Tuesday, February 21, 2012
Tomorrow Has Arrived
The day dawns with a deal for Greece that is full of smoke and mirrors; lies and deceptions. It is a deal pretty much as expected and, as I have said before, now the realities are going to be confronted. Europe has spun the agreement and the Euro has rallied some and the S&P futures are up but the next few weeks, I am afraid, will hold some serious disappointments. The page turns today because now we are about to confront not what is told to us but the actuality of what has been presented to us and just what will happen as a result.
How many European Union officials does it take to change a light bulb?
None. There is nothing wrong with the light bulb; its condition is improving every day. Any reports of its lack of incandescence are an illusional spin from people that unfortunately know how to add and subtract. Illuminating rooms is hard work. That light bulb has served honorably, and anything Mark Grant says undermines the lighting effort.
The Smoke and Mirrors
The IMF has not yet stated what its contribution will be to Greece and will not, they tell us, until the middle of March so that we will not know until then the real size of the bailout. The much promoted $176Bn bailout may not be accurate if the IMF pulls back on their allocation.
The projections for the growth of Greece, even in the leaked document provided by Reuters, utilize assumptions that will not be met, which has been the case every time, each time, for the last two years so that fuzzy math is being touted once again and the new/new projections will, in my opinion, come nowhere close to the truth.
The IIF agreed to further cuts last night for private investors, which no one but they have agreed to, so that shortly we will see how many institutions go along with the scheme and how many will sue as a result of the forced haircut that cuts about 74% from Net Present Value. We will also see law suits in London concerning the $18Bn of Greek debt that is governed under British law which may have quite interesting results. The Troika’s projections rest upon a 95% participation by private investors and I think they are living in a dream state if this is their expectation. In a Reuter’s article this morning they report: "The 32 members of the IIF's larger creditors' committee had a least 44 billion in euros in residual holdings.” If this is correct then the IIF is only representing 12.2% of the Greek bondholders.
The ECB has swapped their bonds with Greece and taken a senior position to private bond holders clearly indicating that they can swap their bonds with a sovereign nation to change any clause they do not like and if they can do it with Greece they obviously can do it with any other nation so that we will soon see law suits challenging this operation. We may also see, as a result of this, some institutions not subject to European manipulation, selling their positions as they do not wish to be subordinated to the whims of the ECB. I would also make note that the ratings agencies may take due note of this action and might reduce the ratings of all of the sovereign nations in Europe based upon this action. In evaluating a sovereign there is credit risk and political risk and I assert that the political risk has now been greatly magnified.
The ECB tell us that they will give their profits on the Greek bonds bank to the European central banks except there are no profits, only severe losses presently, so that all of this talk of profits is really the expectation of getting their money back at maturity which is years away. Their claim in the Press is not just misleading but an outright charade of mis-direction.
Greece will shortly be placed into “Default” by S&P and Fitch which will trigger default language in all kinds of securitizations including Greece’s $90Bn in derivatives and may cause disgorgement from accounts that are forbidden to hold defaulted bonds.
After the country has been placed into “Default” the banks will soon follow and once again there will be all kinds of consequences in interbank lending, securitizations, collateral agreements et al from all of this.
The CDS contracts for Greece may or may not function as they stand but, as I am quite certain will happen, not enough bond holders tender their bonds for the new debt so that Greece will pass the “Collective Action Clause” which will certainly trigger CDS in my opinion and if not will show the fallacy of that market.
The structure of the deal puts the IMF/EU/ECB clearly in control of the finances of Greece so they have replaced some sort of Czar with the bureaucrats of the Troika and the country no longer will control its own finances as they traded away their sovereignty for cash. In fact, an escrow account will be set up for Greece which will be controlled by the Troika and Greece is being forced to change their Constitution pledging to pay their creditors before providing any money for the country. A quick study of the math reveals that Greece will get about 19 cents on the Dollar and the rest of the money is the sovereign nations of Europe paying back their banks with the money they have supposedly lent to Greece. Greece is now nothing more than a conduit for the nations of Europe to pay back their own financial institutions.
Now we will see if the Parliaments in Europe will go along with this plan as many still have to approve it and a careful reading of the math involved here may be troubling for some governments especially Finland and the Netherlands.
We will also see, with Greek elections looming, how the citizens react to all of this either in the polling booths or in the streets as an additional $4Bn of spending cuts have been mandated by the Troika and they state that the money will not be paid to Greece until they are implemented which must be by the end of February.
The total outstanding debt for Greece will now rise to $1.270Tn as new debt pays off old debt in a country with substantial negative growth so that the real situation, regardless of what we are told, worsens.
In early May Greece faces its next bond payments so there may be a re-do for all of this in several months’ time.
If Greece is actually going to get the next round of the bailout then the other side of the coin is the increased debt being taken on by the other countries in Europe which could cause more downgrades as the new debt to GDP numbers are assessed.
Iran has announced it will hold military exercises to boost protection of its nuclear sites.
A military statement said drills would be held in southern Iran to counter "all possible threats, especially to public, important and nuclear centres".
Speculation has been increasing that Israel may launch a military strike on Iran's nuclear facilities.
The latest move comes as UN nuclear experts begin a two-day visit to Iran, the second such trip in a month.
"The exercises aim to reinforce the integrated abilities of the country's anti-air defences," said a statement from the Katem-ol-Anbia military air base, quoted by the official Irna news agency.
It said the exercises would begin on Monday evening.
Late last year Iran conducted 10 days of military exercises near the Strait of Hormuz at the entrance to the Gulf, test-firing several missiles.
Iran has threatened to block the strait, through which 20% of the world's oil exports pass, in retaliation for Western sanctions over its controversial nuclear programme.
Iran insists it is enriching uranium to use for power generation, but the US and its allies believe the programme is geared towards making weapons, with Israel as a possible target.
Meanwhile, the chief inspector with the UN's International Atomic Energy Agency (IAEA) said his team's "highest priority" while visiting Iran was to clarify the "possible military dimensions" of the nuclear programme.
"Importantly we hope for some concrete results from the trip," said Herman Nackaerts.
"This is of course a very complex issue that may take a while. But we hope it can be constructive".
The IAEA described its last visit, in January, as positive, and said Iran was "committed" to "resolving all outstanding issues".
The inspectors' evaluation of their visits may form part of the next written report on Iran's nuclear programme, expected later in February.
Last November the IAEA said it had information suggesting Iran had carried out tests "relevant to the development of a nuclear explosive device".
That information led to a decision by the US and the EU to tighten sanctions against Iran, including measures targeting the country's lucrative oil industry.
Iran said on Sunday it had halted oil sales to British and French companies ahead of an EU oil embargo set to begin on 1 July. Analysts say the gesture of retaliation is largely symbolic.
On Monday, the head of Iran's national oil company said the ban might be extended to other EU members that continued "hostile acts" against Iran.
Ahmad Qalehbani said exports to Spain, Greece, Italy, Portugal, Germany and the Netherlands could be stopped, semi-official Mehr news agency reported.
A team of Russian biophysicists have successfully grown ancient plants from tissue material that stayed frozen in the Siberian permafrost for about 30,000 years.
This is the oldest plant material to have been brought to life so far.
The team from the Institute of Cell Biophysics, led by Prof. David Gilichinsky, has studied the squirrel hibernation burrows in the banks of the Kolyma River and found the remains of the Silene stenophylla family that remained almost intact over millennia.
According to a report published in Proceedings of the National Academy of Sciences (PNAS), the scientists extracted the so-called “placental tissue” from immature seeds and put it in a special nutrient solution, which imitated a growing plant.
After a while, the tissue in Petri dishes germinated into mature seeds, which have been planted in soil and grew into fully-blossoming plants.
The scientists found only subtle differences in the shape of petals and the sex of flowers between the “resurrected” plants and the modern-day Silene stenophylla, which still grows in the Siberian tundra.
The Russian research team suggested that tissue cells were a perfect material for their experiments because they contain high amounts of sugar, which helped the plants to survive in a hibernated state for so long.
The success of the Russian scientists may open a door to a whole new area of experiments in reviving extinct plants buried under layers of soil, especially in the Arctic zone, for thousands of years.
From Tunis to Tripoli to Cairo to Damascus, what seems real one day is no longer the next. Policymakers in Western capitals agree that Syrian President Bashar Assad’s suppression of dissent, with a toll of 6,000 dead so far — and still climbing — makes him the war criminal.
This clear good-vs.-bad-guys script suddenly blurred as al-Qaida’s sympathizers showed up in the ranks of pro-western rebels fighting for the overthrow of Assad. A new player: The Al-Baraa Ibn Malik Martyrdom Brigade began fielding suicide bombers.
In Libya, liberation from Moammar Gadhafi’s 40-year-tyranny gradually morphed into inter-tribal warfare. Salafist extremists were in the mix. Libyan ambassadors abroad are receiving contradictory instructions from different government ministries in the hands of warring tribes.
Thousands of Russian surface-to-air missiles bought by Ghadafi's regime and other weapons lay abandoned in the desert, available to any terrorist group with plans to down commercial aircraft anywhere in the world.
In the Libyan capital, Abdelhakim Belhadj, a former al-Qaida chief turned over to British intelligence by Ghadafi and tortured under the secret 2004 U.S.-British “rendition” program, has produced incriminating documents from the late dictator’s intelligence headquarters.
Belhadj has a strong hand to play. He’s the commander of the “Tripoli Military Council,” the revolution’s top military man in the capital city, and former head of the “Libyan Islamic Fighting Group,” a branch of al-Qaida. He is suing Britain’s MI6.
In Cairo, a new parliament dominated by fundamentalists of the Muslim Brotherhood, with 47 percent of the seats, appeared shaken while trying to project a moderate image for their western interlocutors.
Salafists, or Muslim extremists who rooted for the late Osama Bin Laden, emerged from the most recent ballot count with 25 percent of the new parliament. Together, with 72 percent of Parliament, these two branches of Islam will dominate constitutional reform
Liquor, women with uncovered heads or in swimsuits on the beaches of the Mediterranean and Red Sea will be officially banned. But if enforced, the tourist trade, about 20 percent of Egypt’s national income, will suffer.
As the Arab world continued to unravel, the Iranian nuclear crisis had a near-monopoly of front-page news. Clandestine hits between Iran and Israel have become commonplace. Cyberterrorism is evidently Israel’s preferred form of action to disrupt Iran’s covert nuclear program. Iran’s riposte seems to be car bombs against Israeli officials and their friends.
For many Israelis, there is little doubt that Iran will attempt to wipe out the Israeli nation in a single strike against Tel Aviv or Jerusalem.
Similar paranoia gripped the United States in the late 1940s and ’50s.
Israel’s three principal intelligence chiefs who retired last year — Mossad, Shin Bet and IDF — have opined in print and on TV news that they do not believe the theocratic dictatorship in Qom or President Mahmoud Ahmadinejad in Tehran have any such intention. They know that a single nuke aimed at Israel would trigger massive retaliatory blows from Israel — and would leave them without a country.
Several generations of Americans and Israelis have no recollection of the game of nuclear chicken played by Russia and China after World War II. In 1957, Mao Zedong said China could survive and prevail in a nuclear war.
Mega death for Mao was a shortcut to defeating capitalism and its imperial powers. He claimed he was not afraid of atomic warfare. China then had a population of 600 million extremely poor people.
Even if 200 million were killed by American atomic weapons, Mao concluded, 400 million would survive and China would still be a major power while the U.S. would lose its raison d’etre, or reason for existing.
Chinese hyperbole saw a new beautiful civilization growing on the ashes of imperialism.
During China’s “Great Leap Forward” (1958-60), 43 million died. During the Cultural Revolution (1966-76), one of Mao’s interpreters estimated 10 percent of a population of about 800 million had been killed. All told, 123 million were killed by order of the “Great Helmsman.”
Throughout the 1940s and ’50s, till his death in March 1953, Stalin repeatedly threatened the West with nuclear annihilation. Some analysts at the time said Stalin believed he could destroy America and inherit Europe intact.
For Stalin, 20 million people “purged” during his bloody dictatorship (1929-53) were just a statistic. Another 20 million were killed in World War II, including 11 million soldiers.
In the light of wholesale slaughters during the first half of the 20th century, including 6 million Jews in Hitler’s concentration camps, and the nature of Stalin’s and Mao’s dictatorships, it was normal for Pentagon “tank” and academic think tanks to be debating first- and second-strike capabilities. These became the stuff of doomsday debates, which today appear anachronistic and irrelevant.
Not for Israel. One nuclear missile obliterating Tel Aviv or Jerusalem would be a global catastrophe. Israel would survive, but Iran would cease to exist as a nation hours later. Israel’s fighter bombers with air-to-air refueling tankers have been on instant standby for months. Violating the air space of other countries wouldn’t even be a consideration.
Despite the counsel of three outgoing Israeli intelligence chiefs and the opinions of three U.S. former CENTCOM commanders, Prime Minister Benjamin Netanyahu believes his country cannot wait for Iran to produce its first nuclear weapon.
So what happens when Netanyahu calls President Obama and says, “Mr. President, I am calling to inform you I have ordered our Air Force to take out three key nuclear targets in Iran”?
Obama knows that the United States will be drawn automatically into the conflict as Iran unleashes its asymmetrical retaliatory capabilities up and down the Persian Gulf, including the Strait of Hormuz, through which passes 20 percent of the world’s oil consumption,
Congress, where the American Israel Public Affairs Committee wields decisive influence, then will vote a resolution of support for Israel.
President Obama’s freedom to maneuver diplomatically will be sharply curtailed.
The October surprise: The United States will be in its third war in 10 years.
Experts say that if Iran stops its oil deliveries to the European Union, the EU will need several weeks to find alternative suppliers. Britain and France, to which Iran stopped deliveries on Saturday, February 19, are unlikely to be hit hard, but Greece, which is tottering under the weight of its economic problems and is the largest importer of Iranian oil, will most likely have to declare a default.
On Sunday, Iran halted its oil deliveries to British and French companies after threatening on February 15 to stop its oil supply to France, Italy, Spain, Greece, Portugal, and the Netherlands in response to the EU sanctions. The Iranian Foreign Ministry had warned these countries’ ambassadors of this possibility. Hassan Tajik, director of the ministry’s Western Europe Department, told the ambassadors that Iran will not do this now for humanitarian reasons, “in light of the cold wave gripping Europe.”
Iran threatened to cut short its oil supply to the EU in response to the EU’s embargo on Iranian oil, which was approved January 23 and stipulates that all EU members buying oil from Tehran are to stop imports by July 1.
Greece, Italy and Spain account for about 68% of Iranian oil exports to Europe. These countries are also plagued by the worst economic problems in Europe. Moreover, Greece imports 35% of its oil from Iran.
In 2011, EU countries bought an average of 600,000 barrels of Iranian oil per day.
Saudi Arabia is the last hope
If Iran stops oil deliveries to the EU within the next few days, Europe will have to search for a new supplier, and will have to do it quickly in light of the unusually cold February weather.
“The European countries can use their fuel reserves to compensate for the halt on Iranian oil deliveries in the short term, but this will not resolve the issue,” Vitaly Kryukov, an analyst with the investment financial group Kapital, told RIA Novosti. “Europeans will still have to search for new suppliers.”
Furthermore, these reserves are spread across Europe unevenly, which leads to logistical difficulties, said Konstantin Simonov, director of the National Energy Security Fund.
Talks are underway with Saudi Arabia, which has said that it has spare oil it can deliver very soon. “Soon” in this case translates into a few weeks, said Valery Nesterov, an analyst with the Troika Dialog investment company.
“Saudi Arabia’s additional reserves exceed 2 million barrels per day,” Kryukov said. “In principle, it can make up for curtailed Iranian deliveries.”
“However, Europe could encounter technical difficulties, because each refinery is equipped to process a certain type of crude oil,” Nesterov said. “So it is not the case that Europeans will easily be able to replace Iranian oil with supplies from Saudi Arabia.”
Experts say there is no alternative to short-term oil deliveries from Saudi Arabia.
“Theoretically, oil can be delivered from Libya, which is not being mentioned, but its oil production has already almost returned to the pre-war level,” Kryukov said. “Libya is currently producing 1.3 million barrels per day, only 0.3 million bpd less than before the war.”
He believes that by July 1 Libya could reach its pre-war level of oil production and exports. However, it probably has long-term contracts for oil deliveries to consumers in other countries.
Also, Europe cannot expect to be rescued by oil from any African country, which might only be able to supply small amounts, Kryukov added.
Southern European countries cannot view Russian oil as an alternative even theoretically, said Konstantin Simonov. “Russian oil companies are unable to occupy these wonderful niches,” he said.
They would have to increase oil production to be able to make additional oil deliveries to the EU, he said. Even if Russia had “surplus” oil, it would face problems transporting it to southern Europe. Russia’s idea to build a Burgas-Alexandroupolis pipeline to Greece has been recently buried.
Europe will pay with a Greek default
The oil confrontation could cost Europe dearly. “The sanctions will lead to a hike in oil prices, which will in turn increase other prices in Europe and across the world,” said Iranian Interior Minister Mostafa Mohammad Najjar.
Experts differ in their predictions of oil prices. Simonov believes that the confrontation will increase oil prices, while Nesterov said that “oil prices are unlikely to change much.”
“The Iranian factor has already been included in the price of oil,” Nesterov said, adding that Europe’s economic problems are causing oil prices to decrease due to falling demand.
Many countries may not even notice a change in oil prices, but the main consumers of Iranian oil will definitely have huge problems. “The economic situation in Greece is bad as it is, and the oil problem would come as a crushing blow,” Simonov said. He believes that in this case Greece would definitely withdraw from the euro zone.
“Greece will have to search for a new oil supplier, will have to offer to pay more, and its economy will not survive,” the analyst said. “Hence, the Greek government will have to approve further budget spending cuts, provoking new riots. In fact, Greece may have to declare a default.”
In this case, strong European economies will either have to help Greece or allow it to leave the euro zone, which could pose an existential threat to the zone.
Iran: A hostage to its own oil policy
However, Iran’s decision to suspend oil deliveries to the EU would boomerang back at its own economy, doing much more harm to it than it could theoretically do to the European economy. The reason is that Iran’s budget heavily depends on oil exports, Nesterov said.
“Its budget shortfall could run into the tens of millions of dollars a day,” he said. “Oil and petrochemical exports account for 70%-80% of Iran’s revenues. Its economy is even less diversified than that of Russia.”
Simonov believes that oil revenues account for 60% of the Iranian budget, “because it is by far Iran’s largest, even if it is not its only, export item.”
Besides, Iran will need to negotiate the sale of its crude oil, initially intended for Europe, with China and India, possibly at a discount.
China has already started its game, which could undercut both Europe and Iran. “Iran thought that it could easily redirect its oil exports from Europe to China, the largest consumer of its oil, and partly to India,” Simonov said. “It thought that China would increase its purchases for domestic consumption and also for creating strategic reserves.” But China has reduced its oil imports from Iran by half while at the same time increasing its imports of Saudi oil.
“China has two goals: to play against Europe by preventing it from buying Saudi oil in the needed amounts, while at the same time forcing Iran to cut its prices of crude oil,” Simonov said. “In fact, Iran has painted itself into a corner: it expected the buyer of its oil to increase its purchases, but the buyer has knocked the wind out of Iran.” No matter what you think about Iran’s political regime, China definitely acted treacherously, the expert said.
Both Iran and the EU are trapped, and if the EU enforces its embargo, their losses will be huge.
After more than 12 hours of talks, countries in the eurozone reached an agreement early on Tuesday to hand Greece £108 billion (130 billion euros) in extra bail-out loans to save it from a potentially disastrous default next month, a European Union diplomat said.
The euro surged as the news broke, climbing 0.7 per cent to $1.328 within minutes. While much depended on the details of the deal, a final agreement on the bail-out for Greece will take some pressure off the 17-country currency union, which has been battling a serious debt crisis for two years.
The deal – details of which were still being worked out by European finance ministers in an all-night session in Brussels – was expected to bring Greece's debt down to 120.5 per cent of gross domestic product by 2020, according to the official. That's around the maximum that the International Monetary Fund and the eurozone considered sustainable.
The diplomat spoke on condition of anonymity because a formal announcement was pending.
The country needs the 130 billion euro ($170 billion) bail-out so it can move ahead with a related 100 billion euro ($130 billion) debt relief deal with private investors. That deal needs to be in place quickly if Athens is to avoid a disorderly default on a bond repayment on March 20.
Last week, a new report from Greece's debt inspectors indicated that the country's debt would still be close to 129 per cent of GDP by the end of the decade, despite massive new spending cuts planned by Athens and a tentative 100 billion euro debt relief deal with private investors.
That level would have prevented the IMF and some euro countries from putting up more rescue money – on top of a 110 billion euro bail-out Greece received in 2010.
Moving in and out of talks with bondholder representatives and consultations among themselves, the IMF and the European Central Bank, the ministers pushed private investors to accept steeper losses, going beyond a 50 per cent cut in the face value of their bonds.
It was unclear what the final deal with bondholder representatives looked like, but the lower debt level suggested that they compromised further. The big question will now be how many banks and other investment funds will actually agree to participated voluntarily and whether Greece will have to force some holdouts to sign up to make the deal effective.
A mandatory biometric employment verification card for all U.S. workers could cost at least $40 billion, infringe on Americans’ civil liberties, and fail to stop the employment of undocumented immigrants, according to a new report. Hard to BELIEVE: The High Cost of a Biometric Identity Card finds that a biometric ID card would not only have a hefty initial price tag, but it will also cost $3 billion in ongoing annual expenditures.
The report, released by the Chief Justice Earl Warren Institute on Law & Social Policy at UC Berkeley School of Law, is a first-ever in-depth analysis of the costs of establishing a biometric employment identity card. The mandatory card, containing a worker’s fingerprints or a hand vein scan, would replace various forms of ID, such as a driver’s license, social security card and passport, during the hiring process.
Republican presidential candidates Mitt Romney and Newt Gingrich have supported a version of a biometric employment card as part of immigration reform during campaign debates. The idea was first raised in 2010 by Senators Charles Schumer (D-NY) and Lindsay Graham (R-SC), among others, but it was never proposed as legislation. According to Schumer’s plan, job seekers and employees would apply for the government biometric card and then present it to an employer or third-party verifier.
“The idea of a biometric ID card failed to gain political traction on Capitol Hill and for good reason: It can’t deliver all that it promises to U.S. taxpayers who will be footing the bill,” said Aarti Kohli, director of immigration policy at the Berkeley Law Warren Institute.
“A biometric employment verification system would require setting up a large new bureaucracy to create a master database with information relating to every worker in the country—an enormous and expensive project,” said Jonathan Weinberg, co-author of the report and professor of law at Wayne State University. “It would involve collecting biometric data from, verifying the identity of, and issuing secure ID cards to more than 150 million people—and that’s just the beginning.” The program would also require every company across the country, from mom and pop shops to global corporations, to verify each worker’s identity with a card–verification reader.
“The biometric worker ID would have to rely on current government databases that still have significant errors. Even a one percent error rate could cause 1.5 million citizens to be flagged as unemployable,” said Michael Froomkin, co-author and professor of law at the University of Miami. “Each of them would then have to go through an appeals process before they could legally work. Bottom line, this plan will disproportionately hurt people who most need work: the poor, short-term and temporary employees, the homeless, and the unemployed.” Froomkin said.
As part of the study, the authors analyzed the program’s costs to government agencies, employers, and workers, and calculated losses to U.S. economic production. To compute start-up and ongoing costs, they applied budget estimates from the Congressional Budget Office and the Government Accountability Office for various government programs. The data assumes 150 million US workers in the labor pool, based on Bureau of Labor Statistics 2010 numbers.
“We examined two core issues: the financial impact of the program and its potential effectiveness. In both cases, the program failed to deliver,” said Kohli. “Not only that, it opened up a Pandora’s box of civil liberty violations.”
Findings of Hard to BELIEVE: The High Cost of a Biometric Identity Card include:
A comprehensive biometric ID for over 150 million workers could cost US taxpayers up to $45 billion, about four times higher than other estimates;
Errors in current databases could delay the employment of at least 1.5 million people;
The black market for fraudulent documents such as birth certificates and passports would increase;
The biometric ID cards and national database would be vulnerable to a data breach resulting in large-scale identity theft; and
The widespread collection of fingerprints or vein scans will face legal challenges as a violation of the 4th Amendment protection against unreasonable searches and seizures.