Rand Paul’s Office Accuses Reason of ‘editorial malpractice’ and ‘plagiarism-lite’

On November 12, Sen. Rand Paul (R-Ky.) gave his first major
public address since being criticized for plagiarism in his
speeches and writings. With a wink to his critics, it was heavily
footnoted
. On November 13, Reason’s Matthew Feeney wrote a

blog post
 titled “Rand Paul’s Latest Speech Did Contain
Footnotes, But That Doesn’t Mean it Was Accurate,” linking to and
excerpting from a
critical piece
by The Daily Beast‘s Josh Rogin. On
November 14, Paul staffer Doug Stafford sent the following reply,
which we now print in full. My response is below it:

RESPONSE TO REASON

DOUG STAFFORD

NOVEMBER 14, 2013

I am disappointed in Reason.com for acting as a platform from an
unreasonable and unreliable source.  First, Sen. Rand Paul was
criticized for not using enough footnotes and attribution for
political speeches and Op-Eds.  Now, he is being criticized
for using too many footnotes and these footnotes are under
unprecedented scrutiny.[1]

I was disappointed that Reason jumped on the “haters and hacks”
bandwagon by arguing that the Citadel speech had a few errors in
the 33 footnotes.  I have always held Reason to a high
standard and I am disappointed that author Matthew Fenney
(sic) failed to properly research and support his
claims.  Instead, Reason effectively borrowed an argument
from The
Daily Beast
’s Josh Rogin arguing that Sen. Paul made “at least
four factual errors” in his references to Egypt.  Had he done
proper due diligence and ten minutes of research, Feeney, might not
have copied pasted the ideas of the Daily Beast into an inaccurate
blog post. 

Let’s examine each alleged “error” one by one.

1.   On November 12, 2013 in a foreign policy
speech delivered to The Citadel, Sen. Paul stated: “In Egypt
recently, we saw a military coup that this Administration tells us
is not a military coup.”  This was an accurate
statement.  The Washington
Post
 reported on July 8 of this year that
“Carney was not ready to label Morsi’s Ouster a military
coup.”  Reasonable people can disagree on certain facts, but
it is clear to the unbiased reader that Sen. Paul’s assertion is
true.  Rogin argued that because the State Department refused
to by actually deem the coup in Egypt a “coup” pursuant to the law,
that somehow my footnote was incurred.  As opposed to
researching Rogin’s errors, Reason simply regurgitated Rogin’s
inaccurate report. This is editorial malpractice.

2.  Rogin makes a nuanced point that “following the
military takeover of the Egyptian government, the Administration
quietly halted all shipments of heavy weapons to Egypt, mostly
adhering to a law requiring a cutoff of military aid to any country
that has experienced a coup.”  So, the Administration acted
consistent with the spirit, not the letter, of the law with regard
to cutting off aid to countries that experienced a military
takeover of the government.  Reasonable people can disagree
with some arguments but this point is unreasonable and
nitpicking.

3. Rogin quotes another sentence in the Citadel speech to
support his unreasonable attack.  “In a highly unstable
situation, our government continued to send F-16s, Abrams tanks and
American-made tear gas.”  Rogin argues that “following the
military takeover of the Egyptian government, the
Administration quietly
halted
 all shipments of heavy weapons to Egypt, mostly
adhering to a law requiring a cutoff of military aid to any country
that has experienced a coup, while maintaining a
position of ambiguity
 over whether a coup had taken
place.”  Rogin might have taken a moment to look at his own
article from August 19, 2013 where he wrote, “The U.S. government
has decided privately to act as if the military takeover of Egypt
was a coup, temporarily suspending most forms of military aid,
despite deciding not
to announce publicly a coup determination
 one way or the
other, according to a leading U.S. Senator.”  That Senator,
Patrick Leahy (D-VT) was contradicted by Administration officials.
Later in the article, Rogin quoted State Department Spokeswoman,
Jen Psaki, as saying that no final policy decision had been made on
any of the Egypt aid.  Rogin also quoted Defense Secretary
Chuck Hagel as saying that no final decisions had been made. 
Furthermore, the coup happened on July 3, 2013 well before the
information was leaked to Rogin onAugust 19.  Were “F-16s,
Abrams tanks and American-made tear gas” delivered or obligated to
Egypt in that month time period between the actual coup and the
unconfirmed leak of the ceasing of this military aid?  Again,
reasonable people can disagree, but for Rogin to declare that the
statement by Senator Paul is “inaccurate” is again, a false, biased
assessment and its regurgitation is editorial malpractice on the
part of Reason.

4. Finally, Rogin contests the argument that American-made
tear gas was used against the Egyptian people during the
coup. He states, “In addition, the ABC News report Paul
cites in his footnotes for this information is from 2011 and only
mentions that U.S. made tear gas was used in the Egyptian
revolution that occurred two years ago, well before Morsi’s
election or his overthrow.”  So, there is a footnote
documenting that American-made tear gas was used against the
Egyptian people in 2011, yet it is not reasonable to deduce that it
was also used in 2013.  Until Rogin can prove that it was not
used, I think Sen. Paul’s interpretation is reasonable.

Rogin titled his piece “For Rand Paul, Footnotes Do Not Equal
Accuracy.”  This headline is false and a poorly substantiated
assertion by The Daily Beast.  For Reason to cut and paste
those same arguments, with little—if any—independent verification
of the assertions is plagiarism-lite. 

The Rogin piece was re-published in many publications, yet I
have always held Reason to a higher standard. I am
disappointed in this piece and hope that this esteemed publication
will do better diligence when using other unreliable sources to
attack a heavily footnoted and well-researched speech.



[1]
 Me, November 14, 2013, at my desk.

My response:

Most of Doug Stafford’s beef is with The Daily Beast’s
Josh Rogin, who can answer for himself. For Reason, there
are four basic charges here, two of which are not particularly
serious: No, we have not “jumped on the ‘haters and hacks’
bandwagon,” as any visit
to our archives
 will attest (side note: to conflate
thoughtful engagement and criticism of a politician with
reactionary dismissal is not becoming). And no, using the
blockquote indentation function to quote from linked, attributed
texts does not amount to even the “litest” of plagiarisms.

But was Feeney’s blog post “inaccurate”? There aren’t many
outright claims in the thing; here is the basic contestable
gist:

Josh Rogin points out that…the speech included factual errors
relating to claims about the situations in Egypt and Syria as well
the attack on the American consulate in Benghazi

On Egypt (see Stafford’s #1), the main issue is the width of the
gap between “this Administration tells us [it] is not a military
coup,” and “The law does not require us to make a formal
determination as to whether a coup took place, and it is not in our
national interest to make such a determination.” (The latter is an
anonymous Obama administration official in a
July 25 Reuters report
that was widely duplicated
elsewhere.)

Stafford effectively says that there’s no daylight between the
two comments; that Rand Paul’s “was an accurate statement,” as is
“clear to the unbiased reader.” But there’s a difference between
saying “You’re not ugly,” and “I’d rather not say whether you’re
ugly or not” (for one thing, if the subject wasn’t ugly,
the speaker would probably want to scream it from the
mountaintops). It’s pretty clear that the administration thinks
what happened in Egypt was a coup, but just doesn’t want
to deal with the
legal ramifications of that official determination
(since it
would require blocking aid), and so instead is torturing the
language. It’s a minor rhetorical point in the scheme of things,
but I’d say Paul got it wrong.

What about Syria? Feeney quotes Rogin quoting Paul:

“As we continue to aid and arm despotic regimes in Egypt, we are
also now sending weapons to the rebels in Syria,” Paul
said. 

Are we sending weapons to Syrian rebels? Here’s a Wall
Street Journal
headline from Sept. 2: “U.S.
Still Hasn’t Armed Syrian Rebels
.” Story begins like this:

In June, the White House authorized the Central Intelligence
Agency to help arm moderate fighters battling the Assad regime, a
signal to Syrian rebels that the cavalry was coming. Three months
later, they are still waiting.

The history of not-quite-arming the Syrian rebels is laid out in
this
Oct. 22 New York Times piece
, which reported that
President Obama told senators in September that (in the paper’s
paraphrase), “the first group of 50 Syrian rebels — trained by the
C.I.A. in Jordan — would soon cross into Syria.” So, as far as we
know, the U.S. has sent weapons to Jordan to train a very
small number of rebels who are now indeed in
Syria. Paul’s statement may have given off the wrong
impression, but the claims were technically accurate.

The opposite is true of another Syria-related Paul sentence
Rogin critiques and Feeney quotes. Paul said, “According to a
recent poll from Pew Research, over 70 percent of Americans are
against arming the Islamic rebels in Syria,” which is broadly right
but specifically wrong, since the
poll
mentioned not “Islamic rebels” but “anti-government
groups,” whose ranks include non-Islamics.
I have no doubt that if Pew had the Paulite wording, that the
results would be higher than 70 percent, but Pew
didn’t.

Finally, there is Benghazi, about which Paul said “When Hillary
Clinton was asked for more security, she turned the Ambassador
down,” footnoting the claim with a
May 8 article from The Hill
, whose most direct
treatment of the turning-the-ambassador-down charge is this
passage:  

the [House Oversight committee] report may have overreached when
it said it had evidence that Clinton had personally signed an April
2012 cable turning down then-Ambassador Gene Cretz’s request for
more security. All State Department cables from Washington bear the
secretary’s automatic signature, the State Department said.

I don’t know enough about what Hillary Clinton did or did not
personally do with respect to security in Benghazi to make anything
like a definitive claim. But it seems clear The Hill
footnote does not support Paul’s characterization.

Stafford’s final charge is of “editorial malpractice,” which,
like ophthalmological bias, is in ultimately in the eye of the
beholder, and up to readers to determine. Reason publishes
a wide range of opinions within a broad libertarian framework,
which means various writers will be on various sides of various
issues and politicians. For what it’s worth, I hold the opinion
both that Rand Paul—whom I profiled for a recent
Newsmax cover story
—is being unfairly nitpicked for
rhetorical sloppiness that pales in comparison to the practical
mendacity of those wielding power (including in regards to every
issue mentioned above), and that the best response for a
truly presidential aspirant is to run a tighter ship, instead of
retreating into defensiveness. Informed criticism makes public
actors better, whether in politics or journalism.

from Hit & Run http://reason.com/blog/2013/11/19/rand-pauls-office-accuses-reason-of-edit
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Tim Geithner, January 2013: "Extremely Unlikely Will Take A Job In The World Of Finance"

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

So over the weekend, the world learned that Tiny Turbo Tax Timmy Geithner had accepted a job with private equity giant firm Warburg Pincus. The news was about as much of a surprise as a lie popping out of Barack Obama’s mouth every time he opens it. Nevertheless, the move is particularly hilarious in light of a profile article of Geithner in New York magazine from January of this year, in which the king of cronyism tried to distance himself from Wall Street. Here’s the money-shot paragraph from the piece:

Another fiction that has plagued Geithner is the idea that he is a creature of Wall Street, specifically that he worked for Goldman Sachs. He isn’t sure where it came from—probably just confusion with his predecessor, Hank Paulson, who was the former CEO—but “once it hardened, it was very hard to overcome.” Indeed, he has not really overcome it at all. I can write, right here, in all caps, TIM GEITHNER HAS NEVER WORKED ON WALL STREET, and still someone will comment on our website that he is a bankster who should just go back to Goldman Sachs.

 

Geithner says it’s “extremely unlikely” he will take a job in the world of finance, but the idea that he is somehow, secretly, working hand in hand with that community persists, and every once in a while someone pulls out records of his phone calls and meetings with CEOs as evidence. Geithner is not really sure what to say about that. “I’m the secretary of the Treasury.” He laughs. “How am I supposed to run a financial rescue if I don’t take phone calls from people?”

At least he is making up for lost time. Those conspiracy theorists making stuff up again…

Full article here.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/09nv9dG8tsI/story01.htm Tyler Durden

Tim Geithner, January 2013: “Extremely Unlikely Will Take A Job In The World Of Finance”

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

So over the weekend, the world learned that Tiny Turbo Tax Timmy Geithner had accepted a job with private equity giant firm Warburg Pincus. The news was about as much of a surprise as a lie popping out of Barack Obama’s mouth every time he opens it. Nevertheless, the move is particularly hilarious in light of a profile article of Geithner in New York magazine from January of this year, in which the king of cronyism tried to distance himself from Wall Street. Here’s the money-shot paragraph from the piece:

Another fiction that has plagued Geithner is the idea that he is a creature of Wall Street, specifically that he worked for Goldman Sachs. He isn’t sure where it came from—probably just confusion with his predecessor, Hank Paulson, who was the former CEO—but “once it hardened, it was very hard to overcome.” Indeed, he has not really overcome it at all. I can write, right here, in all caps, TIM GEITHNER HAS NEVER WORKED ON WALL STREET, and still someone will comment on our website that he is a bankster who should just go back to Goldman Sachs.

 

Geithner says it’s “extremely unlikely” he will take a job in the world of finance, but the idea that he is somehow, secretly, working hand in hand with that community persists, and every once in a while someone pulls out records of his phone calls and meetings with CEOs as evidence. Geithner is not really sure what to say about that. “I’m the secretary of the Treasury.” He laughs. “How am I supposed to run a financial rescue if I don’t take phone calls from people?”

At least he is making up for lost time. Those conspiracy theorists making stuff up again…

Full article here.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/09nv9dG8tsI/story01.htm Tyler Durden

Forget Bitcoin, Bernanke, & Musk; The Real Bubble Is At The NSA

Depending on the time of day, Bitcoin is up 100% (or 200% or 300%) or down 50% as the crypto-currency swings violently around in what appears a death spasm only to transform into a Tesla-like phoenician rise. But there is another crypto-related bubble that is exploding – and showing no signs of stopping. As Russia Today notes, the so-called “Snowden Effect” has seen Freedom of Information Act requests filed with the National Security Agency increase 888% this fiscal year.

 

Via Russia Today,

“Fueled by the Edward Snowden scandal, more Americans than ever are asking the National Security Agency if their personal life is being spied on,” Yamiche Alcindor wrote for USA Today.

 

Indeed, the thousands of FOIA requests filed by Americans since June far outnumber the mere hundreds that it received annually in previous years.

 

 

Shortly after the first Snowden leak appeared on June 6, however, the agency became flooded with 1,302 requests almost immediately. During the following three months, the paper reported, the NSA received 2,538 requests, the likes of which have inundated the government staffers tasked with responding for the open records requests.

 

Pamela Phillips, the chief of the NSA Freedom of Information Act and Privacy Act Office, told the paper that “This was the largest spike we’ve ever had.”

 

“We’ve had requests from individuals who want any records we have on their phone calls, their phone numbers, their e-mail addresses, their IP addresses, anything like that,” Phillips said.

 

 

[The NSA appears to be denying many of these requests]

 

“[Y]our request is denied because the fact of the existence or non-existence of responsive records is a currently and properly classified matter,” the agency wrote him.

 

Our adversaries are likely to evaluate all public responses related to these programs,” the NSA said at the time to Collier. “Were we to provide positive or negative responses to requests such as yours, our adversaries’ compilation of the information provided would reasonably be expected to cause exceptionally grave damage to the national security.”

 

Months later, the NSA is apparently still giving concerned Americans the same runaround.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/M0AgoAsAaqI/story01.htm Tyler Durden

Forget Bitcoin, Bernanke, & Musk; The Real Bubble Is At The NSA

Depending on the time of day, Bitcoin is up 100% (or 200% or 300%) or down 50% as the crypto-currency swings violently around in what appears a death spasm only to transform into a Tesla-like phoenician rise. But there is another crypto-related bubble that is exploding – and showing no signs of stopping. As Russia Today notes, the so-called “Snowden Effect” has seen Freedom of Information Act requests filed with the National Security Agency increase 888% this fiscal year.

 

Via Russia Today,

“Fueled by the Edward Snowden scandal, more Americans than ever are asking the National Security Agency if their personal life is being spied on,” Yamiche Alcindor wrote for USA Today.

 

Indeed, the thousands of FOIA requests filed by Americans since June far outnumber the mere hundreds that it received annually in previous years.

 

 

Shortly after the first Snowden leak appeared on June 6, however, the agency became flooded with 1,302 requests almost immediately. During the following three months, the paper reported, the NSA received 2,538 requests, the likes of which have inundated the government staffers tasked with responding for the open records requests.

 

Pamela Phillips, the chief of the NSA Freedom of Information Act and Privacy Act Office, told the paper that “This was the largest spike we’ve ever had.”

 

“We’ve had requests from individuals who want any records we have on their phone calls, their phone numbers, their e-mail addresses, their IP addresses, anything like that,” Phillips said.

 

 

[The NSA appears to be denying many of these requests]

 

“[Y]our request is denied because the fact of the existence or non-existence of responsive records is a currently and properly classified matter,” the agency wrote him.

 

Our adversaries are likely to evaluate all public responses related to these programs,” the NSA said at the time to Collier. “Were we to provide positive or negative responses to requests such as yours, our adversaries’ compilation of the information provided would reasonably be expected to cause exceptionally grave damage to the national security.”

 

Months later, the NSA is apparently still giving concerned Americans the same runaround.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/M0AgoAsAaqI/story01.htm Tyler Durden

Guest Post: Increased Minimum Wage, Decreased Economic Prosperity

Submitted by David Howden via the Ludwig von Mises Institute of Canada,

Standard microeconomic theory shows that deviations of a price from its natural level bring forth bad results. In my experience, students most easily grasp the pernicious effects of price controls when phrased in terms of the minimum wage.

Long story short, the minimum wage acts as a price floor which stops people from selling labour services at a price below the mandated level. The final result is an increase in unemployment, partly from existing workers who lose their jobs and partly from new entrants to the labour market looking for a job but unable to get hired.

It’s really not a very difficult theory to comprehend.

 

 

Yet I’m always surprised at how few are able to apply this basic lesson. Take the recent protests in Thunder Bay in support of increasing Ontario’s minimum wage from $10.25 to $14 an hour as a case in point.

Amongst the arguments the protestors put forward, two stood out to me for their weakness in justification.

First, some protestors seemed to think that $14 was inherently “more fair” or “just” than $10.25. Prices are not about justness or fairness, they are about reflecting underlying conditions. A price doesn’t just come out of nowhere. Instead it is the result of the subjective demand someone has for an object, the resource constraints available, the substitute goods that the person could resort to instead, or the potential purchaser’s income level. Changing these general determinants of demand into the specific ones that affect the labour market, we can see that wages are the result of: 1) the productivity of workers, 2) the number of workers available, 3) the price of labour substitutes, like machinery or automated production processes, and 4) the incomes of the employers. (There are lots of other determinants, but this short list will suffice.)

Changing the price of labour does absolutely nothing to alter these determinants. Advocates of alterations to the minimum wage confuse cause with effect. The wage one earns is the effect of all of these aforementioned causes. Changing the wage will not have a positive effect because unless one of these determinants changes there is no reason why the wage should change.

The second prevalent argument at the protests was that higher wages would stimulate the economy. One protestor claimed that the increase in the minimum wage to $14 would stimulate the Thunder Bay economy by $5.1 billion!

Economist Livio Di Matteo did a little digging, and it turns out the “stimulus” in question is the sum of all Thunder Bay residents earning an extra $3.75 an hour. Unfortunately this doesn’t amount to stimulus; it just changes the distribution of income. Minimum wage earners, if they manage to keep their jobs, will end up a little wealthier and businesses will lose some money.

One of the best lessons from economics is that one should pay attention to the unseen effects of a policy. Often times this will be more important than those results which are obvious.

In minimum wage discussions, the unseen effects are two-fold. First are those people who are going to lose their job because of the increase in the minimum wage. If you thought it was hard to survive on $10.25 an hour, wait until you are earning nothing. Second, even those who keep their jobs are not stimulating the economy through their increased wages. To the extent that businesses will have to pay more money to workers there will be less money to invest. This means less growth, and fewer opportunities for people in the future.

Wages, like all prices, are not randomly created. They signal underlying conditions and as such are not inherently just or unjust; they just are. Changing the wage rate without doing anything to alter one of the underlying variables creating it cannot achieve anything positive, and will more than likely make people worse off. If these protestors are successful in achieving an increase in Ontario’s minimum wage, at the very least some of them will gain time to think about this simple lesson after they lose their job.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/MeUp9oNh6hk/story01.htm Tyler Durden

Counties With Highest Execution Rates More Likely to Violate Due Process for Defendants

Just 2 percent of counties in America are responsible for more
than half the nation’s executions, and those same counties have
been responsible for a disproportionate share of high-profile
prosecutorial misconduct and exonerations following wrongful
convictions.

In a report released last month, the Death Penalty Information
Center found that 2 percent of counties, as well as being
responsible for a majority of executions, can also claim credit for
56 percent of the current death row population. What’s more, just
15 percent of U.S. counties account for all of
the executions since 1976, according to the DPIC.


Read this full article at The Huffington Post.

from Hit & Run http://reason.com/blog/2013/11/19/execution-rate-no-due-process
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Grosse Pointe Michigan Police Accused of Videotaping Black Men While Making Them Sing and Dance

Bizarre and gross allegations of police misconduct out of Grosse
Pointe Michigan
from the

Detroit Free Press
:

Grosse Pointe Park law enforcement is investigating allegations
that officerstook photos and video of black men while making them
sing and dance like chimps.

Public Safety Department officials…forwarded a statement
confirming an investigation has begun. The statement says the
department was contacted by a man who said he was in possession of
video clips and a photo of black men that apparently were made by
an officer from the city’s police force….

Grosse Pointe Park is an affluent city in metro Detroit with a
population of a little more than 11,000, according to U.S. census
figures. About 10.5% of residents are African American.

The investigation began after Steve Neavling of the Motor City
Muckrakernews site posted a story last week detailing several
incidents, which he said were among about a dozen videos being
being shared from phones of Grosse Pointe Park police
officers….

A couple of the video clips supposedly showing this behavior

can be found at the original Motor City Muckraker News
story
mentioned above. (In one of them, the mocking officer is
black.)

from Hit & Run http://reason.com/blog/2013/11/19/grosse-pointe-michigan-police-accused-of
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Big Trouble In Massive China: "The Nation Might Face Credit Losses Of As Much As $3 Trillion"

The following chart from Bloomberg showing official Chinese NPL data has its pros and cons.

The pros: it shows that the trend in improving NPLs has dramatically inverted in the past ten quarters and has risen to the highest in at least three years.

The cons: the chart, which again is based on official data, is woefully misrepresenting and underestimating just how profound the bad debt situation is in a country in which each month pseudo-nationalized banks issue loans amounting to the same or more in new liquidity as the Fed and BOJ do combined!

That the Chinese reality “on the ground” is far worse than what is represented was known to Zero Hedge readers over a year ago. For those who may have forgotten, on November 5, 2012 we showed “The Chinese Credit Bubble – Full Frontal” and specifically this chart.

And of course  “The True Chinese Credit Bubble: 240% Of GDP And Soaring” from April:

What is even more concerning is that in order to maintain its breakneck economic “growth” of ~8% per year, China has to continue injecting massive amounts of debt, the so called “credit impulse” or “flow” which according to assorted views, is what is the true driver of an economy, and where GDP growth is merely a reflection of how much credit is entering (or leaving) the system.

 

The chart below shows that total Chinese social financing flow just hit a record for the month of March.

 

Completing the picture is the estimated economic response to a surge
in credit. As the last chart shows, in China the biggest benefit to a surge in flow is felt in the quarter immediately following the credit injection, as one would expect, with the effect tapering off and even going negative in future quarters, thus requiring even more debt creation to offset the adverse impacts of prior such injections.

 

 

What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults.

But while China’s debt – an arcane mixture of public, private, and pseudo-government backstopped credit – is among the biggest in the world, the one outstanding question was how much longer can China keep sweeping the hundreds of billions if not trillions of discharged, bad loans under the carpet and pretend everything is fine.

Today we get some much needed perspective on this topic courtesy of Bloomberg, which has some very disturbing revelations.

Such as this:

An unidentified local bank reported a 33 percent nonperforming-loan ratio for the solar-panel industry, compared with 2 percent at the beginning of the year, with the increase due to Wuxi Suntech, China Business News reported in September.

And this:

China’s lending spree has created a debt burden similar in magnitude to the one that pushed Asian nations into crisis in the late 1990s, according to Fitch Ratings.

As companies take on more debt, the efficiency of credit use has deteriorated. Since 2009, for every yuan of credit issued, China’s GDP grew by an average 0.4 yuan, while the pre-2009 average was 0.8 yuan, according to Mike Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

And this:

“The real situation is much worse than the data showed” after talking to chief financial officers at industrial manufacturers, said Wendy Tang, a Shanghai-based analyst at Northeast Securities Co., who estimates the actual nonperforming-loan ratio to be as high as 3 percent. “It will take at least one year or longer for these NPLs to appear on banks’ books, and I haven’t seen the bottom of deterioration in Jiangsu and Zhejiang yet.”

And this:

China’s credit quality started to deteriorate in late 2011 as borrowers took on more debt to serve their obligations amid a slowing economy and weaker income. Interest owed by borrowers rose to an estimated 12.5 percent of China’s economy from 7 percent in 2008, Fitch Ratings estimated in September. By the end of 2017, it may climb to as much as 22 percent and “ultimately overwhelm borrowers.”

 

Meanwhile, China’s total credit will be pushed to almost 250 percent of gross domestic product by then, almost double the 130 percent of 2008, according to Fitch.

And this:

Based on current valuations, investors are pricing in a scenario where nonperforming loans at the largest Chinese banks will make up more than 15 percent of their loan books, according to Werner, who forecasts a 2.5 percent to 3.5 percent bad-loan ratio by the end of 2015. A further decline in GDP growth would lead to more soured loans and weaker earnings, he said.

 

Lenders so far haven’t reported significant deterioration in loan quality. Bank of China said it had 251.3 billion yuan of loans to industries suffering from overcapacity as of the end of June, accounting for 3 percent of the total. Its nonperforming-loan ratio for those businesses stood at 0.93 percent, the same level reported for the entire bank.

All of the above is driven by one main factor – a relentless desire to fund C
hina’s epic scramble into record overcapacity – after all gotta keep that goalseeked GDP above 7% somehow – which in turn has resulted in the producers competing themselves right out of solvency:

Shipbuilding isn’t the only industry affected by overcapacity. Also in Jiangsu, about 130 kilometers (80 miles) southwest of Nantong, Wuxi Suntech Power Co., the main unit of the industry’s once-biggest supplier, went bankrupt with 9 billion yuan of debt to China’s largest banks, according to a Nov. 12 report by Communist Party-owned Legal Daily. Suntech Power Holdings Co. (STPFQ), the parent firm, defaulted on $541 million of offshore bonds to Wall Street investors.

 

Shang Fulin, China’s top banking regulator, this month urged lenders to “seek channels to clean up bad loans by industries with overcapacity to prevent new risks from brewing” and refrain from dragging their feet in dealing with the issue.

 

Government and banks’ support for the solar industry since late 2008 has resulted in at least one factory producing sun-powered products in half of China’s 600 cities, according to the China Renewable Energy Society in Beijing. China Development Bank, the world’s largest policy lender, alone lent more than 50 billion yuan to solar-panel makers as of August 2012, data from the China Banking Association showed.

 

China accounts for seven of every 10 solar panels produced worldwide. If they ran at full speed, the factories could produce 49 gigawatts of solar panels a year, 10 times more than in 2008, according to data compiled by Bloomberg. Overcapacity has driven down prices to about 84 cents a watt, compared with $2 at the end of 2010. The slump forced dozens of producers like Wuxi Suntech into bankruptcy.

The downside is well-known: should the people not get paid, riots inevitably ensue. Which is why the government will keep on bailing out and pretending the local loans are viable, until it no longer can.

“The central government is hawkish in its tone, but when it comes to execution by local governments, the enforcement will be much softer,” Bank of Communications’ Lian said. “Many of these firms are major job providers and taxpayers, so the local government will try all means to save them and help them repay bank loans.”

 

When hundreds of unpaid Mingde Heavy workers took to the streets for a second time last November, the local government stepped in by lining up other firms to vouch for Mingde so banks would renew its loans. Mingde Heavy avoided failure by entering into an alliance with a shipping unit of government-controlled Jiangsu Sainty Corp., which also imports and exports apparel.

As for the CNY64 trillion question of how much long the government can pretend all is well, the following may be useful.

The nation might face credit losses of as much as $3 trillion as defaults ensue from the expansion of the past four years, particularly by non-bank lenders such as trusts, exceeding that seen prior to other credit crises, Goldman Sachs Group Inc. estimated in August.

In summary: enjoy the relative calm we currently have thanks to Bernanke’s, Kuroda’s (and soon: Draghi’s) epic liquidity tsunami which is rising all leaking boats. The invoice amounting to trillions in bad and non-performing loans around the entire world, and not just in China, is in the mail.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_OQl4kq6uYU/story01.htm Tyler Durden

Big Trouble In Massive China: “The Nation Might Face Credit Losses Of As Much As $3 Trillion”

The following chart from Bloomberg showing official Chinese NPL data has its pros and cons.

The pros: it shows that the trend in improving NPLs has dramatically inverted in the past ten quarters and has risen to the highest in at least three years.

The cons: the chart, which again is based on official data, is woefully misrepresenting and underestimating just how profound the bad debt situation is in a country in which each month pseudo-nationalized banks issue loans amounting to the same or more in new liquidity as the Fed and BOJ do combined!

That the Chinese reality “on the ground” is far worse than what is represented was known to Zero Hedge readers over a year ago. For those who may have forgotten, on November 5, 2012 we showed “The Chinese Credit Bubble – Full Frontal” and specifically this chart.

And of course  “The True Chinese Credit Bubble: 240% Of GDP And Soaring” from April:

What is even more concerning is that in order to maintain its breakneck economic “growth” of ~8% per year, China has to continue injecting massive amounts of debt, the so called “credit impulse” or “flow” which according to assorted views, is what is the true driver of an economy, and where GDP growth is merely a reflection of how much credit is entering (or leaving) the system.

 

The chart below shows that total Chinese social financing flow just hit a record for the month of March.

 

Completing the picture is the estimated economic response to a surge
in credit. As the last chart shows, in China the biggest benefit to a surge in flow is felt in the quarter immediately following the credit injection, as one would expect, with the effect tapering off and even going negative in future quarters, thus requiring even more debt creation to offset the adverse impacts of prior such injections.

 

 

What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults.

But while China’s debt – an arcane mixture of public, private, and pseudo-government backstopped credit – is among the biggest in the world, the one outstanding question was how much longer can China keep sweeping the hundreds of billions if not trillions of discharged, bad loans under the carpet and pretend everything is fine.

Today we get some much needed perspective on this topic courtesy of Bloomberg, which has some very disturbing revelations.

Such as this:

An unidentified local bank reported a 33 percent nonperforming-loan ratio for the solar-panel industry, compared with 2 percent at the beginning of the year, with the increase due to Wuxi Suntech, China Business News reported in September.

And this:

China’s lending spree has created a debt burden similar in magnitude to the one that pushed Asian nations into crisis in the late 1990s, according to Fitch Ratings.

As companies take on more debt, the efficiency of credit use has deteriorated. Since 2009, for every yuan of credit issued, China’s GDP grew by an average 0.4 yuan, while the pre-2009 average was 0.8 yuan, according to Mike Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

And this:

“The real situation is much worse than the data showed” after talking to chief financial officers at industrial manufacturers, said Wendy Tang, a Shanghai-based analyst at Northeast Securities Co., who estimates the actual nonperforming-loan ratio to be as high as 3 percent. “It will take at least one year or longer for these NPLs to appear on banks’ books, and I haven’t seen the bottom of deterioration in Jiangsu and Zhejiang yet.”

And this:

China’s credit quality started to deteriorate in late 2011 as borrowers took on more debt to serve their obligations amid a slowing economy and weaker income. Interest owed by borrowers rose to an estimated 12.5 percent of China’s economy from 7 percent in 2008, Fitch Ratings estimated in September. By the end of 2017, it may climb to as much as 22 percent and “ultimately overwhelm borrowers.”

 

Meanwhile, China’s total credit will be pushed to almost 250 percent of gross domestic product by then, almost double the 130 percent of 2008, according to Fitch.

And this:

Based on current valuations, investors are pricing in a scenario where nonperforming loans at the largest Chinese banks will make up more than 15 percent of their loan books, according to Werner, who forecasts a 2.5 percent to 3.5 percent bad-loan ratio by the end of 2015. A further decline in GDP growth would lead to more soured loans and weaker earnings, he said.

 

Lenders so far haven’t reported significant deterioration in loan quality. Bank of China said it had 251.3 billion yuan of loans to industries suffering from overcapacity as of the end of June, accounting for 3 percent of the total. Its nonperforming-loan ratio for those businesses stood at 0.93 percent, the same level reported for the entire bank.

All of the above is driven by one main factor – a relentless desire to fund China’s epic scramble into record overcapacity – after all gotta keep that goalseeked GDP above 7% somehow – which in turn has resulted in the producers competing themselves right out of solvency:

Shipbuilding isn’t the only industry affected by overcapacity. Also in Jiangsu, about 130 kilometers (80 miles) southwest of Nantong, Wuxi Suntech Power Co., the main unit of the industry’s once-biggest supplier, went bankrupt with 9 billion yuan of debt to China’s largest banks, according to a Nov. 12 report by Communist Party-owned Legal Daily. Suntech Power Holdings Co. (STPFQ), the parent firm, defaulted on $541 million of offshore bonds to Wall Street investors.

 

Shang Fulin, China’s top banking regulator, this month urged lenders to “seek channels to clean up bad loans by industries with overcapacity to prevent new risks from brewing” and refrain from dragging their feet in dealing with the issue.

 

Government and banks’ support for the solar industry since late 2008 has resulted in at least one factory producing sun-powered products in half of China’s 600 cities, according to the China Renewable Energy Society in Beijing. China Development Bank, the world’s largest policy lender, alone lent more than 50 billion yuan to solar-panel makers as of August 2012, data from the China Banking Association showed.

 

China accounts for seven of every 10 solar panels produced worldwide. If they ran at full speed, the factories could produce 49 gigawatts of solar panels a year, 10 times more than in 2008, according to data compiled by Bloomberg. Overcapacity has driven down prices to about 84 cents a watt, compared with $2 at the end of 2010. The slump forced dozens of producers like Wuxi Suntech into bankruptcy.

The downside is well-known: should the people not get paid, riots inevitably ensue. Which is why the government will keep on bailing out and pretending the local loans are viable, until it no longer can.

“The central government is hawkish in its tone, but when it comes to execution by local governments, the enforcement will be much softer,” Bank of Communications’ Lian said. “Many of these firms are major job providers and taxpayers, so the local government will try all means to save them and help them repay bank loans.”

 

When hundreds of unpaid Mingde Heavy workers took to the streets for a second time last November, the local government stepped in by lining up other firms to vouch for Mingde so banks would renew its loans. Mingde Heavy avoided failure by entering into an alliance with a shipping unit of government-controlled Jiangsu Sainty Corp., which also imports and exports apparel.

As for the CNY64 trillion question of how much long the government can pretend all is well, the following may be useful.

The nation might face credit losses of as much as $3 trillion as defaults ensue from the expansion of the past four years, particularly by non-bank lenders such as trusts, exceeding that seen prior to other credit crises, Goldman Sachs Group Inc. estimated in August.

In summary: enjoy the relative calm we currently have thanks to Bernanke’s, Kuroda’s (and soon: Draghi’s) epic liquidity tsunami which is rising all leaking boats. The invoice amounting to trillions in bad and non-performing loans around the entire world, and not just in China, is in the mail.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_OQl4kq6uYU/story01.htm Tyler Durden