TBR News May 27, 2010
The Voice of the White House
Washington, D.C., May 27, 2010: “Tired of both the drain in human lives and, more important to the Obama administration, money from the pubic coffers, a series of new (and some old) plans have been prepared and are now being put into action. This involves the use of U.S. troops to defend the southern border with Mexico and a return to the Rumsfeld plan of rebuilding the U.S. military as a sort of elite strike force rather than a mass army. The reasoning behind these concepts? Three position papers show that the increasing arrogance of the Mexican drug dealers coupled with an unprecedented flood of illegals have overwhelmed Arizona, and California, and Texas, federal and state law enforcement agencies. The drug lords control the borders, enter at will and will shoot to kill any interference from any source. U.S. military units stationed at Arizona’s Ft. Huachucha have been shot at repeatedly but hitherto have been under strict orders not to return fire. Heavily armed caravans of Mexican drug shipments are pouring into Arizona and Southern California in significant numbers so the concept of using the military to seal the porous borders off and to inflict heavy casualties on the invaders
One unmanned observational drone run by the U.S. Navy out of Corpus Christi, Texas, will make flights back and forth across the border, relaying information about invaders to troops stations all along that border. The orders will be to interdict the invaders, be they illegals or drug shipments, peacefully if possible but with extreme force is necessary. Actually, a few heavily-armed SUVs occupants sent to see Baby Jesus in delicious, ready-to-eat frgments would be wonderous and beneficial to behold. We can count of squeals of rage from the left-wing press but the overwhelming support of the white populations of all the border states for strong and militant action rules the day. After all the New York Times has been bleating piteously about Darfur for years and no one cares so moans about our vibrant brothers from the South have little chance of influencing anyone but their staff writers. And as to the reorientation of the military, this is seen as twofold in benefit: The first, and obvious, benefit would be to save money and assuage public attitudes towards an endless war that kills young Americans and to forge, or reforge, a weapon to be used against governments that support, tacitly or directly, Arab terrorists. One of the biggest sinners here is the beloved Saudi Arabia whose citizen-terrorists were solely responsible for the 9/11 attacks. The new plan would be to train clandestine units into strike, kill and destroy any such havens, regardless of the international havoc that might result. Countries high on the list of those who harbor would be, of course, Saudi Arabia, followed by Pakistan, North Korea, the obvious Iranian administration, several African countries such as Somalia. These operations would be patterned on the British commando raids of the Second World War but the gathering of intelligence practiced by the former would be replaced in the case of the latter by a direct and deadly strike, not at local military bases but at the very seats of government. A few dead high-level Mexican, Saudi or Iranian top officials would have a tendency to calm down others.”
Saudi King slams intelligence leak
May 28, 2010
PressTV
The King of Saudi Arabia has strongly criticized the country’s intelligence officials for disclosing a secret document, which shows Riyadh has links with terrorist activities carried out by al-Qaeda in Iraq.
According to a report by Iraq’s Buratha news agency on Friday, King Abdullah bin Abdul Aziz ordered a special committee to investigate the intelligence leak and inform him about those liable in the case.
Some 37 members of Saudi’s intelligence service, accused of being behind the leakage of the confidential document, were also reported to have been arrested.
The condemnation by the Saudi monarch comes as the Iraqi news agency disclosed the amount of money transferred by Saudi government officials to al-Qaeda in Iraq.
Saudi officials are also reported to send explosives and weapons to the terrorist groups.
Meanwhile, Secretary General of the Saudi National Security Council Prince Bandar Bin Sultan Bin Abdul Aziz is said to be the main guilty behind the case.
The report came as earlier last week, Saudi army officer Abdullah al-Qahtani was arrested in Iraq over charges of planning a terrorist attack during the upcoming FIFA World Cup in South Africa.
The Saudi national entered Iraq in 2004 and was involved in militant operations carried out by al-Qaeda.
AGB/CS/MMA
Ukraine drops Nato membership pursuit
Ukraine formally stopped pursuing NATO membership as an aim, with its foreign minister declaring the issue had been taken off the policy agenda.
May 28, 2010
The Telegrapn/UK
Membership of the U.S.-led military alliance was ardently pursued by the pro-Western ex-president Viktor Yushchenko, despite widespread indifference in the country and lack of encouragement from the alliance itself.
But under the new leaderhip of Viktor Yanukovich, who came to power in February and has tilted the ex-Soviet republic back towards Moscow in several areas of policy, has made clear NATO membership was being pushed on to the back burner as an objective.
He has equally told Moscow that Ukraine will stick by its policy of staying out of military blocs. He has not responded to an invitation by Russian President Dmitry Medvedev to join the Russia-led CSTO security grouping.
“Ukraine will continue developing its relations with the alliance, but the question of membership is now being removed from the agenda,” the foreign minister, Kostyantyn Gryshchenko, was quoted by Interfax news agency as saying.
“This corresponds to the way things are today,” he added in comments to a foreign policy coordination meeting.
Interfax quoted Mr Gryshchenko as saying that NATO membership did not have the support of the majority of the population and had a “destructive effect” on state policy.
But his words indicated that Ukraine, whose Crimean peninsula is home to Russia’s Black Sea fleet on an extended lease until 2042, would continue to take part in military and civil emergency programmes with NATO countries.
Russia says Iran was deaf to its nuclear proposals
May 28, 2010
Reuters
In one of the worst rows between the two countries in decades, Iranian President Mahmoud Ahmadinejad on Wednesday admonished the Kremlin for bowing to what he said was U.S. pressure to agree to sanctions.
Ahmadinejad bluntly warned President Dmitry Medvedev to be more cautious or risk being seen as an enemy of the Islamic Republic. The Kremlin told the Iranian president to refrain from “political demagoguery”.
When asked by a reporter about Ahmadinejad’s tirade, Russian Foreign Minister Sergei Lavrov said he viewed the comments as “emotional”.
Underscoring Moscow’s growing impatience with Iran, Lavrov said that Russian leaders had tried repeatedly to resolve the dispute but that Tehran had failed to respond properly.
“To our great regret, during years — not just months — Iran’s response to these efforts has been unsatisfactory, mildly speaking,” Lavrov said at a briefing in Moscow.
Lavrov also said that a nuclear fuel swap deal agreed between Iran, Turkey and Brazil would be an important breakthrough if implemented.
“We hail this step,” he said. “Indeed, if it is fully implemented, it will… really create very important preconditions for improving the atmosphere for resuming talks.”
Later on Thursday Lavrov phoned Iranian Foreign Minister Manouchehr Mottaki to discuss the sanctions resolution and the nuclear fuel-swap deal, the foreign ministry said in a statement.
“The Russian side pledged active cooperation in pushing forward the negotiation process… with a focus on the need to find a mutually acceptable solution in the political-diplomatic arena as soon as possible,” the statement said.
(Reporting by Dmitry Solovyov and Conor Humphries, editing by Guy Faulconbridge and Michael Roddy)
Scientists Challenge ‘Breakthrough’ on Fossil Skeleton
May 27, 2010
by John Noble WIlford
New York Times
The fossil skeleton known as Ardi, hailed in some quarters as the scientific “breakthrough” of 2009, has now drawn critics who dispute claims that the species lived in dense woodlands rather than grassy plains, which have been long considered the favored habitat of early prehumans and perhaps account for their transition to upright walking. Another scientist has stepped forward to challenge Ardi’s classification as a member of the human lineage after the divergence from African apes. Its primitive anatomy, he contends, suggests a species predating the common ancestor of the human and chimpanzee family trees.
Two critiques are being published Friday in the journal Science, along with responses from the research team that reported last October the first detailed description and interpretation of the 4.4-million-year-old skeleton of Ardipithecus ramidus, or Ardi. The specimen, an adult female, probably stood four feet tall and was more than a million years older than Lucy, the famous skeleton of the species Australopithecus afarensis.
An international team led by Tim D. White of the University of California, Berkeley, discovered the fossils in 1992. It took 17 years to reconstruct and analyze the skeleton and related specimens and also to study the habitat in which the species had lived, in what is now Ethiopia. The team’s comprehensive report appeared in Science, which called it the “breakthrough of the year.”
It was perhaps inevitable that a discovery of such magnitude should draw critical fire, as Dr. White himself acknowledged this week in an e-mail message. “It was bound to generate some give and take,” he said. “So from that point of view, this is just part of normal science.”
The question of Ardi’s habitat was raised by Thure E. Cerling, a geochemist at the University of Utah, and seven other geologists and anthropologists. They said they used the White team’s own data for soils and silica from ancient plants, and found it did not support an interpretation that Ardi lived in thick woods.
Instead, Dr. Cerling’s group said, “We find the environmental context of Ar. ramidus at Aramis to be represented by what is commonly referred to as tree- or bush-savanna, with 25 percent or less woody canopy cover.”
The critics said that a landscape with a minimum of 60 percent trees and shrubs was required to meet the definition of a closed-canopy woodland. In other words, the findings did not, as Dr. White’s team inferred, overturn what is known as the savanna hypothesis associated with the evolution of upright walking — bipedalism — as a distinctive characteristic setting prehumans apart from ancestral apes.
Members of Dr. Cerling’s group said they were not advocating this conventional hypothesis, simply noting that Ardi data supported it rather than contradicted it.
In its published response, the White team said the critics ignored “the totality of the fossil, geological and geochemical evidence” presented in its original papers. There were indeed grasses at the site, the team noted, but the abundant fossils there were of mammals adapted to wooded life, and this established Ardi as “a denizen of the closed habitats,” not the open savanna.
Francis H. Brown, also a Utah geologist and an experienced researcher of early human origins who was a co-author of the Cerling paper, said in a recent interview, “We’re trying to set the record straight — we don’t think open savanna grassland is what Ardi lived in, nor is it a closed wooded environment.”
Another scientist, Esteban E. Sarmiento of the Human Evolution Foundation in East Brunswick, N.J., challenged the identification of Ar. ramidus as a hominid — a species of the human lineage that arose from an ancestor in common with the branch leading to modern chimpanzees.
“Sufficient support for this claim, however, is lacking,” Dr. Sarmiento, a vertebrate zoologist, wrote in a one-page article in Science. He cited the Ardi skeleton’s primitive aspects and molecular and anatomical studies that he said suggested Ar. ramidus “predates the human/African ape divergence.”
In its rebuttal, Dr. White’s team noted that Dr. Sarmiento based his argument on biomolecular estimates of the hominid-ape divergence at three million to five million years ago. These dates are unreliable, the team wrote, and other fossil discoveries have pushed the divergence time back sometime before six million years ago. Dr. White said in his e-mail message that Dr. Sarmiento had failed “to recognize as significant the multiple and independent features of the Ardipithecus cranium, dentition and skeleton,” which he added “uniformly align this primate with all later hominids, including Lucy, to the exclusion of any other ape, living or fossil.”
A few anthropologists have expressed doubts, as yet unpublished, about Ardi’s place in the human lineage. Richard G. Klein, a Stanford University anthropologist and another co-author of the Cerling paper, said in an interview, “I frankly don’t think Ardi was a hominid, or bipedal.”
Daniel E. Lieberman, a paleoanthropologist at Harvard who was neither a critic nor defender in the dispute, said he was “convinced that Ardi is a hominid.” But he added, “Everybody has questions about the kind of hominid it is, and about what this has to say about the last common ancestor of hominids and chimps.”
Operators of Drones Are Faulted in Afghan Deaths
May 29, 2010
by Dexter Filkins
New York Times
: KABUL, Afghanistan — The American military released a scathing report on Saturday on the deaths of 23 Afghan civilians, saying that “inaccurate and unprofessional” reporting by a team of Predator drone operators helped lead to an inadvertent airstrike this year on a group of innocent men, women and children.
The report said that four American officers, including a brigade and battalion commander, had been reprimanded, and that two junior officers had also been disciplined. Gen. Stanley A. McChrystal, who apologized to President Hamid Karzai after the attack, announced a series of training measures intended to reduce the chances of similar events.
The episode, in which three vehicles were attacked and destroyed in February, illustrated the extraordinary sensitivity to the inadvertent killing of noncombatants by NATO forces. Since taking command here last June, General McChrystal has made the protection of Afghan civilians a priority, and he has sharply restricted the use of airstrikes.
The overwhelming majority of civilian deaths in Afghanistan are caused by insurgents, but the growing intensity of the fighting, and the big push by American and NATO forces, has sent civilian casualties to their highest levels since 2001. General McChrystal’s concern is that NATO forces, in their ninth year of operations in Afghanistan, are rapidly wearing out their welcome. Opinion polls here appear to reflect that.
“When we make a mistake, we must be forthright,” General McChrystal said in a statement. “And we must do everything in our power to correct that mistake.”
The civilian deaths highlighted the hazards in relying on remotely piloted aircraft to track suspected insurgents. In this case, as in many others where drones are employed by the military, the people steering and spotting the targets sat at a console in Creech Air Force Base, Nev.
The attack occurred on the morning of Feb. 21, near the village of Shahidi Hassas in Oruzgan Province, a Taliban-dominated area in southern Afghanistan. An American Special Operations team was tracking a group of insurgents when a pickup and two sport utility vehicles moving through the area began heading in their direction.
The Predator operator reported seeing only military-age males in the truck, the report said. The ground commander concurred, the report said, and the Special Operations team asked for an airstrike. An OH-58D Kiowa helicopter fired Hellfire missiles and rockets, destroying the vehicles and killing 23 civilians. Twelve others were wounded.
The report, signed by Maj. Gen. Timothy P. McHale, found that the Predator operators in Nevada, as well as the ground commander in the area, made several grave errors that led to the airstrikes. The “tragic loss of life,” General McHale found, was compounded by the failure of the ground commander and others to report in a timely manner that they might have killed civilians.
“The strike occurred because the ground force commander lacked a clear understanding of who was in the vehicles, the location, direction of travel, and the likely course of action of the vehicles,” General McHale wrote.
That fatal lack of understanding, General McHale wrote, stemmed from “poorly functioning command posts” in the area that failed to provide the evidence that there were civilians in the trucks. In addition, General McHale blamed the “inaccurate and unprofessional reporting of the Predator crew operating out of Creech A.F.B., Nevada, which deprived the ground force commander of vital information.”
Because of that, General McHale said, the officer on the ground believed that the vehicles, then seven miles away, contained insurgents who were trying to reinforce the fighters he and his men were tracking.
Predator drones contain powerful cameras that beam real-time images to their operators. In Afghanistan and Pakistan, Predators and other such aircraft are often used to track and kill suspected insurgents, sometimes with their own missiles. The C.I.A. operates its own drone operation separate from the military’s.
In this case, the military Predator operators in Nevada tracked the convoy for three and a half hours but failed to notice any of the women who were riding along, the report said. Americans on the ground did spot two children near the vehicles, the report said, but the drone operators insisted that the convoy contained only military-age men.
“Information that the convoy was anything other than an attacking force was ignored or downplayed by the Predator crew,” General McHale wrote.
Immediately after the initial attack, the Kiowa helicopter’s crew spotted brightly colored clothing at the scene, and, suspecting that civilians might have been in the trucks, stopped firing. After the attack, the Special Operations team turned over the bodies to local Afghans. Even so, General McHale said, officers on the ground failed to report the possibility of civilian casualties in a timely manner, despite clear evidence suggesting that something like that might have happened.
The report, which had previously been classified, contains several words, phrases and sections that are blacked out.
On receiving the results of the investigation, General McChrystal recommended a battery of additional training exercises for military personnel coming to Afghanistan, and additional training for those already here. In addition to reprimanding the four officers and admonishing the other two, General McChrystal asked Air Force commanders to open an investigation into the Predator operators.
See the Pretty Birdie?
Here we have an excellent example of how some sections of the American media distort the truth. First, we have a soothing story in Rupert Murdoch’s once-respectable Wall Street Journal in which a Mr. Perez assures his readers that the allegations of illegal immigrant crime in Arizona is pure fiction. This piece of nonsense is followed by the actual crime statistics, obtained from three different Arizona law enforcement sources. It is up to the reader to determine who is lying. Ed.
Violent Crime Falls Sharply
Latest Decline, of 5.5%, Challenges Belief That Rate Rises During Recessions
May25, 2010
by Evan Perez
Wall Street Journal
Violent crime fell significantly last year in cities across the U.S., according to preliminary federal statistics, challenging the widely held belief that recessions drive up crime rates.
The incidence of violent crimes such as murder, rape and aggravated assault was down 5.5% from 2008, and 6.9% in big cities. It fell 2.4% in long-troubled Detroit and plunged 16.6% in Phoenix, despite a perception of rising crime that has fueled an immigration backlash.
The early figures, from the Federal Bureau of Investigation, indicate a third straight year of decreases, along with a sharply accelerating rate of decline.
“It represents a break in the pattern of the relationship between crime increases and economic downturns,” said Richard Rosenfeld, criminology professor at the University of Missouri-St. Louis. Violent crime rose nearly 5% in 1991, the FBI said.
The FBI said property crime fell 4.9% last year, according to the early data, from more than 13,000 police departments.
The declines were most pronounced in cities with populations over one million. Cities with fewer than 25,000 people saw violent crime fall 4.7%.
William Bratton, a former police chief in Los Angeles and New York who is now chairman of a New York consulting firm, said early crime figures from cities around the country this year indicated that violent crime continued to fall. Mr. Bratton said the link between crime and the economy has been disproved in recent years.
“Policing has advanced. We’ve gotten better at spotting crime trends more quickly. We can respond much more quickly,” he said. He expressed concern, however, that with budget cuts hitting police departments, crime could rise again, though he said he doesn’t expect a surge like the one seen in the 1980s.
Police officials, too, credited better policing for the decline. But researchers haven’t yet assigned a cause. “It’s possible [economic] stimulus funds, which allowed police to maintain or increase staffing, are responsible,” Mr. Rosenfeld said. “It’s also possible that it’s because this recession is not coinciding with an expansion in street drug markets.”
The rate of decline has accelerated in recent years. In 2007, violent crime fell 0.7% from the prior year. In 2008, it fell an additional 1.9%.
But it often takes time for falling crime rates to affect popular perceptions of how safe the streets are. Researchers note that it took years for the dramatic crime reductions in the latter part of the 1990s to register with lawmakers and voters.
In Phoenix, police spokesman Trent Crump said, “Despite all the hype, in every single reportable crime category, we’re significantly down.” Mr. Crump said Phoenix’s most recent data for 2010 indicated still lower crime. For the first quarter of 2010, violent crime was down 17% overall in the city, while homicides were down 38% and robberies 27%, compared with the same period in 2009.
Arizona’s major cities all registered declines. A perceived rise in crime is one reason often cited by proponents of a new law intended to crack down on illegal immigration. The number of kidnappings reported in Phoenix, which hit 368 in 2008, was also down, though police officials didn’t have exact figures.
Expectations that crime would rise in the recession were cited by Justice Department officials last year to support increased aid to police departments. Some gun owners cited an expected crime increase for the surge in weapons sales, though the perception that President Barack Obama would clamp down on gun rights also played a role.
The Justice Department received $4 billion in stimulus funding last year, much of which it spent on grants to police departments. “After the stimulus funds run out, it remains to be seen what happens to crime rates,” Mr. Rosenfeld said.
Arizona’s Real Crime rates January-June 2010
Source:
Crime Number of cases % increase over 2009
Murder: 16,692 34%
Rape: 93,934 29%
Robbery: 417,122 47%
Assault: 865,947 65%
Drug Offenses 1,035,987 86%
Ilegal Immigrant
Iinvolvement 876,008 57%
Insider Trading Is Perfectly Legal – But Only For Members Of The U.S. Congress
Did you know that insider trading is perfectly legal in the United States? Well, not for 99.9% of the population. It is actually only a very small percentage of the population that can legally indulge in insider trading – the members of the United States Congress. In fact, a law that would ban insider trading by members of Congress has been stalled for years on Capitol Hill. So why wouldn’t lawmakers in Washington D.C. want to apply the same rules to themselves that apply to the rest of us? After all, how are we supposed to respect the integrity of those “serving” in Congress when they are playing by an entirely different set of rules? The American people aren’t stupid. They can see what is going on. The truth is that there is a reason why approval ratings for Congress are at an all-time low.
The sad thing is that this issue has gotten very little attention in the mainstream media. Nobody seems really that upset about it. But it is a travesty that our lawmakers can legally make trades in the open market based on inside information that they have gained by being in positions of authority. As the Wall Street Journal recently explained, they can generally make all the money they want off of insider information without any fear of prosecution because “insider-trading laws generally do not apply to lawmakers, leaving them free to trade on nonpublic information.”
But members of the U.S. Congress are generally in a greater position to influence the fortunes of individual companies than almost anyone else. For example, certain members of the U.S. Congress may know that certain legislation is going to be introduced that would have a dramatic impact on the economic fortunes of a particular industry or corporation. What would stop those members of Congress from making very profitable trades in the marketplace based on that information?
Nothing. Nothing at all.
So, is there any evidence that members of Congress have been involved in this sort of activity?
Well, there is at least one study that seems to indicate that members of the U.S. Congress have been much more successful in the stock market than members of the general public….
A 2004 study of the results of stock trading by United States Senators during the 1990s found that that senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.
Of course Congress could stop all of this by simply passing a law that bans insider trading by our lawmakers.
But they refuse to do it.
Instead, it is likely that our “leaders” will continue to make millions of dollars by betting against the U.S. economy and very few people will even raise an objection.
In the upcoming Wall Street sequel, Gordon Gekko makes a statement that seems very appropriate for the world in which we now live….
“Someone reminded me I once said ‘Greed is good’ – now it seems it’s legal”
Prime mortgages going bust at an alarming rate
May 19, 2010
by Kevin G. Hall
McClatchy Newspapers
WASHINGTON — Aftershocks from the nation’s financial crisis continue rumbling through the housing sector as fixed-rate mortgages held by the safest borrowers accounted for nearly 37 percent of new foreclosures during the first three months of this year, the Mortgage Bankers Association reported Wednesday.
Additionally, more than one in 10 homeowners were behind on their mortgage payments in the first quarter — a record, the association said. That’s up from 9.47 percent in the last three months of 2009.
Prime loans, those made to the safest borrowers with the highest credit scores, account for almost 66 percent of outstanding U.S. mortgages, so their rising foreclosure numbers are troubling.
“People with higher scores are defaulting at rates we have not seen in the past,” said Jay Brinkmann, the chief economist for the trade group.
The slide into foreclosure of the strongest borrowers is partly a function of the nation’s unemployment rate, which is now 9.9 percent. The Great Recession has mowed down white-collar and blue-collar workers alike.
In the first quarter, almost 21 percent of foreclosure starts were for adjustable-rate mortgages held by credit-worthy borrowers. Fixed and adjustable-rate prime mortgages combined accounted for more than 57 percent of all new foreclosures.
The MBA’s data also showed that more than 6 percent of fixed-rated prime mortgages were delinquent from January to March and more than 13 percent of all homeowners with adjustable-rate prime mortgages were behind on payments.
California — the most populous state, which accounts for more than 13 percent of all U.S. mortgages — seems to have turned a corner in housing problems. It held 21 percent of all foreclosure starts during the first quarter of 2009 but only 14.5 percent in the first quarter of 2010.
Florida improved but only slightly, from 16.1 percent of first-quarter 2009 foreclosure starts to 15.3 percent in the same period this year.
“We’re actually starting to see improvement in California. Florida is a little slower,” Brinkmann said.
Some analysts saw the report as a glass half full, partly because of a wide variation between the numbers when they were adjusted statistically for seasonal variation. Many numbers, when not seasonally adjusted, showed a slight improvement over the final quarter of 2009. These included a drop in delinquent loans.
“I’d say we’re probably hitting a turning point, but if you call me in six months, who knows?” said Patrick Newport, an economist who specializes in housing for forecaster IHS Global Insight. He pointed to the improving labor market and a drop in serious delinquencies reported by Fannie Mae, the mortgage finance giant.
One potentially troubling trend emerged: foreclosure starts rising in states that aren’t commonly viewed as housing-bubble states. Washington state posted the largest increase in foreclosure starts overall in 2010’s first quarter versus a year earlier, followed by Maryland, Oregon and Georgia. Washington state also posted the largest rise in foreclosure starts that involved prime and subprime adjustable-rate mortgages.
In another troubling trend, 42 states and the District of Colombia saw increased foreclosure starts for homes that were carrying FHA loans, which are considered among the safest. Only nine states, including Alaska and Idaho, saw foreclosure starts for FHA loans fall.
The rise in prime-mortgage foreclosures is important in the context of the sweeping revamp of financial regulation that’s moving through Congress. Big financial institutions are trying to defeat a provision that would require them to retain 5 percent of the mortgages that they underwrite or sell into a secondary market to be packaged into mortgage bonds. They argue that they shouldn’t have to do this for prime fixed-rate loans, but the latest data show that these loans aren’t immune to delinquency and foreclosure.
The data also suggest that the Obama administration’s efforts to reverse the rate of delinquencies and foreclosures haven’t been effective. The Treasury Department reported Monday that lenders or loan servicers had permanently modified only 68,000 mortgages in April, while more than 277,000 modification offers were canceled and presumed to be back on foreclosure tracks.
“It is jolting to see the persistence of the foreclosure epidemic,” Michael Calhoun, the president of the Durham, N.C.-based Center for Responsible Lending, said in a statement
Read more: http://www.mcclatchydc.com/2010/05/19/94464/prime-mortgages-going-bust-at.html#ixzz0ogzz72BG
MERS Responds
I received a comment today on an essay I wrote a few weeks back called “The Special Drawer”. Usually when I get these comments it is some sort of spam filled with all sorts of hyperlinks.
Imagine my surprise when I looked at the author and saw it came from the Communications Department at MERSCORP Inc., the parent company of the Mortgage Electronic Registration System.
I’m flattered that I, a lowly blogger, should warrant the attention of such a powerful and rich company as MERSORP Inc. Given that I have dedicated this site to exposing their fraudulent nature to all who will listen, I feel it is only fair I should give MERS a chance to respond. Therefore, I reprint their message in full.
“When a borrower signs the mortgage security instrument at closing, they grant and convey the legal title to the mortgage to Mortgage Electronic Registration Systems Inc. (MERS) and MERS is the mortgagee. As the agent for the promissory note owner, upon instructions from the owner, MERS will commence a foreclosure. The mortgage instrument states that MERS has the right to foreclose and sell the property. Courts around the country have repeatedly upheld and recognized this right.
MERS provides a valuable service to consumers by making servicer information available to homeowners whose loans are registered on the MERS® System. MERS also informs the borrower when the owner of their loan changes. The servicer information is available at no cost to the borrower via a toll-free helpline and a special website.”
It wasn’t signed. Just the return address: communications@mersinc.org 64.34.210.127
As I read it, I just started laughing for you see, I know them too well and know how they like to twist words – ooo sorry – spin words so they can be whatever they want or need to be depending upon whom they are talking to.
So let’s parse this well intentioned document and see exactly what it is saying, shall we?
“When a borrower signs the mortgage security instrument at closing, they grant and convey the legal title to the mortgage to Mortgage Electronic Registration Systems, Inc (MERS) …..”
OK, let’s stop a second. Yes, that’s true. If you still have your mortgage documents, you will probably find that one page document you signed which says exactly that, only in more words. But this is an ambiguous statement for in order for any entity or person to be on the mortgage, they need to have skin in the game. MERS doesn’t.
Let’s call this a true, yet misleading statement.
Back to the text.
“ … and MERS is the Mortgagee.”
Ooo, sorry, have to stop again. Let’s take a look at that phrase, MERS is the Mortgagee. What does that mean? According to Dictionary.com (I can’t afford Black’s Law Dictionary) a mortgagee is “an entity that lends money to a borrower for the purpose of purchasing a piece of real property.”
According to several precedent setting case law decisions, MERS is NOT a mortgagee as they never lend money. As a matter of fact, in MERS v Nebraska Department of Banking & Finance, a state appellate court decision, MERS argued quite strongly among other things to NOT be recognized as a mortgagee. You see, they were trying to avoid paying the fees associated with being a mortgage bank. It took them at least four tries, but finally, the State Appellate court recognized that since they didn’t lend any money (and other reasons included in the decision) they indeed, were not a mortgage bank and could not be a mortgagee.
So this is a false statement. Back to the text.
“As the Agent for the promissory note owner …”
I’m sorry, I have to stop again. Let’s look at a promissory note holder. Dictionary.com defines a promissory note as “a written, dated and signed two-party instrument containing an unconditional promise by the maker to pay a definite sum of money to a payee on demand or at a specified future date.” So a promissory note holder is someone who holds that note. He either lent you the money, or he bought the note from the original maker. One way or another, this guy is responsible for the money you got and agreed to pay back. In short, another name for the mortgagee.
And an agent? An agent is defined as “an individual or firm that places securities transactions for clients.” In other words, someone who acts on another’s behalf.
So in just three words, MERS has changed their definition of themselves from a mortgagee, which they clearly are not, to an agent, which, again, according to MERS v Nebraska Department of Banking & Finance, they also are not. Remember now, this is the court case which lays out quite succinctly in MERS’s own words how they wish to be defined.
Another false statement.
But what is worse, they can’t decide which false statement they want to be the truth. Am I making sense here? Are they a mortgagee or are they an agent for the mortgagee? They can’t be both and in truth, they are neither. Poor MERS, they are so confused. It’s hard to keep it all straight. And in just three words too~!
Back to the text.
“ … upon instructions from the owner, MERS will commence a foreclosure.”
Ummmm, just one thing and it is sort of the whole problem, who is the owner? MERS has, by their own admission and demands in court, no actionable interest in title. That means they cannot do anything.
Let’s call this one misleading.
Again, to the text:
“The mortgage instrument states that MERS has the right to foreclose and sell the property.”
This is true. The mortgage instrument does state this. That doesn’t mean they do, though. This document conflicts with state land and recordation statutes. Hmmmm. So part of this is true, part of this is false because of other information. How about one true and one misleading?
“Courts around the country have repeatedly upheld and recognized this right.”
Ouch, boy howdy, have they ever got that wrong. State and local courts in Vermont, New York, Iowa, Idaho, Nevada, California, New Jersey, Florida, Arizona, Hawaii, Ohio, Arkansas, Kansas, Illinois (did I miss any?) have all come out strongly saying MERS has absolutely no actionable interest in title. Oh, and let’s not forget, just recently, MERS had their head handed to them in Minnesota, the only state which actually has statutes allowing the MERS system of fraudulent assignments just two weeks ago. Repeatedly upheld the right? I don’t think so.
False statement
*whew* Finally got to the end of the first paragraph. Let’s take a quick tally.
Number of Sentences – 4
True statements – 2
False statements – 3
Misleading statements – 4
I’m impressed. One more paragraph to go.
“MERS provides a valuable service to consumers by making servicer information available to homeowners whose loans are registered on the MERS® System.
One sentence, one piece of spin, one false statement. Valuable service must be evaluated in the eye of the beholder and since MERS is the one beholding this, I have to give this one to them.
One for the true column.
But I ask you, does anyone not know who their mortgage service provider is? The mortgage service provider is the entity you write your check to every month. If you don’t know who they are, try being a little bit late with your payment. It won’t be long before they let you know who they are. They are so nice they will give you their name, address and telephone number, all without MERS’s help. So is it a valuable resource for the consumer?
Let’s call that misleading.
The false statement comes in when they suggest they will tell you who your service provider is. As we all know from last week’s missive, the website does not provide reliable information. Enter in their search criteria and they may or may not provide accurate information. I have the printouts on four random houses showing they do not. The information is worthless.
False statement, what do you think?
“MERS also informs the borrower when the owner of their loan changes.”
I’ve never received notice of changes in ownership. I’ve been notified in changes of mortgage service providers, but never changes in ownership. This is the crux of the entire MERS problem. They don’t keep track of changes in ownership or if they do, they refuse to tell anyone when asked about it in court. Given the high dollar value of that knowledge, you would think they would be a bit more forthcoming, wouldn’t you?
False statement. We’re almost done. Back to the text.
“The servicer information is available at no cost to the borrower via a toll-free helpline and a special website.”
True, well, sort of. There is a website, there is a toll free number, they are both free to the borrower, but the information on the website is worthless, I haven’t tried to call the toll free number so I don’t know about that.
I don’t know. One true and one misleading?.
Okay, Final score?
Number of Sentences – 7
True Statements – 4
False Statements – 5
Misleading Statements – 6
Eleven false or misleading statements and four pieces of nuanced truth in seven sentences.
I want to thank the kind person from the communications department of MERSCORP for providing me with such delightful entertainment on what was an otherwise boring Friday afternoon. I tried to write them back but that particular email address doesn’t take inbound email. Therefore, I would like to close with this:
Dear MERSORP Inc. Friend,
Thank you so much for the entertaining comment you sent to me on a previous blog post. I wish I could thank you more directly but perhaps this will find its way to you the same way “The Special Drawer” found its way to you.
As you can see, I published it in its entirety.
Should you ever be moved enough to send me anything else, I promise I shall publish it in its entirety as well.
It’s only fair.
Editor,
Chink in the Armor
The False Claims for Palestine
by Issa Nakhleh
Palestine was known as the land of Canaan. It was inhabited by Canaanite tribes which had migrated from the Arabian Peninsula and Mesopotamia. They were living in at least 31 kingdoms throughout the country. They were a well-developed people. It was the Romans who called the land Palestina, a word derived from the Philistines, who were of Aegean origin and entered the land of Canaan in the 13th century B.C. They never left the country and had a great influence on its history.
The Israelites entered the land of Canaan as invaders in the 13th century B.C. They conquered parts of the country, mainly in the mountainous regions in the areas known today ad Judaea and Samaria. They lived side by side with the Canaanite tribes, intermarried with them and were greatly affected by them, because the Canaanites were more advanced economically, culturally and socially.
The Israelites established a kingdom, first under King Saul, later on under King David and King Solomon. This kingdom was a multinational and multireligious state. Its population was composed of Canaanites, Israelites and Philistines. The people worshipped Jehovah and many Canaanite deities. This kingdom was not at all times independent, but was a satellite at different times to the Egyptians, the Syrians and the Assyrians.
After the reign of King Solomon the kingdom was divided into the kingdom of Israel in the north and the kingdom of Judah in the south.
The kingdom of Israel, which was also known as the kingdom of Samaria, was conquered by the Assyrians in 722 B.C. The Assyrians brought many captive peoples and took many of the inhabitants of the kingdom to Assyria.
The Babylonians conquered both the kingdom of Israel and the kingdom of Judah in 586 B.C. and transferred many thousands of the population of the two kingdoms to Babylonia. Some of these people who were transferred returned to Judah and Samaria, but the bulk of those who were transferred settled permanently in Babylonia and intermarried with the indigenous people of Babylonia.
The kingdom of Israel barely lasted two hundred years, and the kingdom of Judah only lasted for three hundred years.
The land of Canaan was conquered by the Greeks in 330 B.C. The Greeks settled in the country and greatly influenced the population culturally, religiously and socially. The Greek language became the dominant language in the country, although the bulk of the population was speaking Aramaic, which is a derivative of the Arab language. Aramaic, in different dialects, was spoken in the countries known today as Syria, Lebanon and Palestine
The Romans conquered the land of Canaan in 63 B.C. They named the country Palestine and they named the provinces Judea, Samaria, Galileee, Philistia, and Idumea. During the Roman ear, the people still were speaking Aramaic and Greek. The Hebrew language, which was only a dialect of the Canaanitish language, was only used by scribes, but never by the Israelites, the Canaaites or the Philistines. During the Roman era, the majority of the Palestinian population, whether Canaaites, Israelites or Edomites, adopted Christianity. The Apostles were of Israelite and Canaaite origin. At the beginning of Christianity, the followers of Jehovah and Canaanite deities persecuted the Christian minority. When the Christians became a majority, and when Christianity became the official religion of the Roman Empire, the Christians persecuted Jews and pagans who did not adopt their religion. Thereafter, many of the Jews migrated to neighboring countries, which are known today as Lebanon, Syria, Egypt, Iraq, Arabia, and North Africa. Overall, Palestine from the 4th century until the 19th century had very few Jews.
The Old Testament, called by Jews, the Torah, and the Talmud, were developed mostly in Babylonia, The Palestine Talmud was partly developed in Palestine and partly in Babylonia. It can be stated that the tenets of Judaism were developed outside of Palestine. Neither the Old Testament nor the Talmud has any exclusive connection with Palestine, and both have more ties with Babylonia that with the land of Canaan, or Palestine. Furthermore, after the 13th century A.D. the center of Talmudic Judaism was transferred to the non-Semitic Khazar converts to Judaism of Eastern and Central Europe.
The Zionist Jews who invaded Palestine and set up the State of Israel in 1948 were Ashkenazi Jews. The Jews of today are not Semitic, but are a people of Turkish origin who were living in the kingdom of the Kahzars and had converted to Judaism by the 9th century A.D. The king, nobles and members of the government and the great majority of the population adopted Judaism. The Jewish population in the domain of the Khazars between the seventh and tenth centuries were very considerable. When the Russians invaded the kingdom of the Khazars, the Khazar Jews spread throughout Russia and Central and Eastern Europe. It could be safely stated, according to authorities on the subject, that 90% of the Jews today are Ashkenazim of Khazar origin, that they are not Semitic, and that their ancestors have never had any connection with Palestine whatsoever. The Jews of the Maghreb are mostly Berbers who adopted Judaism. They are not Semites, and their ancestors had no connection with Palestine. The Jews of Spain were mostly descendants of Berber Jews who migrated to Andalusia during the Arab domination of Spain.
The Palestinians of today, who call themselves Arabs, are Muslims and Christians. They are the descendants of all the races and nations which have lived in and conquered Palestine from the time of the Canaaites until the British occupation of Palestine in 1918. They are a cohesion of all of those races. The Christians among them are descendants of the first Christians, who adopted Christianity at the time of Jesus and his Apostles. The Muslims are those who were either Christians or pagans who adopted Islam after the Arab conquest of Palestine in the 7th century A.D.,
For the above reasons, it can be seen that Zionist claims to Palestine cannot be justified on historical, ethnic, legal or religious grounds, and that therefore, Zionist claims are unfounded.
Issa Nakhles was a Palestinian Christian, a graduate of London University with an LL.B degree, was a former Minister Plenipotentiary and subsequent Legal Advisor to the United Nations.
Germany, Greece and Exiting the Eurozone
May 18, 2010
by By Marko Papic, Robert Reinfrank and Peter Zeihan
Marketoracle
Rumors of the imminent collapse of the eurozone continue to swirl despite the Europeans’ best efforts to hold the currency union together. Some accounts in the financial world have even suggested that Germany’s frustration with the crisis could cause Berlin to quit the eurozone — as soon as this past weekend, according to some — while at the most recent gathering of European leaders French President Nicolas Sarkozy apparently threatened to bolt the bloc if Berlin did not help Greece. Meanwhile, many in Germany — including Chancellor Angela Merkel herself at one point — have called for the creation of a mechanism by which Greece — or the eurozone’s other over-indebted, uncompetitive economies — could be kicked out of the eurozone in the future should they not mend their “irresponsible” spending habits.
Rumors, hints, threats, suggestions and information “from well-placed sources” all seem to point to the hot topic in Europe at the moment, namely, the reconstitution of the eurozone whether by a German exit or a Greek expulsion. We turn to this topic with the question of whether such an option even exists.
The Geography of the European Monetary Union
As we consider the future of the euro, it is important to remember that the economic underpinnings of paper money are not nearly as important as the political underpinnings. Paper currencies in use throughout the world today hold no value without the underlying political decision to make them the legal tender of commercial activity. This means a government must be willing and capable enough to enforce the currency as a legal form of debt settlement, and refusal to accept paper currency is, within limitations, punishable by law.
The trouble with the euro is that it attempts to overlay a monetary dynamic on a geography that does not necessarily lend itself to a single economic or political “space.” The eurozone has a single central bank, the European Central Bank (ECB), and therefore has only one monetary policy, regardless of whether one is located in Northern or Southern Europe. Herein lies the fundamental geographic problem of the euro.
Europe is the second-smallest continent on the planet but has the second-largest number of states packed into its territory. This is not a coincidence. Europe’s multitude of peninsulas, large islands and mountain chains create the geographic conditions that often allow even the weakest political authority to persist. Thus, the Montenegrins have held out against the Ottomans, just as the Irish have against the English.
Despite this patchwork of political authorities, the Continent’s plentiful navigable rivers, large bays and serrated coastlines enable the easy movement of goods and ideas across Europe. This encourages the accumulation of capital due to the low costs of transport while simultaneously encouraging the rapid spread of technological advances, which has allowed the various European states to become astonishingly rich: Five of the top 10 world economies hail from the Continent despite their relatively small populations.
Europe’s network of rivers and seas are not integrated via a single dominant river or sea network, however, meaning capital generation occurs in small, sequestered economic centers. To this day, and despite significant political and economic integration, there is no European New York. In Europe’s case, the Danube has Vienna, the Po has Milan, the Baltic Sea has Stockholm, the Rhineland has both Amsterdam and Frankfurt and the Thames has London. This system of multiple capital centers is then overlaid on Europe’s states, which jealously guard control over their capital and, by extension, their banking systems.
Despite a multitude of different centers of economic — and by extension, political — power, some states, due to geography, are unable to access any capital centers of their own. Much of the Club Med states are geographically disadvantaged. Aside from the Po Valley of northern Italy — and to an extent the Rhone — southern Europe lacks a single river useful for commerce. Consequently, Northern Europe is more urban, industrial and technocratic while Southern Europe tends to be more rural, agricultural and capital-poor.
Introducing the Euro
Given the barrage of economic volatility and challenges the eurozone has confronted in recent quarters and the challenges presented by housing such divergent geography and history under one monetary roof, it is easy to forget why the eurozone was originally formed.
The Cold War made the European Union possible. For centuries, Europe was home to feuding empires and states. After World War II, it became the home of devastated peoples whose security was the responsibility of the United States. Through the Bretton Woods agreement, the United States crafted an economic grouping that regenerated Western Europe’s economic fortunes under a security rubric that Washington firmly controlled. Freed of security competition, the Europeans not only were free to pursue economic growth, they also enjoyed nearly unlimited access to the American market to fuel that growth. Economic integration within Europe to maximize these opportunities made perfect sense. The United States encouraged the economic and political integration because it gave a political underpinning to a security alliance it imposed on Europe, i.e., NATO. Thus, the European Economic Community — the predecessor to today’s European Union — was born.
When the United States abandoned the gold standard in 1971 (for reasons largely unconnected to things European), Washington essentially abrogated the Bretton Woods currency pegs that went with it. One result was a European panic. Floating currencies raised the inevitability of currency competition among the European states, the exact sort of competition that contributed to the Great Depression 40 years earlier. Almost immediately, the need to limit that competition sharpened, first with currency coordination efforts still concentrating on the U.S. dollar and then from 1979 on with efforts focused on the deutschmark. The specter of a unified Germany in 1989 further invigorated economic integration. The euro was in large part an attempt to give Berlin the necessary incentives so that it would not depart the EU project.
But to get Berlin on board with the idea of sharing its currency with the rest of Europe, the eurozone was modeled after the Bundesbank and its deutschmark. To join the eurozone, a country must abide by rigorous “convergence criteria” designed to synchronize the economy of the acceding country with Germany’s economy. The criteria include a budget deficit of less than 3 percent of gross domestic product (GDP); government debt levels of less than 60 percent of GDP; annual inflation no higher than 1.5 percentage points above the average of the lowest three members’ annual inflation; and a two-year trial period during which the acceding country’s national currency must float within a plus-or-minus 15 percent currency band against the euro.
As cracks have begun to show in both the political and economic support for the eurozone, however, it is clear that the convergence criteria failed to overcome divergent geography and history. Greece’s violations of the Growth and Stability Pact are clearly the most egregious, but essentially all eurozone members — including France and Germany, which helped draft the rules — have contravened the rules from the very beginning.
Mechanics of a Euro Exit
The EU treaties as presently constituted contractually obligate every EU member state — except Denmark and the United Kingdom, which negotiated opt-outs — to become a eurozone member state at some point. Forcible expulsion or self-imposed exit is technically illegal, or at best would require the approval of all 27 member states (never mind the question about why a troubled eurozone member would approve its own expulsion). Even if it could be managed, surely there are current and soon-to-be eurozone members that would be wary of establishing such a precedent, especially when their fiscal situation could soon be similar to Athens’ situation.
One creative option making the rounds would allow the European Union to technically expel members without breaking the treaties. It would involve setting up a new European Union without the offending state (say, Greece) and establishing within the new institutions a new eurozone as well. Such manipulations would not necessarily destroy the existing European Union; its major members would “simply” recreate the institutions without the member they do not much care for.
Though creative, the proposed solution it is still rife with problems. In such a reduced eurozone, Germany would hold undisputed power, something the rest of Europe might not exactly embrace. If France and the Benelux countries reconstituted the eurozone with Berlin, Germany’s economy would go from constituting 26.8 percent of eurozone version 1.0’s overall output to 45.6 percent of eurozone version 2.0’s overall output. Even states that would be expressly excluded would be able to get in a devastating parting shot: The southern European economies could simply default on any debt held by entities within the countries of the new eurozone.
With these political issues and complications in mind, we turn to the two scenarios of eurozone reconstitution that have garnered the most attention in the media.
Scenario 1: Germany Reinstitutes the Deutschmark
The option of leaving the eurozone for Germany boils down to the potential liabilities that Berlin would be on the hook for if Portugal, Spain, Italy and Ireland followed Greece down the default path. As Germany prepares itself to vote on its 123 billion euro contribution to the 750 billion euro financial aid mechanism for the eurozone — which sits on top of the 23 billion euros it already approved for Athens alone — the question of whether “it is all worth it” must be on top of every German policymaker’s mind.
This is especially the case as political opposition to the bailout mounts among German voters and Merkel’s coalition partners and political allies. In the latest polls, 47 percent of Germans favor adopting the deutschmark. Furthermore, Merkel’s governing coalition lost a crucial state-level election May 9 in a sign of mounting dissatisfaction with her Christian Democratic Union and its coalition ally, the Free Democratic Party. Even though the governing coalition managed to push through the Greek bailout, there are now serious doubts that Merkel will be able to do the same with the eurozone-wide mechanism May 21.
Germany would therefore not be leaving the eurozone to save its economy or extricate itself from its own debts, but rather to avoid the financial burden of supporting the Club Med economies and their ability to service their 3 trillion euro mountain of debt. At some point, Germany may decide to cut its losses — potentially as much as 500 billion euros, which is the approximate exposure of German banks to Club Med debt — and decide that further bailouts are just throwing money into a bottomless pit. Furthermore, while Germany could always simply rely on the ECB to break all of its rules and begin the policy of purchasing the debt of troubled eurozone governments with newly created money (“quantitative easing”), that in itself would also constitute a bailout. The rest of the eurozone, including Germany, would be paying for it through the weakening of the euro.
Were this moment to dawn on Germany it would have to mean that the situation had deteriorated significantly. As STRATFOR has recently argued, the eurozone provides Germany with considerable economic benefits. Its neighbors are unable to undercut German exports with currency depreciation, and German exports have in turn gained in terms of overall eurozone exports on both the global and eurozone markets. Since euro adoption, unit labor costs in Club Med have increased relative to Germany’s by approximately 25 percent, further entrenching Germany’s competitive edge.
Before Germany could again use the deutschmark, Germany would first have to reinstate its central bank (the Bundesbank), withdraw its reserves from the ECB, print its own currency and then re-denominate the country’s assets and liabilities in deutschmarks. While it would not necessarily be a smooth or easy process, Germany could reintroduce its national currency with far more ease than other eurozone members could.
The deutschmark had a well-established reputation for being a store of value, as the renowned Bundesbank directed Germany’s monetary policy. If Germany were to reintroduce its national currency, it is highly unlikely that Europeans would believe that Germany had forgotten how to run a central bank — Germany’s institutional memory would return quickly, re-establishing the credibility of both the Bundesbank and, by extension, the deutschmark.
As Germany would be replacing a weaker and weakening currency with a stronger and more stable one, if market participants did not simply welcome the exchange, they would be substantially less resistant to the change than what could be expected in other eurozone countries. Germany would therefore not necessarily have to resort to militant crackdowns on capital flows to halt capital trying to escape conversion.
Germany would probably also be able to re-denominate all its debts in the deutschmark via bond swaps. Market participants would accept this exchange because they would probably have far more faith in a deutschmark backed by Germany than in a euro backed by the remaining eurozone member states.
Reinstituting the deutschmark would still be an imperfect process, however, and there would likely be some collateral damage, particularly to Germany’s financial sector. German banks own much of the debt issued by Club Med, which would likely default on repayment in the event Germany parted with the euro. If it reached the point that Germany was going to break with the eurozone, those losses would likely pale in comparison to the costs — be they economic or political — of remaining within the eurozone and financially supporting its continued existence.
Scenario 2: Greece Leaves the Euro
If Athens were able to control its monetary policy, it would ostensibly be able to “solve” the two major problems currently plaguing the Greek economy.
First, Athens could ease its financing problems substantially. The Greek central bank could print money and purchase government debt, bypassing the credit markets. Second, reintroducing its currency would allow Athens to then devalue it, which would stimulate external demand for Greek exports and spur economic growth. This would obviate the need to undergo painful “internal devaluation” via austerity measures that the Greeks have been forced to impose as a condition for their bailout by the International Monetary Fund (IMF) and the EU.
If Athens were to reinstitute its national currency with the goal of being able to control monetary policy, however, the government would first have to get its national currency circulating (a necessary condition for devaluation).
The first practical problem is that no one is going to want this new currency, principally because it would be clear that the government would only be reintroducing it to devalue it. Unlike during the Eurozone accession process — where participation was motivated by the actual and perceived benefits of adopting a strong/stable currency and receiving lower interest rates, new funds and the ability to transact in many more places — “de-euroizing” offers no such incentives for market participants:
The drachma would not be a store of value, given that the objective in reintroducing it is to reduce its value.
The drachma would likely only be accepted within Greece, and even there it would not be accepted everywhere — a condition likely to persist for some time.
Reinstituting the drachma unilaterally would likely see Greece cast out of the eurozone, and therefore also the European Union as per rules explained above.
The government would essentially be asking investors and its own population to sign a social contract that the government clearly intends to abrogate in the future, if not immediately once it is able to. Therefore, the only way to get the currency circulating would be by force.
The goal would not be to convert every euro-denominated asset into drachmas but rather to get a sufficiently large chunk of the assets so that the government could jumpstart the drachma’s circulation. To be done effectively, the government would want to minimize the amount of money that could escape conversion by either being withdrawn or transferred into asset classes easy to conceal from discovery and appropriation. This would require capital controls and shutting down banks and likely also physical force to prevent even more chaos on the streets of Athens than seen at present. Once the money was locked down, the government would then forcibly convert banks’ holdings by literally replacing banks’ holdings with a similar amount in the national currency. Greeks could then only withdraw their funds in newly issued drachmas that the government gave the banks to service those requests. At the same time, all government spending/payments would be made in the national currency, boosting circulation. The government also would have to show willingness to prosecute anyone using euros on the black market, lest the newly instituted drachma become completely worthless.
Since nobody save the government would want to do this, at the first hint that the government would be moving in this direction, the first thing the Greeks will want to do is withdraw all funds from any institution where their wealth would be at risk. Similarly, the first thing that investors would do — and remember that Greece is as capital-poor as Germany is capital-rich — is cut all exposure. This would require that the forcible conversion be coordinated and definitive, and most important, it would need to be as unexpected as possible.
Realistically, the only way to make this transition without completely unhinging the Greek economy and shredding Greece’s social fabric would be to coordinate with organizations that could provide assistance and oversight. If the IMF, ECB or eurozone member states were to coordinate the transition period and perhaps provide some backing for the national currency’s value during that transition period, the chances of a less-than-completely-disruptive transition would increase.
It is difficult to imagine circumstances under which such support would not dwarf the 110 billion euro bailout already on the table. For if Europe’s populations are so resistant to the Greek bailout now, what would they think about their governments assuming even more risk by propping up a former eurozone country’s entire financial system so that the country could escape its debt responsibilities to the rest of the eurozone?
The European Dilemma
Europe therefore finds itself being tied in a Gordian knot. On one hand, the Continent’s geography presents a number of incongruities that cannot be overcome without a Herculean (and politically unpalatable) effort on the part of Southern Europe and (equally unpopular) accommodation on the part of Northern Europe. On the other hand, the cost of exit from the eurozone — particularly at a time of global financial calamity, when the move would be in danger of precipitating an even greater crisis — is daunting to say the least.
The resulting conundrum is one in which reconstitution of the eurozone may make sense at some point down the line. But the interlinked web of economic, political, legal and institutional relationships makes this nearly impossible. The cost of exit is prohibitively high, regardless of whether it makes sense.
http://www.marketoracle.co.uk/Article19576.html