Transparency

There’s an interesting trend happening in America today. A trend characterized by old, authoritarian, formerly “highly respected” figures in society becoming so confused and concerned that the zeitgeist of the nation is moving away from them, that they are overcome by dementia and publicly lash out like spoiled children in increasingly irrational manner. Two of our favorite examples of such behavior are Senator John McCain and NYC Mayor Michael Bloomberg. Now we can add another character to the list, former CIA and NSA head Michael Hayden. Amongst other things, here is what he said about Snowden supporters: Nihilists, anarchists, activists, Lulzsec, Anonymous, twenty-somethings who haven’t talked to the opposite sex in five or six years.

With revenues fading, profit margins collapsing, and only financial institutions' entire lack of transparency providing any lift in EPS, the 'great rotation' continues to provide enough cognitive dissonance to sink a boat for the asset-gatherers. The trouble, as we showed previously, is this 'rotation' is dominated by US retail investors (more specifically non-US domiciled and non-retail investors are rotating away from US equities). The US retail investor has shifted in a great-rotationary manner by the greatest amount since Feb 2000 - just as the last great bubble burst. US equities are the 3rd most over-crowded speculative long asset in the world after Crude Oil and the Brazilian Real. It seems the Fed is getting just what it wants but, just as Kyle Bass warned, "investors should be really careful doing what the central bankers want them to do."

Greed; corporate arrogance; lobbying influence; excessive leverage; accounting tricks to hide debt; lack of transparency; off balance sheet obligations; mark to market accounting; short-term focus on profit to drive compensation; failure of corporate governance; as well as auditors, analysts, rating agencies and regulators who were either lax, ignorant or complicit. This laundry list of causes has often been used to describe what went wrong in the credit crunch crisis of 2008-2010. Actually these terms were equally used to describe what went wrong with Enron more than twenty years ago. Both crises resulted in what at the time was the biggest bankruptcy in U.S. history — Enron in December 2001 and Lehman Brothers in September 2008. Naturally, this leads to the question that despite all the righteous indignation in the wake of Enron's failure did we really learn or change anything?

In the aftermath of the global financial crisis, world leaders repeated a soothing mantra. There could be no repeat of the Great Depression, not only because monetary policy was much better (it was), but also because international cooperation was better institutionalized. And yet one man, the American former intelligence contractor Edward Snowden, has shown how far removed from reality that claim remains. Prolonged periods of strain tend to weaken the fabric of institutional cooperation. The two institutions that seemed most dynamic and effective in 2008-2009 were the International Monetary Fund and the G-20; the credibility of both has been steadily eroded over the long course of the crisis. The Snowden affair has blown up any illusion about trust between leaders – and also about leaders’ competence.

Tepco Has NO IDEA How to Stabilize the Reactors

Rising home prices, especially in major cities, are prompting a growing chorus of discontent among ordinary Chinese. Our Japanese friends would no doubt feel more than hint of nostalgia should they visit Beijing. For just like the famous Japanese “bubble economy” of the late 1980s, Beijing has been virtually turned into one big construction site with constantly changing streetscapes. The real estate industry may have played a role in China’s economic development, but it appears to have been for the benefit of the few at the expense of the many. In the long term, the trade-off seems poor. For that, not just the general manager, but the premier too needs to take responsibility.

The Director of National Intelligence released three declassified "in the interests of transparency" documents this morning that authorized and explained the bulk collection of phone data - one of the secret surveillance programs that Snowden revealed. As Reuters reports, much of what is contained in the documents has already been divulged in public hearings by intelligence officials but the National Security Agency's "Bulk Collection Program," carried out under the U.S. Patriot Act, is now in the open. Have no fear though, "Although the programs collect a large amount of information, the vast majority of that information is never reviewed by anyone in the government," the report said. As Senator Patrick Leahy commented, "what has to be of more concern in a democracy is whether the trust of the American people is beginning to wear thin."

Mass Surveillance Is “Killing Our Most Productive Golden Goose”

President Transparency, in the interest of protecting his Administration’s spotless record of least transparent ever, has decided to erase sections of his original campaign website so that inconvenient and broken promises (i.e., every single thing he said) can’t be so easily exposed. The section in question... 'Protect Whistleblowers'...

As Libertarians, we seek a world of liberty; a world in which all individuals are sovereign over their own lives and no one is forced to sacrifice his or her values for the benefit of others.

Our goal is nothing more nor less than a world set free in our lifetime, and it is to this end that we take these stands.

When it comes to the conversion of the US into a totalitarian state, few things are quite as symbolic as the construction of the NSA's Bluffdale, Utah Data Canter, which was revealed last year by Wired, yet which did not get much prominence until June's revelations by Edward Snowden. Costing billions in taxpayer money, the facility is simply the largest hard disk ever built, designed to store every current and future electronic communication, both foreign and domestic, to be made available at a moment's notice following the "permission" of the secret FISA court. Which is why one would think that if there is one thing the NSA would excel in (and once can certainly not blame the NSA for being budget-friendly - recall that the The Pentagon has requested $4.7 billion for “cyberspace operations,” even as the budget of the CIA and other intelligence agencies could fall by $4.4 billion) is being able to identify and isolate any particular signal among a veritable mountain of noise. One would be very wrong.

It wasn't exactly like rubbing salt into the wounds of a US population that over the past month has learned it has no electronic communication privacy left, but it was close, when last night the US government's Office of the Director of National Intelligence announced that it was granting the secret FISA court - the same 11 people who decide behind closed doors whose email, phone or browser history is of national interest and thus subject to further "examination" - an extension of its telephone surveillance program. This is one of the two data surveillance efforts by the US (in conjunction with all major private telecom and internet companies) that Snowden leaked about. Why do we know this? Because the Obama administration is suddenly serious about being the most transparent ever: "The ODNI said in a statement it was disclosing the renewal as part of an effort at greater transparency following Snowden's disclosure of the telephone data collection and email surveillance programs." In short: "we will continue spying, but at least we are fully transparent about it."

The Social Contract is broken not by wealth inequality per se but by the illegitimate process of wealth acquisition, i.e. the state has tipped the scales in favor of the few behind closed doors and routinely ignores or bypasses the intent of the law even as the state claims to be following the narrower letter of the law. By this definition, the Social Contract in America has been completely smashed. The honest taxpayer is a chump, a mark who foolishly ponies up the swag that's looted by the smart operators. When scammers large and small live better than those creating value in the real economy, the Social Contract has ceased to exist. Once the chumps and marks realize there is no way they can ever escape their exploited banana-republic status as neofeudal debt-serfs, the scammers, cheats and grifters large and small will be at risk of losing their perquisites. As Voltaire observed, "No snowflake in an avalanche ever feels responsible": every claim, every game of the system, every political favor purchased is "fair and legal," of course. This is precisely how empires collapse.

As Welt reported overnight, the ECB just announced a change to its collateral framework, changing the haircuts and acceptability rules for ABS and covered bonds in an attempt to boost moribund and stalled European lending. As part of its announcement, the ECB reduced haircuts applicable to ABS rated A- or higher to 10% from 16% and to 22% from 26%. The bank also cut the minimum rating for ABS subject to loan level reporting requirements to 2 "A" ratings from 2 "AAA" ratings as more and more credit in Europe sinks into the quicksand of NPL-ness. Draghi also announced he would tighten risk control measures for covered bonds and that all the announced changes would have an overall neutral effect on amount of collateral available. Will this latest Hail Mary attempt work to boost lending in Europe? Of course not: Europe's issue is not credit supply constraints but a deterioration in asset quality and an explosion in NPLs, which has lead to an acceleration in overall deleveraging at both the bank and consumer level, and which is unlikely to end any time soon and certainly not before more widespread liability liquidations a la Cyprus.

It is somewhat ironic that a Federal Reserve which is now more committed to "forward guidance", transparency and communication than ever in history, just announced the resignation of Krishna Guha, the head of NY Fed's Communications Group, aka the head PR contact for all media. More importantly, the resignation took place without a handy substitute ready. Our advice to the Fed, if unable to find a worthy replacement: just hire Jon Hilsenrath - after all he already is effectively the Fed's mouthpiece.