Dienstag, Juni 29, 2010

Ghosts, Idiots (Useful and Real), and Vampire Ideologies...

Apparently, according to today's FAZ, there was a political conference in Berlin over the last several days.

The topic of the conference?

The Future of Communism.

Ye gods.

This is the Ghost of the Past, the Ideology that will not die despite having multiple stakes driven through its collectivist heart.

The Vampire Ideology.

It's not much of an article, but here are the highlights:

The new radical left is working hard to create a new basis for their ideology, combining Plato, Descartes, Heidegger, St. Paul, Marx and Lenin, all with the goal of liberating the concept of communism from its thoroughly discredited state. They've kidnapped Warlam Schalamow as the newly politically correct victim of the old system because his Kolyma works didn't try to discredit Stalinism; millions of dead are not worth speaking about; state communism as it was practiced was an accident of history and is only worth discussing because it damaged the concept of the communist utopia and put Marxism in bad grace.

Who can think this way?

Alain Badiou for one; Frank Ruda, Jan Völker, Cecile Winter, Slavoj Žižek, Bülent Somay. Those without links don't appear in Wikipedia.

They're all somnabulent post-materialist "thinkers" who, oddly enough, are either committed to the ideals of the communist revolution, believe that all life must be politicized, or who see themselves as critics of the supremacy of democracy.

Badiou talked about the need to question the very nature of democracy as it is becoming the major ideology. Ruda and Völker presented a philosophical manifesto, inspred from Descartes, which called for the courage and belief to support subjective judgements, as thought itself has been destroyed. Cecile Winters, Maoist, said that only communists could eliminate the State, but to do so required a new movement, one that creates "unrest that makes everything clear", and who sees the need for fifteen or more cultural revolutions to achieve utopia. Somay, apparently a hard-core Leninist, talked about the need to resurrect the working class, means of production and revolution. Žižek was apparently the highlight of the conference: he presented a marathon of anecdotes, jumps from one idea to another, no thesis, just a rambling discussion of terror and violence. Žižek is the pop star of the modern left, a showman who wants to bring new authoritarian "truth projects" to indoctrinate the young: his attempt, for instance, to resurrect Lenin is completely ahistorical, but talks about how the Revolution can succeed with brutality and class destruction.

The journalist, Regina Mönch, who wrote this up, points out in the article that the conference screened Alaxander Dovschenschkos classic work "Earth" from 1930, an aesthetic work about the destruction of the evil kulaks and the victory of the farmers, while ignoring the 10 mn killed by Stalin in the Ukraine.

The ghost of the title of this post is that of communism, in its purest and most devastating form, dedicated simply to the revolution and the destruction of the past in the name of utopia.

The idiots are both the useful idiots and the real idiots: the useful idiots are the hangers-on, the sycophants in the press and culture, who desperately want to believe in the utopia and hence are willfully, deliberately and malevolently blind.

The vampire ideology? An ideology that will not die, regardless of how many times it is shown to be wrong.

The irony of this all: it was Karl Marx who said the history repeats itself, first as tragedy, second as farce.

The collapse of the Soviets and Eastern European communist regimes was the tragedy: this is farce.

The danger, however, is real: given the problems inherent to capitalism, there is the danger that a new communism is reborn that once again promises utopia in exchange for obedience.  We see this is the increasing criticisms - largely incorrect, but reported as if they were correct - that markets do not function, that capitalism always leads to collapse and ruin.

Beware of the beginnings. This vampire may have a stake through its heart, but as all good film-goers know, if the stake is removed, the vampire comes back to life.

Montag, Juni 28, 2010

The True Face of Democrats...

Read this and understand.

There is no excuse for this. None. Either the country is a nation of laws, impartially and fairly applied by courts and lawyers wanting to find the truth, or the rule of law breaks down and we end up with the kind of politics of corruption, of deliberately and with malice aforethought playing racial groups against each other, decisive and destructive, deliberately manipulative and extraordinarily cynical.

But that's the true face of at least this President. I know that there are other Democrats out there. But as long as this is allowed to happen, indeed as long as this is actively promoted, it is a blot on the face of the Democratic Party, one that puts the party to shame.

This isn't about history and payback: this is about the rule of law. Abandon that, and you lose everything else.

The Eternal Return Of The Same...

Nietzsche wrote of the Eternal Return of the Same: to live your life so well that you wouldn't want to do it over in any way. Hence the phrase: live your life as if you were to live it over time and time and time again, unto eternity.

We seem to have that with the Congress right now, but in a completely different manner.

The Eternal Return of the Same is now the introduction and passage of legislation that no one has read, no one understands, and contains things that no one would expect.

Take the newest fiasco: the Dodd-Frank Act, aimed at regulating the financial industry.


The bill represents the triumph of the very regulators and Congressmen who did so much to foment the financial panic, giving them vast new discretion over every corner of American financial markets.

Chris Dodd and Barney Frank, those Fannie Mae cheerleaders, played the largest role in writing the bill. Congressman Paul Kanjorski even offered a motion to memorialize it as the Dodd-Frank Act. It's as if Tony Hayward of BP were allowed to write new rules on deep water drilling.

The Federal Reserve, which promoted the housing mania and failed utterly in its core mission of monitoring Citigroup, will now have more power to regulate more financial institutions and more ability to dictate the allocation of credit.

Just like the health care bill failed to address some of the core problems behind health care costs - tort reform, anyone? - this bill fails to really do anything.

It assigns the choices of what to do to regulators, who, given such discretionary powers, will make a right muddle of things.

The bill doesn't even touch some of the core problems behind the financial troubles we've had - Fannie Mae and Freddie Mac aren't even mentioned - and even the Volcker Rule (requiring banks that accept insurance for deposits to avoid risky investments) is left to regulators to decide what needs to be done.

The irony of the Dodd-Frank Act is that it will probably become law of the land, but is designed, at heart, to undermine the law of the land: by leaving so much up to regulators, implementation of the law will be a decision made by individual regulators, who may or may not apply the law at their discretion.

In other words, a shift from rule by law to increasing rule by men, in this case relatively nameless bureaucrats who are no where responsible for their actions.

The Democrats are showing that they are indeed embodying the Eternal Return of the Same, but in its neurotic incarnation: pass legislation that no one understands but makes them look good to their constituencies and when things go horribly wrong, they can blame those who carried the law out.

In other words, live your life such that you can can do whatever you want to do, avoid blame and follow your lesser instincts. It's what makes the Democrats so distinctive.

Freitag, Juni 25, 2010

Totally Out Of Control...

How out of control is sheer government stupidity?

In California, welfare recipients were using their welfare money to gamble.

See this.

Key quote:

Democrats, who have been fighting to preserve the state's fraying social safety net in the face of a $19-billion budget gap, angrily rejected a Schwarzenegger proposal last month to eliminate the cash portion of welfare.

That was before anyone in Sacramento realized the money could be withdrawn by someone strolling from a poker game to a blackjack table.

Democratic leaders steered away from specifics while discussing calls for reform.

"We will conduct timely legislative oversight," said Senate President Pro Tem Darrell Steinberg (D-Sacramento). "We want to make sure all families are spending the money on the children it's intended to serve."

There is no hope for California at this point: "timely legislative oversight" my ass.

Excuse my vernacular, but this system is fucked.

People on welfare should feel poor and cash-strapped, because they're living off the taxpayers. It should be damned unpopular, embarrassing and something to be avoided. It has a role to play, but this?

There went $1.8mn in welfare benefits over 8 months. Paid for by suckers supporting the indulgent, made possible by the naive and complacent.

This is a clear example of what happens with no adult supervision.

Ye gods.

Donnerstag, Juni 24, 2010

Well, He Would Say That, Wouldn't He...

George Soros, the man who broke the Pound Sterling, is back at it again. This time it's Germany and, according to George, the ridiculous idea that government debt isn't the best thing in the world.

Read it here.

Germany's fiscal policy - which, by the way, is nothing new - isn't a threat to stability and democracy in Europe.

Rather, it's a threat to George Soros and his ability to make money off of other people's troubles.

Good old Paul Krugman is quoted again, saying that he doesn't have any trouble balancing the books in 10 years, but right now, we gotta spend, spend, spend.

What Dr. Krugman doesn't realize is that government debt, if it were to continue to spend, spend, spend, won't be able to be balanced in 10 years, or even 20. We're well past the point where Keynes would say that it is necessary to spend our way out of a recession: we're at the point of wide-spread fiscal irresponsibility.

But that's the way George Soros likes it: get the governments of the world so heavily in debt that they become truly subservient to the financial sector.

Hence: the best argument for fiscal austerity is that George Soros is against it.

Montag, Juni 21, 2010

Just Because You Have A Nobel Prize...

...doesn't mean that anything you say automatically makes sense.

Paul Krugman got his Nobel for working on economic geography. He deserves it because he did do some great work there.

Other than that, he's a polemicist for the Democratic Party, one who, according to the Ombudsman from the New York Times (where he has his column), has a rather ... liberal view of the truthfulness of the facts that he cites (i.e. for the clueless: is willing to twist the facts to fit his story).

Unfortunately for the state of US finances, he has the ear of the President and the Presidential Cabinet.

According to Krugman, the time is ripe for further, full-blown Keynesian pump-priming to "get the economy rolling," regardless of the effect that this has on finances.

Now, from a purely opportunistic political-economy viewpoint, this is right: if the government goes on a spending spree, the economy, in the short term, will pick up and hiring would resume from its still-stand today.

The problem is that Krugman and, by extension, the Obama Administration, severely underestimate the power of markets. Specifically, bond markets.

Let's run a scenario on what would happen if the Obama Administration were to follow the Keynesian path of those advising the Democratic Party (not only Krugman, but Robert Reich, for instance, as well):

1) The US government embarks on, say, a $2 tr "System To Utilize Productive Industry Domestically" or STUPID. STUPID takes government funds and buys domestic products (no imports or foreign-owned companies need to apply) for distribution to low-income cohorts, bypassing retail stores because there shouldn't be any profits made except for the industry (another reason to call this STUPID). The US debt ceiling is moved to $20tr from the current $14tr to accommodate this and other spending plans (since the current debt is $13tr and in order to spend more than that, the debt ceiling has to be moved);

2) This is financed by the sale of US government bonds;

3) With more and more dollars flooding the market and with US debt levels reaching Third-World levels, the bond prices start to fall, driving up the effective interest rate on US bonds. Rating Agencies do not down-rate the US because a) they know the repercussions for their business plans and b) they also fear criminal proceedings brought by the US Department of Justice if they dared to do so. The market, however, realizes that the US has, effectively, entered the Twilight Zone of government finances by exceeding 100% of GDP, and starts to decline to buy US government bonds because the yields are too low for the risk involved;

4) The US Treasury, in order to acquire the dollars needed for STUPID, accepts decreasing bond prices as a proxy for higher interest rates due to the increased perceived risk, and a run starts to develop on bond prices, given that existing holders see their assets start to show serious decline;

5) In order to ensure that there is not a run on US bonds, bond yields are raised;

6) Increases in bond yields percolate through the system, but everyone is happy because the increase in bond yields has now stabilized and the price run has been stopped;

7) The US government has to refinance older bonds and discovers to its dismay that effective interest rates are now 5%, not 0%;

8) STUPID kicks in (hard) and the economy starts to recover, with growth rates for 2011Q1 of 6%;

9) The US government discovers that in order to refinance older bonds, effective interest rates are now 7%, not 5%;

10) Rating agencies are losing all credibility by continuing to give the US government, whose debt now stands at 122% of GDP (despite STUPID), a AAA rating;

11) More US government bonds are refinanced;

12) More US government bonds are refinanced;

13) The amount of tax revenues used for financing US government debt on the bond market goes from currently ca 9.5% of total government spending (#4 position in the budget) to over 20% of total government spending, raising further warning flags for financial observers;

14) Growth in the US continues to increase strongly, 2010 ended up growing by 4% and 2011 looks to be 5%;

15) US government debt continues to accelerate despite increasing tax revenues, as the revenues lag debt growth;

16) More and more US debt issues are short-term as interest rates invert because fewer and fewer bond buyers believe that the US government has any long-term sustainability;

17) The US government discovers that in order to refinance older bonds, effective interest rates are now 12%, not 7%;

18) STUPID effects are over and the economy slows back to 3% growth rates;

19) In 2012, US government debt stands at 210% of GDP and interest servicing is now the largest single position in the US budget;

20) President Obama runs for re-election on a platform that STUPID was just the start, the economy will turn around with STUPID II;

At that point I will stop. The US government has blown its wad, shot off its munitions, gone the whole nine yards and has gotten so deeply into debt that it will be unable to finance the retirement of the Baby Boomers under any circumstances.

Keynesian pump-priming, if you bother to read Keynes, is only sensible when it is a one-time thing to get our of a business cycle hole and get people back to work. It must be accompanied with debt retirement when the business cycle is on an upswing.

It cannot and will not work if you are already heavily burdened with debt because the political class cannot understand that permanent deficit spending doesn't mean that you can permanently ratchet up government spending (permanent deficit spending means that it's not necessarily a good idea to have long-term government surpluses, as this means that government, unless it is actively retiring debt, is collecting too much in the way of taxes.

What Krugman believes, basically, is that if you are severely in debt because you have been consuming too much, then get another credit card, use it to pay off all the debt, and then keep on getting credit cards with higher and higher limits because if you have to repay, the whole house of cards falls apart and that means you'll never realize your dreams of utopia.

We can already see the face of what will happen if the Euro remains weak: Krugman, in today's Handelsblatt (German equivalent of the WSJ), says that Europeans will be amazed what Congress will demand from them if the Euro were to fall to parity.

He doesn't realize that the Europeans don't dictate the value of the Euro: financial markets do.

The fiscal policy of the Obama Administration is sell bonds and spend: their only solution is to continue to spend and damn the consequences. It's almost as if they know they will be trounced in 2010 and that President Obama will be a one-term wonder in 2012, leaving the grown-ups who come in (note I do not say Republicans...) a true fiscal ruin that will require some rather unpalatable changes in US fiscal policy, one aimed at getting the Democrats back into power in 2012.

Germany is supposed to give up its export surplus and start having their consumers spend like there is no tomorrow. It is the ultimate conceit of the misinformed and willfully ignorant that everyone is supposed to play the game according to their game plan.

The world is not America. Fiscal irresponsibility doesn't disappear "because I said it does."

Ye gods.

Dienstag, Juni 15, 2010

But The Pension Fund Was Just Sitting There...

That's a line, of course, from one of the early Doonesbury comic strips, where Duke, the character that Trudeau modeled on Hunter S. Thompson, uses the Pension Fund to finance hiring a Samoan for the football team, which Duke was coaching. Duke's idea was to surprise opponent teams with this huge player and use judicially placed bets to ensure that the money could be won back before anyone noticed.

The problem was that the Samoan was uncontrollable, and Duke spoke these immortal lines: "Get me the dart gun..."

Now, and a hat tip to Zero Hedge, we seem to find a modern-day variance of this, with the Illinois Teacher's Pension Fund entering the arena for sheer and utter insanity.

Go read the article for a taste of the future.

Fundamentally, this is a prime example of private profits and public losses: the fiduciaries of the fund - who apparently, even if they are nice folks, really are playing the wrong game without the necessary training and competence (and the 32 hours of training they get is a hoot) - are heavily into extremely leveraged plays, knowing that at the end of the day, if all goes belly up, the taxpayers will assume the losses. Given that, there is no incentive for them not to go broke.

And go broke they will. They lost money in years the market went up, and are underfunded to the tune of over $40bn, or roughly 60% of their total liabilities: this means that they have only 40% of the money they are supposed to have at this point in time, which normally means that school teacher's pensions are, largely speaking, worth less than half of what the future pensioners think they are going to get.

Solution? Bet everything that they can pull themselves out of the hole that they've dug. As an informed observer put it, the portfolio is aimed purely at generating the highest possible returns without consideration of risk.

That's fine if you're a trust fund kid playing with your inheritance from Grandpa: if everything goes down the toilet, you might have to work for a living, but at least you're not going to screw over innocents. This is far from the case: here the fund is going for broke, with no less than over 80% of its investments in highly risky instruments, and Illinois TSR, the fund, is on the risk-carrying side of the OTC deals it is investing in, cashing in the risk fees to take on the risk. To repeat: the Illinois TSR isn't merely investing in risky instruments, it is generating them.

The leverage? According to Illinois TSR, the notional value of their OTC business is $1.1bn, but the market value is $5mn. So far, they're losing money.

Now, to be clear, there is nothing preventing them from doing this. No legal obstacles, no clearly laid out investment guides, zilch.

But to paraphrase Hadrian: Just because you can doesn't mean you should.

Recourse for the teachers if it all collapses? They can sue the fiduciaries. That's it. The government - which means the taxpayers - will have to turn things around for them.

Hence: we continue to see, all around us, continuing evidence that no one, really no one, appears to be actually looking at what is happening in the world and adjusting their behavior appropriately. A pension fund should be invested in very long-term, prosaic investments generating modest returns, well funded and with moderate liquidity.

Instead it's uncontrollable. Where is that dart gun when you need it?

Montag, Juni 14, 2010

The Face of Institutionalized Corruption...

Go read this.

It is nothing but the attempt to institutionalize corruption in the US, ensuring that the Fed will become a servant of politically correct appointees who will ensure that any Fed lending meets politically determined socially and politically correct lending practices.

If this passes, it means the end of the Fed and the degradation of the American banking system to serve the "needs" of the Democratic Party (and you can bet that once political appointees are in there, they'll be there for life to "ensure their independence," meaning that the looting will continue.

Ye gods.

Key quote:

Having recently lived through a financial mania and panic caused in part by political pressure for "affordable housing," Congress will now order regulators to allocate credit by race and gender. Isn't the point of this financial reform supposed to be to make regulators better judges of systemic risks, which means focusing on financial safety and soundness? If the Waters provision passes, federal regulators will have to put racial and gender lending at the top of their watch list when they do their checks on the banks and hedge funds they are regulating.

That way lies madness.

It is also symptomatic of the Democratic Party at this point in time. After destroying California, they're looking for additional targets to screw up.

The Fed is being told to lie back and enjoy it:

Fed regional presidents are often the main proponents of tight monetary policy. The presence of a diversity czar is one way Congress and the White House can intimidate these regional presidents to go along with the policies they favor. No Fed bank president will want to take the risk of being hauled before Congress to answer a report that the banks under his jurisdiction aren't racially or gender sensitive enough in their lending.

This political sway is already clear from how meekly the Fed as an institution is bowing to the Waters provision. The Senate bill doesn't have the same provision, so it could be removed in the House-Senate conference that begins this week. But we're told that Fed officials in Washington have told the regional banks to keep quiet because it can't be stopped and Ms. Waters and the House might punish them if they try. In other words, the political intimidation is already obvious even before the provision becomes law.

The joke here, as well, is that the Democrats set up a straw man to facilitate this:

Blame for this Congressional intrusion goes to Treasury Secretary Tim Geithner and former Goldman Sachs executive Stephen Friedman for orchestrating the selection of former Goldman economist William Dudley as Mr. Geithner's replacement at the New York Fed.

Mr. Friedman chaired the search committee to replace Mr. Geithner even as he increased his ownership of Goldman shares. Though this violated Fed rules, Fed Vice Chairman Donald Kohn and the Board of Governors gave Mr. Friedman a conflict-of-interest waiver. Congress has now seized on this to justify putting the New York Fed chief on a Washington political leash.

This is political thuggery at its most subtle: it remains political thuggery.

Welcome to Chicago politics, folks: just put your wallets, jewelry and watches into the bag and no one gets hurt.

Mittwoch, Juni 09, 2010

In Case You Were Wondering...

...how the Left can push for programs that not only make no economic sense, but actually damage the economy and work against what their purported goals are, read this.

Turns out that Liberals and Progressives really are that dumb.

Peruse the comments to that: the only reply from those shown to know virtually nothing about economics is ad hominem attacks.

Liberals and Progressives don't need facts. If anything, the empirical world must be changed. The hell with economics if it gets in our way.

Sigh. The Gods of the Copybook Headings will return with a vengeance.

Sonntag, Juni 06, 2010

Swine Cycle Reappears...

Part of the business cycle can be explained as being based in the swine cycle. This is the part of the business cycle that will never go away, and you'll see my point in a moment.

For those who aren't economists, the swine cycle is a simple explanation - but a very accurate one - of what happens when farmers raise pigs for profit and sell them on a market that always clears (supply is such that there remains no demand for a given point in time t) and where there are no price controls.

To make things simple, let's postulate 100 farmers that each produce 10 swine for sale in period t. Total demand is 1 000 swine, there are 1 000 swine produced, and farmers have fairly similar size productivity and resources. It costs 100 to raise a swine to selling age (hence 1 000 swine cost 100 000 per time period) and the profit is 5%, i.e. selling price is 105 000. Other farm activities may or may not have more attractive profit margins. Consumers like their pork, and consume everything produced at this price point; however, there are asymmetric price elasticities that no one knows, i.e. when prices increase, demand decreases and, inversely, when prices decrease, demand increases, but both are non-linear and not easily mapped out (and vary from t to t).

Now, while each farmer produce 10 swine in period t, it takes 6t to raise new swine (i.e. increase their inventory), so farmers entering the market (or increasing their inventory) need 6 time periods t to raise 10 swine for sale, with an inventory, in the pipeline, of 70 swine. If they decide to get out, they sell off their inventory as demanded until they have sold all swine, if they decide to get back in, it takes 6 time periods to have enough swine to sell. They can sell off their inventory all at once if they so desire, but don't have to.

I was originally going to illustrate this with numbers, but because of the variability of farmer behavior, I'd have to break out a spreadsheet, and it's a lovely Sunday out. Hence: doing the calculations are an exercise left to the reader.

What happens? Some farmers decide that swine farming isn't that much fun, and sell off their entire herd at once, increasing the supply for a very brief period, driving down prices. Faced with lowered prices and hence lowered profits, more farmers decide to get out of the swine business, and after several periods of this, the number of swine on the market has fallen significantly below demand. The market tightens up, prices start to rise, farmers start thinking that maybe swine aren't so bad after all, especially given the higher prices. So most of the farmers head back into the business and several periods later, there are so many swine on the markets that prices start to fall again, leading to a permanent cyclical pattern that is, oddly enough, called the swine cycle.

Depending on how farmer behavior is modeled, this can be a strong, erratic, chaotic cycle or a smooth and well-behaved and modulated cycle. Up to the reader to calculate.

So, what does this have to do with anything?

Simple: the important thing is cycles happen because there is a time lag between changes in demand and changes in supply, and changes in supply will cause changes in demand based on prices. In the swine cycle, this is relatively short, but there are other markets that behave, largely, the same, but with rather greater time lags.

This is why this and this is happening.

Real estate is going to tank over the next 20-30 years as supply - housing placed on the market to sell - and demand (especially in the face of strongly tightened credit requirements) find a new equilibrium, one that clears the market of surplus housing (aka baby boomers selling off their houses because it is their nest egg as equity for fixed income for retirement purposes).  That's what you can see in the chart in the first link: how the cycle is hitting different regions right now, based on the cyclical position of these regions in the business cycle for housing. Given the long lead times, the amount of capital involved, and the sincere hope of all of those retiring baby boomers that they can outfox the decline by timing it well (ensuring that lots of housing will remain off the market, re-entering just at those times when the market starts to recover, effectively killing off, time and time again, any price recovery), this is going to a swine cycle of epic proportions.

Education, especially higher education, hasn't had many cycles. In the US it is hitting its first major cycle (go see the second link) and it's going to follow the swine cycle, since academia has acquired such heavy costs (thousands of very well paid tenured professors in fields that are pure luxuries and yes, gender and womyn studies, I am talking about y'all, along with most of the humanities beyond the basics) that it is now driving a generation of consumers - I'm going to call them Generation B (for baby boomer grandchildren and broke because of university-related debt that no longer disappears when you declare bankruptcy) - into relative poverty because they either ended up studying something that only the indulgent and idle would bother to study or studied something no longer in demand (or, more accurately, studied because they were supposed to do so based on an assumption that getting any sort of college education automagically resulted in higher life-time wages).

The result will be financial collapse of many universities and colleges that expanded rapidly because credit was easily available. Go into debt for $100k to get your law degree? No problem, easily financed, and you thought that specializing in humanitarian law was idealistic and noble, not knowing that 90% of such lawyers never earn anything near what is needed to pay back that $100k. Or go into tort law, ignoring the fact that hundreds were doing the same thing and market demand meant that you would never be able to pay back those loans unless you were absolutely brilliant - or, more specifically, you found clients who believed this - or extremely lucky.

If you base going into serious debt in the hope you get lucky, play the lottery. It's not nearly as expensive and, given you apparent lack of understanding about statistics, it's about as good as you're gonna get.

Hence: knowing the swine cycle and, by extension, the business cycle isn't merely a good idea: not knowing about it means you are going to make major mistakes, ones that you can't get out of.

For Generation B, the kids growing up right now, the swine cycle, as well as most of economics, isn't really that hard to learn. Ignore it at your financial peril. Your parents and grandparents have ignored it, and as a result, you're kind of screwed. See what ignoring economics does to you?

Sheer, Basic Incompetence...

I once applied for a job with the State Department. Went through the written test, went through the orals, wasn't hired. No hard feelings, there. Seriously.

Because I'd hate to be associated with the fools running State today.

Read this.

Seriously? These folks can't even get the very basic stuff right? This is on the level of complete and total amateur failure.

Thank goodness there aren't any serious problems in the world, like tension between North and South Korea after the Norks sank a South Korean ship (and I for one will be happy the day when we only have one Korea....), or rabid peace activists getting killed by Israeli troops defending themselves, or ...


My bad.

My God, we are screwed.

Dienstag, Juni 01, 2010

On The Israeli Blockade, Bording of Ships, and International Law...

Those loudly declaiming that Israel's seizing of the ships that tried to break the blockade yesterday was an act of piracy, or that the ships were in international waters and hence were not allowed to be attacked, don't know what they are talking about. Period.

The current international law on conflicts at sea is the San Remo Manual on International Law Applicable to Armed Conflicts at Sea, from 12 June 1994, which can be accessed here.

I'm going to quote them here:



93. A blockade shall be declared and notified to all belligerents and neutral States.

94. The declaration shall specify the commencement, duration, location, and extent of the blockade and the period within which vessels of neutral States may leave the blockaded coastline.

95. A blockade must be effective. The question whether a blockade is effective is a question of fact.

96. The force maintaining the blockade may be stationed at a distance determined by military requirements.

97. A blockade may be enforced and maintained by a combination of legitimate methods and means of warfare provided this combination does not result in acts inconsistent with the rules set out in this document.

98. Merchant vessels believed on reasonable grounds to be breaching a blockade may be captured. Merchant vessels which, after prior warning, clearly resist capture may be attacked.

99. A blockade must not bar access to the ports and coasts of neutral States.

100. A blockade must be applied impartially to the vessels of all States.

101. The cessation, temporary lifting, re-establishment, extension or other alteration of a blockade must be declared and notified as in paragraphs 93 and 94.

102. The declaration or establishment of a blockade is prohibited if:

(a) it has the sole purpose of starving the civilian population or denying it other objects essential for its survival; or
(b) the damage to the civilian population is, or may be expected to be, excessive in relation to the concrete and direct military advantage anticipated from the blockade.

103. If the civilian population of the blockaded territory is inadequately provided with food and other objects essential for its survival, the blockading party must provide for free passage of such foodstuffs and other essential supplies, subject to:

(a) the right to prescribe the technical arrangements, including search, under which such passage is permitted; and
(b) the condition that the distribution of such supplies shall be made under the local supervision of a Protecting Power or a humanitarian organization which offers guarantees of impartiality, such as the International Committee of the Red Cross.

104. The blockading belligerent shall allow the passage of medical supplies for the civilian population or for the wounded and sick members of armed forces, subject to the right to prescribe technical arrangements, including search, under which such passage is permitted.

According to this, the applicable law - and please do correct me if I am wrong here - the Israelis have done everything according to the rule of law. The blockade was properly declared; the Israelis have provided the civilian population of the blockaded territory with adequate provisions, it is not starving the civilian population or denying it other objects essential for survival, and it is not applying the blockade in an excessive manner; the decision made to capture the ships was made based on military requirements.



146. Neutral merchant vessels are subject to capture outside neutral waters if they are engaged in any of the activities referred to in paragraph 67 or if it is determined as a result of visit and search or by other means, that they:

(a) are carrying contraband;
(b) are on a voyage especially undertaken with a view to the transport of individual passengers who are embodied in the armed forces of the enemy;
(c) are operating directly under enemy control, orders, charter, employment or direction;
(d) present irregular or fraudulent documents, lack necessary documents, or destroy, deface or conceal documents;
(e) are violating regulations established by a belligerent within the immediate area of naval operations; or
(f) are breaching or attempting to breach a blockade.

Capture of a neutral merchant vessel is exercised by taking such vessel as prize for adjudication.

147. Goods on board neutral merchant vessels are subject to capture only if they are contraband.

148. Contraband is defined as goods which are ultimately destined for territory under the control of the enemy and which may be susceptible for use in armed conflict.

149. In order to exercise the right of capture referred to in paragraphs 146(a) and 147, the belligerent must have published contraband lists. The precise nature of a belligerent's contraband list may vary according to the particular circumstances of the armed conflict. Contraband lists shall be reasonably specific.

150. Goods not on the belligerent's contraband list are 'free goods', that is, not subject to capture. As a minimum, 'free goods' shall include the following:

(a) religious objects;
(b) articles intended exclusively for the treatment of the wounded and sick and for the prevention of disease;
(c) clothing, bedding, essential foodstuffs, and means of shelter for the civilian population in general, and women and children in particular, provided there is not serious reason to believe that such goods will be diverted to other purpose, or that a definite military advantage would accrue to the enemy by their substitution for enemy goods that would thereby become available for military purposes;
(d) items destined for prisoners of war, including individual parcels and collective relief shipments containing food, clothing, educational, cultural, and recreational articles;
(e) goods otherwise specifically exempted from capture by international treaty or by special arrangement between belligerents; and
(f) other goods not susceptible for use in armed conflict,

151. Subject to paragraph 152, a neutral vessel captured in accordance with paragraph 146 may, as an exceptional measure, be destroyed when military circumstances preclude taking or sending such a vessel for adjudication as an enemy prize, only if the following criteria are met beforehand:

(a) the safety of passengers and crew is provided for; for this purpose the ship's boats are not regarded as a place of safety unless the safety of the passengers and crew is assured in the prevailing sea and weather conditions, by the proximity of land, or the presence of another vessel which is in a position to take them on board;
(b) documents and papers relating to the captured vessel are safeguarded; and
(c) if feasible, personal effects of the passengers and crew are saved.

Every effort should be made to avoid destruction of a captured neutral vessel. Therefore, such destruction shall not be ordered without there being entire satisfaction that the captured vessel can neither be sent into a belligerent port, nor diverted, nor properly released. A vessel may not be destroyed under this paragraph for carrying contraband unless the contraband, reckoned either by value, weight, volume or freight, forms more than half the cargo. Destruction shall be subject to adjudication.

152. The destruction of captured neutral passenger vessels carrying civilian passengers is prohibited at sea. For the safety of the passengers, such vessels shall be diverted to an appropriate port in order to complete capture provided for in paragraph 146.

So, let's review: because they were attempting to break the blockade, the ships became legitimate targets and were legitimately captured; the Israelis avoided the destruction of the captured vessels and violated Paragraph 67 of the San Remo Manual.

Which is this:


Neutral merchant vessels

67. Merchant vessels flying the flag of neutral States may not be attacked unless they:

(a) are believed on reasonable grounds to be carrying contraband or breaching a blockade, and after prior warning they intentionally and clearly refuse to stop, or intentionally and clearly resist visit, search or capture;
(b) engage in belligerent acts on behalf of the enemy;
(c) act as auxiliaries to the enemy s armed forces;
(d) are incorporated into or assist the enemy s intelligence system;
(e) sail under convoy of enemy warships or military aircraft; or
(f) otherwise make an effective contribution to the enemy s military action, e.g., by carrying military materials, and it is not feasible for the attacking forces to first place passengers and crew in a place of safety. Unless circumstances do not permit, they are to be given a warning, so that they can re-route, off-load, or take other precautions.

68. Any attack on these vessels is subject to the basic rules in paragraphs 38-46.

69. The mere fact that a neutral merchant vessel is armed provides no grounds for attacking it.

And let's cover paragraphs 38-46:


38. In any armed conflict the right of the parties to the conflict to choose methods or means of warfare is not unlimited.

39. Parties to the conflict shall at all times distinguish between civilians or other protected persons and combatants and between civilian or exempt objects and military objectives.

40. In so far as objects are concerned, military objectives are limited to those objects which by their nature, location, purpose or use make an effective contribution to military action and whose total or partial destruction, capture or neutralization, in the circumstances ruling at the time, offers a definite military advantage.

41. Attacks shall be limited strictly to military objectives. Merchant vessels and civil aircraft are civilian objects unless they are military objectives in accordance with the principles and rules set forth in this document.

42. In addition to any specific prohibitions binding upon the parties to a conflict, it is forbidden to employ methods or means of warfare which:

(a) are of a nature to cause superfluous injury or unnecessary suffering; or
(b) are indiscriminate, in that:
(i) they are not, or cannot be, directed against a specific military objective; or
(ii) their effects cannot be limited as required by international law as reflected in this document.

43. It is prohibited to order that there shall be no survivors, to threaten an adversary therewith or to conduct hostilities on this basis.

44. Methods and means of warfare should be employed with due regard for the natural environment taking into account the relevant rules of international law. Damage to or destruction of the natural environment not justified by military necessity and carried out wantonly is prohibited.

45. Surface ships, submarines and aircraft are bound by the same principles and rules.


46. With respect to attacks, the following precautions shall be taken:

(a) those who plan, decide upon or execute an attack must take all feasible measures to gather information which will assist in determining whether or not objects which are not military objectives are present in an area of attack;
(b) in the light of the information available to them, those who plan, decide upon or execute an attack shall do everything feasible to ensure that attacks are limited to military objectives;
(c) they shall furthermore take all feasible precautions in the choice of methods and means in order to avoid or minimize collateral casualties or damage; and
(d) an attack shall not be launched if it may be expected to cause collateral casualties or damage which world be excessive in relation to the concrete and direct military advantage anticipated from the attack as a whole; an attack shall be cancelled or suspended as soon as it becomes apparent that the collateral casualties or damage would be excessive.

Now, let's take a look at what may not be done:


Classes of vessels exempt from attack

47. The following classes of enemy vessels are exempt from attack:

(a) hospital ships;
(b) small craft used for coastal rescue operations and other medical transports;
(c) vessels granted safe conduct by agreement between the belligerent parties including:
(i) cartel vessels, e.g., vessels designated for and engaged in the transport of prisoners of war;
(ii) vessels engaged in humanitarian missions, including vessels carrying supplies indispensable to the survival of the civilian population, and vessels engaged in relief actions and rescue operations;
(d) vessels engaged in transporting cultural property under special protection;
(e) passenger vessels when engaged only in carrying civilian passengers;
(f) vessels charged with religious, non-military scientifc or philanthropic missions, vessels collecting scientific data of likely military applications are not protected;
(g) small coastal fishing vessels and small boats engaged in local coastal trade, but they are subject to the regulations of a belligerent naval commander operating in the area and to inspection;
(h) vessels designated or adapted exclusively for responding to pollution incidents in the marine environment;
(i) vessels which have surrendered;
(j) life rafts and life boats.

Conditions of exemption

48. Vessels listed in paragraph 47 are exempt from attack only if they:

(a) are innocently employed in their normal role;
(b) submit to identification and inspection when required; and
(c) do not intentionally hamper the movement of combatants and obey orders to stop or move out of the way when required.

Loss of exemption

Hospital ships
49. The exemption from attack of a hospital ship may cease only by reason of a breach of a condition of exemption in paragraph 48 and, in such a case, only after due warning has been given naming in all appropriate cases a reasonable time limit to discharge itself of the cause endangering its exemption, and after such warning has remained unheeded.

50. If after due warning a hospital ship persists in breaking a condition of its exemption, it renders itself liable to capture or other necessary measures to enforce compliance.

51. A hospital ship may only be attacked as a last resort if:

(a) diversion or capture is not feasible;
(b) no other method is available for exercising military control;
(c) the circumstances of non-compliance are sufficiently grave that the hospital ship has become, or may be reasonably assumed to be, a military objective; and
(d) the collateral casualties or damage will not be disproportionate to the military advantage gained or expected.

All other categories of vessels exempt from attack
52. If any other class of vessel exempt from attack breaches any of the conditions of its exemption in paragraph 48, it may be attacked only if:

(a) diversion or capture is not feasible;
(b) no other method is available for exercising military control;
(c) the circumstances of non-compliance are sufficiently grave that the vessel has become, or may be reasonably assumed to be, a military objective; and
(d) the collateral casualties or damage will not be disproportionate to the military advantage gained or expected.

So, under the San Remo Manual, the ships are "innocent" and may not be attacked if they meet criteria under Paragraph 47 c ii and 47 e:

(ii) vessels engaged in humanitarian missions, including vessels carrying supplies indispensable to the survival of the civilian population, and vessels engaged in relief actions and rescue operations;
(e) passenger vessels when engaged only in carrying civilian passengers;

Do the ships in question meet these criteria?

No. The supplies carried were not indispensable to the survival of the civilian population, and we know that they weren't carrying civilian passengers exclusively.

The ones in violation of international treaty are those who tried to break the blockade: their lawyers served them very poorly if they thought that this would protect them. Only by making up the fiction that the population of Gaza is starving can there be any justification for what they did.

As usual, the Big Lie is being told.

Israel handled properly and according to international treaty. The groups behind the attempt to break the blockade did not.

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