Naked Capitalism on the Argentine Vulture Capitalists

Argentina Deadline Day: Punishment for Rejecting the Neoliberal Consensus Nearly Complete

Posted on July 30, 2014 by

By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen

Today is technically the drop-dead date for Argentina to work out an agreement to pay off vulture funds that long ago purchased their distressed debt, or else the country will go into default for the second time in thirteen years. 11th-hour negotiations with a mediator have yielded no results thus far. WSJ divines momentum from the length of the mediation session, which is pretty weak tea.

The default would actually be to the exchange bondholders, who already hold agreements with Argentina for restructured debt payments going back to the 2001 default. Judge Thomas Griesa prevented the country from making a scheduled interest payment to the exchange bondholders without the vulture funds getting their $1.5 billion first (the vultures paid roughly $48 million for the distressed debt, so it’s a huge payday).

Argentina, which has already made the scheduled interest payment to its bond trustee (Griesa has blocked the transfer to the exchange bondholders), objects to paying out the vultures because of RUFO (“rights upon future offers”) clauses that would force them to pay all creditors at the same rate, instead of at the agreed-to reduced levels. Argentinian leaders believe this could add $15 billion in liabilities.

Before demanding no additional payments before working things out with the vulture funds, however, Judge Griesa added an asterisk for money owed to oil companies:

Argentina will be permitted to make a one-time-only payment this week on some dollar-denominated bonds issued under that nation’s law, the U.S. judge overseeing a legal battle over defaulted bonds ruled.

U.S. District Judge Thomas Griesa in Manhattan federal court said yesterday he’ll allow the payment to go forward because bonds issued in a settlement involving the Spanish oil company Repsol SA — where payments aren’t subject to court orders — can’t be immediately distinguished from a group of dollar bonds issued in the country’s 2005 and 2010 debt restructurings. Payments on the latter securities can’t be made unless holdout creditors are paid at the same time.

The idea here is that the Repsol bonds aren’t related to the current situation. Well, neither are the previously negotiated bond payments to other creditors, really! This entire holdup comes from Paul Singer and NML Capital seeking a big payday after they scooped up Argentine debt at fire-sale prices. Only Judge Griesa decided to link that to the other creditors, and now he’s trying to scramble out of some of the residual effects of his decision, because some exchange bonds and the Respol bonds cannot be distinguished from one another.

Argentina also paid the wealthy “Paris Club” nations this week, showing a willingness to put their debts behind them. But this flow of funds raises the question of what sits inside and outside Griesa’s order. Mark Weidemaier calls it the incredible, magical shrinking injunction.

For this and other reasons, Georgetown law prof Adam Levitin places the blame for this expected default squarely on Griesa:

Distressed debt investment funds that buy into repudiated sovereign debt know exactly what they are doing and the risks they are taking. Their goal is to extract payment from the debtor by being a sufficiently squeaky wheel that the debtor will pay to make the investor go away [...]

The real blame lies with the U.S. courts, which should never have touched the issue. By overplaying its hand, NML exposed the fecklessness of the U.S. court system when dealing with a foreign sovereign. Although the Argentine bonds are governed by New York law and provide that Argentina consents to New York jurisdiction, there’s no way to bind a sovereign to its promise of complying with court orders any more than there is to its promise of payment. What the Leviathan gives, it can take away.

By humoring the NML litigation, U.S. courts have gotten themselves into a high-stakes game of chicken with a sovereign state. This is a game the U.S. courts cannot and should not win. It’s a basic prudential principle that courts abstain from cases where they lack the ability to administer an appropriate remedy. In this case, the courts cannot administer an appropriate remedy. The U.S. courts may be able to prevent, or at least impede, Argentina’s other bondholders from being paid, but they cannot force Argentina to pay NML on its defaulted bonds.

Exactly. Paul Singer can have as much fun as he wants trying to squeeze profit out of old Argentine debt (while he waits for the world to be destroyed by an electromagnetic pulse, anyway). But courts which have almost no ability to compel a judgment should not pick a side in such a power play. And you have to believe that the reason the courts got involved was that Argentina did the unthinkable, by thumbing its nose at the world and living to tell the tale. Now they must face a penalty for such intransigence. It’s not enough that they’ve been locked out of the capital markets for a decade. Suffering must ensue as well. (See Michael Hudson on this point.)

Incidentally, the RUFO clause expires at the end of this year, just five months from now. With everyone well aware of this fact, the exchange bondholders recognize that they would get their payments after December 31 (not to mention interest on the missed payments until then), and since they’ve been waiting for years for this money, they can probably stand to wait a bit longer. Several bondholders vowed in a plea to stay the injunction that they would be willing to waive their RUFO rights. (Some, like Josh Rosner, believe that since Argentina is being forced into negotiations with the vulture fund under duress, the RUFO clauses wouldn’t get triggered anyway.)

Griesa hasn’t ruled on this latest stay request, but the point here is that Argentina, seeing few better options, has seemingly decided to sit tight until 2015, when the RUFO problem goes away. As President Christina Kirchner has said, they’ve already paid the exchange bondholders; the judge is simply holding up the transfer. And her administration is telling anyone who will listen that there wouldn’t be much fallout in the event of default. I don’t know how true that is – this doesn’t look like a great outcome – but the country believes they have other means to borrow (China just came forward with an offer), having already been locked out of the capital markets anyway. They see the near-term pain of default as the least-worst outcome compared to the long-term problem of additional claims. Politically, there’s value in defying the West, particularly the unsavory vulture fund characters. And they simply don’t believe the repercussions will approach the initial default in 2001–and they’re probably right. It’s not like the country has no history of economic upheaval. To wit:

Many ordinary Argentines are taking the threat of default in stride.

“I’ve lived through so many crises I can’t be bothered to worry about this,” said Mariano Torga, 70, an electrician who works in a repair shop.

Heck, if devaluation ensues, as is likely, it’s probably good for attracting tourists.*

That throws it to Singer and his holdout associates on how to let things play out. In the event of default, Argentina might even have grounds to say they can’t afford to pay off the vulture funds at par. I doubt highly that Singer blinks after being at this for so long, but a last-minute kick-the-can to January isn’t implausible.

And since the legal implications of this fight are so insane, as they make any future sovereign debt renegotiation that in any way comes into contact with America irrelevant, kicking the can should be the preferred outcome not just for Argentina but the entire world. As Jayati Ghosh said a couple weeks ago:

This possibility of default is embedded into credit contracts through the interest rate, with interest rate spreads operating as the market estimate of the probability of a default. So those who are seen as less likely to be able to repay are forced to pay higher interest rates, in both formal and informal credit transactions. A creditor who has been demanding and receiving a higher interest rate based on this probability cannot then demand full repayment as a right, since the contract reflected that very likelihood. So the ruling actually negates the basic principles upon which all credit markets function.

Should be a wild day, but the courts have already ensured an outcome that will produce some form of sadness.

P.S. See also Felix Salmon’s excellent debunking of the hash the financial press has made out of this story, and why Argentinian bond prices have actually gone up lately despite the increased likelihood of default.

*Full disclosure: I have several family members in Argentina and will be visiting in November, so if they want to devalue and stretch my tourist dollar, I’m not going to exactly say no. But I’d rather see this end with a safe landing for innocent people who don’t really deserve the punishment they’re about to endure.

Naked Capitalism and Arrogant Bankers

New York Fed Worried About Gambling in Casablanca, Um, Ethics Problem at Big Banks

Posted on July 29, 2014 by

This story would be funny if it weren’t so pathetic. Yesterday, the Financial Times reported that the New York Fed woke up out of its usual slumber and realized that the crisis has changed nothing and that banks still are in the business of looting have unaddressed ethics issues.

From the Financial Times:

The Federal Reserve Bank of New York is stepping up pressure on the biggest banks to improve their ethics and culture, after investigations into the alleged rigging of benchmark rates led officials to conclude bankers had not learnt lessons from the financial crisis…

Fed officials were surprised that some of that reported behaviour occurred after the 2008 crisis, leading them to believe bankers had not curbed their poor conduct.

To make sure the biggest banks are paying enough attention to ethics and culture, NY Fed bank evaluations have begun incorporating new questions emphasising such issues. Topics include whether the right performance structure is in place to punish bad behaviour, especially when it comes to compensation.

The NY Fed does not have the authority to write regulations, but it plays a crucial role in the regulatory landscape, overseeing banks in its jurisdiction that include Goldman Sachs, JPMorgan, Citigroup, Barclays and Deutsche Bank. It assesses banks through evaluations, which often do not contain specific criteria but which provide guidance for standards.

NY Fed general counsel Thomas Baxter has also been meeting bank executives to emphasise that when it comes to ethics and culture the tone needs to be set at the top, people familiar with the efforts said. The agency will also hold a workshop on bank ethics and culture in the autumn…

“Banks are taking the Fed’s message very seriously,” a banking industry source said. “We just want to make sure we know what the rules are.”

The steps taken by the NY Fed come after its president, William Dudley, gave a surprisingly scathing speech in November saying tougher capital requirements may not solve the problem of banks’ “apparent lack of respect for law and regulation”.

This is simply ludicrous. How do you get bankers to behave in an ethical manner? You have serious consequences if they don’t, particularly for those in supervisory and executive positions.

The cute notion that the tone is set at the top (or more vividly, the fish rots from the head) is true but meaningless, since everyone knows that no one senior suffered any meaningful punishment for the colossal damage done in the crisis. It was the New York Fed, for instance, that was unwilling to renegotiate pay deals in the AIG Financial Products Group, the unit that booked the credit default swaps that led to the certain failure of the giant insurer had the Fed not rescued it.

As we pointed out, the authorities had the perfect mechanism for punishing bank executives, which was Sarbanes Oxley, passed in the wake of the Enron bankruptcy. It was meant to put an end to the “I’m the CEO and I know nothing” excuse. It requires that the CEO and the CFO personally certify the accuracy of the financial statements and the adequacy of internal controls. For financial firms, that includes risk controls. The fact that major banks and what were then investment banks would have all keeled over save for the munificence of the authorities and ultimately the American taxpayer is prima facie evidence that risk controls were seriously deficient.

It was obvious the banks had an ethics problem as of the end of 2009. The fact that they paid executives and staff record bonuses, greater even than in the previous record level of 2007, rather than tone it down and use more of their gpvernment-gifted profits to boost their capital levels, screamed that there had been no behavior change. The fact that the Fed can profess to be shocked at this juncture reveals either extreme cluelessness or a disingenuous effort to play cop on the beat when this cop regularly plays cards with the crooks.

Since the Fed brought up the “tone at the top,” let’s look at the example set by the highest profile, most lauded banker over recent years, Jamie Dimon. In the London Whale fiasco, JP Morgan disclosed a material weakness in internal controls. That’s the worst level of internal control failure a going conern can report. In JP Morgan’s case it’s more damning since Dimon, as recently as May 10, 2012, Dimon certified that all was well with internal controls as of the end of the first quarter of 2012. JP Morgan has effectively admitted the gross inadequacy of its financial and operational oversight via its plans to spend over $4 billion and add 5,000 people for better compliance and risk control. So what exactly was Dimon doing to earn his keep, besides lobbying in DC?

And the London Whale was simply one in a long string of serious risk control failures at the Morgan bank. As Dave Dayen wrote:

I urge you to read an astonishing new report, which I’ve embedded below, from analyst Josh Rosner of Graham-Fisher and Co. The best way to describe the report, “JPM – Out of Control,” is that it reads like a rap sheet. Notably, Rosner takes mortgage abuses almost entirely out of the equation, and yet still manages to fill a 45-page report with documented case after documented case of serious fraud and abuse, most of which JPM has already admitted to (at least in the sense of reaching a settlement; given out captured regulatory structure the end result is invariably a settlement with the “neither admit nor deny wrongdoing” boilerplate appended). Rosner writes, “we could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.”…

It’s hard to summarize all of the documented instances in this report of JPM has been breaking the law, but here’s my best shot. I try to keep up on these matters, and yet some of these I’m learning about for the first time:

Bank Secrecy Act violations;
Money laundering for drug cartels;
Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
Violations related to the Vatican Bank scandal (get on this, Pope Francis!);
Violations of the Commodities Exchange Act;
Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the US and UK;
Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
The AG settlement on foreclosure fraud;
The OCC settlement on foreclosure fraud;
Violations of the Servicemembers Civil Relief Act;
Illegal flood insurance commissions;
Fraudulent sale of unregistered securities;
Auto-finance ripoffs;
Illegal increases of overdraft penalties;
Violations of federal ERISA laws as well as those of the state of New York;
Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
Filing of unverified affidavits for credit card debt collections (“as a result of internal control failures that sound eerily similar to the industry’s mortgage servicing failures and foreclosure abuses”);
Energy market manipulation that triggered FERC lawsuits;
“Artificial market making” at Japanese affiliates;
Shifting trading losses on a currency trade to a customer account;
Fraudulent sales of derivatives to the city of Milan, Italy;
Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).

And, exhale.

The sheer litany of illegal activities just overwhelms you. And these are only the ones where the company has entered into settlements or been sanctioned; it doesn’t even include ongoing investigations into things like Libor, illegally concealing inclusions of mortgage-backed securities in employer funds (another ERISA violation), the Fail Whale trades, and especially putback suits for mortgages, where a recent ruling by Judge Jed Rakoff has seriously increased exposure. While the risks are still very much alive and will continue to weigh on the firm, ultimately shareholders will pay, certainly not executives as long as the no-prosecutions standard holds.

We’ve argued at length that Dimon may be guilty of criminal violations of Sarbanes Oxley. Yet when called to testify before Congress on the London Whale, Dimon clearly had not bothered to prepare for the session and was often arrogant.

With Dimon the most visible face of the banking industry, and not a peep of a public or apparently much of a private critical word from regulators about his conduct, employees at banks have a very clear message as to what the real game is: deliver profits, no matter how many rules you disregard in the process, and take an aggressive posture with regulators if they happen to catch any transgressions. Tea and cookies talks with banks about fixing their compensation structures is pathetic. The Fed and regulators need to take the lead by being vastly tougher with the CEOs themselves. The Fed had no compunction about compelling the resignation of the three top officers of Salomon Brothers, then the biggest bond trading firm, in 1992, over regulatory abuses. The Bank of England similarly forced the ouster of the chairman, CEO and president of Barclays for mounting a frontal attack on its authority. Could you imagine anything like that out of a US regulator today? Nothing meaningful will change unless the Fed demonstrates that it is willing to remove top executives if the needed changes aren’t forthcoming, and to push for prosecutions when warranted.

Instead, the Fed is acting as if it expects a largely extractive industry to shape up just because it has made them look like a chump. Or perhaps this is all kabuki for Congress and the rubes, so the next time a major scandal breaks out, the Fed can piously claim it did what it could. While that excuse was and remains nonsense, there are enough media amplifiers that the central bankers and other regulators can continue to get away with professional negligence.

Naked Capitalism: The Myth of “Clean” Natural Gas

Wishful Thinking About Natural Gas: Why Fossil Fuels Can’t Solve the Problems Created by Fossil Fuels

Posted on July 28, 2014 by

Yves here. We’ve featured a series of post by Gaius Publius (see here, and here) on why Obama’s climate change plan is a huge headfake, since it fails to induce the methane emitted during the fracking of natural gas. Naomi Oreskes, a professor at Harvard who has previously posted at Naked Capitalism on fossil fuel divestment campaigns, raises more doubts about the “clean” natural gas party line.

By Naomi Oreskes, a history of science professor at Harvard University, and co-author, with Erik Conway, of Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming. She is also a co-author of Environmental Impacts of Shale Gas Extraction published by the Council of Canadian Academies in 2014.  Her new book with Erik Conway is The Collapse of Western Civilization: A View from the Future (Columbia University Press, 2014). Cross posted from TomDispatch

Albert Einstein is rumored to have said that one cannot solve a problem with the same thinking that led to it. Yet this is precisely what we are now trying to do with climate change policy.  The Obama administration, the Environmental Protection Agency, many environmental groups, and the oil and gas industry all tell us that the way to solve the problem created by fossil fuels is with more fossils fuels.  We can do this, they claim, by using more natural gas, which is touted as a “clean” fuel — even a “greenfuel.

Like most misleading arguments, this one starts from a kernel of truth.

That truth is basic chemistry: when you burn natural gas, the amount of carbon dioxide (CO2) produced is, other things being equal, much less than when you burn an equivalent amount of coal or oil. It can be as much as 50% less compared with coal, and 20% to 30% less compared with diesel fuel, gasoline, or home heating oil. When it comes to a greenhouse gas (GHG) heading for the atmosphere, that’s a substantial difference.  It means that if you replace oil or coal with gas without otherwise increasing your energy usage, you can significantly reduce your short-term carbon footprint.

Replacing coal gives you other benefits as well, such as reducing the sulfate pollution that causes acid rain, particulate emissions that cause lung disease, and mercury that causes brain damage.  And if less coal is mined, then occupational death and disease can be reduced in coal miners and the destruction caused by damaging forms of mining, including the removal, in some parts of the country, of entire mountains can be reduced or halted.

Those are significant benefits.  In part for these reasons, the Obama administration has made natural gas development a centerpiece of its energy policy, and environmental groups, including the Environmental Defense Fund, have supported the increased use of gas. President Obama has gone as far as to endorse fracking — the controversial method of extracting natural gas from low permeability shales — on the grounds that the gas extracted can provide “a bridge” to a low carbon future and help fight climate change.

So if someone asks: “Is gas better than oil or coal?” the short answer seems to be yes.  And when it comes to complicated issues that have science at their core, often the short answer is the (basically) correct one.

As a historian of science who studies global warming, I’ve often stressed that anthropogenic climate change is a matter of basic physics: CO2 is a greenhouse gas, which means it traps heat in the Earth’s atmosphere. So if you put additional CO2 into that atmosphere, above and beyond what’s naturally there, you have to expect the planet to warm.  Basic physics.

And guess what? We’ve added a substantial amount of CO2 to the atmosphere, and the planet has become hotter.  We can fuss about the details of natural variability, cloud feedbacks, ocean heat and CO2 uptake, El Niño cycles and the like, but the answer that you get from college-level physics — more CO2 means a hotter planet — has turned out to be correct.  The details may affect the timing and mode of climate warming, but they won’t stop it.

In the case of gas, however, the short answer may not be the correct one.

 The often-touted decrease in greenhouse gas production applies when natural gas replaces other fuels — particularly coal — in electricity generation.  That’s important.  Electricity is about 40% of total U.S. energy use.  Traditionally, coal has been the dominant fuel used to generate electricity in this country and most of the world.  (And no one has any serious plan to live without electricity.)  Any measurable GHG reduction in the electricity sector is significant and gains achieved in that sector quickly add up.

But a good deal of the benefit of gas in electricity generation comes from the fact that it is used in modern combined-cycle gas turbine plants.  A combined-cycle plant is one in which waste heat is captured and redirected to drive a mechanical system that powers a generator that creates additional electricity. These plants can be nearly twice as efficient as conventional single-cycle plants.  In addition, if combined with cogeneration (the trapping of the last bits of heat for local home heating or other purposes), they can reach efficiencies of nearly 90%.  That means that nearly all the heat released by burning the fuel is captured and used — an impressive accomplishment.

In theory, you could build a combined-cycle plant with coal (or other fuels), but it’s not often done. You can also increase coal efficiency by pulverizing it, and using a technique called “ultra super-critical black coal.” An expert report compiled by the Australian Council of Learned Societies in 2013 compared the efficiencies of a range of fuels, including conventional gas and shale gas, under a variety of conditions, and concluded that greenhouse gas emissions from electricity generation using efficient forms of coal burning were not that much more than from gas.

What this means is that most of the benefit natural gas offers comes not from the gas itself, but from how it is burned, and this is mostly because gas plants tend to be new and use more efficient burning technologies.  The lesson, not surprisingly: if you burn a fuel using twenty-first century technology, you get a better result than with late nineteenth or twentieth century technology.  This is not to defend coal, but to provide an important reality check on the discussion now taking place in this country.  There is a real benefit to burning gas in America, but it’s less than often claimed, and much of that benefit comes from using modern techniques and new equipment. (If the coal industry weren’t so busy denying the reality of climate change, they might publicize this fact.)

It’s Not Just Electricity

Replacing coal with gas in electricity generation is still probably a good idea — at least in the near term — but gas isn’t just used to generate electricity.  It’s also used in transportation, to heat homes and make hot water, and in gas appliances like stoves, driers, and fireplaces.  Here the situation is seriously worrisome.

It’s extremely difficult to estimate GHG emissions in these sectors because many of the variables are poorly measured. One important emission source is gas leakage from distribution and storage systems, which is hard to measure because it happens in so many different ways in so many different places.  Such leaks are sometimes called “downstream emissions,” because they occur after the gas has been drilled.

Certainly, gas does leak, and the more we transport, distribute, and use it, the more opportunities there are for such leakage.  Studies have tried to estimate the total emissions associated with gas using well-to-burner or “life-cycle” analysis. Different studies of this sort tend to yield quite different results with a high margin for error, but many conclude that when natural gas replaces petroleum in transportation or heating oil in homes, the greenhouse gas benefits are slim to none. (And since almost no one in America heats their home with coal any more, there are no ancillary benefits of decreased coal.) One study by researchers at Carnegie-Mellon University concluded that while the probability of reducing GHG emissions at least somewhat by replacing coal with gas in electricity generation was 100%, the substitution of natural gas as a transportation fuel actually carries a 10%-35% risk of increasing emissions.

In the Northeast, the northern Midwest, and the Great Plains, many builders are touting the “energy efficiency” of new homes supplied with gas heat and hot water systems, but it’s not clear that these homes are achieving substantial GHG reductions. In New England, where wood is plentiful, many people would do better to use high efficiency wood stoves (or burn other forms of biomass).

How Gas (CH4) Heats the Atmosphere Much More than CO2 

Isn’t gas still better than oil for heating homes? Perhaps, but oil doesn’t leak into the atmosphere, which brings us to a crucial point: natural gas is methane (CH4), which is a greenhouse gas far more potent than CO2.

As a result, gas leaks are a cause for enormous concern, because any methane that reaches the atmosphere unburned contributes to global warming more than the same amount of CO2.  How much more?  This is a question that has caused considerable angst in the climate science community, because it depends on how you calculate it.  Scientists have developed the concept of “Global Warming Potential” (GWP) to try to answer this question.

The argument is complicated because while CH4 warms the planet far more than CO2, it stays in the atmosphere for much less time.   A typical molecule of CO2 remains in the atmosphere about 10 times longer than a molecule of CH4.  In their Fifth Assessment Report, the Intergovernmental Panel on Climate Change estimated that the GWP for methane is 34 times that of CO2 over the span of 100 years.  However, when the time frame is changed to 20 years, the GWP increases to 86!

Most calculations of the impact of methane leakage use the 100-year time frame, which makes sense if you are worried about the cumulative impact of greenhouse gas emissions on the world as a whole, but not — many scientists have started to argue — if you are worried about currently unfolding impacts on the biosphere.  After all, many species may go extinct well before we reach that 100-year mark.  It also does not make sense if you are worried that we are quickly approaching irreversible tipping points in the climate system, including rapid ice loss from the Greenland and Antarctic ice sheets.

It gets worse.  CH4 and CO2 are not the only components of air pollution that can alter the climate.  Dust particles from pollution or volcanoes have the capacity to cool the climate.  As it happens, burning coal produces a lot of dust, leading some scientists to conclude that replacing coal with natural gas may actually increase global warming.  If they are right, then not only is natural gas not a bridge to a clean energy future, it’s a bridge to potential disaster.

Fracking

A great deal of recent public and media attention has been focused not on gas itself, but on the mechanism increasingly used to extract it.  Hydraulic fracturing — better known as fracking — is a technique that uses high-pressure fluids to “fracture” and extract gas from low permeability rocks where it would otherwise be trapped.  The technique itself has been around for a long time, but in the last decade, combined with innovations in drilling technology and the high cost of petroleum, it has become a profitable way to produce energy.

The somewhat surprising result of several recent studies (including one by an expert panel from the Council of Canadian Academies on which I served) is that, from a climate-change perspective, fracking probably isn’t much worse than conventional gas extraction.  Life-cycle analyses of GHG emissions from the Marcellus and Bakken shales, for example, suggest that emissions are probably slightly but not significantly higher than from conventional gas drilling.  A good proportion of these emissions come from well leakage.

It turns out to be surprisingly hard to seal a well tightly. This is widely acknowledged even by industry representatives and shale gas advocates. They call it the problem of “well integrity.”  Wells may leak when they are being drilled, during production, and even when abandoned after production has ended.  The reason is primarily because the cement used to seal the well may shrink, crack, or simply fail to fill in all the gaps.

Interestingly, there’s little evidence that fracked wells leak more than conventional wells.  From a greenhouse gas perspective, the problem with fracking lies in the huge number of wells being drilled.  According to the U.S. Energy Information Administration, there were 342,000 gas wells in the United States in 2000; by 2010, there were over 510,000, and nearly all of this increase was driven by shale-gas development — that is, by fracking.  This represents a huge increase in the potential pathways for methane leakage directly into the atmosphere.  (It also represents a huge increase in potential sources of groundwater contamination, but that’s a subject for another post.)

There have been enormous disagreements among scientists and industry representatives over methane leakage rates, but experts calculate that leakage must be kept below 3% for gas to represent an improvement over coal in electricity generation, and below 1% for gas to improve over diesel and gasoline in transportation.  The Environmental Protection Agency (EPA) currently estimates average leakage rates at 1.4%, but quite a few experts dispute that figure.  One study published in 2013, based on atmospheric measurements over gas fields in Utah, found leakage rates as high as 6%-11%.  The Environmental Defense Fund is currently sponsoring a large, collaborative project involving diverse industry, government, and academic scientists. One part of the study, measuring emissions over Colorado’s most active oil and gas drilling region, found methane emissions almost three times higher than the EPA’s 2012 numbers, corresponding to a well-leakage rate of 2.6%-5.6%.

Some of the differences in leakage estimates reflect differing measurement techniques, some may involve measurement error, and some probably reflect real differences in gas fields and industrial practices.  But the range of estimates indicates that the scientific jury is still out.  If, in the end, leakage rates prove to be higher than the EPA currently calculates, the promised benefits of gas begin to vaporize.  If leakage in storage and distribution is higher than currently estimated — as one ongoing study by my own colleagues at Harvard suggests — then the alleged benefits may evaporate entirely.

And we’re not done yet.  There’s one more important pathway to consider when it comes to the release of greenhouse gases into the atmosphere: flaring.  In this practice, gas is burned off at the wellhead, sending carbon dioxide into the atmosphere. It’s most commonly done in oil fields.  There, natural gas is not a desirable product but a hazardous byproduct that companies flare to avoid gas explosions. (If you fly over the Persian Gulf at night and notice numerous points of light below, those are wellhead fires).

In our report for the Council of Canadian Academies, our panel relied on industry data that suggested flaring rates in gas fields were extremely low, typically less than 2% and “in all probability” less than 0.1%. This would make sense if gas producers were efficient, since they want to sell gas, not flare it.  But recently the Wall Street Journal reported that state officials in North Dakota would be pressing for new regulations because flaring rates there are running around 30%.  In the month of April alone, $50 million dollars of natural gas was burned off, completely wasted.  The article was discussing shale oil wells, not shale gas ones, but it suggests that, when it comes to controlling flaring, there’s evidence the store is not being adequately minded. (At present, there are no federal regulations at all on flaring.)  As long as gas is cheap, the economic incentives to avoid waste are obviously insufficient.

Why Gas is Unlikely To Be a Bridge to Renewables

In a perfect world, people would use gas to replace more polluting coal or oil.  Unfortunately, the argument for gas rests on just that assumption: that the world works perfectly.  You don’t need to be a scientist, however, to know just how flawed that assumption is.  In fact, economists have long argued that a paradox of energy efficiency is this: if people save energy through efficiency and their energy bills start to fall, they may begin to use more energy in other ways.  So while their bills stay the same, usage may actually rise. (It’s like going to a sale and instead of saving money, buying more things because of the lower price tags.) In this way, consumers can actually end up using more energy overall and so emissions continue to rise.

To ensure that natural gas use doesn’t follow such a path, you’ve got to do something. You could introduce a law, like AB32, the California emissions control law, or put in place the pending EPA carbon rule just introduced by the Obama administration that mandates emissions reductions. Or you could introduce a hefty carbon tax to create a strong financial incentive for people to choose non-carbon based fuels.  But laws like AB32 are at present few and far between, the fossil fuel industry and its political and ideological allies are fighting the EPA carbon rule tooth and nail, and only a handful of political leaders are prepared to stand up in public and argue for a new tax.

Meanwhile, global fossil fuel production and consumption are rising.  A recent article by the business editor of the British Telegraph describes a frenzy of fossil fuel production that may be leading to a new financial bubble.  The huge increase in natural gas production is, in reality, helping to keep the price of such energy lower, discouraging efficiency and making it more difficult for renewables to compete.  And this raises the most worrisome issue of all.

Embedded in all positive claims for gas is an essential assumption: that it replaces other more polluting fuels.  But what if it also turns out to replace the panoply of alternative energies, including solar, wind, hydro, and nuclear?  In Canada, where shale-gas development is well advanced, only a small fraction of electricity is generated from coal; most comes from hydropower or nuclear power. In the U.S., competition from cheap gas was recently cited by the owners of the Vermont Yankee Nuclear power plant as a factor in their decision to close down.  And while the evidence may be somewhat anecdotal, various reports suggest that cheap gas has delayed or halted some renewable power projects. It stands to reason that if people believe natural gas is a “green” alternative, they will chose it over more expensive renewables.

Exports and Infrastructure: The Road to More Climate Change

We’ve all heard about the Keystone XL Pipeline through which Canada proposes to ship oil from the Alberta tar sands to the U.S. Gulf Coast, and from there to the rest of the world.  Few people, however, are aware that the U.S. has also become a net exporter of coal and is poised to become a gas exporter as well. Gas imports have fallen steadily since 2007, while exports have risen, and several U.S. gas companies are actively seeking federal and state approvals for the building of expanded gas export facilities.

Once coal leaves our borders, the argument for replacing it becomes moot because there’s no way for us to monitor how it’s used. If gas replaces coal in the U.S. and that coal is then exported and burned elsewhere, then there’s no greenhouse gas benefit at all.  Meanwhile, the negative effects of coal have been passed on to others.

All of the available scientific evidence suggests that greenhouse gas emissions must peak relatively soon and then fall dramatically over the next 50 years, if not sooner, if we are to avoid the most damaging and disruptive aspects of climate change. Yet we are building, or contemplating building, pipelines and export facilities that will contribute to increased fossil fuel use around the globe, ensuring further increases in emissions during the crucial period when they need to be dramatically decreasing.

We are also building new power plants that will be with us for a long time. (A typical power plant is expected to operate for at least 50 years.)  Once technologies are adopted and infrastructure built to support them, it becomes difficult and expensive to change course.  Historians of technology call this “technological momentum.”

Certain forms of infrastructure also effectively preclude others.  Once you have built a city, you can’t use the same land for agriculture.  Historians call this the “infrastructure trap.”  The aggressive development of natural gas, not to mention tar sands, and oil in the melting Arctic, threaten to trap us into a commitment to fossil fuels that may be impossible to escape before it is too late.  Animals are lured into traps by the promise of food.  Is the idea of short-term cuts in greenhouse gas emissions luring us into the trap of long-term failure?

The institution of rules or incentives in the U.S. and around the globe to ensure that gas actually replaces coal and that efficiency and renewables become our primary focus for energy development is at this point extremely unlikely.  Yet without them, increased natural gas development will simply increase the total amount of fossil fuel available in the world to burn, accelerating what is already beginning to look like a rush towards disaster.

Have U.S. Emissions Really Decreased?

Gas advocates say that while these worries might be legitimate, U.S. greenhouse gas emissions nonetheless fell between 2008 and 2012, partly because of the way gas is replacing coal in electricity generation.  This claim needs to be closely examined.  In fact, it seems as if the lion’s share of that decrease was simply the result of the near global economic meltdown of 2007-2008 and the Great Recession that followed.  When economic activity falls, energy use falls, so emissions fall, too.  Not surprisingly, preliminary data from 2013 suggest that emissions are on the rise again. Some of the rest of the 2008-2012 decline was due to tighter automobile fuel economy standards.

But how do we know what our emissions actually are? Most people would assume that we measure them, but they would be wrong.  Emissions are instead calculated based on energy data — how much coal, oil, and gas was bought and sold in the U.S. that year — multiplied by assumed rates of greenhouse gas production by those fuels. Here’s the rub: the gas calculation depends on the assumed leakage rate.  If we’ve been underestimating leakage, then we’ve underestimated the emissions. Though the converse is also true, few experts think that anyone is overestimating gas leakage rates. This is not to say that emissions didn’t fall in 2008-2012.  They almost certainly did, again because of the recession.  But the claim that there’s been a large decrease thanks to natural gas remains unproven.

So Why Are So Many People So Enthusiastic About Gas?

The reason for industry enthusiasm isn’t hard to discern: a lot of people are making a lot of money right now in shale gas.  Chalk up the enthusiasm of the Canadian government, politicians in gas-rich states like Texas, North Dakota, and Pennsylvania, and individuals who have made money leasing their properties for gas drilling to the same factor.  In those gas-rich states, employment, too, has benefited (even as the familiar social problems characteristic of boom towns have also increased).

On natural gas, the Obama administration seems to be looking for a compromise that Democrats and Republicans can support, and that does not invoke the wrath of the powerful and aggressive oil and gas industry or voters in states like Pennsylvania.  In the process, it’s surely tempting to demonize the coal industry, with its long history of abusive labor practices, its callous disregard for occupational health, and its catastrophic environmental record.  Since few of us ever see coal in our daily lives, a future without coal seems not only imaginable but overdue.

But when it comes to natural gas, what about the enthusiasm of some environmentalists? What about groups like the Environmental Defense Fund that have a long track record on climate change and no history of love for the oil and gas industry? What about scientists?

In such cases, I think the positive response to the exploitation of natural gas lies in a combination of wishful thinking and intimidation.

The fossil fuel industry and their allies have spent the past 20 years attacking environmentalists and climate scientists as extremists, alarmists, and hysterics.  Their publicists have portrayed them as hair-shirt wearing, socialist watermelons (green on the outside, red on the inside) who relish suffering, kill jobs, and want everyone to freeze in the dark.  Extremists do exist in the environmental movement as everywhere else, but they represent a tiny faction of the community of people concerned about climate change, and they are virtually nonexistent in the scientific community.  (Put it this way: if there is a hair-shirt wearing climate scientist, I have not met her.)

While the accusations may be false, that doesn’t mean they don’t affect our thinking.  Too often, environmentalists find ourselves trying to prove that we are not what they say we are: not irredeemable anti-business job-killers.  We bend over backwards to seek out acceptable compromises and work with business leaders, even to the point of finding a fossil fuel that we can love (or at least like).

And that leads to the wishful thinking.  We want to find solutions, or at least meaningful steps in the right direction, that command widespread support.  We want gas to be good.  (I know I did.)  Climate change is a gargantuan challenge, and it’s bloody hard to see how we are going to solve it and maintain our standard of living, much less extend that standard to billions more around the globe who want it and deserve it. If gas is good, or at least better than what we have now — then that feels like a good thing.  If gas moved us substantially in the right direction, then that would be a good thing.

After all, can’t the leakage problem be fixed?  Our panel spent considerable time discussing this question. Industry representatives said, “Trust us, we’ve been drilling wells for 100 years.” But some of us wondered, “If they haven’t solved this problem in 100 years, why would they suddenly solve it now?”  A strong system of monitoring and compliance enforcement could help create incentives for industry to find a solution, but the odds of that developing any time soon seem as remote as the odds of a binding international treaty.

Sometimes you can fight fire with fire, but the evidence suggests that this isn’t one of those times.  Under current conditions, the increased availability and decreased price of natural gas are likely to lead to an increase in U.S. greenhouse gas emissions.  Preliminary data from 2013 suggest that that is already occurring. And global emissions are, of course, continuing to increase as well.

Insanity is sometimes defined as doing the same thing but expecting a different result. Psychologists define perseveration as repetitive behavior that interferes with learning. Whatever we call it, that seems to be what is happening. And whatever it is, it doesn’t make sense. Natural gas is not the bridge to clean energy; it’s the road to more climate change.

Andrew Sullivan Does Repugs

Batshit_Crazy-copy

Andrew Sullivan had a brilliant piece today about why he is shifting to the left. Here are just some of the better parts:

Political brinksmanship. The conduct of the GOP during the Obama administration has been a nihilist disgrace. In 2009, Obama inherited crises on every front: an economy in terrifying free-fall, a bankrupted Treasury, an even more morally bankrupt foreign policy, and two failed wars. He deserved some measure of cooperation in that hour of extreme national peril and need. He got none. From the get-go, they were clearly prepared to destroy the country if it also meant they could destroy him.

In fact, from that first stimulus vote on, Obama faced a unanimous and relentless nullification Congress. If he favored something, they opposed it. Despite Obama’s exemplary family life, public grace and composure, and willingness to compromise, they decided to cast him as a tyrant, a radical, a traitor and an incompetent. Their demonization of a decent, pragmatic man simply disgusts me to the core. And, sorry, if you do not smell any whiff of racism in all of this, you’re a better person than I am. Ideological blindness. Any party that can respond to the fact of yawning economic inequality in the 21st Century by blaming the 99 percent for not working hard enough has put ideology before reality. Any party that even now thinks slashing taxes below their current historically low levels will cure our economic ills is utterly delusional. Any party that is unconcerned with the social dangers of an economic system that increasingly rewards only the very very rich cannot be trusted with government. There has to be a pragmatic element to any conservatism and an ability too adjust to new circumstances and new problems. There are some hopeful signs among reformocons, but the tenor of the discourse remains absurdly doctrinaire, treating Reagan as some kind of god and compromise as the ultimate evil. Over the last decade, the GOP has seemed like a church rather than a political party, with dogma rather than policies, and beset by heresy-hunts rather than genuine debate.

He notes that this is just a partial list, finishing: “The party of Lincoln, of Eisenhower and of Reagan still appeals. Which is why the party of Cheney, of Hannity and of Adelson so appalls.” Beautiful.

Jim Hightower on the Boehner Work Ethic

 

Warning: Boehner at work!

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Monday, July 21, 2014   |   Posted by Jim Hightower

Gosh, has it already been two weeks since Congress took a vacation?

Those poor stiffs must be pooped from trying to catch up on all the heavy lifting that piled up while they were away from their lawmaking duties. And – gosh, again – in less than two weeks, Congress will go back on vacation, this time for a five-week summer recess. So much to do, so little time.

That’s why GOP Speaker John Boehner is now cracking the whip. He’s spurring his colleagues to pick up the pace and stay focused on his Number One National Priority – namely, suing the President of the United States. It seems that Obama has had the audacity to try to do something about some of the bubbling crises that Congress (or more specifically the House, or even more specifically Boehner and his Republican stalwarts) have been ignoring, stalling, or playing politics with. So, of course, the president must be sued to prevent him from… well from taking actions to help people.

The speaker’s logic might seem a tad confusing or just plain weird to you, so I’ll let him clarify his meaning for you: “The legislative branch,” Boehner intoned in a recent op-ed, “has an obligation to defend the rights and responsibilities of the American people.”

Huh?

“Defend” the “responsibilities” of “the American people”? What does that mean? And speaking of obligations, doesn’t the top official of the House of Representatives have an obligation to at least try communicating with the people in sensible English sentences?

But then, if your ideas are gobbledygook, your explanations will be, too. He’s wasting legislative time and frittering away taxpayer dollars on a frivolous lawsuit, while refusing to lift a finger for America’s sinking middle class. Just as Nero fiddled while Rome burned, Boehner is suing while Americans fume.”

“The Rant Agenda,” The New York Times, July 10, 2014.

 

Naked Capitalism on the Billion-Dollar Tax Ripoff

Senate Report: Hedge Funds Used Basket Options to Save Billions in Taxes

Posted on July 21, 2014 by 

Loan-Shark

The Senate Permanent Subcommittee on Investigations released a report today that found that hedge funds have been using basket options to save billion in taxes. And when we say “billions,” the report indicates it’s more like tens of billions, since the paper estimates that the tax reduction achieved at one hedge fund, Renaissance Technologies, operated by the famed James Simons, was $6.8 billion.

Basket options were sold by Wall Street firms, in particular Barclays and Deutsche Bank, as a way to convert what would otherwise have been labor income into capital gains income. The bone of contention is that the IRS wrote a memo in 2010 telling players involved to cut it out, and they didn’t. From the Wall Street Journal:

Hedge funds used a tax avoidance technique offered by Wall Street banks for years to skirt federal leverage trading limits…

Companies involved in the practice have pushed back against the Internal Revenue Service, which warned in a 2010 memo against claiming a tax break based on the use of financial products known as basket options. The companies said use of the products to claim lower long-term capital gains tax treatment for trading activity is legal and doesn’t violate tax rules or leverage limits under current law…

Investigators said two banks, Deutsche Bank AG DBK.XE -1.16% and Barclays Bank PLC, sold 199 basket options to more than a dozen hedge funds, which used them to conduct more than $100 billion in trades.

After the IRS released its 2010 memo, banks wound down the sale of basket options as a way for hedge funds to claim long-term capital gains tax treatment. But some still are selling the structures as a way around federal leverage limits, according to the report.

The Senate has a hearing on Tuesday and will grill two of the hedge funds, Renaissance and another large user identified in the report, George Weiss, along with Deutsche and Barclays. Spokesmen from the two banks piously claimed that everything they did was perfectly kosher. Normally, one would assume that that position would be correct, since the party filing the tax return is the one responsible for the tax positions taken in a tax return. However, the banks were making representations regarding ownership that were critical to the tax position that the hedge funds took:

Investigators believe the basket options maneuver amounts to a “series of fictions,” the biggest being that the banks own the account assets, said Sen. Carl Levin (D., Mich.), the subcommittee chairman. In reality, the account is basically a trading account, investigators say.

Oh, and notice the size of the losses. This $6.8 billion at one fund compares to the Joint Committee on Taxation’s estimate that $19.5 billion in tax revenues will be lost over the next ten years as a result of the pending tax inversion deals, in which companies like Walgreens move their headquarters overseas to lower their taxes. So this issue has the potential to become heated, assuming Congress is successful in creating public interest. Stay tuned.

Common Dreams on American Exceptionalism

The Curse of ‘American Exceptionalism’

(Image: flick/cc/August Kelm)Conservatives – and too often, what passes for liberals here in the USA – have been using the notion of ‘American exceptionalism’ to justify a wide range of criminal and near criminal activity.  We’re exceptional, alright, but not in the way we think.  Here’s 8 ways we’re exceptional – exceptionally bad.

Among the Most Expensive, Least Effective Health Care in the Developed World.  The US health care system is designed to create wealth, not provide health.  We have the most expensive system in the developed world, not the most effective.  When measured on five key criteria, the US measures last or next to last when compared to seven other developed nations:  Australia, Canada, Germany, the Netherlands, New Zealand, and the United Kingdom. These countries have single payer systems, with substantial government involvement.   So when the US tries to change its system, what does it do?  Why, bolster the role of a rapacious insurance industry, of course.  Yeah, that’s exceptional.

Highest Income Disparity: The US has the largest gap between rich and poor of any developed nation.  In fact, globally, we rank right near Uganda.  Yeah, that’s right, Uganda.  Since 1979, the top 1% increased its income by 275%,  while the bottom 90% has gone up slowly, if at all.  The middle class is shrinking, and the number of households in poverty is increasing.  And if one looks at wealth, not income, it’s even worse. Nearly 75% of all growth in wealth since 1979 has gone to the top 5% of households.

Least Mobility Between Generations: Oh, but the US is the land of Horatio Alger and the American Dream, right?  Not so much.  Horatio Alger is dead, and the US economy is one of the most rigid in the developed world.  In five recent studies the US ranks last or second to last in income mobility – a study of European nations found that only Great Britain had less intergenerational economic mobility than the US, and some analysts put us behind Britain.  Increasingly, if you’re born poor in the US, you die poor.  Once again, we are exceptional – but not in a good way.

Most Hours Worked:  We work more hours than other developed nations.  Heck, we work more hours than hunter gatherers did, several millennia ago.  Exceptional?  Sure, in the way the class dunce is.

Least Vacation Days: Within the Organization of Developed Nations (OECD) every nation but three requires companies to provide at least 20 days of leave a year.  The three are Canada, which requires 18 days off; Japan, which requires 10; and of course, the US, which requires exactly 0 … that’s zed, nada, zilch, nothin’.  Pretty exceptional, eh?

Happiness Ranking not in the top 10:  According to the World Happiness Report, the most definitive look at happiness out there, the US, despite our great wealth, isn’t even in the top 10 countries.  How’s that for exceptional?

Biggest discrepancy between CEO pay and their workers  – CEOs in the US get about 475 times what the average worker makes.  Truly exceptional.  But we have to pay that much, right?  Plutocrats and politicians tell us it’s the only way we can get the best and most qualified business leaders. Well, no. Look at the rest of the developed world.  In Japan, CEOs earn about 11 times the average worker; in Germany, about 12 times as much; in Canada, about 20 times as much and so on, yet their corporations are doing just fine, thank you.

Biggest Defense Budget: The US spends six times as much on Defense as the next nation, China, and nearly as much as the rest of the world combined.  We have troops stationed in over 150 nations around the world.  We have become an Imperial Power, fighting wars of occupation.  Astoundingly, we recently negotiated with Afghanistan to keep troops there.  Why?  No one seems to be able to tell us, but it seems to have something to do with US exceptionalism.

When de Tocqueville coined the term in 1835, we might have had some small claim to actually being exceptional. The US was unique among western nations in that it was not founded on a theocratic or monarchistic system.  Ironically, the conservatives who blather the loudest about our “exceptionalism” are destroying whatever claim we might have had, by turning us into a two-bit imperialistic plutocracy.

So there you have it.  We have an economic system with the all the characteristics of a banana republic.  We work harder and longer than citizens of any other developed nation, and we’re not as happy.  We have more expensive, less effective health care.  We send our young men and women overseas in a bewildering and expensive quest for what?  Security?  Imperialism and corporate welfare for Defense contractors is more like it. And we are less happy than our “socialist” brethren.

And the result is a kind of exceptionalism that is destroying our economic, environmental and moral fabric.

Counterpunch on Fukushima Contamination

Global Physicians Issue Scathing Critique of UN Report on Fukushima

Fukushima: Bad and Getting Worse

by JOHN LaFORGE

There is broad disagreement over the amounts and effects of radiation exposure due to the triple reactor meltdowns after the 2011 Great East-Japan Earthquake and tsunami. The International Physicians for the Prevention of Nuclear War (IPPNW) joined the controversy June 4, with a 27-page “Critical Analysis of the UNSCEAR Report ‘Levels and effects of radiation exposures due to the nuclear accident after the 2011 Great East-Japan Earthquake and tsunami.’”

IPPNW is the Nobel Peace Prize winning global federation of doctors working for “a healthier, safer and more peaceful world.” The group has adopted a highly critical view of nuclear power because as it says, “A world without nuclear weapons will only be possible if we also phase out nuclear energy.”

UNSCEAR, the United Nations Scientific Committee on the Effects of Atomic Radiation, published its deeply flawed report April 2. Its accompanying press release summed up its findings this way: “No discernible changes in future cancer rates and hereditary diseases are expected due to exposure to radiation as a result of the Fukushima nuclear accident.” The word “discernable” is a crucial disclaimer here.

Cancer, and the inexorable increase in cancer cases in Japan and around the world, is mostly caused by toxic pollution, including radiation exposure according to the National Cancer Institute.[1] But distinguishing a particular cancer case as having been caused by Fukushima rather than by other toxins, or combination of them, may be impossible ¾ leading to UNSCEAR’s deceptive summation. As the IPPNW report says, “A cancer does not carry a label of origin…”

UNSCEAR’s use of the phrase “are expected” is also heavily nuanced. The increase in childhood leukemia cases near Germany’s operating nuclear reactors, compared to elsewhere, was not “expected,” but was proved in 1997. The findings, along with Chernobyl’s lingering consequences, led to the country’s federally mandated reactor phase-out. The plummeting of official childhood mortality rates around five US nuclear reactors after they were shut down was also “unexpected,” but shown by Joe Mangano and the Project on Radiation and Human Health.

The International Physicians’ analysis is severely critical of UNSCEAR’s current report which echoes its 2013 Fukushima review and press release that said, “It is unlikely to be able to attribute any health effects in the future among the general public and the vast majority of workers.”

“No justification for optimistic presumptions”

The IPPNW’s report says flatly, “Publications and current research give no justification for such apparently optimistic presumptions.” UNSCEAR, the physicians complain, “draws mainly on data from the nuclear industry’s publications rather than from independent sources and omits or misinterprets crucial aspects of radiation exposure”, and “does not reveal the true extent of the consequences” of the disaster. As a result, the doctors say the UN report is “over-optimistic and misleading.” The UN’s “systematic underestimations and questionable interpretations,” the physicians warn, “will be used by the nuclear industry to downplay the expected health effects of the catastrophe” and will likely but mistakenly be considered by public authorities as reliable and scientifically sound. Dozens of independent experts report that radiation attributable health effects are highly likely.

Points of agreement: Fukushima is worse than reported and worsening still

Before detailing the multiple inaccuracies in the UNSCEAR report, the doctors list four major points of agreement. First, UNSCEAR improved on the World Health Organization’s health assessment of the disaster’s on-going radioactive contamination. UNSCEAR also professionally “rejects the use of a threshold for radiation effects of 100 mSv [millisieverts], used by the International Atomic Energy Agency in the past.” Like most health physicists, both groups agree that there is no radiation dose so small that it can’t cause negative health effects. There are exposures allowed by governments, but none of them are safe.

Second, the UN and the physicians agree that  areas of Japan that were not evacuated were seriously contaminated with iodine-132, iodine-131 and tellurium-132, the worst reported instance being Iwaki City which had 52 times the annual absorbed dose to infants’ thyroid than from natural background radiation. UNSCEAR also admitted that “people all over Japan” were affected by radioactive fallout (not just in Fukushima Prefecture) through contact with airborne or ingested radioactive materials. And while the UNSCEAR acknowledged that “contaminated rice, beef, seafood, milk, milk powder, green tea, vegetables, fruits and tap water were found all over mainland Japan”, it neglected “estimating doses for Tokyo …  which also received a significant fallout both on March 15 and 21, 2011.”

Third, UNSCEAR agrees that the nuclear industry’s and the government’s estimates of the total radioactive contamination of the Pacific Ocean are “far too low.” Still, the IPPNW reports shows, UNSCEAR’s use of totally unreliable assumptions results in a grossly understated final estimate. For example, the UN report ignores all radioactive discharges to the ocean after April 30, 2011, even though roughly 300 tons of highly contaminated water has been pouring into the Pacific every day for 3-and-1/2 years, about 346,500 tons in the first 38 months.

Fourth, the Fukushima catastrophe is understood by both groups as an ongoing disaster, not the singular event portrayed by industry and commercial media. UNSCEAR even warns that ongoing radioactive pollution of the Pacific “may warrant further follow-up of exposures in the coming years,” and “further releases could not be excluded in the future,” from forests and fields during rainy and typhoon seasons ¾when winds spread long-lived radioactive particles ¾a and from waste management plans that now include incineration.

As the global doctors say, in their unhappy agreement with UNSCAR, “In the long run, this may lead to an increase in internal exposure in the general population through radioactive isotopes from ground water supplies and the food chain.”

Physicians find ten grave failures in UN report

The majority of the IPPNW’s report details 10 major errors, flaws or discrepancies in the UNSCEAR paper and explains study’s omissions, underestimates, inept comparisons, misinterpretations and unwarranted conclusions.

1. The total amount of radioactivity released by the disaster was underestimated by UNSCEAR and its estimate was based on disreputable sources of information. UNSCEAR ignored 3.5 years of nonstop emissions of radioactive materials “that continue unabated,” and only dealt with releases during the first weeks of the disaster. UNSCEAR relied on a study by the Japanese Atomic Energy Agency (JAEA) which, the IPPNW points out, “was severely criticized by the Fukushima Nuclear Accident Independent Investigation Commission … for its collusion with the nuclear industry.” The independent Norwegian Institute for Air Research’s estimate of cesium-137 released (available to UNSCEAR) was four times higher than the JAEA/UNSCEAR figure (37 PBq instead of 9 PBq). Even Tokyo Electric Power Co. itself estimated that iodine-131 releases were over four times higher than what JAEA/UNSCEAR) reported (500 PBq vs. 120 BPq). The UNSCEAR inexplicably chose to ignore large releases of strontium isotopes and 24 other radionuclides when estimating radiation doses to the public. (A PBq or petabecquerel is a quadrillion or 1015 Becquerels. Put another way, a PBq equals 27,000 curies, and one curie makes 37 billion atomic disintegrations per second.)

2. Internal radiation taken up with food and drink “significantly influences the total radiation dose an individual is exposed to,” the doctors note, and their critique warns pointedly, “UNSCEAR uses as its one and only source, the still unpublished database of the International Atomic Energy Association and the Food and Agriculture Organization. The IAEA was founded … to ‘accelerate and enlarge the contribution of atomic energy to peace, health and prosperity throughout the world.’ It therefore has a profound conflict of interest.” Food sample data from the IAEA should not be relied on, “as it discredits the assessment of internal radiation doses and makes the findings vulnerable to claims of manipulation.” As with its radiation release estimates, IAEA/UNSCEAR ignored the presence of strontium in food and water. Internal radiation dose estimates made by the Japanese Ministry for Science and Technology were 20, 40 and even 60 times higher than the highest numbers used in the IAEA/UNSCEAR reports.

 

3. To gauge radiation doses endured by over 24,000 workers on site at Fukushima, UNSCEAR relied solely on figures from Tokyo Electric Power Co., the severely compromised owners of the destroyed reactors. The IPPNW report dismisses all the conclusions drawn from Tepco, saying, “There is no meaningful control or oversight of the nuclear industry in Japan and data from Tepco has in the past frequently been found to be tampered with and falsified.”

4. The UNSCEAR report disregards current scientific fieldwork on actual radiation effects on plant and animal populations. Peer reviewed ecological and genetic studies from Chernobyl and Fukushima find evidence that low dose radiation exposures cause, the doctors point out, “genetic damage such as increased mutation rates, as well as developmental abnormalities, cataracts, tumors, smaller brain sizes in birds and mammals and further injuries to populations, biological communities and ecosystems.” Ignoring these studies, IPPNW says “gives [UNSCEAR] the appearance of bias or lack of rigor.”

5. The special vulnerability of the embryo and fetus to radiation was completely discounted by the UNSCEAR, the physicians note. UNSCEAR shockingly said that doses to the fetus or breast-fed infants “would have been similar to those of other age groups,” a claim that, the IPPNW says, “goes against basic principles of neonatal physiology and radiobiology.”  By dismissing the differences between an unborn and an infant, the UNSCEAR “underestimates the health risks of this particularly vulnerable population.” The doctors quote a 2010 report from American Family Physician that, “in utero exposure can be teratogenic, carcinogenic or mutagenic.”

6. Non-cancerous diseases associated with radiation doses — such as cardiovascular diseases, endocrinological and gastrointestinal disorders, infertility, genetic mutations in offspring and miscarriages — have been documented in medical journals, but ate totally dismissed by the UNSCEAR. The physicians remind us that large epidemiological studies have shown undeniable associations of low dose ionizing radiation to non-cancer health effects and “have not been scientifically challenged.”

7. The UNSCEAR report downplays the health impact of low-doses of radiation by misleadingly comparing radioactive fallout to “annual background exposure.” The IPPNW scolds the UNSCEAR saying it is, “not scientific to argue that natural background radiation is safe or that excess radiation from nuclear fallout that stays within the dose range of natural background radiation is harmless.” In particular, ingested or inhaled radioactive materials, “deliver their radioactive dose directly and continuously to the surrounding tissue” — in the thyroid, bone or muscles, etc. — “and therefore pose a much larger danger to internal organs than external background radiation.”

8. Although UNSCEAR’s April 2 Press Release and Executive Summary give the direct and mistaken impression that there will be no radiation health effects from Fukushima, the report itself states that the Committee “does not rule out the possibility of future excess cases or disregard the suffering associated…” Indeed, UNSCEAR admits to “incomplete knowledge about the release rates of radionuclides over time and the weather conditions during the releases.” UNSCEAR concedes that “there were insufficient measurements of gamma dose rate…” and that, “relatively few measurements of foodstuff were made in the first months.” IPPNW warns that these glaring uncertainties completely negate the level of certainty implied in UNSCEAR’s Exec. Summary.

9. UNSCEAR often praises the protective measures taken by Japanese authorities, but the IPPNW finds it “odd that a scientific body like UNSCEAR would turn a blind eye to the many grave mistakes of the Japanese disaster management…” The central government was slow to inform local governments and “failed to convey the severity of the accident,” according to the Fukushima Nuclear Accident Independent Investigation Commission. “Crisis management ‘did not function correctly,’ the Commission said, and its failure to distribute stable iodine, “caused thousands of children to become irradiated with iodine-131,” IPPNW reports.

10. The UNSCEAR report lists “collective” radiation doses “but does not explain the expected cancer cases that would result from these doses.” This long chapter of IPPNW’s report can’t be summarized easily. The doctors offer conservative estimates, “keeping in mind that these most probably represent underestimations for the reasons listed above.” The IPPNW estimates that 4,300 to 16,800 excess cases of cancer due to the Fukushima catastrophe in Japan in the coming decades. Cancer deaths will range between 2,400 and 9,100. UNSCEAR may call these numbers insignificant, the doctors archly point out, but individual cancers are debilitating and terrifying and they “represent preventable and man-made diseases” and fatalities.

IPPNW concludes that Fukushima’s radiation disaster is “far from over”: the destroyed reactors are still unstable; radioactive liquids and gases continuously leak from the complex wreckage; melted fuel and used fuel in quake-damaged cooling pools hold enormous quantities of radioactivity “and are highly vulnerable to further earthquakes, tsunamis, typhoons and human error.” Catastrophic releases of radioactivity “could occur at any time and eliminating this risk will take many decades.”

IPPNW finally recommends urgent actions that governments should take, because the UNSCEAR report, “does not adhere to scientific standards of neutrality,” “represents a systematic underestimation,” “conjures up an illusion of scientific certainty that obscures the true impact of the nuclear catastrophe on health and the environment,” and its conclusion is phrased “in such a way that would most likely be misunderstood by most people…”

John LaForge works for Nukewatch, a nuclear watchdog and anti-war group in Wisconsin, and edits its Quarterly.

Notes.


[1] Nancy Wilson, National Cancer Institute, “The Majority of Cancers Are Linked to the Environment, NCI Benchmarks, Vol. 4, Issue 3, June 17, 2004

Jim Hightower on Dirty Money

Looping Big Money Around Democracy’s Neck

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Friday, July 11, 2014   |   Posted by Jim Hightower

The beauty of our country’s present system of government is that anyone is perfectly free to buy a member of Congress. And isn’t that what democracy is all about?

Take the Koch brothers. Of course, these multibillionaire industrialists prefer to buy everything in bulk, and they’ve spent millions of dollars to purchase controlling shares of a whole flock of Republican congress critters. In fact, they have spent so much on so many elections (from Congress all the way down to small-town school board races) that they’ve made themselves the poster boys of Big Money corruption. By huge margins, the public is demanding that Congress terminate the plutocratic infestation of our democratic system by Kochites.

How have the brothers responded? By buying another senator – this time a former-senator-turned-lobbyists. Don Nickles, an Oklahoma Republican, became a powerhouse Washington lobbyist shortly after he left the Senate in 2005. His lobby shop pulls in some $8 million a year to run favor-seeking chores for the likes of AT&T, Exxon Mobil, FED EX, General Motors, and Walmart. Now, Nickles is pulling the Koch’s plow, using his Capitol Hill contacts to try to defeat reforms that would shut-off the funnels of secret, unlimited amounts of corporate cash that the Koch network puts into our elections.

What we have here is a perfect example of Big Money looping full circle to strangle The People’s right to be self-governing. The Koch boys write huge checks to candidates and front groups to elect lawmakers who serve their interests. Some of those lawmakers, like Nickles, later slide into lucrative lobbying slots, getting paid a bundle by Koch & Company to fend off democratic, anti-corruption reforms. Thus, the Kochs can keep making bulk purchases of lawmakers… and the circle is drawn ever-tighter around democracy’s neck. To help pass a Constitutional amendment to ban this corrupt money, go to www.united4thepeople.org.

“The Koch Cycle of Endless Cash,” The New York Times, June 14, 2014.

“Nickles Group,” www.opensecrets.org, 2014.

“Koch group, unions battle over Colorado schools race,” www.politico.com, November 2, 2013.

 

Naked Capitalism on the Citibank Sellout

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Latest Citi “Let Bank Off Easy” Mortgage Settlement Shows Administration Disconnect

Posted on July 16, 2014 by

It hasn’t been hard to notice that the Administration has been engaged in a series of bank settlements with multibillion dollar numbers attached. As we’ve argued, the sudden show of a smidge more seriousness is undoubtedly meant to impress voters in the runup to the Congressional midterms as to the Democratic party’s bona fides in the “tough on banks” category.

The latest pact, a nominally $7 billion mortgage settlement over misrepresented residential mortgage backed securities, falls into the predictable pattern of first, there being much less there than meets they eye, and two, as a result, the agreement being a gimmie for the bank and its executives. We’ll go over that briefly in a bit.

But the Citi mortgage settlement was so obviously defective in other respects that Litigation Daily roused itself to shellack it. As Susan Beck wrote, the deal had some particularly unsavory features. One was that it was structured so as to avoid court review. Clearly, no one wanted to risk Judge Rakoff-styple probings, particularly of the factual basis for the settlement. And as Beck notes, there was clearly pointed effort to say squat about what exactly Citi had done:

If you read the government’s statement of facts, evidence of Citi’s actions, strong or otherwise, is hard to find. This document, which should contain the meat of the case, is all of nine pages long. It’s shockingly thin on details, largely relying on boilerplate to describe what most people who follow these cases already know: Citi sold RMBS that it knew were backed by subpar loans. And it doesn’t contain a single word about Citi’s massive CDO operation.

It’s important to remember that Monday’s statement of facts was jointly negotiated by the U.S. Department of Justice and Citi’s lawyers at Paul, Weiss, Rifkind, Wharton & Garrison. This raises the question of whether the government agreed to keep quiet about some of the most damaging evidence against Citi and its officers in exchange for $7 billion. Or perhaps the government had a weak case, but Citi still felt it was too risky to fight.

If you read the statement of facts, the only evidence mentioned is one e-mail from an unnamed trader. Beck states, incredulous: “That’s it—one email. Did Citi really agree to pay $7 billion because it was afraid of one email?”

Apparently the DoJ assumed the public would simply read its press release, which cheekily claims, “And under the terms of this settlement, the bank has admitted to its misdeeds in great detail.”

A second issue that comes out of the review is that the successful effort to say almost nothing clearly protects individuals. The statement of facts does acknowledge a managing director was involved in a vague way. Nice to know the inmates aren’t entirely in charge of the Citi asylum. The entire CDO operation gets a waiver, but they aren’t even mentioned in the factual discussion (ahem, but CDOs were separate from RMBS, so that means at least one other managing director person had to be responsible).

Beck also points out that what on the surface looks like no real investigation was done, or that Citi paid up to have whatever was found out fully obscured, is particularly striking since the residential mortgage backed securities task force has 200 people tasked to it. 25 million documents were collected on the Cit case. Yes, but one might as, what exactly was done with them?

Now to the more standard problems with this mortgage settlement, plus some other warts. It’s not $7 billion. It’s $4.5 billion in cash and the rest is in various credits for borrower relief, which typically means a gimmmie for things Citi would have done anyhow.

And of that $4.5 billion, the DoJ gets the lion’s share, $4 billion. $500 million is divided among various state attorneys general and the FDIC. California gets $102.7 million and New York, $92 million. As Dave Dayen pointed out by e-mail, Citi originally offered $7 billion, which clearly shows they would have paid more. The DoJ rejected that offer. Then Citi came back and made another $7 billion offer, but with the DoJ getting more of the total. That’s the deal that got done. So the DoJ couldn’t be bothered to work up a sweat to wring more out of Citi on this mortgage settlement. It was happy to take a slight sweetener for itself and call it a day.

What is revealing here is that the Administration seems to think that the public buys this sort of enforcement theater. The public has lost interest in these deals. They know the banks got away with murder and pacts that are cost-of-doing business level fines don’t get their attention. They want to see managers and executives prosecuted, or at least pay hefty fines (enough to inflict financial pain) and they’d like to see the bad acts exposed too. Of course, the reason this can never be allowed to happen is that that course of action would facilitate private litigation, and that might lead to uncontrolled outcomes, like exposure of really bad conduct (embarrassing the Administration for not going after it themselves) and hefty damages. As we wrote in 2010:

Early in 2009, the banking industry was on the ropes. Both the stock and the credit default swaps markets said that many of the big players were at serious risk of failure. Commentators debated whether to nationalize Citibank, Bank of America, and other large, floundering institutions.

The case for bold action was sound. The history of financial crises showed that the least costly approach is to resolve mortally wounded organizations, install new management, set strict guidelines, and separate out the bad loans and investments in order to restructure and sell them….

But incoming president Obama failed to act. Whether he failed to see the opportunity, didn’t understand it, or was simply not interested is moot. Rather than bring vested banking interests to heel, the Obama administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff. There would be no Nixon goes to China moment from the architects of the policies that created the crisis, namely Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Director of the National Economic Council Larry Summers…

Obama’s repudiation of his campaign promise of change, by turning his back on meaningful reform of the financial services industry, in turn locked his Administration into a course of action. The new administration would have no choice other that working fist in glove with the banksters, supporting and amplifying their own, well established, propaganda efforts.

Thus Obama’s incentives are to come up with “solutions” that paper over problems, avoid meaningful conflict with the industry, minimize complaints, and restore the old practice of using leverage and investment gains to cover up stagnation in worker incomes. Potemkin reforms dovetail with the financial service industry’s goal of forestalling any measures that would interfere with its looting. So the only problem with this picture was how to fool the now-impoverished public into thinking a program of Mussolini-style corporatism represented progress.

But five years of the same tired propaganda is now staring to wear thin. The only people who will buy the talking points that Team Obama will trot out to try to bolster Democratic party prospects are those who are already in the can. But Administration officials seem to believe that this sort of con job still works. While Obama may not be a lame duck quite yet, the quacking is getting awfully loud.