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Submitted by James H. Kunstler of Kunstler.com,

Was it such a good thing in the post-cold-war decades that the US was regarded as the supreme sole super-power? Look what we did with that privilege: fumbled around like an overfed stumblebum, blundering from one foreign occupation to another, breaking a lot of things and killing a lot of people — under the clownishly-conceived rubric of a “war on terror.”

Why is it in our interest which way Ukraine tilts? It has been in the Russian orbit for hundreds of years under one administration or another. Are we disappointed now that Kiev won’t answer to the floundering Eurocrats of Brussels? Was that ever a realistic expectation? Really, the best outcome for western Europe would be a return to the prior condition of Ukraine as a mute bearskin rug with oil and gas pipelines running through it to the oil and gas starved West. The idea that the US could supply Europe with oil and gas instead of Russia is a preposterous fantasy. Anybody wondering whether Ukraine might turn its armed forces loose on Russian forces supposedly massing at its border should ask themselves how Ukrainian soldiers will get paid.

I’m sure Russia can’t afford to annex all of Ukraine. Russia can barely maintain its paved roads. But it obviously couldn’t afford to give up its rented warm water ports and naval bases in the Crimea, either, with the new Kiev government making so much anti-Russian noise since the “revolution.” The annexation of Crimea changes nothing materially about the disposition of Russian military force in the region. They were already there. Given the size of their navy compared to the other nations in the neighborhood, the Black Sea is Russia’s bathtub and has been as long as anyone can remember. Was the brass at the US State Department shocked to discover this two weeks ago?

The recognition that there are some places on the planet where the US can’t exert its influence has also come as a shock to the so-called American Deep State — that matrix of bureaucratic toxic sludge that labors to pretend to control everything and succeeds mainly in embarrassing itself in a world that is now deeply tending away from the centralized control of anything. Nations are breaking up everywhere and for the moment there is no coherent public discussion of the ramifications. Venice voted the other day to secede from Italy — that is, to not send anymore tax revenue to Rome. That should be interesting. How about Scotland’s independence vote scheduled for September? Judging by the British newspapers, there is next-to-zero concern about that. Then there is the list of failed states, Egypt, Syria, Yemen, and probably half the manufactured nations of sub-Saharan Africa, places with no viable economy or polity and too many clamoring poor people. These are parts of the world that will neither develop nor redevelop. In a hundred years they could be no-go zones or just return to howling wilderness.

The US would be better served these days to literally mind its own business. With Detroit in bankruptcy, why would we send Kiev billions of dollars? American urban infrastructures — water, sewer, gas, and electric lines — are falling apart. We have no idea how we’re going to manage most of the crucial economic activities of daily life in ten years, when the illusions of shale gas and shale evaporate in a dark cloud of disenchantment, when we no longer have an airline industry, and most Americans won’t have the means to own automobiles, and there’s not enough diesel fuel to plow Iowa mega-farms, or enough oil and gas based fertilizers or herbicides to pour into the eroding topsoil, and not enough fossil water left in the Oglala aquifer or enough electricity to run the center-pivot sprinklers where the prairie meets the desert? How are Americans going to live and eat and get from Point A to Point B and keep a roof over our heads in this beat-down land?

We’re having no conversation about these things and the political landscape in this country is a wasteland of mirages and dust devils. That is the true weakness of the USA now. We’re incapable of seeing the disorder in our own house. Why should we even glance overseas at others?

via Zero Hedge http://ift.tt/P0WP9L Tyler Durden

We assume this is not what President Obama meant when he said "costs"…

• *UKRAINE TO RAISE GAS PRICES FOR HOUSEHOLDS 50% FROM MAY 1
• *UKRAINE TO RAISE GAS PRICE FOR HEATING UTILITIES 40% FROM JULY

As we warned previously, "the honeymoon is over" and it seems, from today's address, President Obama is about to mandate who and where the free market for natgas delivers it supply.

Of course, this is not about to get better anytime soon:

• *NAFTOGAZ UKRAINY SAYS GAS DEBT TO GAZPROM IS $1.7B: KOBOLYEV

But President Obama is disappointed in the free market.

“We’ve already licensed, authorized the export of as much natural gas each day as Europe uses each day; but it’s going into the open market; it’s not targeted directly,” President Obama says.

 

“It’s going through private companies who get these licenses and they make decisions on the world market about where that energy is going to be sold,” Obama says at news conference in Brussels

Time for another executive order? We suspect a 50% gas price hike may just be another tipping point…(as we noted before)

What is certain, is that the struggling population, most of whom never wanted the recent political overhaul and were quite happy with life as it was, will suddenly demand a return to the living standards under the old, if "horrible" regime, and demand an even quicker overhaul of the current administration.

Something Putin knows all too well.

Why does he know it? Because current events are a carbon copy of what happened in 2007 that led to the infamous 2008 Ukrainian political crisis.

What happened in 2007? This:

Ukraine agreed to pay close to $180 for every thousand cubic meters of natural gas it gets next year from Russia, Russia's state-run gas monopoly said, marking a nearly 40% increase over current prices.

 

The deal, which comes after months of negotiations between Moscow and Kiev, is part of what Russia describes as an effort to stop giving energy supplies to former Soviet republics at cut-rate prices.

 

That effort escalated into a full-blown dispute two years ago, when Russia cut supplies to Ukraine. The dispute affected some European countries, raising concerns about Russia's reliability as Europe's main energy supplier.

 

OAO Gazprom said Ukraine agreed in a deal signed by Ukrainian Energy Minister Yury Boiko to pay $179.50 for every thousand cubic meters it buys from Russia next year. Gazprom said transit prices would be set at $1.70, the price for gas shipping across Russia.

 

Ukraine currently pays $130 for every thousand cubic meters of gas from Russia.

 

In October, Russia urged Ukraine to make good on what it said was a $1.3 billion debt for gas shipments, a demand described by some Ukrainian officials as an effort to influence Ukrainian politics after September's parliamentary elections.

 

The deal comes a week after Gazprom said it would pay as much as 50% more next year for natural gas from Turkmenistan. Russia controls nearly all gas exports from the Central Asian nation.

Funny how history not only rhymes, but sometimes repeats itself. Verbatim.

via Zero Hedge http://ift.tt/1rA1PBs Tyler Durden

We are sure the weather is to blame but what happens when pent-up demand (from a frosty east coast emerging from its hibernation) bumps up against a drought-stricken west coast unable to plant to meet that demand? The spot price (not futures speculation-driven) of US Foodstuffs is the best performing asset in 2014 – up a staggering 19%…

 

 

h/t Bloomberg’s Chase van der Rhoer

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Having IPO’d at $22.50, King Digital Entertainment – the maker of Candy Crush – opened disappointingly this morning at $20.50… just keep repeating the mantra that KING is not ZNGA and we are sure the levitation will resume. Of course, this would have nothing to do with the record-setting levels of earnings-less IPOs that are occurring.

 

Oops – trading down to $19.20…

 

oh, and of course, it’s different this time…

 

Nope, no bubble here…

 

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With Switzerland long dead as an offshore tax haven for US savers unwilling to fund Uncle Sam’s central-planning machine (and who can blame them – isn’t monetizing the deficit precisely what the Fed is for?) and with Cyprus banks, shall we say, compromised, many have been forced to look for greener tax-evading pastures, as far away as the Pacific Rim, especially that oasis of mega wealth creation, Hong Kong. Only this time the US is paying attention as SCMP reports that Hong Kong tax officials will soon be able to pass information about the finances of Americans working in Hong Kong to their US counterparts under an agreement signed yesterday as part of Washington’s global crackdown on tax evasion. In other words, for tax purposes, Hong Kong is now effectively under IRS control.

Enter the FATCA: “The Financial Services and Treasury Bureau said the tax-information exchange agreement allowed the US to file a request to the Inland Revenue Department “under specified conditions”. The Foreign Account Tax Compliance Act was passed in 2010. It takes effect in July. It requires foreign financial institutions such as banks to declare to the US tax authorities the foreign holdings of anyone liable under US tax rules.”

SCMP has more:

The bureau said that provided the basis for a further agreement that would enable US tax authorities to seek information directly from local banks. Tax experts said the agreement was crucial for America’s controversial anti-tax evasion law, which takes effect later this year.

 

If the institutions did not comply, the US tax authorities would withhold 30 per cent of their US-sourced income, according to Ivan Strunin, managing director of Deloitte’s Asia Pacific International Core of Excellence (US Tax Service).

 

Without an intergovernmental agreement, financial institutions that provided the information might breach privacy laws.

 

Signed into law by President Barack Obama in 2010, the law was originally supposed to take effect on January 1 last year. That was postponed to January 1 this year and then to July 1.

 

Secretary for Financial Services and the Treasury Professor Chan Ka-keung said after signing the first agreement with US Consul General Clifford Hart that it demonstrated Hong Kong’s continued commitment to fulfilling its international obligations.

 

“The [agreement] with the US has adopted highly prudent safeguard measures to protect taxpayers’ privacy and the confidentiality of information exchanged,” he said.

 

For the agreement to take effect, the Chief Executive in Council will have to make an order under the Inland Revenue Ordinance. The order will take effect unless the Legislative Council objects to it.

 

The Post reported earlier that Cathay Pacific planned to comply with the US law. Cathay pilots said they were concerned about privacy and were puzzled why companies in Hong Kong needed to comply with the regulations of a foreign country.

 

“How can Cathay give a foreign government our details without our permission? There is a good case [that this is] against Hong Kong [privacy] law,” one American pilot said.

That said, Hong Kong falling under FATCA authority was long-expected, and we doubt many will be caught unaware. A bigger question is if the IRS will stretch its tax oversight tentacles as far as the real offshore bank haven, Singapore, a place that is far more near and dear to China as well. In a world in which the financial wealth tax is increasinglt becoming a reality, we are confident we will find out soon enough.

via Zero Hedge http://ift.tt/P0w7OD Tyler Durden

For Barry Ritholtz

 

When people talk about the concept known as “too big to fail” or “TBTF,” they generally are referring to the idea that the government is bailing out a private bank and its shareholders.  The $10 per share paid to the Bear, Stearns equity holders is a case in point.  The big banks, so the saying goes, privatize the profits and socialize the losses.  But if you really focus on that phrase, it reflects a deeper truth about the nature of financial markets and politics in the United States that is often missed.

If you think of the end of WWI as the death of capitalism in America, what comes after is a hybrid model, part public, part private.  If the years before Woodrow Wilson and WWI was the age of utopian reform, the years which followed were a time of anger and bitter betrayal for old fashioned progressives and conservatives alike.  Before WWI we had private monopolies controlled by Robber Barons, but since WWII all of the monopolies have been controlled by bureaucrats in Washington.

Fred Siegel, in his excellent 2013 book about the modern roots of American liberalism, “The Revolt Against the Masses: How Liberalism has Undermined the Middle Class,” notes:

[L]iberalism began as a fervent reaction to wartime Wilsonian Progressivism, and it took its current cultural shape in the 1920s well before the Great Depression came crashing down on the country.  It was the seminal 1920s that the strong strain of snobbery, so pervasive among today’s gentry liberals, first defined the then nascent ideology of liberalism.

The liberalism which evolved after the Great Depression and WWII was anti-business and anti-democratic.  It despises the small town business ethic which drove to much of American life.  In its place was a heroic model populated by elite experts, writers and social scientists who fundamentally distrust the public and place great confidence in the “leading role” of the state, to borrow the Marxist term.  The scorn and fear generated among liberals by the Tea Party movement illustrates the basic contempt that liberals hold for the common man and the American middle class in general.

The economic model that emerged from WWII was decidedly European in nature, with a central function assigned to state sponsored entities and nominally private corporations.  Siegel notes that while the mobilization for WWI did provide “the administrative model for the early years of the New Deal, culturally, socially and politically, liberalism represented a sharp break from Progressivism.”  The economic model for modern day liberalism was elitist and antithetical to the private sector and also the rights of the individual.

The notion of free-market capitalism driving the growth of the US economy and the American dream after WWII was a convenient fiction.  Behind this facade, generations of liberal political operatives worked to realize the dreams of a society led by an enlightened elite with heroic overtones that bear close resemblance to the fascist era of 1920s Europe. Men like Herbert Crowley, editor and co-founder of The New Republic, advanced the ideal of a secular priesthood that would Europeanize America.  He envisioned an elite vanguard of intellectuals, writers and scientists who would not be swayed by outmoded ideas of popular democracy and individual freedom.  And the mechanism for advancing the new liberal agenda was government.

From the late 1940s through into the 1970s, government control over the financial markets, banks and much of the rest of the US economy enforced a certain stability that many observers find remarkable.  But by the 1970s, the popular demand for jobs and opportunity began to force change and with it deregulation of the markets.  Yet the basic model of banks as government sponsored entities or “GSEs” remained.  With it came a partnership that assumed the state would control access to credit and the financial markets.  

Seen in the political context of modern American liberalism, the idea of TBTF is not so much about bailing out purely private corporations and their shareholders as it is about a partnership between various GSEs.  The housing agencies created since the Great Depression, including Fannie Mae, Freddie Mac and the Federal Housing Agency are partners with the biggest TBTF banks.  Together they monopolize the highest quality portion of the housing markets, leaving the “subprime” dregs for the smaller private sector firms.  But no private company can compete with a GSE, bank or otherwise.

For a brief period from 1992 until 1998, the private sector was actually able to compete with the big bank/GSE monopoly and produced some of the best years of economic growth that the US economy had seen in decades.  General Motors avoided bankruptcy in 1992 because it was able to circumvent the commercial banks and issue its own paper directly in the bond markets.  By 1998, however, following several financial crises, the liberal political class in Washington closed ranks and handed the TBTF banks and GSEs the housing and asset backed securities markets on a silver platter.  

Non-bank financial and commercial firms were no longer allowed to place assets with money market funds, a change that essentially gave the banks a monopoly on funding all aspects of the US economy.  Home builders and mortgage companies could not compete with the federal housing agencies in the bond market, again reinforcing the de facto monopoly of the TBTF banks and housing agencies.  As the 2000s began, the combination of the TBTF banks and the GSEs was firmly in control over the housing market and followed the policy prescriptions of the liberal tendency in Washington when it came to promoting “affordable housing.” 

Seen in this political context, the period of financial deregulation in the 1980s was not so much about the private sector throwing off the shackles of government regulation as the public-private monopolies comprised of the TBTF banks and the GSEs misbehaving.  There was never any end to the public/private partnership between the top banks and the federal housing agencies.  To spend time arguing whether Wall Street or Washington caused the 2008 subprime crisis is absurd, yet it is precisely that fictitious duality that still defines public perceptions about the crisis. 

The new ethos of America in the 21st Century is about liberals creating opportunities for their friends and political supporters, while preserving the social and economic problems for which liberalism presents itself as the solution.  In their book Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armagedon, Gretchen Morgenson and Joshua Rosner describe how skillful exploitation of the public/private monopoly between the largest banks and housing agencies such as Fannie Mae fueled the housing crisis.  They highlight Jim Johnson, the former head of Fannie Mae and the longtime chairman of the compensation committee at Goldman Sachs.  Johnson typifies the modern day liberal who skilfully exploits opportunities to gain from “public/private partnerships” that are unavailable to the average American.  

In 2007 and 2008, when the private investment community realized that the TBTF banks and the GSEs had created tens of trillions of dollars’ worth of toxic waste, the global economy started to melt down.  Many smaller private financial institutions were either acquired or failed, including Washington Mutual, Countrywide Financial, Bear, Stearns & Co., Wachovia and Lehman Brothers.  But the TBTF banks that are the monopoly partners of the GSEs were saved.  This fact caused great anger and consternation among the American electorate, but largely due to the fact that the public thinks that these banks were private.

To understand the concept of TBTF, you must first appreciate that the notion that unsuccessful companies and individuals should fail is an anachronism that only applies to smaller entities.  The larger banks which are essential to advancing the agenda of the liberal elite must be preserved.  In the case of Citigroup, the bank was bailed out by successive loans from the US Treasury championed by Timothy Geithner, who ran interference for Citi first as President of the Federal Reserve Bank of New York and later as Treasury Secretary.  

While then FDIC Chairman Sheila Bair wanted to shut down Citigroup, Geithner and his allies circled to wagons to protect Citi and former Goldman Sachs CEO Robert Rubin.  As Chairman of Citigroup, Rubin presided over the bank’s issuance of tens of billions of dollars’ worth of Structured Investment Vehicles or “SIVs”.  These SIVs were issued based on subprime toxic waste and were fraudulently structured as “sales,” but were in fact secured borrowings sponsored by the bank.  Geithner and other members of the Rubin political tendency argued that saving Citigroup was necessary to protect the US economy, but in fact the real recipients of the Citigroup bailout were Rubin and the bank’s other officers and directors.       

To really appreciate “too big to fail,” you must first and foremost understand that it is a political concept that springs from a sense of liberal privilege and entitlement. Conservatives generally oppose TBTF and advocate market based outcomes for banks, large and small.  But most politicians of either political party support the model of public/private monopoly that is typified by the relationship between the largest banks and the various GSEs in Washington.  Big banks are not really important to preserving American competitiveness, as the banking industry likes to suggest, but the TBTF banks are very important to preserving the political and economic privilege of a select few Americans.  That, at the end of the day, is what “too big to fail” is all about.

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