Jim Hightower on the Carly Con


A flagrant liar for president?

Monday, September 28, 2015   |   Posted by Jim Hightower

We’ve got a new darling in the GOP presidential race: Carly Fiorina!

Being the darling du jour, however, can be dicey – just ask Rick Perry and Scott Walker, two former darlings who’re now out of the race, having turned into ugly ducklings by saying stupid things. But Fiorina is smart, sharp witted, and successful. We know this because she and her PR agents constantly tell us so. Be careful about believing anything she says, though, for Darling Fiorina is not only a relentless self-promoter, but also a remorseless liar.

Take her widely-hailed performance in the second debate among Republican wannabes, where she touched many viewers with her impassioned and vivid attack on Planned Parenthood. With barely-contained outrage, Fiorina described a video that, she said, shows the woman’s health organization in a depraved act of peddling body parts of an aborted fetus. “Watch a fully-formed fetus on the table, its heart beating, its legs kicking,” said a stone-faced Fiorina, looking straight into the camera, “while someone says, ‘we have to keep it alive to harvest its brain’.”

Oh, the horror, the monstrosity of Planned Parenthood! And how moving it was to see and feel the fury of this lady candidate for president!

Only… none of it is true. While she urged the audience to go watch it, there is no such video – no fetus with kicking legs and beating heart, and no demonic Planned Parenthood official luridly preparing to harvest a brain.

So, did Fiorina make up this lie herself, or did her PR team concoct it as a bit of show-biz drama to burnish her right-wing credentials and advance her political ambition? Or, maybe she’s just spreading a malicious lie she was told by some haters of Planned Parenthood. Either way, there’s nothing darling about it… much less presidential.

“Fantasies And Fiction,” The New York Times, September 18, 2015.

“The Fight for Unplanned Parenthood,” The New York Times, September 19, 2015.

Naked Capitalism: Kissinger & the Middle East Mess


Debacle, Inc.: How Henry Kissinger Helped Create Our ‘Proliferated’ World

By Greg Grandin, who teaches history at New York University and is the author of Fordlandia, The Empire of Necessity, which won the Bancroft Prize in American history, and, most recently, Kissinger’s Shadow: The Long Reach of America’s Most Controversial Statesman. Originally published at TomDispatch

The only person Henry Kissinger flattered more than President Richard Nixon was Mohammad Reza Pahlavi, the Shah of Iran. In the early 1970s, the Shah, sitting atop an enormous reserve of increasingly expensive oil and a key figure in Nixon and Kissinger’s move into the Middle East, wanted to be dealt with as a serious person. He expected his country to be treated with the same respect Washington showed other key Cold War allies like West Germany and Great Britain. As Nixon’s national security adviser and, after 1973, secretary of state, Kissinger’s job was to pump up the Shah, to make him feel like he truly was the “king of kings.”

Reading the diplomatic record, it’s hard not to imagine his weariness as he prepared for his sessions with the Shah, considering just what gestures and words would be needed to make it clear that his majesty truly mattered to Washington, that he was valued beyond compare. “Let’s see,” an aide who was helping Kissinger get ready for one such meeting said, “the Shah will want to talk about Pakistan, Afghanistan, Saudi Arabia, the Gulf, the Kurds, and Brezhnev.”

During another prep, Kissinger was told that “the Shah wants to ride in an F-14.” Silence ensued. Then Kissinger began to think aloud about how to flatter the monarch into abandoning the idea. “We can say,” he began, “that if he has his heart set on it, okay, but the President would feel easier if he didn’t have that one worry in 10,000 [that the plane might crash]. The Shah will be flattered.” Once, Nixon asked Kissinger to book the entertainer Danny Kaye for a private performance for the Shah and his wife.

The 92-year-old Kissinger has a long history of involvement in Iran and his recent opposition to Barack Obama’s Iran nuclear deal, while relatively subdued by present Washington standards, matters.  In it lies a certain irony, given his own largely unexamined record in the region.  Kissinger’s criticism has focused mostly on warning that the deal might provoke a regional nuclear arms race as Sunni states led by Saudi Arabia line up against Shia Iran. “We will live in a proliferated world,” he said in testimony before the Senate. In a Wall Street Journal op-ed co-authored with another former secretary of state, George Shultz, Kissinger worried that, as the region “trends toward sectarian upheaval” and “state collapse,” the “disequilibrium of power” might likely tilt toward Tehran.

Of all people, Kissinger knows well how easily the best laid plans can go astray and careen toward disaster. The former diplomat is by no means solely responsible for the mess that is today’s Middle East. There is, of course, George W. Bush’s 2003 invasion of Iraq (which Kissinger supported). But he does bear far more responsibility for our proliferated world’s disequilibrium of power than anyone usually recognizes.

Some of his Middle East policies are well known. In early 1974, for instance, his so-called shuttle diplomacy helped deescalate the tensions that had led to the previous year’s Arab-Israeli War. At the same time, however, it locked in Israel’s veto over U.S. foreign policy for decades to come. And in December 1975, wrongly believing that he had worked out a lasting pro-American balance of power between Iran and Iraq, Kissinger withdrew his previous support from the Kurds (whom he had been using as agents of destabilization against Baghdad’s Baathists). Iraq moved quickly to launch an assault on the Kurds that killed thousands and then implemented a program of ethnic cleansing, forcibly relocating Kurdish survivors and moving Arabs into their homes. “Even in the context of covert action ours was a cynical enterprise,” noted a Congressional investigation into his sacrifice of the Kurds.

Less well known is the way in which Kissinger’s policies toward Iran and Saudi Arabia accelerated the radicalization in the region, how step by catastrophic step he laid the groundwork for the region’s spiraling crises of the present moment.

Guardian of the Gulf

Most critical histories of U.S. involvement in Iran rightly began with the joint British-U.S. coup against democratically elected Prime Minister Mohammad Mosaddegh in 1953, which installed Pahlavi on the Peacock Throne. But it was Kissinger who, in 1972, greatly deepened the relationship between Washington and Tehran. He was the one who began a policy of unconditional support for the Shah as a way to steady American power in the Persian Gulf while the U.S. extracted itself from Southeast Asia. As James Schlesinger, who served as Nixon’s CIA director and secretary of defense, noted, if “we were going to make the Shah the Guardian of the Gulf, we’ve got to give him what he needs.” Which, Schlesinger added, really meant “giving him what he wants.”

What the Shah wanted most of all were weapons of every variety — and American military trainers, and a navy, and an air force. It was Kissinger who overrode State Department and Pentagon objections and gave the Shah what no other country had: the ability to buy anything he wanted from U.S. weapons makers.

“We are looking for a navy,” the Shah told Kissinger in 1973, “we have a large shopping list.” And so Kissinger let him buy a navy.

By 1976, Kissinger’s last full year in office, Iran had become the largest purchaser of American weaponry and housed the largest contingent of U.S. military advisors anywhere on the planet. By 1977, the historian Ervand Abrahamian notes, “the shah had the largest navy in the Persian Gulf, the largest air force in Western Asia, and the fifth-largest army in the whole world.” That meant, just to begin a list, thousands of modern tanks, hundreds of helicopters, F-4 and F-5 fighter jets, dozens of hovercraft, long-range artillery pieces, and Maverick missiles. The next year, the Shah bought another $12 billion worth of equipment.

After Kissinger left office, the special relationship he had worked so hard to establish blew up with the Iranian Revolution of 1979, the flight of the Shah, the coming to power of Ayatollah Khomeini, and the taking of the U.S. Embassy in Tehran (and its occupants as hostages) by student protesters. Washington’s political class is still trying to dig itself out of the rubble. A number of high-ranking Middle East policymakers and experts held Kissinger directly responsible for the disaster, especially career diplomat George Ball, who called Kissinger’s Iran policy an “act of folly.”

Kissinger is deft at deflecting attention from this history. After a speech at Annapolis in 2007, a cadet wanted to know why he had sold weapons to the Shah of Iran when “he knew the nature of his regime?”

“Every American government from the 1950s on cooperated with the Shah of Iran,” Kissinger answered. He continued: “Iran is a crucial piece of strategic real estate, and the fact that it is now in adversarial hands shows why we cooperated with the Shah of Iran. Why did we sell weapons to him? Because he was willing to defend himself and because his defense was in our interest. And again, I simply don’t understand why we have to apologize for defending the American national interest, which was also in the national interest of that region.”

This account carefully omits his role in greatly escalating the support provided to the Shah, including to his infamous SAVAK torturers — the agents of his murderous, U.S.-trained secret police-cum-death-squad — who upheld his regime. Each maimed body or disappeared family member was one more klick on the road to revolution. As George Ball’s biographer, James Bill, writes: considering the “manifest failure” of Kissinger’s Iran policy, “it is worthy of note that in his two massive volumes of political memoirs totalling twenty-eight-hundred pages, Kissinger devoted less than twenty pages to the Iranian revolution and U.S.-Iran relations.”

After the Shah fell, the ayatollahs were the beneficiaries of Kissinger’s arms largess, inheriting billions of dollars of warships, tanks, fighter jets, guns, and other materiel. It was also Kissinger who successfully urged the Carter administration to grant the Shah asylum in the United States, which hastened the deterioration of relations between Tehran and Washington, precipitating the embassy hostage crisis.

Then, in 1980, Saddam Hussein’s Iraq invaded Iran, beginning a war that consumed hundreds of thousands of lives. The administration of Ronald Reagan “tilted” toward Baghdad, providing battlefield intelligence used to launch lethal sarin gas attacks on Iranian troops. At the same time, the White House illegally and infamously trafficked high-tech weaponry to revolutionary Iran as part of what became the Iran-Contra affair.

“It’s a pity they can’t both lose,” Kissinger is reported to have said of Iran and Iraq. Although that quotation is hard to confirm, Raymond Tanter, who served on the National Security Council, reports that, at a foreign-policy briefing for Republican presidential nominee Ronald Reagan in October 1980, Kissinger suggested “the continuation of fighting between Iran and Iraq was in the American interest.”  Having bet (and lost) on the Shah, Kissinger now hoped to make the best of a bad war.  The U.S., he counselled Reagan, “should capitalize on continuing hostilities.”

Saudi Arabia and the Petrodollar Fix

Kissinger’s other “guardian” of the Gulf, Sunni Saudi Arabia, however, didn’t fall and he did everything he could to turn that already close relationship into an ironclad alliance. In 1975, he signaled what was to come by working out an arms deal for the Saudi regime similar to the one he had green-lighted for Tehran, including a $750 million contract for the sale of 60 F-5E/F fighters to the sheiks. By this time, the U.S. already had more than a trillion dollars’ worth of military agreements with Riyadh. Only Iran had more.

Like Tehran, Riyadh paid for this flood of weaponry with the proceeds from rising oil prices. The word “petrodollar,” according to the Los Angeles Times, was coined in late 1973, and introduced into English by New York investment bankers who were courting the oil-producing countries of the Middle East. Soon enough, as that paper wrote, the petrodollar had become part of “the world’s macroeconomic interface” and crucial to Kissinger’s developing Middle Eastern policy.

By June 1974, Treasury Secretary George Shultz was already suggesting that rising oil prices could result in a “highly advantageous mutual bargain” between the U.S. and petroleum-producing countries in the Middle East. Such a “bargain,” as others then began to argue, might solve a number of problems, creating demand for the U.S. dollar, injecting needed money into a flagging defense industry hard hit by the Vietnam wind-down, and using petrodollars to cover mounting trade deficits.

As it happened, petrodollars would prove anything but a quick fix. High energy prices were a drag on the U.S. economy, with inflation and high interest rates remaining a problem for nearly a decade. Nor was petrodollar dependence part of any preconceived Kissingerian “plan.”  As with far more of his moves than he or his admirers now care to admit, he more or less stumbled into it.  This was why, in periodic frustration, he occasionally daydreamed about simply seizing the oil fields of the Arabian peninsula and doing away with all the developing economic troubles.

“Can’t we overthrow one of the sheikhs just to show that we can do it?” he wondered in November 1973, fantasizing about which gas-pump country he could knock off. “How about Abu Dhabi?” he later asked. (Imagine what the world would be like today had Kissinger, in the fall of 1973, moved to overthrow the Saudi regime rather than Chile’s democratically elected president, Salvador Allende.) “Let’s work out a plan for grabbing some Middle East oil if we want,” Kissinger said.

Such scimitar rattling was, however, pure posturing. Not only did Kissinger broker the various deals that got the U.S. hooked on recycled Saudi petrodollars, he also began to promote the idea of an “oil floor price” below which the cost per barrel wouldn’t fall. Among other things, this scheme was meant to protect the Saudis (and Iran, until 1979) from a sudden drop in demand and provide U.S. petroleum corporations with guaranteed profit margins.

Stephen Walt, a scholar of international relations, writes: “By the end of 1975, more than six thousand Americans were engaged in military-related activities in Saudi Arabia. Saudi arms purchased for the period 1974-1975 totaled over $3.8 billion, and a bewildering array of training missions and construction projects worth over $10 billion were now underway.”

Since the 1970s, one administration after another has found the iron-clad alliance Kissinger deepened between the House of Saud’s medieval “moderates” and Washington indispensable not only to keep the oil flowing but as a balance against Shia radicalism and secular nationalism of every sort. Recently, however, a series of world-historical events has shattered the context in which that alliance seemed to make sense. These include: the catastrophic war on and occupation of Iraq, the Arab Spring, the Syrian uprising and ensuing civil war, the rise of ISIS, Israel’s rightwing lurch, the conflict in Yemen, the falling price of petroleum, and, now, Obama’s Iran deal.

But the arms spigot that Kissinger turned on still remains wide open. According to the New York Times, “Saudi Arabia spent more than $80 billion on weaponry last year — the most ever, and more than either France or Britain — and has become the world’s fourth-largest defense market.” Just as they did after the Vietnam drawdown, U.S. weapons manufacturing are compensating for limits on the defense budget at home by selling arms to Gulf states. The “proxy wars in the Middle East could last for years,” write Mark Mazzetti and Helene Cooper of the New York Times, “which will make countries in the region even more eager for the F-35 fighter jet, considered to be the jewel of America’s future arsenal of weapons. The plane, the world’s most expensive weapons project, has stealth capabilities and has been marketed heavily to European and Asian allies. It has not yet been peddled to Arab allies because of concerns about preserving Israel’s military edge.”

If fortune is really shining on Lockheed and Boeing, Kissinger’s prediction that Obama’s de-escalation of tensions with Tehran will sooner or later prompt Saudi–Iranian hostilities will pan out. “With the balance of power in the Middle East in flux, several defense analysts said that could change. Russia is a major arms supplier to Iran, and a decision by President Vladimir Putin to sell an advanced air defense system to Iran could increase demand for the F-35, which is likely to have the ability to penetrate Russian-made defenses,” the Times reports.

“This could be the precipitating event: the emerging Sunni-Shia civil war coupled with the sale of advanced Russian air defense systems to Iran,” said one defense analyst. “If anything is going to result in F-35 clearance to the gulf states, this is the combination of events.’”

Into Afghanistan

If all Henry Kissinger contributed to the Middle East were a regional arms race, petrodollar addiction, Iranian radicalization, and the Tehran-Riyadh conflict, it would be bad enough. His legacy, however, is far worse than that: he has to answer for his role in the rise of political Islam.

In July 1973, after a coup in Afghanistan brought to power a moderate, secular, but Soviet-leaning republican government, the Shah, then approaching the height of his influence with Kissinger, pressed his advantage. He asked for even more military assistance. Now, he said, he “must cover the East with fighter aircraft.” Kissinger complied.

Tehran also began to meddle in Afghan politics, offering Kabul billions of dollars for development and security, in exchange for loosening “its ties with the Soviet Union.” This might have seemed a reasonably peaceful way to increase U.S. influence via Iran over Kabul. It was, however, paired with an explosive initiative: via SAVAK, the Shah’s secret police, and Pakistan’s Inter-Services Intelligence agency (ISI), extremist Islamic insurgents were to be slipped into Afghanistan to destabilize Kabul’s republican government.

Kissinger, who knew his British and his Russian imperial history, had long considered Pakistan of strategic importance. “The defense of Afghanistan,” he wrote in 1955, “depends on the strength of Pakistan.” But before he could put Pakistan into play against the Soviets in Afghanistan, he had to perfume away the stink of genocide. In 1971, that country had launched a bloodbath in East Pakistan (now Bangladesh), with Nixon and Kissinger standing “stoutly behind Pakistan’s generals, supporting the murderous regime at many of the most crucial moments,” as Gary Bass has detailed. The president and his national security adviser, Bass writes, “vigorously supported the killers and tormentors of a generation of Bangladeshis.”

Because of that genocidal campaign, the State Department, acting against Kissinger’s wishes, had cut off military aid to the country in 1971, though Nixon and Kissinger kept it flowing covertly via Iran. In 1975, Kissinger vigorously pushed for its full, formal restoration, even as he was offering his tacit approval to Maoist China to back Pakistan whose leaders had their own reasons for wanting to destabilize Afghanistan, having to do with border disputes and the ongoing rivalry with India.

Kissinger helped make that possible, in part by the key role he played in building up Pakistan as part of a regional strategy in which Iran and Saudi Arabia were similarly deputized to do his dirty work. When Pakistani Prime Minister Zulfikar Ali Bhutto, who had backed the 1971 rampage in East Pakistan, visited Washington in 1975 to make the case for restoration of military aid, Kissinger assured President Gerald Ford that he “was great in ’71.” Ford agreed, and U.S. dollars soon started to flow directly to the Pakistani army and intelligence service.

As national security adviser and then secretary of state, Kissinger was directly involved in planning and executing covert actions in such diverse places as Cambodia, Angola, and Chile. No available information indicates that he ever directly encouraged Pakistan’s ISI or Iran’s SAVAK to destabilize Afghanistan. But we don’t need a smoking gun to appreciate the larger context and consequences of his many regional initiatives in what, in the twenty-first century, would come to be known in Washington as the “greater Middle East.” In their 1995 book, Out of Afghanistan, based on research in Soviet archives, foreign-policy analysts Diego Cordovez and Selig Harrison provide a wide-ranging sense of just how so many of the policies Kissinger put in place — the empowerment of Iran, the restoration of military relations with Pakistan, high oil prices, an embrace of Saudi Wahhabism, and weapon sales — came together to spark jihadism:

”It was in the early 1970s, with oil prices rising, that Shah Mohammed Reza Pahlavi of Iran embarked on his ambitious effort to roll back Soviet influence in neighboring countries and create a modern version of the ancient Persian empire… Beginning in 1974, the Shah launched a determined effort to draw Kabul into a Western-tilted, Tehran-centered regional economic and security sphere embracing India, Pakistan and the Persian Gulf states… The United States actively encouraged this roll-back policy as part of its broad partnership with the Shah… SAVAK and the CIA worked hand in hand, sometimes in loose collaboration with underground Afghani Islamic fundamentalist groups that shared their anti-Soviet objectives but had their own agendas as well… As oil profits sky-rocketed, emissaries from these newly affluent Arab fundamentalist groups arrived on the Afghan scene with bulging bankrolls.”

Harrison also wrote that “SAVAK, the CIA, and Pakistani agents” were involved in failed “fundamentalist coup attempts” in Afghanistan in 1973 and 1974, along with an attempted Islamic insurrection in the Panjshir Valley in 1975, laying the groundwork for the jihad of the 1980s (and beyond).

Much has been made of Jimmy Carter’s decision, on the advice of National Security Adviser Zbigniew Brzezinski, to authorize “nonlethal” aid to the Afghan mujahedeen in July 1979, six months before Moscow sent troops to support the Afghan government in its fight against a spreading Islamic insurgency. But lethal aid had already long been flowing to those jihadists via Washington’s ally Pakistan (and Iran until its revolution in 1979). This provision of support to radical Islamists, initiated in Kissinger’s tenure and continuing through the years of Ronald Reagan’s presidency, had a number of unfortunate consequences known all too well today but seldom linked to the good doctor. It put unsustainable pressure on Afghanistan’s fragile secular government. It laid the early infrastructure for today’s transnational radical Islam. And, of course, it destabilized Afghanistan and so helped provoke the Soviet invasion.

Some still celebrate the decisions of Carter and Reagan for their role in pulling Moscow into its own Vietnam-style quagmire and so hastening the demise of the Soviet Union. “What is most important to the history of the world?” Brzezinski infamously asked. “The Taliban or the collapse of the Soviet empire? Some stirred-up Moslems or the liberation of Central Europe and the end of the cold war?” (The rivalry between the two Harvard immigrant diplomats, Kissinger and Brzezinski, is well known. But Brzezinski by 1979 was absolutely Kissingerian in his advice to Carter. In fact, a number of Kissinger’s allies who continued on in the Carter administration, including Walter Slocombe and David Newsom, influenced the decision to support the jihad.)

Moscow’s occupation of Afghanistan would prove a disaster — and not just for the Soviet Union. When Soviet troops pulled out in 1989, they left behind a shattered country and a shadowy network of insurgent fundamentalists who, for years, had worked hand-in-glove with the CIA in the Agency’s longest covert operation, as well as the Saudis and the Pakistani ISI.  It was a distinctly Kissingerian line-up of forces.

Few serious scholars now believe that the Soviet Union would have proved any more durable had it not invaded Afghanistan. Nor did the allegiance of Afghanistan — whether it tilted toward Washington, Moscow, or Tehran — make any difference to the outcome of the Cold War, any more than did, say, that of Cuba, Iraq, Angola, or Vietnam.

For all of the celebration of him as a “grand strategist,” as someone who constantly advises presidents to think of the future, to base their actions today on where they want the country to be in five or 10 years’ time, Kissinger was absolutely blind to the fundamental feebleness and inevitable collapse of the Soviet Union. None of it was necessary; none of the lives Kissinger sacrificed in Cambodia, Laos, Angola, Mozambique, Chile, Argentina, Uruguay, East Timor, and Bangladesh made one bit of difference in the outcome of the Cold War.

Similarly, each of Kissinger’s Middle East initiatives has been disastrous in the long run. Just think about them from the vantage point of 2015: banking on despots, inflating the Shah, providing massive amounts of aid to security forces that tortured and terrorized democrats, pumping up the U.S. defense industry with recycled petrodollars and so spurring a Middle East arms race financed by high gas prices, emboldening Pakistan’s intelligence service, nurturing Islamic fundamentalism, playing Iran and the Kurds off against Iraq, and then Iraq and Iran off against the Kurds, and committing Washington to defending Israel’s occupation of Arab lands.

Combined, they’ve helped bind the modern Middle East into a knot that even Alexander’s sword couldn’t sever.

Bloody Inventions

Over the last decade, an avalanche of documents — transcripts of conversations and phone calls, declassified memos, and embassy cables — have implicated Henry Kissinger in crimes in Bangladesh, Cambodia, southern Africa, Laos, the Middle East, and Latin America. He’s tried to defend himself by arguing for context. “Just to take a sentence out of a telephone conversation when you have 50 other conversations, it’s just not the way to analyze it,” Kissinger said recently, after yet another damning tranche of documents was declassified. “I’ve been telling people to read a month’s worth of conversations, so you know what else went on.”

But a month’s worth of conversations, or eight years for that matter, reads like one of Shakespeare’s bloodiest plays. Perhaps Macbeth, with its description of what we today call blowback: “That we but teach bloody instructions, which, being taught, return to plague the inventor.”

We are still reaping the bloody returns of Kissinger’s inventions.

Naked Capitalism on U.S. Special Ops

Imperial Overreach: U.S. Special Ops Forces Deployed in 135 Nations

By Nick Turse, a 2014 Izzy Award and American Book Award winner for his book Kill Anything That Moves. Turse has reported from the Middle East, Southeast Asia, and Africa and his pieces have appeared in the New York Times, the Intercept, the San Francisco Chronicle, the Nation, and regularly at TomDispatch. His latest book is Tomorrow’s Battlefield: U.S. Proxy Wars and Secret Ops in Africa. Originally published at TomDispatch

You can find them in dusty, sunbaked badlands, moist tropical forests, and the salty spray of third-world littorals.  Standing in judgement, buffeted by the rotor wash of a helicopter or sweltering beneath the relentless desert sun, they instructyell, and cajole as skinnier men playact under their watchful eyes. In many places, more than their particular brand of camouflage, better boots, and designer gear sets them apart. Their days are scented by stale sweat and gunpowder; their nights are spent in rustic locales or third-world bars.

These men — and they are mostly men — belong to an exclusive military fraternity that traces its heritage back to the birth of the nation. Typically, they’ve spent the better part of a decade as more conventional soldiers, sailors, marines, or airmen before making the cut. They’ve probably been deployed overseas four to 10 times.  The officers are generally approaching their mid-thirties; the enlisted men, their late twenties. They’ve had more schooling than most in the military.  They’re likely to be married with a couple of kids.  And day after day, they carry out shadowy missions over much of the planet: sometimes covert raids, more often hush-hush training exercises from Chad to Uganda, Bahrain to Saudi Arabia, Albania to Romania, Bangladesh to Sri Lanka, Belize to Uruguay. They belong to the Special Operations forces (SOF), America’s most elite troops — Army Green Berets and Navy SEALs, among others — and odds are, if you throw a dart at a world map or stop a spinning globe with your index finger and don’t hit water, they’ve been there sometime in 2015.

The Wide World of Special Ops

This year, U.S. Special Operations forces have already deployed to 135 nations, according to Ken McGraw, a spokesman for Special Operations Command (SOCOM).  That’s roughly 70% of the countries on the planet.  Every day, in fact, America’s most elite troops are carrying out missions in 80 to 90 nations, practicing night raids or sometimes conducting them for real, engaging in sniper training or sometimes actually gunning down enemies from afar. As part of a global engagement strategy of endless hush-hush operations conducted on every continent but Antarctica, they have now eclipsed the number and range of special ops missions undertaken at the height of the conflicts in Iraq and Afghanistan.

In the waning days of the Bush administration, Special Operations forces (SOF) were reportedly deployed in only about 60 nations around the world.  By 2010, according to the Washington Post, that number had swelled to 75.  Three years later, it had jumped to 134 nations, “slipping” to 133 last year, before reaching a new record of 135 this summer.  This 80% increase over the last five years is indicative of SOCOM’s exponential expansion which first shifted into high gear following the 9/11 attacks.

Special Operations Command’s funding, for example, has more than tripled from about $3 billion in 2001 to nearly $10 billion in 2014 “constant dollars,” according to the Government Accountability Office (GAO).  And this doesn’t include funding from the various service branches, which SOCOM estimates at around another $8 billion annually, or other undisclosed sums that the GAO was unable to track.  The average number of Special Operations forces deployed overseas has nearly tripled during these same years, while SOCOM more than doubled its personnel from about 33,000 in 2001 to nearly 70,000 now.

Each day, according to SOCOM commander General Joseph Votel, approximately 11,000 special operators are deployed or stationed outside the United States with many more on standby, ready to respond in the event of an overseas crisis. “I think a lot of our resources are focused in Iraq and in the Middle East, in Syria for right now. That’s really where our head has been,” Votel told the Aspen Security Forum in July.  Still, he insisted his troops were not “doing anything on the ground in Syria” — even if they had carried out a night raid there a couple of months before and it was later revealed that they are involved in a covert campaign of drone strikes in that country.

“I think we are increasing our focus on Eastern Europe at this time,” he added. “At the same time we continue to provide some level of support on South America for Colombia and the other interests that we have down there. And then of course we’re engaged out in the Pacific with a lot of our partners, reassuring them and working those relationships and maintaining our presence out there.”

In reality, the average percentage of Special Operations forces deployed to the Greater Middle East has decreased in recent years.  Back in 2006, 85% of special operators were deployed in support of Central Command or CENTCOM, the geographic combatant command (GCC) that oversees operations in the region.  By last year, that number had dropped to 69%, according to GAO figures.  Over that same span, Northern Command — devoted to homeland defense — held steady at 1%, European Command (EUCOM) doubled its percentage, from 3% to 6%, Pacific Command (PACOM) increased from 7% to 10%, and Southern Command, which overseas Central and South America as well as the Caribbean, inched up from 3% to 4%. The largest increase, however, was in a region conspicuously absent from Votel’s rundown of special ops deployments.  In 2006, just 1% of the special operators deployed abroad were sent to Africa Command’s area of operations.  Last year, it was 10%.


A member of the U.S. Special Operations forces guides two soldiers from Cameroon’s 3rd Battalion Intervention Rapid (BIR) during a 2013 training event. (Photo by Air Force Master Sgt. Larry W. Carpenter Jr.)

Globetrotting is SOCOM’s stock in trade and, not coincidentally, it’s divided into a collection of planet-girding “sub-unified commands”: the self-explanatory SOCAFRICA; SOCEUR, the European contingent; SOCCENT, the sub-unified command of CENTCOM; SOCKOR, which is devoted strictly to Korea; SOCPAC, which covers the rest of the Asia-Pacific region; SOCSOUTH, which conducts missions in Central America, South America, and the Caribbean; SOCNORTH, which is devoted to “homeland defense”; and the ever-itinerant Joint Special Operations Command or JSOC, a clandestine sub-command (formerly headed by Votel) made up of personnel from each service branch, including SEALs, Air Force special tactics airmen, and the Army’s Delta Force that specializes in tracking and killing suspected terrorists.

The elite of the elite in the special ops community, JSOC takes on covert, clandestine, and low-visibility operations in the hottest of hot spots.  Some covert ops that have come to light in recent years include a host of Delta Force missions: among them, an operation in May in which members of the elite force killed an Islamic State commander known as Abu Sayyaf during a night raid in Syria; the 2014 release of long-time Taliban prisoner Army Sergeant Bowe Bergdahl; the capture of Ahmed Abu Khattala, a suspect in 2012 terror attacks in Benghazi, Libya; and the 2013 abduction of Anas al-Libi, an al-Qaeda militant, off a street in that same country.  Similarly, Navy SEALs have, among other operations, carried out successful hostage rescue missions in Afghanistan and Somalia in 2012; a disastrous one in Yemen in 2014; a 2013 kidnap raid in Somalia that went awry; and — that same year — a failed evacuation mission in South Sudan in which three SEALs were wounded when their aircraft was hit by small arms fire.

SOCOM’s SOF Alphabet Soup

Most deployments have, however, been training missions designed to tutor proxies and forge stronger ties with allies. “Special Operations forces provide individual-level training, unit-level training, and formal classroom training,” explains SOCOM’s Ken McGraw.  “Individual training can be in subjects like basic rifle marksmanship, land navigation, airborne operations, and first aid.  They provide unit-level training in subjects like small unit tactics, counterterrorism operations and maritime operations. SOF can also provide formal classroom training in subjects like the military decision-making process or staff planning.”

From 2012 to 2014, for instance, Special Operations forces carried out 500 Joint Combined Exchange Training (JCET) missions in as many as 67 countries each year.  JCETs are officially devoted to training U.S. forces, but they nonetheless serve as a key facet of SOCOM’s global engagement strategy. The missions “foster key military partnerships with foreign militaries, enhance partner-nations’ capability to provide for their own defense, and build interoperability between U.S. SOF and partner-nation forces,” according to SOCOM’s McGraw.

And JCETs are just a fraction of the story.  SOCOM carries out many other multinational overseas training operations.   According to data from the Office of the Under Secretary of Defense (Comptroller), for example, Special Operations forces conducted 75 training exercises in 30 countries in 2014.  The numbers were projected to jump to 98 exercises in 34 countries by the end of this year.

“SOCOM places a premium on international partnerships and building their capacity.  Today, SOCOM has persistent partnerships with about 60 countries through our Special Operations Forces Liaison Elements and Joint Planning and Advisory Teams,” said SOCOM’s Votel at a conference earlier this year, drawing attention to two of the many types of shadowy Special Ops entities that operate overseas.  These SOFLEs and JPATs belong to a mind-bending alphabet soup of special ops entities operating around the globe, a jumble of opaque acronyms and stilted abbreviations masking a secret world of clandestine efforts often conducted in the shadows in impoverished lands ruled by problematic regimes.  The proliferation of this bewildering SOCOM shorthand — SOJTFs and CJSOTFs, SOCCEs and SOLEs — mirrors the relentless expansion of the command, with its signature brand of military speak or milspeak proving as indecipherable to most Americans as its missions are secret from them.

Around the world, you can find Special Operations Joint Task Forces (SOJTFs), Combined Joint Special Operations Task Forces (CJSOTFs), and Joint Special Operations Task Forces (JSOTFs), Theater Special Operations Commands (TSOCs), as well as Special Operations Command and Control Elements (SOCCEs) and Special Operations Liaison Elements (SOLEs).  And that list doesn’t even include Special Operations Command Forward (SOC FWD) elements — small teams which, according to the military, “shape and coordinate special operations forces security cooperation and engagement in support of theater special operations command, geographic combatant command, and country team goals and objectives.”

Special Operations Command will not divulge the locations or even a simple count of its SOC FWDs for “security reasons.”  When asked how releasing only the number could imperil security, SOCOM’s Ken McGraw was typically opaque.  “The information is classified,” he responded.  “I am not the classification authority for that information so I do not know the specifics of why the information is classified.”  Open source data suggests, however, that they are clustered in favored black ops stomping grounds, including SOC FWD Pakistan, SOC FWD Yemen, and SOC FWD Lebanon, as well as SOC FWD East Africa, SOC FWD Central Africa, and SOC FWD West Africa.


A U.S. Army Special Forces soldier readies himself to jump out of a C-130J Super Hercules over Hurlburt Field, Fla., March 3, 2012. (U.S. Air Force photo by Staff Sgt. Jonathan Snyder)  

What’s clear is that SOCOM prefers to operate in the shadows while its personnel and missions expand globally to little notice or attention.  “The key thing that SOCOM brings to the table is that we are — we think of ourselves — as a global force. We support the geographic combatant commanders, but we are not bound by the artificial boundaries that normally define the regional areas in which they operate. So what we try to do is we try to operate across those boundaries,” SOCOM’s Votel told the Aspen Security Forum.

In one particular blurring of boundaries, Special Operations liaison officers (SOLOs) are embedded in at least 14 key U.S. embassies to assist in advising the special forces of various allied nations.  Already operating in Australia, Brazil, Canada, Colombia, El Salvador, France, Israel, Italy, Jordan, Kenya, Poland, Peru, Turkey, and the United Kingdom, the SOLO program is poised, according to Votel, to expand to 40 countries by 2019.  The command, and especially JSOC, has also forged close ties with the Central Intelligence Agency, the Federal Bureau of Investigation, and the National Security Agency, among other outfits, through the use of liaison officers and Special Operations Support Teams (SOSTs).

“In today’s environment, our effectiveness is directly tied to our ability to operate with domestic and international partners. We, as a joint force, must continue to institutionalize interoperability, integration, and interdependence between conventional forces and special operations forces through doctrine, training, and operational deployments,” Votel told the Senate Armed Services Committee this spring.  “From working with indigenous forces and local governments to improve local security, to high-risk counterterrorism operations — SOF are in vital roles performing essential tasks.”

SOCOM will not name the 135 countries in which America’s most elite forces were deployed this year, let alone disclose the nature of those operations.  Most were, undoubtedly, training efforts.  Documents obtained from the Pentagon via the Freedom of Information Act outlining Joint Combined Exchange Training in 2013 offer an indication of what Special Operations forces do on a daily basis and also what skills are deemed necessary for their real-world missions: combat marksmanship, patrolling, weapons training, small unit tactics, special operations in urban terrain, close quarters combat, advanced marksmanship, sniper employment, long-range shooting, deliberate attack, and heavy weapons employment, in addition to combat casualty care, human rights awareness, land navigation, and mission planning, among others.

From Joint Special Operations Task Force-Juniper Shield, which operates in Africa’s Trans-Sahara region, and Special Operations Command and Control Element-Horn of Africa, to Army Special Operations Forces Liaison Element-Korea and Combined Joint Special Operations Task Force-Arabian Peninsula, the global growth of SOF missions has been breathtaking.  SEALs or Green Berets, Delta Force operators or Air Commandos, they are constantly taking on what Votel likes to call the “nation’s most complex, demanding, and high-risk challenges.”

These forces carry out operations almost entirely unknown to the American taxpayers who fund them, operations conducted far from the scrutiny of the media or meaningful outside oversight of any kind.  Everyday, in around 80 or more countries that Special Operations Command will not name, they undertake missions the command refuses to talk about.  They exist in a secret world of obtuse acronyms and shadowy efforts, of mystery missions kept secret from the American public, not to mention most of the citizens of the 135 nations where they’ve been deployed this year.

This summer, when Votel commented that more special ops troops are deployed to more locations and are conducting more operations than at the height of the Afghan and Iraq wars, he drew attention to two conflicts in which those forces played major roles that have not turned out well for the United States.  Consider that symbolic of what the bulking up of his command has meant in these years.

“Ultimately, the best indicator of our success will be the success of the [geographic combatant commands],” says the special ops chief, but with U.S. setbacks in Africa Command’s area of operations from Mali and Nigeria to Burkina Faso and Cameroon; in Central Command’s bailiwick from Iraq and Afghanistan to Yemen and Syria; in the PACOM region vis-à-vis China; and perhaps even in the EUCOM area of operations due to Russia, it’s far from clear what successes can be attributed to the ever-expanding secret operations of America’s secret military.  The special ops commander seems resigned to the very real limitations of what his secretive but much-ballyhooed, highly-trained, well-funded, heavily-armed operators can do.

“We can buy space, we can buy time,” says Votel, stressing that SOCOM can “play a very, very key role” in countering “violent extremism,” but only up to a point — and that point seems to fall strikingly short of anything resembling victory or even significant foreign policy success.  “Ultimately, you know, problems like we see in Iraq and Syria,” he says, “aren’t going to be resolved by us.”

Naked Capitalism: Time for Perp Walks?


Will Banks “Cough Up Executives” in the Treasury Bid-Rigging Scandal?

The Department of Justice may face an early test of its long-overdue policy change, that the government will seek to prosecute individuals, including executives, along with those of corporations. As Sally Yates, Deputy Attorney and author of the memo setting forth the new policy, put it, “We mean it when we say, ‘You have got to cough up the individuals.’”

As Bloomberg reported on Thursday, private plaintiffs have filed two suits alleging bid-rigging by the 22 primary dealers, adding pressure to an ongoing Department of Justice investigation. We’ve embedded the more recent filing, Cleveland Bakers and Teamsters Pension Fund v. Bank of Nova Scotia et al., at the end of this post. From the article:

The same analytical technique that uncovered cheating in currency markets and the Libor rates benchmark — resulting in about $20 billion of fines — suggests the dealers who control the U.S. Treasury market rigged bond auctions for years, according to a lawsuit….

The plaintiffs built their case against the 22 primary dealers who serve as the backbone of Treasury trading — including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley — using data from Rosa Abrantes-Metz, an adjunct associate professor at New York University who has provided expert testimony in rigging cases.

Bear in mind that investigations and litigation is underway, and no charges have yet been proven. However, in the last major Treasury bid-rigging scandal, in 1991, the Fed didn’t bother to wait for the Department of Justice to act. Our summary in ECONNED:

[Salomon Brothers trader Paul] Mozer and other government bond dealers routinely traded an arbitrage that involved Treasury bonds traded on a “when issued” basis. The Treasury would announce its funding calendar, and traders would start making a market prior to when the bonds would actually be auctioned. The arb play involved shorting the “when issued” bonds. A short seller eventually had to buy the instrument to close out his position, so he was committed to making a purchase at some point.

Mozer decided to squeeze the dealers doing this trade, but to do that, he needed to control the Treasury auction in the maturity he targeted, the two-year note. Primary Treasury dealers like Salomon submit bids at Treasury auctions, both for themselves and for customers.

Mozer first tried bidding for 100% of the offered amount for Salomon. A Treasury deputy secretary called and politely but firmly reminded him that the government had a gentlemen’s agreement that a buyer is restricted to a maximum bid of 35% of the total offered at any auction. The government, after all,
wants to raise money on good terms, not enrich dealers, particularly ones engaging in anticompetitive practices. Remarkably, Mozer not only got abusive with the official, but became openly defiant, next submitting a bid for 240% of the auction. That led to another unproductive call from the Treasury to Mozer, plus a request to the Fed, which runs the auctions on behalf of the Treasury, to lower the bid to 35%. Mozer tried yet again with a 300% bid, the Fed haircut it again, and the Treasury made the 35% informal understanding into an official limit. Mozer went on a rampage, submitting multiple 35% bids, making abusive calls to the Treasury, and trying to get media support.

The officialdom of the firm took notice, and the second most senior officer, Tom Strauss, ordered Mozer to apologize and take some time off.

But Mozer was not deterred. A few months later, he not only submitted 35% bids in Salomon’s name, but also submitted bids on behalf of unwitting customers and created phony customer trades after the fact to cover his tracks. He was clumsy about it. The Treasury got wind of what he was up to, conducted an investigation, and sent a letter to one of the clients that Mozer had falsely said was bidding, with a copy to Mozer.

When a firm crosses a regulator, the right response is to quickly roll over and show your belly: a massive display of contrition and swift punishment, at minimum a suspension, of the perp. That did not happen. Mozer showed the letter to [John] Meriwether, his boss, who showed it to Strauss. They agreed it was very serious, “career threatening.”

They were right, but the career it ended was [CEO John] Gutfreund’s. He was out of town; the matter was left until his return. Mozer, still in place, submitted yet another phony bid at the next auction. When Gutfreund got word, he agreed the matter was serious, and the top brass debated whom to notify (the Treasury or the Fed). There was no discussion of reining in Mozer, much less punishing him. The phony bids continued. Some hedge funds heard of Mozer’s ploy and started placing similar buy orders (except theirs were legitimate).

Gutfreund waited more than a month to leash and collar Mozer. His profits during this period were substantial, and Gutfreund thought he could hang on to Mozer’s ill-gotten gains. When the Salomon chief finally sat down with the Treasury, he argued that the firm’s conduct had been proper, even though the
squeeze had become visible and costly to competitors. The Treasury was not satisfied. An investigation ensued and the results did not support Gutfreund’s claims. When the Federal Reserve, the regulator in this matter, found out via reading the story in the press, the end came quickly. Gutfreund, Strauss, Meriwether, and the firm’s general counsel resigned in a matter of days.

Similarly, when Barclays tried shifting blame for its misconduct in the Libor scandal †o the Bank of England, the Bank forced the resignation of the chairman, CEO, and president. But similar shows of spine from American regulators are almost antique. That is in part due to the fact that the New York Fed disbanded its primary dealer surveillance unit in 1992.

Despite the fact that the efforts to look into the Treasury market are gaining momentum, I have serious reservations about the statistical analysis in the suit embedded below. It does not provide direct evidence of collusion, but tries to use statistical approaches to infer that the price anomalies around the time of auctions can only be explained by collusion. By contrast, the Department of Justice appears to be first looking for direct evidence of collusion, as in dealers sharing information in chat rooms and coordinating bidding strategies. One would assume that if they find this behavior (and press leaks suggest they have), statistical evidence would then serve to demonstrate impact, i.e., harm.

I admit I’ve only skimmed the case, and it does not include exhibits. However, I didn’t see any sign in the narrative that the analysis allowed for the fact the trade sizes in Treasury auctions are vastly larger than in secondary market trades. You would thus expect them to be at lower prices, meaning higher yields. By contrast, the sole expert who did the analysis in this filing, as far as I can tell from my cursory look, appear not to have considered this idea at all.

Similarly, we see unduly confident statements like this:

This pattern of laying off risk that yields were going to move against the primary dealers suspiciously ceased when there was an auction. Rather than hedging by buying in one and selling in the other, or vice-versa, Defendants instead were, to a statistically significant degree, seen only around auctions going in the same direction in both the spot and futures markets. Defendants’ volume of activities also increased markedly in these periods. The only plausible explanation for such “doubling down” behavior is that Defendants were confident that they knew how the markets were going to move at the time of auctions, because they were manipulating the auction prices.

In corporate underwriting (stocks and bonds), it is well understood by issuers that the dealer will price the underwriting (the “price” being the price at which he buys the stock or bonds from the company) so as to assure a profit to investors who buy the day the security is sold. In the stone ages of my youth, the Goldman syndicate department viewed a 15% first day appreciation as a good level to hit (as in not so high as to annoy the company selling the stock but high enough to keep investors signing up for Goldman deals). Later in the 1980s, when I was at McKinsey, one team studied the pricing pattern of various firms on stock offerings, and some were more company-friendly (as in less first-day price appreciation) than others. Put it another way, it has long been seen as normal and necessary to price new issues at below the market price to get underwriter to underwrite them and investors to buy them.

The larger point is that to get these auctions off, the Treasury and Fed expect the dealers and the investors to make a certain amount of profit to reflect the risk of taking down large orders time and time again when all their competitors are doing just the same thing. So you’d expect the pricing to be a bit lower and the yields to be higher. The question is whether the “juice” is in line with what is needed. The plaintiff’s expert, Abrantes-Metz, contends that 69% of the auctions appear to have been rigged. The average yield premium she cites, 91 basis points (close to 1%), does seems awfully rich. But by taking the implicit position that any discount in price, meaning higher interest rate, is suspicious, Abrantes-Metz looks to have overstated her case and made it easy for banks to assail her analysis.

Bear in mind, however, that this is just the initial filing. Even with my reservations, it looks certain to pass summary judgment. That means the plaintiffs get to do discovery and dig into e-mails and phone logs and depose witnesses. As a result, the Department of Justice and the private litigant will be on parallel paths, and thus will make it harder for the DoJ to go easy on the banks if there are any smoking guns. Stay tuned.



Naked Capitalism on the American Empire


Garrisoning the Globe, How U.S. Military Bases Abroad Undermine National Security and Harm Us All

By David Vine, an associate professor of anthropology at American University in Washington, D.C and author of Base Nation: How U.S. Military Bases Abroad Harm America and the World, which was just been published as part of the American Empire Project (Metropolitan Books). He has written for the New York Times, the Washington Post, the Guardian, and Mother Jones, among other publications. For more information and additional articles, visit www.basenation.us and www.davidvine.net. Original published at TomDispatch

With the U.S. military having withdrawn many of its forces from Iraq and Afghanistan, most Americans would be forgiven for being unaware that hundreds of U.S. bases and hundreds of thousands of U.S. troops still encircle the globe. Although few know it, the United States garrisons the planet unlike any country in history, and the evidence is on view from Honduras to Oman, Japan to Germany, Singapore to Djibouti.

Like most Americans, for most of my life, I rarely thought about military bases. Scholar and former CIA consultant Chalmers Johnson described me well when he wrote in 2004, “As distinct from other peoples, most Americans do not recognize — or do not want to recognize — that the United States dominates the world through its military power. Due to government secrecy, our citizens are often ignorant of the fact that our garrisons encircle the planet.”

To the extent that Americans think about these bases at all, we generally assume they’re essential to national security and global peace. Our leaders have claimed as much since most of them were established during World War II and the early days of the Cold War. As a result, we consider the situation normal and accept that U.S. military installations exist in staggering numbers in other countries, on other peoples’ land. On the other hand, the idea that there would be foreign bases on U.S. soil is unthinkable.

While there are no freestanding foreign bases permanently located in the United States, there are now around 800 U.S. bases in foreign countries. Seventy years after World War II and 62 years after the Korean War, there are still 174 U.S. “base sites” in Germany, 113 in Japan, and 83 in South Korea, according to the Pentagon. Hundreds more dot the planet in around 80 countries, including Aruba and Australia, Bahrain and Bulgaria, Colombia, Kenya, and Qatar, among many other places. Although few Americans realize it, the United States likely has more bases in foreign lands than any other people, nation, or empire in history.

Oddly enough, however, the mainstream media rarely report or comment on the issue. For years, during debates over the closure of the prison at the base in Guantánamo Bay, Cuba, nary a pundit or politician wondered why the United States has a base on Cuban territory in the first place or questioned whether we should have one there at all. Rarely does anyone ask if we need hundreds of bases overseas or if, at an estimated annual cost of perhaps $156 billion or more, the U.S. can afford them. Rarely does anyone wonder how we would feel if China, Russia, or Iran built even a single base anywhere near our borders, let alone in the United States.

“Without grasping the dimensions of this globe-girdling Baseworld,” Chalmers Johnson insisted, “one can’t begin to understand the size and nature of our imperial aspirations or the degree to which a new kind of militarism is undermining our constitutional order.” Alarmed and inspired by his work and aware that relatively few have heeded his warnings, I’ve spent years trying to track and understand what he called our “empire of bases.” While logic might seem to suggest that these bases make us safer, I’ve come to the opposite conclusion: in a range of ways our overseas bases have made us all less secure, harming everyone from U.S. military personnel and their families to locals living near the bases to those of us whose taxes pay for the way our government garrisons the globe.

We are now, as we’ve been for the last seven decades, a Base Nation that extends around the world, and it’s long past time that we faced that fact.

The Base Nation’s Scale

Our 800 bases outside the 50 states and Washington, D.C., come in all sizes and shapes. Some are city-sized “Little Americas” — places like Ramstein Air Base in Germany, Kadena Air Base in Okinawa, and the little known Navy and Air Force base on Diego Garcia in the Indian Ocean. These support a remarkable infrastructure, including schools, hospitals, power plants, housing complexes, and an array of amenities often referred to as “Burger Kings and bowling alleys.” Among the smallest U.S. installations globally are “lily pad” bases (also known as “cooperative security locations”), which tend to house drones, surveillance aircraft, or pre-positioned weaponry and supplies. These are increasingly found in parts of Africa and Eastern Europe that had previously lacked much of a U.S. military presence.

Other facilities scattered across the planet include ports and airfields, repair complexes, training areas, nuclear weapons installations, missile testing sites, arsenals, warehouses, barracks, military schools, listening and communications posts, and a growing array of drone bases. Military hospitals and prisons, rehab facilities, CIA paramilitary bases, and intelligence facilities (including former CIA “black site” prisons) must also be considered part of our Base Nation because of their military functions. Even U.S. military resorts and recreation areas in places like the Bavarian Alps and Seoul, South Korea, are bases of a kind. Worldwide, the military runs more than 170 golf courses.

The Pentagon’s overseas presence is actually even larger. There are U.S. troops or other military personnel in about 160 foreign countries and territories, including small numbers of marines guarding embassies and larger deployments of trainers and advisors like the roughly 3,500 now working with the Iraqi Army. And don’t forget the Navy’s 11 aircraft carriers. Each should be considered a kind of floating base, or as the Navy tellingly refers to them, “four and a half acres of sovereign U.S. territory.” Finally, above the seas, one finds a growing military presence in space.

The United States isn’t, however, the only country to control military bases outside its territory.  Great Britain still has about seven bases and France five in former colonies. Russia has around eight in former Soviet republics. For the first time since World War II, Japan’s “Self-Defense Forces” have a foreign base in Djibouti in the Horn of Africa, alongside U.S. and French bases there. South Korea, India, Chile, Turkey, and Israel each reportedly have at least one foreign base. There are also reports that China may be seeking its first base overseas. In total, these countries probably have about 30 installations abroad, meaning that the United States has approximately 95% of the world’s foreign bases.

“Forward” Forever?

Although the United States has had bases in foreign lands since shortly after it gained its independence, nothing like today’s massive global deployment of military force was imaginable until World War II. In 1940, with the flash of a pen, President Franklin D. Roosevelt signed a “destroyers-for-bases” deal with Great Britain that instantly gave the United States 99-year leases to installations in British colonies worldwide. Base acquisition and construction accelerated rapidly once the country entered the war. By 1945, the U.S. military was building base facilities at a rate of 112 a month. By war’s end, the global total topped 2,000 sites. In only five years, the United States had developed history’s first truly global network of bases, vastly overshadowing that of the British Empire upon which “the sun never set.”

After the war, the military returned about half the installations but maintained what historian George Stambuk termed a “permanent institution” of bases abroad. Their number spiked during the wars in Korea and Vietnam, declining after each of them. By the time the Soviet Union imploded in 1991, there were about 1,600 U.S. bases abroad, with some 300,000 U.S. troops stationed on those in Europe alone.

Although the military vacated about 60% of its foreign garrisons in the 1990s, the overall base infrastructure stayed relatively intact. Despite additional base closures in Europe and to a lesser extent in East Asia over the last decade and despite the absence of a superpower adversary, nearly 250,000 troops are still deployed on installations worldwide. Although there are about half as many bases as there were in 1989, the number of countries with U.S. bases has roughly doubled from 40 to 80. In recent years, President Obama’s “Pacific pivot” has meant billions of dollars in profligate spending in Asia, where the military already had hundreds of bases and tens of thousands of troops. Billions more have been sunk into building an unparalleled permanent base infrastructure in every Persian Gulf country save Iran. In Europe, the Pentagon has been spending billions more erecting expensive new bases at the same time that it has been closing others.

Since the start of the Cold War, the idea that our country should have a large collection of bases and hundreds of thousands of troops permanently stationed overseas has remained a quasi-religious dictum of foreign and national security policy. The nearly 70-year-old idea underlying this deeply held belief is known as the “forward strategy.” Originally, the strategy held that the United States should maintain large concentrations of military forces and bases as close as possible to the Soviet Union to hem in and “contain” its supposed urge to expand.

But the disappearance of another superpower to contain made remarkably little difference to the forward strategy. Chalmers Johnson first grew concerned about our empire of bases when he recognized that the structure of the “American Raj” remained largely unchanged despite the collapse of the supposed enemy.

Two decades after the Soviet Union’s demise, people across the political spectrum still unquestioningly assume that overseas bases and forward-deployed forces are essential to protect the country. George W. Bush’s administration was typical in insisting that bases abroad “maintained the peace” and were “symbols of… U.S. commitments to allies and friends.” The Obama administration has similarly declared that protecting the American people and international security “requires a global security posture.”

Support for the forward strategy has remained the consensus among politicians of both parties, national security experts, military officials, journalists, and almost everyone else in Washington’s power structure. Opposition of any sort to maintaining large numbers of overseas bases and troops has long been pilloried as peacenik idealism or the sort of isolationism that allowed Hitler to conquer Europe.

The Costs of Garrisoning the World

As Johnson showed us, there are many reasons to question the overseas base status quo. The most obvious one is economic. Garrisons overseas are very expensive. According to the RAND Corporation, even when host countries like Japan and Germany cover some of the costs, U.S. taxpayers still pay an annual average of $10,000 to $40,000 more per year to station a member of the military abroad than in the United States. The expense of transportation, the higher cost of living in some host countries, and the need to provide schools, hospitals, housing, and other support to family members of military personnel mean that the dollars add up quickly — especially with more than half a million troops, family members, and civilian employees on bases overseas at any time.

By my very conservative calculations, maintaining installations and troops overseas cost at least $85 billion in 2014 — more than the discretionary budget of every government agency except the Defense Department itself. If the U.S. presence in Afghanistan and Iraq is included, that bill reaches $156 billion or more.

While bases may be costly for taxpayers, they are extremely profitable for the country’s privateers of twenty-first-century war like DynCorp International and former Halliburton subsidiary KBR. As Chalmers Johnson noted, “Our installations abroad bring profits to civilian industries,” which win billions in contracts annually to “build and maintain our far-flung outposts.”

Meanwhile, many of the communities hosting bases overseas never see the economic windfalls that U.S. and local leaders regularly promise. Some areas, especially in poor rural communities, have seen short-term economic booms touched off by base construction. In the long-term, however, most bases rarely create sustainable, healthy local economies. Compared with other forms of economic activity, they represent unproductive uses of land, employ relatively few people for the expanses occupied, and contribute little to local economic growth. Research has consistently shown that when bases finally close, the economic impact is generally limited and in some cases actually positive — that is, local communities can end up better off when they trade bases for housing, schools, shopping complexes, and other forms of economic development.

Meanwhile for the United States, investing taxpayer dollars in the construction and maintenance of overseas bases means forgoing investments in areas like education, transportation, housing, and healthcare, despite the fact that these industries are more of a boon to overall economic productivity and create more jobs compared to equivalent military spending. Think about what $85 billion per year would mean in terms of rebuilding the country’s crumbling civilian infrastructure.

The Human Toll

Beyond the financial costs are the human ones. The families of military personnel are among those who suffer from the spread of overseas bases given the strain of distant deployments, family separations, and frequent moves. Overseas bases also contribute to the shocking rates of sexual assault in the military: an estimated 30% of servicewomen are victimized during their time in the military and a disproportionate number of these crimes happen at bases abroad. Outside the base gates, in places like South Korea, one often finds exploitative prostitution industries geared to U.S. military personnel.

Worldwide, bases have caused widespread environmental damage because of toxic leaks, accidents, and in some cases the deliberate dumping of hazardous materials. GI crime has long angered locals. In Okinawa and elsewhere, U.S. troops have repeatedly committed horrific acts of rape against local women. From Greenland to the tropical island of Diego Garcia, the military has displaced local peoples from their lands to build its bases.

In contrast to frequently invoked rhetoric about spreading democracy, the military has shown a preference for establishing bases in undemocratic and often despotic states like Qatar and Bahrain. In Iraq, Afghanistan, and Saudi Arabia, U.S. bases have created fertile breeding grounds for radicalism and anti-Americanism. The presence of bases near Muslim holy sites in Saudi Arabia was a major recruiting tool for al-Qaeda and part of Osama bin Laden’s professed motivation for the September 11, 2001, attacks.

Although this kind of perpetual turmoil is little noticed at home, bases abroad have all too often generate grievances, protest, and antagonistic relationships. Although few here recognize it, our bases are a major part of the image the United States presents to the world — and they often show us in an extremely unflattering light.

Creating a New Cold War, Base by Base

It is also not at all clear that bases enhance national security and global peace in any way. In the absence of a superpower enemy, the argument that bases many thousands of miles from U.S. shores are necessary to defend the United States — or even its allies — is a hard argument to make. On the contrary, the global collection of bases has generally enabled the launching of military interventions, drone strikes, and wars of choice that have resulted in repeated disasters, costing millions of lives and untold destruction from Vietnam to Iraq.

By making it easier to wage foreign wars, bases overseas have ensured that military action is an ever more attractive option — often the only imaginable option — for U.S. policymakers. As the anthropologist Catherine Lutz has said, when all you have in your foreign policy toolbox is a hammer, everything starts to look like a nail. Ultimately, bases abroad have frequently made war more likely rather than less.

Proponents of the long-outdated forward strategy will reply that overseas bases “deter” enemies and help keep the global peace. As supporters of the status quo, they have been proclaiming such security benefits as self-evident truths for decades. Few have provided anything of substance to support their claims. While there is some evidence that military forces can indeed deter imminent threats, little if any research suggests that overseas bases are an effective form of long-term deterrence. Studies by both the Bush administration and the RAND Corporation — not exactly left-wing peaceniks — indicate that advances in transportation technology have largely erased the advantage of stationing troops abroad. In the case of a legitimate defensive war or peacekeeping operation, the military could generally deploy troops just as quickly from domestic bases as from most bases abroad. Rapid sealift and airlift capabilities coupled with agreements allowing the use of bases in allied nations and, potentially, pre-positioned supplies are a dramatically less expensive and less inflammatory alternative to maintaining permanent bases overseas.

It is also questionable whether such bases actually increase the security of host nations. The presence of U.S. bases can turn a country into an explicit target for foreign powers or militants — just as U.S. installations have endangered Americans overseas.

Similarly, rather than stabilizing dangerous regions, foreign bases frequently heighten military tensions and discourage diplomatic solutions to conflicts. Placing U.S. bases near the borders of countries like China, Russia, and Iran, for example, increases threats to their security and encourages them to respond by boosting their own military spending and activity. Imagine how U.S. leaders would respond if China were to build even a single small base in Mexico, Canada, or the Caribbean. Notably, the most dangerous moment during the Cold War — the 1962 Cuban missile crisis — revolved around the construction of Soviet nuclear missile facilities in Cuba, roughly 90 miles from the U.S. border.

The creation and maintenance of so many U.S. bases overseas likewise encourages other nations to build their own foreign bases in what could rapidly become an escalating “base race.” Bases near the borders of China and Russia, in particular, threaten to fuel new cold wars. U.S. officials may insist that building yet more bases in East Asia is a defensive act meant to ensure peace in the Pacific, but tell that to the Chinese. That country’s leaders are undoubtedly not “reassured” by the creation of yet more bases encircling their borders. Contrary to the claim that such installations increase global security, they tend to ratchet up regional tensions, increasing the risk of future military confrontation.

In this way, just as the war on terror has become a global conflict that only seems to spread terror, the creation of new U.S. bases to protect against imagined future Chinese or Russian threats runs the risk of becoming a self-fulfilling prophecy. These bases may ultimately help create the very threat they are supposedly designed to protect against. In other words, far from making the world a safer place, U.S. bases can actually make war more likely and the country less secure.

Behind the Wire

In his farewell address to the nation upon leaving the White House in 1961, President Dwight D. Eisenhower famously warned the nation about the insidious economic, political, and even spiritual effects of what he dubbed “the military-industrial-congressional complex,” the vast interlocking national security state born out of World War II. As Chalmers Johnson’s work reminded us in this new century, our 70-year-old collection of bases is evidence of how, despite Ike’s warning, the United States has entered a permanent state of war with an economy, a government, and a global system of power enmeshed in preparations for future conflicts.

America’s overseas bases offer a window onto our military’s impact in the world and in our own daily lives. The history of these hulking “Little Americas” of concrete, fast food, and weaponry provides a living chronicle of the United States in the post-World War II era. In a certain sense, in these last seven decades, whether we realize it or not, we’ve all come to live “behind the wire,” as military personnel like to say.

We may think such bases have made us safer. In reality, they’ve helped lock us inside a permanently militarized society that has made all of us — everyone on this planet — less secure, damaging lives at home and abroad.

Naked Capitalism on Bankster Fraud


Bill Black: Now the Justice Department Admits They Got it Wrong

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Originally published at New Economic Perspectives

By issuing its new memorandum the Justice Department is tacitly admitting that its experiment in refusing to prosecute the senior bankers that led the fraud epidemics that caused our economic crisis failed. The result was the death of accountability, of justice, and of deterrence. The result was a wave of recidivism in which elite bankers continued to defraud the public after promising to cease their crimes. The new Justice Department policy, correctly, restores the Department’s publicly stated policy in Spring 2009. Attorney General Holder and then U.S. Attorney Loretta Lynch ignored that policy emphasizing the need to prosecute elite white-collar criminals and refused to prosecute the senior bankers who led the fraud epidemics.

It is now seven years after Lehman’s senior officers’ frauds destroyed it and triggered the financial crisis. The Bush and Obama administrations have not convicted a single senior bank officer for leading the fraud epidemics that triggered the crisis. The Department’s announced restoration of the rule of law for elite white-collar criminals, even if it becomes real, will come too late to prosecute the senior bankers for leading the fraud epidemics. The Justice Department has, effectively, let the statute of limitations run and allowed the most destructive white-collar criminal bankers in history to become wealthy through fraud with absolute impunity. This will go down as the Justice Department’s greatest strategic failure against elite white-collar crime.

The Obama administration and the Department have failed to take the most basic steps essential to prosecute elite bankers. They have not restored the “criminal referral coordinators” at the banking regulatory agencies and they have virtually ignored the whistleblowers who gave them cases against the top bankers on a platinum platter. The Department has not even trained its attorneys and the FBI to understand, detect, investigate, and prosecute the “accounting control frauds” that caused the financial crisis. The restoration of the rule of law that the new policy promises will not happen in more than a token number of cases against senior bankers until these basic steps are taken.

The Justice Department, through Chris Swecker, the FBI official in charge of the response to mortgage fraud, issued two public warnings in September 2004 — eleven years ago. First, there was an “epidemic” of mortgage fraud. Second it would cause a financial “crisis” if it were not stopped. The Department’s public position, for decades, was that the only way to stop serious white-collar crime was by prosecuting the elite officials who led those crimes. For eleven years, however, the Department failed to prosecute the senior bankers who led the fraud epidemic. The Department’s stated “new” position is its historic position that it has refused to implement. Words are cheap. The Department is 4,000 days late and $24.3 trillion short. Economists’ best estimate is that the financial crisis will cause that massive a loss in U.S. GDP — plus roughly 15 million jobs lost or not created.

Americans need to come together to demand that the Department act, not just talk, to restore the rule of law and prosecute the bankers that led the fraud epidemics that drove the financial crisis. There is very little time left to prosecute, so the effort must be vigorous and urgent and a top priority.

Here is an example, in the cartel context, of the Department’s long-standing position that deterrence of elite white-collar crimes requires the prosecution and incarceration of the businessmen that lead the crimes. It contains the classic quotation that the Department has long used to explain its position. Note that the public statement of this position was early in the Obama administration (April 3, 2009), but plainly was already long-standing. The Department’s official made these passages her first two paragraphs in order to emphasize the points – and the fact that deterrence through the criminal prosecution of elite white-collar criminals works.

It is well known that the Antitrust Division has long ranked anti-cartel enforcement as its top priority. It is also well known that the Division has long advocated that the most effective deterrent for hard core cartel activity, such as price fixing, bid rigging, and allocation agreements, is stiff prison sentences. It is obvious why prison sentences are important in anti-cartel enforcement. Companies only commit cartel offenses through individual employees, and prison is a penalty that cannot be reimbursed by the corporate employer. As a corporate executive once told a former Assistant Attorney General of ours: “[A]s long as you are only talking about money, the company can at the end of the day take care of me . . . but once you begin talking about taking away my liberty, there is nothing that the company can do for me.”(1) Executives often offer to pay higher fines to get a break on their jail time, but they never offer to spend more time in prison in order to get a discount on their fine.

We know that prison sentences are a deterrent to executives who would otherwise extend their cartel activity to the United States. In many cases, the Division has discovered cartelists who were colluding on products sold in other parts of the world and who sold product in the United States, but who did not extend their cartel activity to U.S. sales. In some of these cases, although the U.S. market was the cartelists’ largest market and potentially the most profitable, the collusion stopped at the border because of the risk of going to prison in the United States.

As prosecutors, (real) financial regulators, and criminologists, we have known for decades that the only effective means to deter elite white-collar crimes is to imprison the elite officers that grew wealthy by leading those crimes (which include the largest “hard core cartels” in history – by three orders of magnitude). In the words of a Deutsche Bank senior officer, the bank’s participation in the Libor cartel produced a “mountain of money” for the bank (and the officers). Holder’s bank fines were useless – and the Department’s real prosecutors told him why they were useless from the beginning. No one, of course, thinks Holder went rogue in refusing to prosecute fraudulent bank officers. President Obama would have requested his resignation six years ago if he were upset at Holder’s grant of de facto immunity to our most destructive elite white-collar criminals.

Our saying during the savings and loan debacle was that in our response we must not be the ones “chasing mice while lions roam the campsite.” Holder, and his predecessors under President Bush, chased mice – and fed them to the lions. They overwhelmingly prosecuted working class homeowners who had supposedly deceived the most fraudulent bankers in world history – acting like a collection agency for the worst bank frauds.

As a U.S. attorney, Loretta. Lynch failed to prosecute any of the officers of HSBC that laundered a billion dollars for Mexico’s Sinaloa drug cartel and violated international and U.S. anti-terrorism sanctions. The HSBC officers committed tens of thousands of felonies and were caught red-handed, but now Attorney General Lynch refused to prosecute any of them – even the low-level fraud “mice.” Dishonest corporate leaders are delighted to trade off larger fines – which are paid for by the shareholders – to prevent the prosecution of even low-level officers who might “flip” and blow the whistle on the senior banksters that led the fraud schemes. To its shame, the Department’s senior leadership, including Holder and Lynch, have pretended for at least 11 years that the useless bank fines were a brilliant success. Those bank fines are paid by the shareholders. The Department’s cynical sweetheart deals with the elite criminals allowed them to keep their jobs and massive bonuses that they received because of the frauds they led. The Department compounded its shame by bragging that it was working with Obama’s (non) regulators to create guilty plea “lite” in which banks that admitted they committed tens of thousands of felonies involving hundreds of trillions of dollars of fraud were relieved of the normal restrictions that a fraud “mouse” is invariably subjected to for committing a single act of fraud involving $100.

The Department’s top criminal prosecutor, Lanny Breuer, publicly stated his paramount concern about the fraud epidemics that devastated our nation – he was “losing sleep at night over worrying about what a lawsuit might result in at a large financial institution.” That’s right – he was petrified of even bringing a civil “lawsuit” – much less a criminal prosecution – against “too big to prosecute” banks and banksters. I lose sleep over what fraud epidemics the banksters will lead against our Nation. The banksters have learned to optimize “accounting control fraud” schemes and learned that they can grow immensely wealthy by leading those fraud epidemics with complete impunity. None of them has a criminal record and even those that lost their jobs are overwhelmingly back in financial leadership positions. In the aftermath of the savings and loan debacle, because of the prosecutions and criminal records of the elites that led those frauds, no senior S&L fraudster who was prosecuted was able to become a leader of the fraud epidemics that caused our most recent financial crisis.

We have known for decades that repealing the rule of law for elite white-collar criminals and relying on corporate fines always produces abject failure and massive corporate fraud. We have known for millennia that allowing elites to commit crimes with impunity leads to endemic fraud and corruption. If the Department wants to restore the rule of law I am happy to help it do so. We have known for over 30 years the steps we need to take to succeed against elite white-collar criminals through vigorous regulators and prosecutors. We must not simply prosecute the current banksters, but also prevent and limit future fraud epidemics through regulatory and supervisory changes. I renew my long-standing offers to the administration to, pro bono, (1) provide the anti-fraud training and regulatory policies, (2) help restore the agency criminal referral process, and (3) embrace the whistleblowers and the scores of superb criminal cases against elite bankers that they have handed the Department on a platinum platter. We can make the “new” Justice Department policy a reality within months if that is truly Obama and Lynch’s goal.


Naked Capitalism on the Department of (Un) Justice

Midsection of male judge striking gavel while holding scale with money in courtroom

The End of the Deferred Prosecution Agreement?

From the Wall Street Journal comes news of an intriguing case that would give judges much more leeway in overruling a hapless Justice Department and their light-touch deals with corporations.

A federal appeals court is set to decide whether judges can tear up corporate prosecution agreements they deem too lenient, in a case that Justice Department officials fear will disrupt the agency’s deals with companies under criminal investigation […]

In February, a federal district judge in Washington, D.C., rejected a DPA he considered weak in a case involving Fokker Services BV, a Dutch aerospace firm accused of making more than 1,000 illegal shipments of parts and components to Iran and other sanctioned countries from 2005 to 2010.

The U.S. Court of Appeals for the D.C. Circuit is now reviewing the judge’s decision, with arguments scheduled for this week and a ruling expected in coming months. While the case has attracted little public attention, Justice Department officials privately worry that it could give judges more incentive to second-guess the agency’s decision-making in some of its highest-profile cases, according to people familiar with the matter.

At stake are deferred prosecution agreements, where DoJ sets a deal to not take on a corporate criminal in exchange for cash, maybe an independent monitor or some standards of conduct, and occasionally an admission of wrongdoing. DPAs were originally used for juveniles, to give them a shot at rehabilitating themselves. We actually have Mary Jo White, in her role as U.S. Attorney for the Southern District of New York, to thank for bringing them into the corporate sphere. As I wrote in a piece for The Guardian last November, of the 283 DPAs since 2000, over half have come since 2010.

DPAs usually arise out of the company disclosing misconduct and convening an internal investigation with some Assistant AG, promising full cooperation. The company gets credit for remedial conduct prior to the settlement, essentially setting their own punishment. And typically, DPAs are not paired with prosecutions for individuals committing the crimes.

So let’s look at the DPA that could bring this cozy situation crashing down. DoJ headlined back in June 2014 that Fokker Services BV would forfeit $10.5 million for selling aircraft parts and services to customers in Iran, Burma and Sudan. There was a parallel civil settlement with the Treasury Department’s Office of Foreign Assets Control (OFAC) to pay an additional $10.5 million. If you go down the press release, you find that Fokker received $21 million in gross revenue for these 1,153 illegal transactions, so the penalty was simply to give back what they received. Now they’re out a bunch of aircraft parts, one assumes, and I don’t really know the markup here. But that doesn’t seem too taxing.

In fact, in the DPA itself, we learn that “at least $21 million” was involved in the transactions. So it’s not possible to know what, if any, financial penalty was imposed. And FWIW, the civil penalty for the crime FSBV committed could have been as high as $51 million, per corporate law firm Akin Gump.

FSBV had to “accept responsibility” for its actions and really do little else. They agreed to cooperate with any matters relating to this investigation, making documents and individual employees available. For what purpose I have no idea, since nobody at FSBV has been indicted for this, 4 years after the company disclosed everything. FSBV must also continue to apply what it has already implemented voluntarily, namely compliance programs to prevent it from continuing to break the law. And… that’s about it. Plus, “in consideration of FSBV’s remedial actions to date,” this “punishment” all goes away within 18 months.

So I can see why Judge Richard Leon rejected this deal back in February, calling it “grossly disproportionate” and that “it would undermine the public’s confidence in the administration of justice and promote disrespect for the law… to see a defendant prosecuted so anemically for engaging in such egregious conduct.”

Just as a sidebar, I have a problem with a Dutch company being prosecuted by the United States for trading with other countries. There are a series of “trading with the enemy” type of laws that put the U.S. in the position of world trading policeman, sometimes for inscrutable reasons. But as long as that law is on the books, sentencing an offender to give back (some? all?) of their profits and promise not to do it again does seem a bit thin.

Judge Leon Thursday also questioned why the deferred prosecution agreement had a term of only 18 months.

“As such, the court is being left to rely solely on the self-reporting of Fokker Services,” he said. “One can only imagine how a company with such a long track record of deceit and illegal behavior ever convinced the Department of Justice to agree to that!”

Judge Leon also pointed out that no employees of FSBV went to jail for their actions, and in fact were all still employed at the company.

DoJ and FSBV jointly appealed Judge Leon’s order, saying he exceeded his authority. When the law enforcement agency and the offending entity end up on the same side of a lawsuit, well, it certainly doesn’t look great.

So this week we’ll have arguments in the 1st Circuit Court of Appeals D.C. Circuit Court of Appeals (h/t Abigail Field). And I don’t really know what DoJ will have to say for themselves. These are the kind of craptastic agreements they’ve been making with corporate offenders for the entire Holder era (Holder, last seen just hanging out at his awesome new office at Covington & Burling, was AG when this DPA was made). Presumably they’ll avoid the specifics and just claim that judges can’t have the temerity to reject contractual agreements made by two sides, and how this would damage the separation of powers, prosecutorial discretion, &c.

But judges have held up DPAs in the past, though they were eventually approved. And considering that DoJ can also file a non-prosecution agreement, which don’t require court approval, there’s obviously some role for judges to play here. If you want to get judicial approval, you can’t expect that approval to come automatically. And if the goal is to extract the proper consequences out of a corporate offender, a judge resisting settlements that are overly lenient can only enhance DoJ’s efforts.

Of course, that isn’t what DoJ is after. They would rather settle these matters quietly, write a press release, and then get a judge to bless it to get buy-in from another branch of government, so if anyone questions the slap on the wrist they can say “well a judge approved it.”

Legally this is a jump ball; DoJ could easily wriggle off the hook here. But if the 1st Circuit D.C. Circuit blows up this little charade, they will have to make their terrible deals without a patina of outside approval. Or maybe, horror of horrors, they’ll have to do their job properly.

Naked Capitalism and Tax Havens

Why Tax Havens Will be at the Heart of the Next Financial Crisis

By Nicholas Shaxson, the author of Treasure Islands, an award-winning book about tax havens. Originally published at Tax Justice Network

This post examines another excellent in-depth investigation by Reuters into global financial stability issues, and the role of tax havens in this giant game of pain and plunder. The investigation uncovers, among other things, a whole lot of offshore shenanigans, complementing what we (and relatively few others) have been saying for some years now, and it goes right to the heart of what capitalism is — or at least what it has become.

Before reading this, though, see the box “What is a tax haven?” There’s a lot of misunderstanding out there.

What is a tax haven?

Deep offshore

The term ‘tax haven’ is a bit of a misnomer: they aren’t just about tax. We will mostly use the term ‘offshore’ here instead of ‘tax haven’ – what we are talking about is the same basic phenomenon: jurisdictions offering escape routes to financial players elsewhere, helping them avoid taxes or disclosure or financial regulation or whatever other ‘burdens’ of society they don’t like.

In financial stability terms the world of offshore — a world that includes places like Ireland, Luxembourg, Cayman and the City of London (see box) – has been where financial services players have been able to escape regulatory barriers at home, taking the cream from risky activities while shifting the risks onto taxpayers via bailouts and other nasties.  Offshore was very significantly at the root of the global financial crisis that erupted in 2008 — and on all evidence it will be at or near the epicentre of the next one too. We have written about this many times, and we have fingered London as being especially dangerous for global financial stability. And this comes in the context of the UK just having announced that they will be rowing back on money laundering checks and so on, in the name of ‘cutting red tape.’ (Read it and weep.) As was reported in the Financial Times not so long ago:

“Carolyn Maloney, a Democratic representative from New York, said there was a “disturbing pattern in the last few years of London literally becoming the centre of financial trading disasters””

Whatever one might think of Congresswoman Maloney, that statement is spot on.

This article looks at two Reuters stories in particular:

  1. How Wall Street captured Washington’s effort to rein in banks; and
  2. U.S. banks moved billions of dollars in trades beyond Washington’s reach.

The first story notes:

“[The] FASB, the private group that sets accounting standards for public companies, came under political pressure to tighten rules blamed for exacerbating the financial crisis. Critics said FASB had made it too easy for banks to stash mountains of securitized loans in off-balance-sheet vehicles based in the Cayman Islands, hiding their exposure to risks that eventually swamped them and the global economy.

VIEs-247x300Here, too, banks pushed back hard. And here, too, their protests reached sympathetic ears. Ultimately, FASB’s rules barely dented the size of banks’ off-book holdings”

. . . as the Reuters graphic here suggests. The banks, Reuters reports, hold nearly $3.3 trillion of securitized loans in off-balance-sheet entities. And that’s just Cayman and six U.S. banks.

“It isn’t just the banks. As hedge funds and private equity funds have ramped up high-risk lending in recent years, their use of off-balance-sheet vehicles has ballooned.”

There are two guilty parties here, geographically speaking: first, the United States, which shouldn’t allow this to happen; and second, “offshore” (which some think of as a single seamlessly interconnected place) where, as a general rule, the big players are allowed to do whatever they damn well like. As a former top Cayman official once put it:

“The responsibility of the Cayman government was managed by avoiding the concept of prudential regulation.”

Once again, ‘offshore’ jurisdictions and players get the cream from all the trading churn, while the ordinary taxpayer ultimately foots the bill. As Gary Gensler, former chairman of the Commodity Futures Trading Commission in the U.S. put it in the case of the AIG disaster, which was ultimately about risky trading activity in London:

AIG had been hit by its financial products unit in London while Citigroup had been harmed by special purpose investment vehicles set up in the UK capital. “So often it comes right back here, crashing to our shores … if the American taxpayer bails out JPMorgan, they’d be bailing out that London entity as well,” he told the House financial services committee.

Back to Reuters. The story trawls through a lot of colourful detail, including the work of an activist JP Morgan Vice President known as “Loophole Leslie” Seidman, as well as a number of regulatory changes after the Dodd-Frank financial reform bill which were “all in the direction of watering it down,” according to Marcus Stanley of Americans for Financial Reform. This Reuters investigation is a reminder of how much important stuff has been going on behind the scenes. They are relying on the fact that nearly everyone is tired of this stuff now.

Then Reuters moves on to this:


Which, again, is offshore: our terrain.

This article begins by looking at the apparent sudden vanishing of hundreds of billions of dollars of trades by some of the largest U.S. banks — including Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, and Morgan Stanley — to get around U.S. derivatives rules. (Tax havens and wild-west derivatives trades seem to go together like Bonnie and Clyde.) Reuters summarises:

“The trades hadn’t really disappeared. Instead, the major banks had tweaked a few key words in swaps contracts and shifted some other  trades to affiliates in London, where regulations are far more lenient. Those affiliates remain largely outside the jurisdiction of U.S. regulators, thanks to a loophole in swaps rules that banks successfully won from the Commodity Futures Trading Commission in 2013. . .The products affected by that loophole include some of the most widely traded financial derivatives in the world.”

We wrote at length about this too: Reuters summarises it like this:

“The lobbying blitz helped win a ruling from the CFTC that left U.S. banks’ overseas operations largely outside the jurisdiction of U.S. regulators.
. . .
Once the banks got that loophole, then a lot of that predatory behavior migrated overseas to wherever there was less regulation.”
. . .
While many swaps trades are now booked abroad, some people in the markets believe the risk remains firmly on U.S. shores. They say the big American banks are still on the hook for swaps they’re parking offshore with subsidiaries.”

(We’d only dispute the word “believe” in that second-last sentence: it should be “know.”)

In case anyone were crazy enough to think that this stuff has stopped, the indefatigable Americans for Financial Reform a few days ago came out with news of this latest godawful exemption.

And now, as an aside, here’s a little snippet that Reuters unearthed, which we hadn’t seen before, about a big pre-GFC crisis:

“Gensler often told people how, at the Treasury, he was stuck with the task of briefing then-Treasury Secretary Robert Rubin about Long-Term Capital Management in 1998. The Connecticut hedge fund collapsed under $1.2 trillion in swaps booked to a post office box in the Cayman Islands.”

Cayman again. LTCM was a biggy – causing global market carnage at the time. However, the only book today’s blogger has read about it – Roger Lowenstein’s otherwise excellent When Genius Failed — does not mention Cayman once in the footnotes. You will hardly find it mentioned here or in other detailed analyses. This wasn’t on anyone’s radar screens at all. And far too few people are paying attention to the financial stability threats that lie offshore, hidden and unknown until crisis hits. 

Now this isn’t to say that the next crisis won’t be triggered and significantly caused by an economic collapse in China, or an asteroid strike, or something. But the last big crisis showed — if you look carefully — how tightly connected all this stuff is, and how offshore is so often at the heart of it. This IMF graph from 2010 is one of the only bits of research that really points the finger offshore. (Even then, though, they pussyfoot around using such emotive words such as ‘tax haven’ or ‘offshore.’) But just look at that rogues gallery in the cross hairs: BVI, UK, Luxembourg, Ireland, Bermuda, Cayman, Jersey, Isle of Man, Switzerland, Liechtenstein. And of course the United States.


As mentioned, this stuff goes to the heart of what capitalism has become. All this regulatory arbitrage, like tax cheating and so much other stuff that is going on, is a form of what academics call rent-seeking, and we prefer to call ‘wealth extraction.’ In this case, it’s ultimately about extracting wealth by gambling with other people’s money: taking risks and getting others to pay when the balloon goes up.

The more risks build up, out of sight and offshore, the more likely they are ultimately to create mayhem. Hence the headline of this post.

The world’s leaders and international financial institutions need to wake up to what offshore is, and where it is. The place to start looking is London.

Humor: The Borowitz Report