was “reportedly in connection with the sale of merchandise on the ‘Dark Web’ of the internet.”

The raid theory gained steam yesterday when users learned that a 26-year-old Canadian national named Alexander Cazes had allegedly hanged himself in a Bangkok jail cell to avoid extradition to the U.S. The charges? Drug trafficking. The date of Cazes’ arrest? July 5.

“If Cazes is indeed the AlphaBay administrator, this news doesn’t bode well for the marketplace and all of the money still locked inside its wallets,” JP Buntinx points out on the cryptocurrency and infosec news site The Merkle. “It is unclear if anyone else has access to the necessary resources so that the platform can be relaunched in the future. It is also unclear as to what Cazes may have told the authorities in regards to AlphaBay, its users, or other people working on the platform.”

The July 5 raids in Montreal and arrest of Cazes in Bangkok followed on the heels of the Drug Enforcement Administration’s arrest of an alleged Alphabay vendor based in Missouri this May.

Prior to closing, Alphabay was processing nearly a million dollars in transactions per day. That made Alphabay the biggest cryptomarket on the dark web. But it’s not the only one, and users are already migrating to other sites.

“In the darknet, market ‘shocks’ are, ironically, common,” says Isak Ladegaard, a cryptomarket researcher at Boston College. “Seasoned cryptomarket buyers and sellers probably expected Alphabay to shut down at some point. That is why people have created, and maintain, comprehensive systems for market assessments, which include crowdsourced information, detailed descriptions of market features, and technical measures (e.g. downtime). I think most users know that when market A goes down, for whatever reason, they can easily look up and compare market B and C.

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Connecticut Capital Hartford Downgraded To Junk By Moody’s

Just two days after S&P downgraded Hartford to junk, Moody's has piled on, pushing the Connecticut State capital below investment-grade due to "the increased likelihood that the city will pursue debt restructurings to address its fiscal challenges."

One week ago, Illinois passed its three year-overdue budget in hopes of avoiding a downgrade to junk status, however in an unexpected twist, Moody's said that it may still downgrade the near-insolvent state, regardless of the so-called budget "deal." In fact, a downgrade of Illinois may come at any moment, making it the first U.S. state whose bond ratings tip into junk, although as of yesterday, credit rating agencies said they were still reviewing the state's newly enacted budget and tax package. The most likely outcome is, unfortunately for Illinois, adverse: "I think Moody's has been pretty clear that they view the state's political dysfunction combined with continued unaddressed long-term liabilities, and unfavorable baseline revenue performance as casting some degree of skepticism on the state's ability to manage out of the very fragile financial situation they are in," said John Humphrey, co-head of credit research at Gurtin Municipal Bond Management.

And yet, while Illinois squirms in the agony of the unknown, another municipality that as recently as a month ago was rumored to be looking at a bankruptcy filing, the state capital of Connecticut, Hartford, no longer has to dread the unknown: following S&P's downgrade to junk on Tuesday, Moody's just shifted Hartford's GOs to B2 from Ba2, with a negative outlook.

Excerpted Moody's note:

Moody's Investors Service has downgraded the City of Hartford, CT's general obligation debt rating to B2 from Ba2. The outlook is negative.

 

The rating was placed under review for possible downgrade on May 30, 2017. The par amount of debt affected totals approximately $550 million.

 

The downgrade reflects the increased likelihood that the city will pursue debt restructurings to address its fiscal challenges. Last week, the city hired a law firm to advise it on debt restructurings. City management has made public statements indicating they will need to have discussions with bondholders about restructuring its debt regardless of the outcome of the state's biennial budget as debt service costs escalate sharply leading to budget deficits over the next five years.

 

The rating also reflects the city's challenging liquidity outlook in the current fiscal year and weak prospects for achievement of sustainably balanced financial operations. The city currently projects a fiscal 2018 deficit of $50 million and is seeking incremental funding from the state to close that gap. The state has not yet adopted a budget specifying aid for the city for the fiscal year beginning July 1. Even if the state's biennial budget allocates sufficient funds to address the current and following years deficits and create a fiscal oversight structure, the budget is still unlikely to provide a pathway to structural balance over the longer term. City deficits, partially attributable to escalating debt service costs, are projected to grow to $83 million by 2023, making the city's weak financial position vulnerable to further deterioration.

 

Rating Outlook

 

The negative outlook reflects the possibility that the city will restructure its debt in a way that will impair bondholders. The outlook also incorporates uncertainty over state funding in the current fiscal year and beyond and the associated impact on reserves, liquidity and the ability to achieve sustainably balanced operations.

In short: the capital of America's richest state (on a per capita basis), will – according to both S&P and Moody's – be one of the first to default in the coming months.

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If Everything’s So Awesome, Why Are Investors Surging Into Tech-Stock Hedges?

Tech stocks are up once again – for the 5th day in a row, the longest streak since May – as the business media celebrates FANG's rennaissance (again)…

 

There's just one thing that is 'odd' about this rally, traders are piling into downside hedges on every uptick in prices…

As Bloomberg notes, options markets suggest a lack of confidence in the rally.

The cost of bearish over bullish contracts in the $13 billion Vanguard Information Technology exchange-traded fund rose to the highest level since late May, even as the fund pared most of its losses in the slump following an all-time high reached in June.

Gaining 20 percent this year, S&P 500 technology companies trade at 17.7 times projected earnings, compared with a five-year average of 15.

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Five Takeaways From Yellen’s Hearings On The Hill

Authored by Tho Bishop via The Mises Institute,

Though the hearings lost much of their appeal when Dr. Ron Paul retired from Congress, the House Republicans have maintained a reputation for being far more hostile to the Federal Reserve than their colleagues in the Senate – managing to generate some worthwhile moments. While little news was made, with Yellen maintaining her support for generally low interest rates, there were some points made this week worth noting.

1) Republicans Continue to Push on the Fed’s Subsidy to Wall Street

Starting in 2008, the Federal Reserve has paid interest on excess reserves parked at the Fed. While this had never been done prior to the financial crisis, this policy has now become a vital tool for the Fed in setting short-term interest rates. As the Fed has increased the Federal funds rate, so too has it increased its “Interest On Excess Reserves” (IOER), now paying 1.25% on the over 2 trillion banks hold at the Fed.

This policy has drawn increasing criticism from House Republicans, and Yellen faced criticism from both Committee Chairman Jeb Hensarling and Rep. Andy Barr, who hold Dr. Paul’s old position as chairman of the monetary subcommittee. Accurately, both men highlight that this policy means the Federal Reserve – and by extension the US Treasury that would otherwise receive these interest payments – are directly subsidizing large Wall Street and foreign banks.  Considering these IOER payments are projected to be $27 billion this year, it’s good to more attention be brought to this obvious example of Wall Street cronyism.

2) Higher Interest Rates for Wall Street, not for Main Street

Continuing on the subject of IOER payments, Rep. Barr also highlighted that average consumers are not seeing any payoff from higher interest rates. Interest payments on CD’s remain historically low, with many consumers unable to get the 1.25% the Fed is giving their financial institutions.

As the Wall Street Journal documented, a reason for this is the way a decade of low interest rates have changed the consumer-bank relationship. All of this is simply another demonstration of how policies by the Federal Reserve are benefitting Wall Street at the direct expense of the rest of the country.

3) Maxine Waters Wants to Make Poor People Poorer

Maxine Waters may be best known these days for being one of Donald Trump’s most vocal critics, but she is also the leading Democrat on the Financial Services Committee. On Wednesday, Waters questioned Yellen on why mainstream inflation measures have been constantly undershooting the Fed’s 2% inflation target, and voiced her disagreement with the Fed’s minor increases in the Federal funds rate.

The way politicians like Ms. Waters discuss inflation makes it clear that they don’t truly comprehend how it presents itself in real life. After all, as someone who constantly fundraises off the dangers of income inequality and the plight of low income Americans, surely the last thing Ms. Waters would want to see is for the purchasing power of the dollar decline for the very people she claims to want to help.

4)  Hensarling References Marvin Goodfriend

Earlier this week it was reported that President Trump will nominate former Treasury official Randal Quarles Fed Vice Chairman. During the hearing, Chairman Hensarling quoted another economist who has been connected to another Fed vacancy: Marvin Goodfriend. As a Treasury Secretary finalist who has worked with the Administration on banking regulation, Hensarling evoking Goodfriend is being taken by some a sign that his nomination is now simply a matter of when.

Unfortunately Goodfriend’s surname is misleading, as he has been a vocal advocate of negative interest rates. His nomination would be a devastating betrayal by Trump of his blue-collar base, for the reasons he himself articulated as a candidate.

5) Yellen still hates Audit the Fed

Thanks to Dr. Paul, the head of the Fed now knows to expect one question about Auditing the Federal Reserve. This time it was Rep. Bill Posey, who tried to push Yellen away from her default defense of mythical Fed independence. Mr. Posey repeatedly asked Ms. Yellen to name a single instance where the Fed would have been negatively impacted by a full audit.

The Fed Chairwoman was unable to provide an answer.

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IMF Rings The Alarm On Canada’s Economy

Shortly after yesterday’s rate hike by the Bank of Canada, its first since 2010, we warned that as rates in Canada begin to rise, the local economy which has seen a striking decline in hourly earnings in the past year, which remains greatly reliant on a vibrant construction sector, and where households are the most levered on record, if there is anything that can burst the local housing bubble, it is tighter monetary conditions. And a bubble it is, as the chart below clearly demonstrates… one just waiting for the pin, which as we suggested yesterday in “”Canada Is In Serious Trouble” Again, And This Time It’s For Real“, may have finally been provided thanks to the Bank of Canada itself.

Now, one day after our warning, the IMF has doubled down and on Thursday issued its latest consultation report, in which it said that while Canada’s economy has regained some momentum, it warned that business investment remains weak, non-energy exports have underperformed, housing imbalances have increased and uncertainty surrounding trade negotiations with the United States could hurt the recovery.

The report – which concerningly was written even before the BOC hiked rates by 0.25% – also said the Bank of Canada’s current monetary policy stance is appropriate, and it cautioned against tightening.

“While the output gap has started to close, monetary policy should stay accommodative until signs of durable growth and higher inflation emerge,” the IMF said, adding that rate hikes should be “approached cautiously”.

Directors noted that Canada’s financial sector is well capitalized and
has strong profitability, but that there are rising vulnerabilities in
the housing sector…  Directors agreed that monetary policy should stay
accommodative and be gradually tightened as signs of durable growth and
inflation pressures emerge. They recognized that monetary easing could
complement fiscal stimulus, and may need to be considered along with
unconventional measures if economic activity contracts significantly,
although there is a risk that it could exacerbate housing imbalances.

While one can accuse the IMF of being traditionally dovish: recall Christine Lagarde – who famously said the IMF would be out of business if there were no world crises – has been screaming at central banks for hiking rates (in retrospect she will be proven right, just not yet), in this case she may be right: the recent sudden surge in Canadian interest rates especially on the long end will have a severe impact on loan demand, not to mention mortgage rates and, of course, housing demand.

Furthermore, in a statement following its annual policy review with Canada, the IMF
cautioned that “risks to Canada’s outlook are significant” particularly
– drumroll – “the danger of a sharp correction in the housing market, a further
decline in oil prices, or U.S. protectionism.”

Risks to the outlook are significant. On the upside, stronger-than-expected growth in the U.S. could boost export and investment in the near term. On the downside, risks stem from several potential factors—including the risk of a sharp correction in the housing market, high uncertainty surrounding U.S. policies, or a further decline in oil prices—that can be mutually reinforcing. Policy choices will therefore be crucial in shaping the outlook and reducing risks.

The monetary fund also said that financial stability risks could emerge if the housing correction is accompanied by a recession, but there was good news: the IMF noted that recent stress tests have shown Canadian banks could withstand a “significant loss” on their uninsured residential mortgage portfolio, in part because of high capital position.

Well, we are about to find out.

Meanwhile, house prices in Toronto and Vancouver have more than doubled since 2009 and the boom has fueled record household debt, a vulnerability that has also been noted by the Bank of Canada. As Reuters adds, some economists believe the rate hike this week was at least partly aimed at reducing financial system imbalances, which is admirable… the only problem is that the first casualty of a correction in imbalances will be the blue line in the chart at the top.

“The main risk on the domestic side is a sharp correction in the housing market that impairs bank balance sheets, triggers negative feedback loops in the economy, and increases contingent claims on the government,” the IMF warned, sounding the loudest alarm yet on Canada’s economy even if it was reiterating previous warnings about Canada’s long housing boom.

There was another danger: Trump. The Fund also warned U.S. trade protectionism could hurt Canada’s economy, and laid out a scenario for an increase in tariffs that could come with the renegotiation of the North American Free Trade Agreement. The IMF was also kind enough to quantify just how little it would take to send the local economy into a tailspin: the IMF said if the United States raises the average tariff on imports from Canada by 2.1 percentage points and there is no retaliation from Canada, there would be a short-term negative impact on real GDP of about 0.4%. Naturally, if tariff increases were higher, an outright recession was virtually guaranteed.

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Stocks Slip As Fed’s Brainard Warns “Asset Valuations Do Look A Bit Stretched”

Noting that she is "looking very closely at inflation," The Fed's Lael Brainard continued the recent trend of warnings from Fed speakers by noting "asset valuations do look a bit stretched," which seemed to take some of the exuberance out of stocks…

 

 

Brainard adds to the list of Fed worriers, as we detailed previously…

If there was any confusion why the Fed intends to keep hiking rates, even in the face of negative economic data and disappearing inflation, it was put to rest over the past 2 days when not one, not two , not three, but four Fed speakers, including the three most important ones, made it clear that the Fed's only intention at this point is to burst the asset bubble.

First there was SF Fed president John Williams who said that "there seems to be a priced-to-perfection attitude out there” and that the stock market rally "still seems to be running very much on fumes." Speaking to Australian TV, Williams added that "we are seeing some reach for yield, and some, maybe, excess risk-taking in the financial system with very low rates. As we move interest rates back to more-normal, I think that that will, people will pull back on that,

Then it was Fed vice chairman Stan Fischer's turn, who while somewhat more diplomatic, delivered the same message:

"the increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites…. Measures of earnings strength, such as the return on assets, continue to approach pre-crisis levels at most banks, although with interest rates being so low, the return on assets might be expected to have declined relative to their pre-crisis levels–and that fact is also a cause for concern."

Fischer then also said that the corporate sector is "notably leveraged", that it would be foolish to think that all risks have been eliminated, and called for "close monitoring" of rising risk appetites.

All this followed the statement by Bill Dudley, who many perceive as the Fed's shadow chairman, who yesterday warned that rates will keep rising as long as financial conditions remain loose:

"when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened.  On the other hand, when financial conditions ease—as has been the case recently—this can provide additional impetus for the decision to continue to remove monetary policy accommodation."

And finally, it was Yellen herself, who speaking in London acknowledged that some asset prices had become “somewhat rich" although like Fischer, she hedged that prices are fine… if only assumes record low rates in perpetuity:

“Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates,” she said.

 

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Game of Thrones: Libertarian Edition [New at Reason]

As HBO’s blockbuster series Game of Thrones returns for its seventh season, Reason offers its own freedom-filled parody. A libertarian paradise north of the wall? What’s happened to Westeros’ social security trust fund? Should it take low-income Dothraki four years to get a hair-braiding license? Watch!

Watch above or click the link below for downloadable versions and more.

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Apocalypse Abuse and ‘Climate Doomism’

ReaperEarthBano2007Dreamstime“There is a seduction in apocalyptic thinking. If one lives in the Last Days, one’s actions, one’s very life, take on historical meaning and no small measure of poignance,” Eric Zencey wrote in 1988. “Apocalypticism fulfills a desire to escape the flow of real and ordinary time, to fix the flow of history into a single moment of overwhelming importance.” Lawrence Buell has called apocalypse “the single most powerful master metaphor that the contemporary environmental imagination has at its disposal.”

The seduction of apocalyptic thinking is on full and lurid display in David Wallace-Wells’ article “The Uninhabitable Earth,” published in New York magazine earlier this week. The subtitle says it all: “Famine, economic collapse, a sun that cooks us: What climate change could wreak—sooner than you think.”

Wallace-Wells is engaging in “apocalypse abuse,” a term I believe I first encountered in Edith Efron’s magnificent and prescient book The Apocalyptics. As I wrote in my 1993 book Eco-Scam, “‘apocalypse abusers’ typically extrapolate only the most horrendous trends, while systematically ignoring any ameliorating or optimistic ones, offering worst-case scenarios in the guise of balanced presentations.”

“It is, I promise, worse than you think,” Wallace-Wells begins. “Indeed, absent a significant adjustment to how billions of humans conduct their lives, parts of the Earth will likely become close to uninhabitable, and other parts horrifically inhospitable, as soon as the end of this century.” Instead of relying on more mainstream projections, Wallace-Wells cherry-picks the worst-case scenarios for melting glaciers, rising sea levels, temperature increases, crop failures, species extinctions, and more.

Reacting in a Facebook post, the Penn State climatologist Michael Mann—not a man who’s known to underplay the dangers of man-made climate change—declared: “Extraordinary claims require extraordinary evidence. The article fails to produce it.”

Mann followed up today with a Washington Post op-ed. Wallace-Wells, he writes, “paints an overly bleak picture, arguing that climate change could render the Earth uninhabitable by the end of this century.” He cites several examples of how the New York piece misleads readers, including its misrepresentations about the dangers posed by methane trapped arctic permafrost and recent adjustments to satellite temperature records.

Mann is not alone in his criticisms. Another Washington Post article today, this one by Chris Mooney, cites a tweet from the University of Washington glaciologist Eric Steig: “What’s written’s actually beyond worst possible case. THIS is the ‘alarmism’ we get accused of. It’s important to speak out against it.”

Many climate scientists object to the article because they fear that such doomism will induce a sense of fatalism in the public and among policy makers. If the end is nigh, why not just sit back and enjoy our time before the apocalypse?

In 1989, the Stanford climatologist Stephen Schneider notoriously argued, “We have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we might have. This ‘double ethical bind’ we frequently find ourselves in cannot be solved by any formula. Each of us has to decide what the right balance is between being effective and being honest. I hope that means being both.” Some climatologists evidently think that Wallace-Wells has gotten the balance badly wrong.

In Eco-Scam, I wrote that apocalypse abusers offer “lurid scenarios of a devastated earth, overrun by starving hordes of humanity, raped of its precious nonrenewable resources, poisoned by pesticides, pollution, and genetically engineered plagues, and baked by greenhouse warming. The new millenarians no longer expect a wrathful God to end the world in a rain of fire or overwhelming deluge. Instead humanity will die by its own hand.” Wallace-Wells is just the latest in a long line.

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Bezos Bans WaPo Reporters From Social Media Attacks On Advertisers, Customers

There's free-speech and there's Bezos-approved free-speech…

It seems the message is beginning to sink in that the constant liberal media attacks on Trump, 'the right', Russia, and anyone daring to not denigrate any of these – is not welcome among most Americans… (as WSJ noted this week)…

Skepticism toward the media is most often associated with conservatives in Middle America, some of whom eat something other than artisanal sandwiches.

 

But this week brings more evidence that investors worldwide have become very reluctant to buy what many established news organizations are selling.

 

How else to explain the collective shrug of the shoulders in financial markets to the latest breathless media reports about alleged collusion between the 2016 Trump campaign and Russia?

Because Jeff Bezos, owner of The Washington Post, has instituted a new policy with regard employees' social media behavior…

A new social-media policy at the Washington Post prohibits conduct on social media that “adversely affects The Post’s customers, advertisers, subscribers, vendors, suppliers or partners.”

 

In such cases, Post management reserves the right to take disciplinary action “up to and including termination of employment.”

As The Wall Street Journal reports, Mr. Bezos has introduced many innovations since taking over the principal newspaper of the nation’s capital, but he should rethink this one. His paper’s new social-media policy specifically lists the following among the types of communications which are now prohibited:

Disparaging the products and services of The Post’s advertisers, subscribers, competitors, business partners or vendors.

So the Post is encouraging at least minimally respectful treatment of some companies, but businesses that neither cooperate nor compete with the Post are fair game? This type of double standard is incompatible with the healthy practice of journalism.

The Post says that this new policy, which took effect on May 1 of this year, is the first formal social-media policy directed at the whole company and is meant to build on a newsroom policy from 2011. But back then, the pre-Bezos newsroom editors were not telling anyone to lay off business partners.

To say the least, it would not be easy to do journalism if reporters were barred from doing anything that adversely affects anyone with whom a news organization does business. And social media comprises increasingly important journalistic platforms, especially for the Post.

However, it seems that revenues trump freedom of speech in a Bezos world? But we thought Trump was the 'fascist'?

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A Better Future Requires Higher Levels of Consciousness – Decentralize or Die (Part 3)

The first two posts in this series focused on what the current political environment looks like, and why it provides a perfect opportunity for experimentation and decentralization. Today’s post will examine what it will take to get there. While I think the future can be a very bright one, this is by no means written in stone and will take a herculean effort by millions of globally enlightened and motivated humans to achieve it.

In order to properly frame today’s post, I will be relying heavily on information discussed in my five-part series on Spiral Dynamics published back in February. While I will try to provide context, it might be helpful to check out those older posts before continuing if things start to get confusing.

Let’s begin by me quoting Ken Wilber in the post, What is Spiral Dynamics and Why Have I Become So Interested in It?

So it is that the leading edge of consciousness evolution stands today on the brink of an integral millennium—or at least the possibility of an integral millennium, where the sum total of extant human knowledge, wisdom, and technology is available to all. But there are several obstacles to that integral embrace, even in the most developed populations. Moreover, there is the more typical or average mode of consciousness, which is far from integral anything, and is in desperate need of its own tending. 

I have, in numerous previous publications (especially Integral Psychology) given the details of many of those researchers. Here I will simply use one of them as an example. The model is called Spiral Dynamics, based on the pioneering work of Clare Graves. Graves proposed a profound and elegant system of human development, which subsequent research has refined and validated, not refuted. “Briefly, what I am proposing is that the psychology of the mature human being is an unfolding, emergent, oscillating spiralling process marked by progressive subordination of older, lower-order behavior systems to newer, higher-order systems as an individual’s existential problems change. Each successive stage, wave, or level of existence is a state through which people pass on their way to other states of being. When the human is centralized in one state of existence” —as I would put it, when the self’s center of gravity hovers around a particular wave of consciousness— “he or she has a psychology which is particular to that state. His or her feelings, motivations, ethics and values, biochemistry, degree of neurological activation, learning system, belief systems, conception of mental health, ideas as to what mental illness is and how it should be treated, conceptions of and preferences for management, education, economics, and political theory and practice are all appropriate to that state.”

continue reading

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