Luxembourg Is Not The Next Cyprus, Not Yet, But....

It's getting closer

By Wolf Richter   

The Grand Duchy of Luxembourg, with a population of just over half a million, smaller even than the other speck in the Eurozone, the Republic of Cyprus, ranks in the top three worldwide in per-capita GDP. In a Eurozone wealth survey, it had the highest average household wealth – €710,100. Only Cyprus, a former off-shore banking center in the Eurozone, came close. Yet Luxembourg is threatened with ruin.

It has 141 banks – bank companies, not ATMs. One bank per 3,808 people. Most of them do private banking. The financial sector added 38% to GDP in 2010 and contributed 30% to the country’s tax revenues, according to the Luxembourg Bankers’ Association (ABBL). All due to bank secrecy and tax laws. But suddenly, after Cyprus had been massacred, Luxembourg buckled.

With the big German guns, and the smaller guns from other nations, swinging in its direction, Luxembourg agreed to participate in an international automatic data-sharing arrangement that would send banking data of foreign clients to their countries, starting in 2015. Prime Minister Jean-Claude Juncker, somewhat defensively, proclaimed that lifting bank secrecy wasn’t such a big deal, that Luxembourg didn’t live from tax evasion. For the banks, the “lights won’t go out in 2015,” he said.

During the entire Eurozone bailout debacle that he presided over until February as President of the Eurogroup, he’d proven to be time and again an inveterate optimist.

“It’s expected that only 60 to 70 banks will survive in the coming years,” declared Alain Steichen, a prominent Luxembourgian tax lawyer, at a conference about the consequences of the data-sharing agreement. He should know. Per his online profile, he “assisted Thomson in the merger acquisition of Reuters in order to form Thomson Reuters, with the group’s main holding location being Luxembourg.” He also “assisted Chase Manhattan in the merger acquisition of JP Morgan in order to form their main holding company in Luxembourg.” Yup, there are a lot of benefits to doing business through Luxembourg.

Combine bank secrecy with nominee corporations to get a particularly juicy cocktail. An entire industry of “fiduciaries” has formed around the banks for that purpose. These accounting, audit, and law firms set up and maintain tax-advantaged nominee corporations, the infamous mailbox companies, whose directors and top executives are principals of the fiduciary firm. The client and the source of money remain anonymous to the outside world. A perfect setup for money laundering. Because the bank is doing business with a Luxembourg mailbox company, not a foreigner, and because the signatories are pillars of Luxembourg’s society, the setup is impervious to the automatic data-sharing arrangement. But now mailbox companies too are under attack, not only in Europe, but also in the US Congress.

“I expect a serious change of the banking landscape because there will be customer withdrawals,” Alain Steichen explained. Some banks, he said, “would lose the critical mass needed to survive.”

The Scam Wall Street Learned From the Mafia

How America's biggest banks took part in a bid-rigging conspiracy

by MATT TAIBBI

Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony "Tony Ducks" Corallo.

But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.

German firms eye investment in crisis-battered euro states

Crisis vs Opportunity

By Annika Breidthardt

German companies are setting their sights on southern Europe as fears of a euro zone breakup fade and economic reforms transform the crisis-battered region into an attractive place to invest once again.

Countries like Portugal, Italy, Greece and Spain are still struggling with deep recessions and high unemployment but have also attracted attention for the opportunities they present, not just the risks.

Strong companies are attracting interest among the "Mittelstand", medium-sized and often family-owned manufacturing firms to which Germany owes much of its exporting prowess.

That is in large part due to the economic and labour market reforms bailout countries have been forced to implement - making it easier to hire and fire and reducing wage costs - which less stricken countries such as France have been slower to embrace.

"For financially strong German Mittelstand firms, the crisis is turning out to be an opportunity. They are increasingly active with acquisitions in Spain," said Christoph Himmelskamp, a consultant at Roedl & Partner who advises smaller German firms on deals with Spanish counterparts.

Himmelskamp says he has seen a 30 to 40 percent increase in German acquisitions of Spanish firms since 2009, when the euro zone debt crisis first flared in Greece.

"The mood was subdued when there was speculation Spain could leave the euro. Some of our clients started putting the brakes on transactions ... Once that discussion ended, investment returned."

German firms are buying up strong competitors, clients or suppliers at a time when those companies are struggling to stay afloat through years of recession in their home markets and as shaky banks restrict access to credit.

AZ Group, a German fittings maker, bought Italian competitor Fiber in 2012, when insolvency loomed under its previous owner.

German material producer SGL Carbon bought Portugal's fibre maker Fisipe last year.

And Happich, an interior outfitter of buses, acquired its rival Auto Carrocerias Riu last year. A previous attempt failed when the Barcelona-based firm decided to seek a Spanish buyer which never materialised.

Himmelskamp's firm is currently closing a deal where a German buyer is taking over a Spanish rival in Madrid. While these firms rarely publish the amount they pay for acquisitions, Himmelskamp said the price tag was in the low double-digit million euros range.

A study by DZ bank showed last year that one in four Mittelstand firms already present in euro zone crisis countries was willing to invest more there, in contrast with 14 percent of all Mittelstand firms.

How America Can Deal With Militant Islam

First, shut down the empire and let Muslim rulers deal with Muslim radicals

By PATRICK J. BUCHANAN

I do not know the method of drawing up an indictment against a whole people,” said Edmund Burke of the rebellious Americans.

The same holds true of Islam, the majority faith of 49 nations from Morocco to Indonesia, a religion that 1.6 billion people profess.

Yet, some assertions appear true.

Islam is growing in militancy and intolerance, evolving again into a fighting faith, and spreading not only through proselytizing, but violence.

How to justify the charge of intolerance?

The Taliban blew up the Bamiyan Buddhas. The Sufi shrines of Timbuktu were blown up by Ansar Dine. In Saudi Arabia, Iran and Afghanistan, Christian converts face the death sentence.

In Nigeria, the Boko Haram attacks churches and kills Christians, as in Ethiopia and the Sudan, where the south seceded over the persecution.

Egyptian Copts are under siege. Assyrian and Chaldean Christians in Iraq have seen churches pillaged, priests murdered. In Indonesia, churches are being shut on the demand of Islamists. Sharia law is being demanded by militants across the Middle East, as Christianity is exterminated in its cradle.

Has Islam become again a fighting faith?

Chechnya, Dagestan and Ingushetia are the sites of Islamist uprisings using terror to rip these statelets from Russia. Muslim Uighurs are fighting to tear off a chunk of China and create an East Turkestan. Muslim Malays in south Thailand have fought a decade-long war of secession. Albania has acquired two sister Muslim states in Europe, Bosnia and Kosovo, both born in blood.

“Islam has bloody borders,” wrote the late Samuel Huntington.

They are bloodier today.

At the time of 9/11, al-Qaida seemed confined to Afghanistan.

Al-Qaida may now be found in the Maghreb, Mali, Iraq and Yemen. Its Syrian auxiliary, the al-Nusra Front, is dominant in the anti-Assad rebellion.

Bankers and the Bourgeois Virtues

The world is what it has always been, a wicked place 

by Theodore Dalrymple

When I was young banks were as solid as a rock and those who managed them were respectable if slightly boring members of the community (probity being the dullest of virtues). Nowadays, however, I doubt that the words ‘bank’ or ‘banker’ would evoke many flattering epithets or synonyms in a word association test. ‘Casino,’ ‘Ponzi scheme’ or ‘card-sharp’ would perhaps be the least unfavorable of them.

As is all too often the case, I cannot quite make up my mind whether my dislike of banks is purely rational or a manifestation of Man’s eternal search for a scapegoat. I really only began to object to my banks’ practices after the crisis became manifest. Until then I had been rather flattered that, when I was slightly overdrawn, the bank sent someone round to my house to ask if I wanted to borrow much more money; and when, within five minutes on another occasion, it offered to lend me a million dollars. How different this was from the days of my youth, when – not more than five dollars overdrawn – I received a stern letter of rebuke from the bank, highly moralistic in tone, telling me that it expected me to ‘correct’ this situation without delay.

Even before the crisis I had observed, more with amusement than in anger, some of the banks’ less principled practices. For example, when I sent what for me was a large sum from my bank in England to my bank in France, the sum was deducted immediately from my account in England without being credited to my account in France. In fact it was not so credited for a period of ten days: and I had fondly thought that we lived in the age of instantaneous electronic transfer! How, then, did the bank send the money? In centime pieces by carrier pigeon? Where was the money in the meantime? Did the sending and recipient banks go fifty-fifty on the profits of the delay, that is five days each? I bothered neither to inquire nor to complain. I am small, the banks are large and would never tell the truth in any case. Financially it didn’t matter to me.

I had an illustration of the banks’ lack of commitment to strict truth not long ago. I have an account in US dollars in England into which I pay US checks. I noticed that the bank took from the sum paid in what seems to me rather a large amount, indeed a considerable proportion of the smaller check. I went to the bank to inquire why this was.

Everyone's Missing the Bigger Picture in the Reinhart-Rogoff Debate

The monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else

by George Washington 

You've heard that an incredibly influential economic paper by Reinhart and Rogoff (RR) - widely used to justify austerity - has been "busted" for "excel spreadsheet errors" and other flaws.

As Google Trends shows, there is a raging debate over the errors in RR's report:

Even Colbert is making fun of them.

Liberal economists argue that the "debunking" of RR proves that debt doesn't matter, and that conservative economists who say it does are liars and scoundrels.

Conservative economists argue that the Habsburg, British and French empires crumbled under the weight of high debt, and that many other economists - including Niall Ferguson, the IMF and others - agree that high debt destroys economies.

RR attempted to defend their work yesterday:

Researchers at the Bank of International Settlements and the International Monetary Fund have weighed in with their own independent work. The World Economic Outlook published last October by the International Monetary Fund devoted an entire chapter to debt and growth. The most recent update to that outlook, released in April, states: “Much of the empirical work on debt overhangs seeks to identify the ‘overhang threshold’ beyond which the correlation between debt and growth becomes negative. The results are broadly similar: above a threshold of about 95 percent of G.D.P., a 10 percent increase in the ratio of debt to G.D.P. is identified with a decline in annual growth of about 0.15 to 0.20 percent per year.”

This view generally reflects the state of the art in economic research

***

Back in 2010, we were still sorting inconsistencies in Spanish G.D.P. data from the 1960s from three different sources. Our primary source for real G.D.P. growth was the work of the economic historian Angus Madison. But we also checked his data and, where inconsistencies appeared, refrained from using it. Other sources, including the I.M.F. and Spain’s monumental and scholarly historical statistics, had very different numbers. In our 2010 paper, we omitted Spain for the 1960s entirely. Had we included these observations, it would have strengthened our results, since Spain had very low public debt in the 1960s (under 30 percent of G.D.P.), and yet enjoyed very fast average G.D.P. growth (over 6 percent) over that period.

China 2.0 Is in Trouble

A political/financial system that is incapable of meaningful reform

Despite the many differences between China and the U.S., their basic problems are remarkably similar: an economy that increasingly serves a tiny Elite, and a political/financial system that is incapable of meaningful reform

by Charles Hugh-Smith
Setting aside the latest bird flu outbreak and sagging indicators of growth, China 2.0 is in trouble (with 1.0 being the Communist era of 1949 -1977 and 2.0 being the modernization/globalization era of 1978 - 2013), for it remains overly reliant on unsustainable growth dynamics.

The following is my summary of the excellent talks given by Jim Chanos and Michael Pettis at Mish's insight-packed Wine Country Conference in Sonoma earlier this month. (Any errors in presenting the speakers' views are of course mine.)

Here are Chanos' lecture slides and interviews with Chanos and Pettis:

Jim Chanos On China's 'Edifice Complex'

Jim Chanos on Daily Ticker: Stay Away From U.S. Tech Firms

Michael Pettis Interview with Lauren Lyster: Decade of Slower Growth for China

Michael Pettis observed that he'd spent time in Haiti earlier in his career, and pockets of poverty in China today equal those he'd witnessed in Haiti. Experienced China hands know the central government takes pains to limit media exposure of this level of poverty, as it reflects poorly on China's claim to being a superpower.

He then described in some detail how the Chinese leadership has created a "no-win" policy by encouraging a dependence on fixed investment to fuel rapid growth of GDP. If it shifts income to households to enable more consumer spending, GDP growth will decline. But if it continues borrowing and spending on increasingly marginal fixed investments, growth will also slow.

In effect, China has suppressed wages to fuel GDP growth. Financial repression (low interest rates) has further suppressed household income and encouraged misallocation of capital on a vast scale.

Pettis said the Chinese government is pushing a "go west" campaign. While "go west" worked in America's development, it failed miserably in Soviet Russia and Brazil. The difference, he said, is that in America, the private sector moved west and the government simply followed. In China, Russia and Brazil, the government pushed infrastructure west but without private-sector participation. Pettis reported that private sector contractors go west to build the infrastructure and then return east once the work is done.

In Pettis' view, the key metrics are debt and the ability to service debt: 
if debt is rising but the ability to service that debt (disposable income) is stagnant, then the system is unsustainable. He said this is the case in China: debt is rising but the ability to service that debt is not.

Given the political power of the state-owned enterprises (SOEs), China's political and financial systems do not have self-correcting mechanisms. Such mechanisms require transparency and feedback that is lacking in China.

Pettis flatly stated that the PBoC (China's central bank) is insolvent. Debt levels are high and much of the collateral is impaired.

Russia multiplies gas routes to Europe

This message has many intended audiences

By Vladimir Socor
Russian President Vladimir Putin and Gazprom are announcing colossal plans to expand the capacities of existing gas export pipelines and build new ones, all in Europe beyond Russia's territory.
Gazprom already co-owns and controls export pipeline capacities amounting to some 110 billion cubic meters (bcm) per year in Europe beyond Russia (Nord Stream One and Two, Yamal-Europe, the export pipelines to the Baltic States and Finland, and Blue Stream), including more than 90 bcm per year in pipelines located within the European Union. 

Apart from this, Russia remains the sole user (albeit at decreasing annual usage levels) of Ukraine's state-owned pipeline system with its westbound transit capacity of 140 bcm per year. Moscow now proposes to build new pipelines with capacities amounting to some 130 bcm per year (Nord Stream Three and Four, "Yamal-Europe Two", South Stream), all within EU territory. 

Thanks to the recently completed Nord Stream One and Two (2011–2012), Russia has some 250 bcm per year in export pipeline capacities at its disposal in Europe; and would increase that to a grand total of some 380 bcm per year, if the new projects are completed as proposed. Meanwhile, Gazprom's current sales in Europe are down to some 150 bcm of gas annually in the framework of long-term supply commitments, with only scant hopes to regain Gazprom's pre-crisis export levels of some 180 bcm annually in a post-crisis Europe. Moreover, Russia faces the prospect of a net loss of overall market share due to growing competition from liquefied gas on European markets. 

The Biggest Price-Fixing Scandal Ever - Everything Is Rigged

This is corruption at the molecular level of the economy

The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix

by MATT TAIBBI

Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.

You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."

That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.

Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.

"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."

The Collapsing of the American Skull

The parameters in which we allow ourselves to think about vital issues shrink remorselessly

By mark steyn
One of the most ingenious and effective strategies of the Left on any number of topics is to frame the debate and co-opt the language so effectively that it becomes all but impossible even to discuss the subject honestly. Take the brothers Tsarnaev, the incendiary end of a Chechen family that in very short time has settled aunts, uncles, sisters, and more across the map of North America from Massachusetts to New Jersey to my own home town of Toronto. Maybe your town has a Tsarnaev, too: There seems to be no shortage of them, except, oddly, back in Chechnya. The Tsarnaevs’ mom, now relocated from Cambridge to Makhachkala in delightful Dagestan, told a press conference the other day that she regrets ever having gotten mixed up with those crazy Yanks: “I would prefer not to have lived in America,” she said.

Not, I’m sure, as much as the Richard family would have preferred it. Eight-year-old Martin was killed; his sister lost a leg; and his mother suffered serious brain injuries. What did the Richards and some 200 other families do to deserve having a great big hole blown in their lives? Well, according to the New York Times, they and you bear collective responsibility. Writing on the op-ed page, Marcello Suarez-Orozco, dean of the UCLA Graduate School of Education and Information Studies, and Carola Suarez-Orozco, a professor at the same institution, began their ruminations thus:

“The alleged involvement of two ethnic Chechen brothers in the deadly attack at the Boston Marathon last week should prompt Americans to reflect on whether we do an adequate job assimilating immigrants who arrive in the United States as children or teenagers.”

Maybe. Alternatively, the above opening sentence should “prompt Americans to reflect” on whether whoever’s editing America’s newspaper of record these days “does an adequate job” in choosing which pseudo-credentialed experts it farms out its principal analysis on terrorist atrocities to. But, if I follow correctly, these UCLA profs are arguing that, when some guys go all Allahu Akbar on you and blow up your marathon, that just shows that you lazy complacent Americans need to work even harder at “assimilating” “immigrants.” After all, Dzhokhar and Tamerlan were raised in Cambridge, Mass., a notorious swamp of redneck bigotry where the two young Chechens no doubt felt “alienated” and “excluded” at being surrounded by NPR-listening liberals cooing, “Oh, your family’s from Chechnya? That’s the one next to Slovakia, right? Would you like to come round for a play date and help Jeremiah finish his diversity quilt?” Assimilation is hell.

How hard would it be for Americans to be less inadequate when it comes to assimilating otherwise well-adjusted immigrant children? Let us turn once again to Mrs. Tsarnaev:

“They are going to kill him. I don’t care,” she told reporters. “My oldest son is killed, so I don’t care. I don’t care if my youngest son is going to be killed today. . . . I don’t care if I am going to get killed, too . . . and I will say Allahu Akbar!”

You can say it all you want, madam, but everyone knows that “Allahu Akbar” is Arabic for “Nothing to see here.” So, once you’ve cleared the streets of body parts, you inadequate Americans need to redouble your efforts.

There is a stupidity to this, but also a kind of decadence. Until the 1960s, it was assumed by all sovereign states that they had the right to choose which non-nationals were admitted within their borders. Now, to suggest such a thing risks the charge of “nativism” and to propose that, say, Swedes are easier to assimilate than Chechens is to invite cries of “Racist!” So, when the morgues and emergency rooms are piled high, the only discussion acceptable in polite society is to wonder whether those legless Bostonians should have agitated more forcefully for federally mandated after-school assimilationist basketball programs.

Credit Expansion in Europe – Going the Way of Japan?

Banks Battling to Survive

By  Pater Tenebrarum

Yesterday we had the opportunity to attend a presentation by the treasurer of a European bank, which discussed the problems the European banking sector faces since the beginning of the crisis era in 2008.

Many of these problems are obvious, but some of them are perhaps less so. There are on the one hand the regulatory pressure to increase capital, a plethora of new regulations and taxation that refers to the size of a bank's balance sheet, regardless of its profitability. While such taxation only amounts to about 20 basis points, it has to be seen in the context of currently available margins in the banking business, which are dismal – once on does that, the number actually strikes one as quite large.

Regarding the regulatory regime, European bank managers these days apparently spend more time satisfying the demands of a whole horde of regulatory bodies (a bank with a decent pan-European presence can count on having to deal with up to 25 different regulators), all of which continually want to play through stress test scenarios or are demanding data on this or that. Everything has to be done to the perfect satisfaction of the bureaucrats concerned with these oversight activities, down to the color of the paper the presentations are printed on. The problem is of course that this is distracting managers from what they should actually be doing, namely focus on the business.

Given the crisis situation, one should not be surprised at this sudden avalanche of regulatory demands. However, as we have often pointed out here,  in a free banking system with 100% reserved sight deposits, all of this would be completely unnecessary.

The most important problem faced by banks though are their funding costs relative to the interest rates they can charge on loans.

Exploding Funding Costs, Shrinking Interest Rate Margins

As a side effect of the crisis and the reaction of the ECB as well as the Brussels  based eurocracy to it, banks now have to deal with a funding situation that is markedly different from what pertained prior to 2008.

‘I have a bad dream…’

Rights go wrong when there are no wrongs that rights can right

by Jon Holbrook
Fifty years ago this August, Martin Luther King led the historic March on Washington where he delivered his ‘I have a dream’ speech. He called for an end to racism and dreamed that one day people would be judged not ‘by the colour of their skin but by the content of their character’. His address to 250,000 civil-rights supporters, from the steps of the Lincoln Memorial, was a defining moment of the American civil rights movement.

1963 was also the year that the US Congress passed the Equal Pay Act, which prohibited wage differentials based on sex. The following year the Civil Rights Act outlawed major forms of discrimination against racial, ethnic, national and religious minorities, and women. The most significant consequence of this landmark legislation was the outlawing of racial segregation in schools, at the workplace and at public accommodations. The era of Jim Crow laws was coming to an end.

Despite the apparent success of the American civil-rights movement in the 1960s, in Rights Gone Wrong Richard Thompson Ford argues that the civil-rights approach to social justice reached its high-point sometime in the early 1970s and has been in decline ever since.

Today’s civil-rights movement, argues Ford, is a movement that seems incapable of addressing social injustice. Indeed, its modern-day claims are more likely to corrupt the struggle for equality by being either daft or counterproductive. Ford gives many examples, particularly of sex-discrimination claims, where equality laws have produced results bereft of common sense. In 1985, Dennis Koire asserted his civil rights after being excluded from a ladies’ night bar. He was so incensed at being told to come back when he was wearing a skirt that he took his complaint to the Californian Supreme Court, which ruled that his civil rights had been violated. His success marked the beginning of the end for ladies’ nights across the nation as courts in Iowa, Pennsylvania, Connecticut and Hawaii found that ladies’ nights and similar female promotions or discounts constituted unlawful sex discrimination.

It’s the public sector we should reform, not the public

Britain’s bureaucratically endorsed culture of entitlement and dependency

by David Clements 

Public services in the UK cannot be sustained at their current level. They are under unprecedented pressure from the global financial crisis, the slow growth of the UK’s service-based economy, and the ageing society. Consequently, there need to be drastic reductions in what is currently very high but unproductive public spending. One in four working-age adults work for the public sector - councils are often the biggest local employers and the NHS alone employs 1.7million people, making it the largest employer in Europe. Nearly half of GDP (around £700 billion) is spent on public services, including welfare benefits which account for about £200 billion. In a bid to cut public expenditure by £80 billion by 2015, tens of thousands of workers have already been made redundant. But, says Tom Manion, ‘radical’ social landlord and author of The Reward Society, it is the deterioration of our ‘attitudes, values and behaviour’ that is most costly of all.

UK authorities, it seems, spend a ridiculous amount of resources on dealing with a minority of people who are just not behaving as they should. It would be far better, Manion says, to encourage good behaviour: ‘If bad behaviour improved, we as a society would have a lot more resources to spend.’ Putting to one side the childlike simplicity of Manion’s argument, he is perceptive enough to identify a genuinely big problem - one of the defining ones of our age - and its many manifestations. We now accept as normal the ‘dishonesty, idleness and lack of thought for others’ that in the past wouldn’t have been tolerated, he says. Dysfunctional families who ‘run health, police and social services ragged’ place a burden of £8 billion per year on the state. A welfare safety net has ‘become a spider’s web, trapping people in dependency and making poverty comfortable’. There is a crippling ‘contagion’ of absenteeism in the workplace: a ‘sickness sub-culture’ not confined to the public sector but nonetheless identifiable with it. Never mind the ‘yoof of today’, it is not unusual for groups of young adultsto be making an intimidating nuisance of themselves. These ‘screeching, lurching lads and ladettes, peeing in the gutter and falling into fountains’ at the weekend are ‘back behind the building-society counter’ come Monday morning. ‘Their parents would not have behaved like that’, says Manion, ‘so why do they?’. Why indeed?

He answers his own question. Old, ‘decent’ working-class values have been lost and we’re the poorer for it. He explains that, as a ‘bad boy’ himself once, his behaviour completely violated the standards of the working-class culture he grew up in, but ‘I knew that and took the consequences’. While the complaint that rent arrears have gone through the metaphorical roof is made by Manion the landlord, he also remembers how his mother’s generation ‘took pride in paying their rent, or indeed any bill, on time’. He invites us to compare this with the points-based public-housing allocation system that has created an ‘arms race of need’ in which ‘people’s problems become their most valuable assets’. In place of the independence and pride of an earlier generation is a bureaucratically endorsed culture of entitlement. It has ‘infantilised’ tenants and kept them ‘locked into the dependency frame of mind’, unable or unwilling to do anything for themselves. ‘Downloading help and sympathy on to people in perceived need doesn’t improve their situation’, he explains. ‘They’ve got to stand up on their own two feet and find their own way of including themselves in society.’

Field of nightmares

Imperial wars have a way of coming home

By Tom Engelhardt 
Chalmers Johnson's book Blowback: The Costs and Consequences of American Empire was published in March 2000 - and just about no one noticed. Until then, blowback had been an obscure term of CIA tradecraft, which Johnson defined as ''the unintended consequences of policies that were kept secret from the American people''. In his prologue, the former consultant to the CIA and eminent scholar of both Mao Zedong's peasant revolution and modern Japan labeled his Cold War self a ''spear-carrier for empire''. 

After the Soviet Union disappeared in 1991, he was surprised to discover that the essential global structure of that other Cold War colossus, the American superpower, with its vast panoply of military bases, remained obdurately in place as if nothing whatsoever had happened. Almost a decade later, when the Evil Empire was barely a memory, Johnson surveyed the planet and found ''an informal American empire'' of immense reach and power. He also became convinced that, in its global operations, Washington was laying the groundwork ''all around the world... for future forms of blowback.''

Johnson noted ''portents of a twenty-first century crisis'' in the form of, among other things, ''terrorist attacks on American installations and embassies''. In the first chapter of Blowback, he focused in particular on a ''former protege of the United States'' by the name of Osama bin Laden and on the Afghan War against the Soviets from which he and an organization called al-Qaeda had emerged. It had been a war in which Washington backed to the hilt, and the CIA funded and armed, the most extreme Islamic fundamentalists, paving the way years later for the Taliban to take over Afghanistan.

Talk about unintended consequences! The purpose of that war had been to give the Soviet Union a Vietnam-style bloody nose, which it more than did. All of this laid the foundation for... well, in 1999 when Johnson was writing, no one knew what. But he, at least, had an inkling, which on September 12, 2001, made his book look prophetic indeed. He emphasized one other phenomenon: Americans, he believed, had ''freed ourselves of ... any genuine consciousness of how we might look to others on this globe''. 

With Blowback, he aimed to rectify that, to paint a portrait of how that informal empire and its historically unprecedented garrisoning of the world looked to others, and so explain why animosity and blowback were building globally. After September 11, 2001, his book leaped to the center of the 9/11 display tables in bookstores nationwide and became a bestseller, while ''blowback'' and that phrase ''unintended consequences'' made their way into our everyday language. 

Chalmers Johnson was, you might say, our first blowback scholar. Now, more than a decade later, we have a book from our first blowback reporter. His name is Jeremy Scahill. In 2007, he, too, produced a surprise bestseller, Blackwater: The Rise of the World's Most Powerful Mercenary Army. It caught the mood of a moment in which the George W Bush administration, in service to its foreign wars, was working manically to ''privatize'' national security and the US military by hiring rent-a-spies, rent-a-guns, and rent-a-corporations for its proliferating wars. 

A Specter that Haunts the Kremlin

Will Khodorkovsky Be Released?

By Matthias Schepp

Mikhail Khodorkovsky, once Russia's richest man and Putin's strongest adversary, could soon be released from prison. Can the polarizing oil tycoon reinvigorate a beleagered opposition?

Standing in the midst of wool socks from Armenia and hats from Turkey, Anna, the street market vendor, lowers her voice. At the onset of winter, the heat remained off for many weeks in the city's apartments -- the fault, she says, of "this oligarch who has fallen upon us like a meteorite from the sky."

Anna hates Mikhail Khodorkovsky. Before his arrest he was Russia's richest man, while she still remains so poor that she has to supplement her meager monthly pension of less than €100 ($130) by selling cheap clothing.

Her market stall is on the outskirts of Segezha, a cheerless town of 30,000 inhabitants in a desolate part of the country. Moscow is 900 km (600 miles) away, and the Finnish border is nearby. In the 1930s, Stalin sent criminals and political enemies to this remote corner of the country, where over 100,000 of them died.

A gravel road lined with fir trees leads to Correctional Camp Seven. The buses of line number 4 are mired in slush and mud, as they are every spring. At the last bus stop, there are walls with barbed wire, watchtowers and a sign warning visitors: "No photos allowed." A total of 1,300 prisoners live here, including the most prominent inmate, Khodorkovsky, who has been incarcerated at the camp for nearly two years now. Is it possible that he will no longer be among them soon?

There has been a flurry of speculation recently that Moscow may order Khodorkovsky's release. Russia's Supreme Court has sent for the files from the first two trials against the oligarch. Due to evident procedural errors, his 11-year prison sentence could be further reduced and the magnate could soon be a free man again.

A Threat to the Power Structure

On the other hand, the centrist daily newspaper Nezavisimaya Gazeta writes that the Kremlin is currently preparing a third criminal case against Khodorkovsky -- one that could put him behind bars again for two decades, this time for alleged contract killings. Indeed, if Khodorkovsky were freed, he would again pose a threat to President Vladimir Putin's power structure. He could demand the return of his oil empire, which was broken up by Putin's friends, and become a figurehead for the faltering opposition. Its most popular leader, blogger Alexei Navalny, was put on trial just last week. State prosecutors accuse him of embezzlement. Navalny alleges that the indictment was initiated by the Kremlin, which wants to see him disappear behind bars for years just like Khodorkovsky.

Immigration Gambles

Political correctness has replaced self-preservation

By THOMAS SOWELL
Britain’s late Prime Minister Margaret Thatcher said it all when she wrote that the world has “never ceased to be dangerous,” but the West has ”ceased to be vigilant.”

Nothing better illustrates her point than the fact that the West has imported vast numbers of people who hate our guts and would love to slit our throats. Political correctness has replaced self-preservation. The Boston Marathon killer who set a bomb down right next to an eight-year-old child is only the latest in an on-going series of such people.

Senator Patrick Leahy has warned us not to use the Boston Marathon terrorists as an argument against the immigration legislation he advocates. But if we are not to base our laws on facts about realities, what are we to base them on? Fashionable theories and pious rhetoric?

While we cannot condemn all members of any group for what other members of their group have done, that does not mean that we must ignore the fact that the costs and dangers created by some groups are much greater than those created by other groups.

Most members of most groups may be basically decent people. But if 85 percent of group A are decent and 95 percent of group B are decent, this means that there is three times as large a proportion of undesirable people in group A as in group B. Should we willfully ignore that when considering immigration laws?

It is already known that a significant percentage of the immigrants from some countries go on welfare, while practically none from some other countries do. Some children from some countries are eager students in school and, even when they come here knowing little or no English, they go on to master the language better than many native-born Americans.

But other children from other countries drag down educational standards and create many other problems in school, as well as forming gangs that ruin whole neighborhoods with their vandalism and violence, and cost many lives.

Are we to shut our eyes to such differences and just lump all immigrants together, as if we are talking about abstract people in an abstract world?

Understanding German Politics

Political Geography in Germany

Inquiring minds in the US note the upcoming German election and may be wondering about the platforms of the major political parties. Reader Bernd from Germany explains.

Die Linke (The Left): Die Linke is made up of the former SED/PDS (The East German Communist Ruling Party), some former West German Communist and Socialist Parties and a “rebel group” of the SPD. They all have merged and are now called "Die Linke". By and large they have a communist/socialist platform, albeit not Stalinist. Their main requests are: dissolve NATO and replace it with a new organization to include Russia in it, end all wars, control or nationalize all relevant banks and some crucial industries, increase support for the poor, raise taxes for the rich (above income of 60k Euros gradually go to 75%), introduce a stiff wealth and inheritance  tax. They are pro Euro and want the introduction of Eurobonds immediately. To alleviate the economic crisis in Europe they advocate some serious deficit spending for social and work programs. They have voted against ESM; EFSF and Cyprus deal in Parliament.

SPD (Social Democrats): SPD is the grand old Social Democratic Party, with a wonderful and long tradition. SPD originated from the worker's movement. Its first party program is from 1869. It the only party that tried to stop Hitler's power grab by opposing the emergency laws in 1933. Many went to concentration camps for opposing Hitler. In post-World War II Germany SPD provided three Chancellors, Willy Brandt, Helmut Schmidt and Gerhard Schröder. All three Chancellors were major reformers in Germany for one or the other topic.  SPD lost its original power base in the wake of Schröder's reforms in the early 2000s. SPD is a staunch pro Euro party. They also want Eurobonds immediately, as well as a common fiscal policy, a bank union and a quick unification of Europe.

Die Grünen (The Green Party): Die Grünen started as a mix of 1968 communists/socialists and anti-nuclear energy activists in West Germany. The second part is made up of some left over former East German anti SED “rebels” who helped to bring down East Germany.  Today this is the party for so the so-called "politically correct". In Germany we call them the Latte Macchiato Moms/Dads. The typical party member is a well-paid Government official or teacher with a work week of 36 hours. They believe firmly in manmade climate change and want to tax and spend their way to eliminate the CO-2 footprint. No amount of money is too much for preventing climate change. They are staunch pro Euro advocates similar to the SPD.