Thursday, October 30, 2008

Let Us Speculate

By William Bowles

October 28, 2008 "Information Clearinghouse" -- --There’s an awful lot of speculation going on right now, from both the left and right about where the latest crisis of capital is headed, chief amongst them is the notion that this signals the end of the US Empire, that the so-called uni-polar world is over, that a new multi-polar world, headed by China, Russia, India and Brazil is emerging.

The theory is based upon the fact that the US is no longer the world’s numero uno economic power and it’s true that even an overwhelming military force is dependent on the economics that fuels it. But how true is this idea and even if it is true, over what timescale are we talking about here?

Moreover, it’s only one of a number of possible outcomes, much depends on how the leading capitalist countries deal with the crisis. One thing strikes me most forcefully and that is with all the talk of trillions being needed to save capitalism from itself, the ease with which these vast sums have been conjured up, reveals a striking fact about the role of money namely that the value being assigned to it is totally ficticious.

After all, it’s just paper that has long ceased to represent real wealth given that it exists only in the imagination of those who allegedly run the system. Of course, to those of us who possess only nominal amounts of the stuff, out here in the real world, it has a very real value, but let us not confuse the world of finance capital with the one we live in.

The problem boils down to the fact that a tiny percentage of the world’s population has effectively sucked the real wealth out of the system and replaced it with a notional money, this is the one we’re stuck with and it’s called debt and debts only make sense if we agree to pay them and unlike the banks we don’t have governments that are sympathetic to our needs.

But let us return for a mo’ to the idea that the new multi-polar world that is emerging is headed by China, the world’s industrial powerhouse. The problem with this idea is that it’s the developed world that created this situation in order to reduce the cost of production by exporting manufacturing to countries like China. In turn, the markets for China’s stupendous productive capacity is directly linked to Western consumption and to products that are so cheap as to be virtually given away. Perhaps over time, China’s domestic consumption could ‘take up the slack’ but it’s doubtful given the the pathetically low wages being paid to China’s working class.

And already, literally thousands of China’s sweatshops are going belly-up, not only because of the global recession but also because (predictably) wages are slowly rising in China and as the situation gets worse, we can expect major labour upheavals to increase and, it must be added, the major capitalist countries are rapidly running out of cheap labour countries in which to relocate production, just as Marx predicted over 150 years ago.

Worse still, the vast surplus that China has accumulated is denominated in dollars, thus the fate of China’s economy rests entirely on the future well-being of US capitalism, and in turn, because we are all tied to the US’s coattails in this global financial sting operation, so are the rest of us! Thus, China too, is tied to the US’s coattails! China's motto is no doubt 'don't rock the boat' (anymore than it is already).

The reaction of the (marginally) more savvy of the developed capitalist powers in the EU is to reinstate what appears to be the same Keynesian economic policies that happened after the end of WWII, making the state once again the major capital investor but there are major differences between the post-WWII situation and that of today:

1) Unlike the 1940s where the state was not only the major investor but also, and this is crucial, directed the nature of investment via state-owned institutions, and it was investment in major social projects, housing, education, transportation, health care, energy and communications (I might add that these were projects that private capital was unwilling to invest in due to the long term nature of any return on investment). Today, by contrast, we see a ‘hands-off’ approach being used, the money is being handed over effectively as a ‘gift’ from ‘us’ to the crooks and fraudsters to do with it as they want;

2) Unlike the situation in the 1940s, which following the destruction of WWII and powered by the wealth accumulated by the US through financing the war, needed rebuilding, we now live in a world of global over-production, so where and how is this new environment of capital accumulation going to take place?

3) Much of the boom of the post-war period resided in retooling war production for the new world of consumerism led by the automobile, television, consumer goods and ironically, housing (setting aside for the moment the emergence of the Cold War and the military-industrial complex which skewed economic development in so many disastrous ways, that we still live, and die, with its effects).

There is no equivalent in the current situation (the ‘War on Terror’ is simply no replacement for the war on communism), thus in the short term (at least) we are entering a world that has more in common with the world leading up to the outbreak of WWII not the one that followed it; mass unemployment, even more massive cuts in social spending and, if capitalism runs true to form, the need for WWIII to trigger a new round of capital destruction and accumulation.

Some have pointed to the need for some kind of ‘New Deal’ but is this possible? Where will the money come from after bailing out the banks? Moreover, the major capitalist powers are no longer industrial power houses, most of the ‘wealth’ generated comes from two sources: 1) consumer consumption and 2) financial services, both of which are going down the tubes right now.

The other crucial difference between the post-WWII period and today is that socialism was seen by many as a real alternative to capitalism, indeed, not only were Keynesian policies seen as a way of bailing out capitalism, it was also the appropriation of essentially socialist economic policies but geared toward maintaining capitalism when the capitalists failed to do it themselves.
No such luck today however and largely because we have no organized and progressive working class to mount such a programme following the adoption of the so-called neo-liberal economic and political programme, which came about for precisely the same reasons as today’s meltdown, over-production and a falling rate of profit (let us not confuse the vast profits made by sleight-of-hand in the financial sector with the production of real wealth, health care, housing, education and so forth).

In conclusion, what can we say about the nature of the capitalists’ responses to this crisis? Firstly, because the state has decided to try and maintain the current status quo but with some nods in the direction of establishing some kind of global financial order, we are as they say, in the hands of the gods. And judging by the current responses of the G-7, some kind of global set of rules governing the financial markets is simply not on the cards. Remember, these national economies are all competing one against the other but at the same time are tied to each other by the globalized nature of finance capital. All they have done so far is muck about with the system without any idea of the consequences except to try and save capitalism from itself.

Second, these fiscal policies will result in mass unemployment running into the tens of millions and the collapse of the ‘good life’ or what’s left of it. And of course, mass unemployment will lead to the collapse of largely consumer-powered economies. Such a policy could of course, trigger a reawakening of class consciousness, but don’t bank on it, even if the civil servants of the British government envisage such a scenario (we should be so lucky).

“The Middle Class Proletariat — The middle classes could become a revolutionary class, taking the role envisaged for the proletariat by Marx. The globalization of labour markets and reducing levels of national welfare provision and employment could reduce peoples’ attachment to particular states. The growing gap between themselves and a small number of highly visible super-rich individuals might fuel disillusion with meritocracy, while the growing urban under-classes are likely to pose an increasing threat to social order and stability, as the burden of acquired debt and the failure of pension provision begins to bite. Faced by these twin challenges, the world’s middle-classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest.” — ‘UK Ministry of Defence report, The DCDC Global Strategic Trends Programme 2007-2036’ (Third Edition) p.96, March 2007The problem of course, is that for such a scenario to take shape requires not only time but the development of a coherent alternative to the current chaos. Slogans are all well and good when they represent the distillation of an existing economic and political alternative, but without such an alternative they will remain only empty slogans.

Thus I think it accurate to say that only the re-emergence of a revolutionary force composed of working people (whether they are so-called middle-class or the traditional working class) will be able to rescue us from this calamity.

Tuesday, October 28, 2008

Is there anything more

...depressing than having to get up and go to work after a long weekend?

I am sure there are more depressing things but this morning I can't think of any

Monday, October 27, 2008

Albums are for fans. Singles are for newbies.

By Bob Lefsetz

So, if you're nobody, and you're not live-based, focus on the single, that's all people want. Hook 'em with a few singles and you've suddenly got fans. Who want more. Does this mean a full-length, with fifteen tracks and seventy eight minutes of music? Probably not. After all, they've just come to know you. You don't want to get married after the first date. So, feed 'em three or four tracks. At an incredibly discounted price on iTunes if you must, a package price. Build slowly. And whenever you get a good-sized fan base, don't overload them all at once! Today's albums are incomprehensible. Too long, never mind too expensive. Better to put out three tracks five times a year than fifteen all at once. Not only do you maintain your buzz, your audience stays bonded, doesn't go on a hejira somewhere else, waiting years for your next opus, possibly forgetting you in the interim..

If you've already got a fan base, release that album if you must. But know that non-fans don't care. And, if they come to care via airplay, old wave media, they only want THE TRACK! If you learn of an act from a friend, you might want an album. But if you're dipping your toes, you don't want to get soaking wet!

As for keeping your tracks off iTunes... What are you about, money or a career? AC/DC is gonna sell a whopping number of albums at Wal-Mart, but they've got no buzz online at the iTunes Store, their album and its single tracks don't appear on the chart, never mind front page advertising. If you want to play an untelevised World Series, be my guest. But why play outside the stadium, by yourself. Some people would rather play basketball in Europe for more money, but most want the glory, and will stay here in the U.S.A. (Furthermore, the salary might be less, but the endorsements, the peripheral income, adds up.) You can reach those who truly care outside of iTunes, but the casual user, newbies, they're not gonna be affected, they're gonna be completely out of the loop, which is going to hurt you in the long run. iTunes is the Big Kahuna, why would you want to play outside its parameters?

So if you're making an album, don't think of world domination. Think of satiating your fans. If you must, include a catchy single for radio airplay. But it probably won't get airplay and will quite possibly alienate your core audience. If you're only about the core, don't sell out, feed your homies. But, if you want someone new, sell individual tracks online, allow people a taste. Better yet, give them a taste for free, just like dope dealers. If you're purveying really good shit, people will want more and will get hooked.



--
Visit the archive: http://lefsetz.com/wordpress

Sunday, October 26, 2008

Network Audience Keeps Eroding

by Bob Lefsetz

That's the title of an article in today's "Wall Street Journal".

Network television viewership is down 6.6% from last year. And that INCLUDES DVR viewership. Even more fascinating is that DVR penetration has grown from 18.6% of TV households to 24.4% in the last twelve months. Although some network TV shows are traded via BitTorrent, piracy is not the issue. People just don't want the big time, mainstream, made for everybody fare.

We've been hit over the head by the major labels that if we could just eradicate piracy, their woes would be over. This is hogwash. And they're driving their businesses straight towards the cliff. Because their present business model is to sign fewer acts, work them with fewer people and have great success with each. But how large can that success be?

The WSJ refers to a fractionalized environment. It's not that people are sitting at home staring in silence at blank walls in the dark. Rather, they're choosing alternative kinds of entertainment. Many are migrating to the myriad of entertainment choices on cable.

But the networks own so many of these cable outlets. This has allowed them to still capture a large portion of the overall viewer pool. But the major labels don't own the indies.

Unless the majors start releasing a plethora of product, going for market share, seeing themselves as service companies facilitating the distribution of all the product, they're doomed to marginalization. Please don't try to deny this. Please know that the protestations of the majors are irrelevant. We've moved on to a new marketplace, where iPod penetration is gargantuan and the CD is antiquated, a worse fit for the times than network television shows. The goal is to get on someone's iPod, how do you do that?

"Their A&R man said 'I don't hear a single'
The future was wide open"

"Into The Great Wide Open"
Tom Petty & the Heartbreakers

You've got to start making these records for yourself. Forget satisfying the system. The system is decrepit and falling apart. IF you homogenized your sound to fit radio...you'd find out that the radio in your mind has already evaporated and what is left is highly formulaic, doesn't include many genres and is listened to fewer people than before. The story of the summer isn't that Kid Rock had a hit without iTunes, but that after a year in the marketplace, "Rock N Roll Jesus" has sold a mere two million copies. That's with the biggest hit of the summer! A multi-format smash!

You're better off buying Seth Godin's "Tribes" than reading "Billboard". The question is, not how can you get on the radio, but how can you build your own coterie, your dedicated tribe, that will keep you alive. And how they remunerate you might not resemble any of the twentieth century business models.

Make music that satisfies you. Forget the media outlets, go directly to the consumer. Can you get people excited? If you can, they will tell other people. It is very important that you abandon old wave marketing techniques. Street teams, carpet bombing, unsolicited e-mail and MP3s... You can try these, but they don't work, they just serve to alienate people.

Your community must drive your career. Not your label, not radio and not "Rolling Stone". Sure, the old outlets still have some power, but it is rapidly fading. And unless you want to have a one year career, NEXT YEAR, you're better off abandoning the old game and going your own way.

You don't want to hear this. You want it to be easier. You want to be rescued. But there's no government bailout for artists. You're lucky if people steal your music. Then maybe they'll become fans, and buy tickets to see you live.

A fan will send you e-mail, which you must answer. A fan will sign up for your tweets. A fan will befriend you on Facebook. A fan will buy your merch. T-shirts as a badge of honor. Special edition packages, books. Instead of lamenting your inability to sell CDs, construct other products that fans can buy. Even at the micro level, 100 copies of a $100 package is TEN THOUSAND DOLLARS!! In the old days, you sold a person a CD and then they were done. Your fan will buy the special package AND additional merchandise.

A fan will pick you up at the airport. A fan will let you stay at his house. A fan will bring all his friends to the show. A fan wants access. If you provide this, you'll be stunned at what you get in return.

But you've got to give something in return. You can't be aloof. You've got to get down into the pit with your fans. And not worry whatsoever what the mainstream media has to say about your success. Not worry if the A&R man comes to your show. Not worry about hiring a promo man to get your song on the radio.

Your goal is no longer to get paid by the label, but to get paid by your audience. Figure it out.



Visit the archive: http://lefsetz.com/wordpress

Saturday, October 25, 2008

Roy Ayers

Roy Ayers (US)

with support from...
The Hot Grits
DJ Roger Perry (George FM)
DJ Manuel Bundy (KFM, Base FM)
The George FM Sunday Family

Roy Ayers on stage at 10:30pm. First time in NZ. One night only.

"People are always defining and re-defining music. My style of playing has been characterized as smooth jazz and acid jazz. I listen as I play; I'm not caught up in defining the type of music I play."
-Roy Ayers

About Roy Ayers Ubiquity: Vibraphonist, vocalist, one of the best-known jazz, R&B artists alive. The Godfather of Neo-soul. Now in his 5th decade in the music business. Born 1940, Los Angeles. At age five, Lionel Hampton gave him his first set of mallets. Part of the West Coast jazz scene in his early 20s. Spent four years on the road, recording three albums with Herbie Mann in the '60s. Formed Roy Ayers Ubiquity in the early '70s, recording several albums for Polydor, pioneering a blend of R&B, funk and disco. Collaborated with both Donald Byrd and afrobeat originator Fela Kuti in the '80s. Appeared on Guru's seminal Jazzmatazz album in the '90s.

Has been touring and recording his whole adult life.

Friday, October 24, 2008

It would be

Well the long anticipated return of Rude Not2 is upon us


Jason George is back with what has become to signify summer (well spring at the moment) for the supper masses.


Join him and guests as he throws down Steaks, Breaks and maybe some cakes to help celebrate TVT and Neville Bartos' day of birth.


So in conjunction with the stupidly priced Amstels and no cover charge your wallet will thank you in the morning. With reasons like this... It'd be Rude Not2


6-7 Bartos
7-8 Fefe
8-9 Bn1 (BMP)
9-10 Randomplay
10-11 Unity Gain
11-2 Jason George



Thursday, October 23, 2008

Here Come The Heads

I spend a lot of time on music sites and forums when online. About a year back DJ History had a thread entitled Here Come The Heads which was populated by people taking photos of themselves with a record sleeve covering, usually, their face.

This week whilst wandering around online I came across a site that has the very same thing... which lead to me finally making a 'sleeveface'and here it is...

Wednesday, October 22, 2008

Where are you River?











It has been a year since River last posted on her blog, I miss her and wonder where and what has become of her and her family.

http://riverbendblog.blogspot.com

Monday, October 20, 2008

Levi Stubbs

Hey, did you see that Levi Stubbs died?

It took me a while to get into Motown. I think "Bernadette" clinched the deal. Or maybe it was "Reach Out (I'll Be There)". I remember driving to Becket, Massachusetts with the Resnicks to pick up Doug from summer camp. I heard that Four Tops song twice on the way up and a few times on the way back. It closed me. Because of the power. Of Levi Stubbs' voice.

Sometime in the future these old acts are gonna pass away. Stunningly, that time is now. Levi was 72. Even Ringo Starr is 68. We thought they were going to live forever. But even we got gray and lost our hair, and have slowed down. A younger generation has taken over for us, but kids still listen to our music.

It wasn't only one man who was responsible for the Four Tops' success. There were writers and producers, but without Levi Stubbs, the records wouldn't have been elevens, they wouldn't sound so pristine, wouldn't evoke a time and a place, whether it be that drive or that bar mitzvah party or just spinning records alone, in your basement, dreaming of a better life to come.

It saddens me when these performers die. It's like a candle has been snuffed, there's a little less light in the world. But when I hear their music I know that they'll live on in hearts and minds for generations, because they were just that good.

Will we ever revisit an era where acts as diverse as Louis Armstrong, the Four Tops and the Beatles can coexist on the airwaves, the music of all emanating from the same station, so dominant that everyone knows the licks? I don't think so. That's a bygone era. We don't even have a new "Bonanza", and there are many more records than TV shows.

So raise a glass to the golden era. We lost another soldier in the music wars. One who gave his all, just so your life could be a little bit better.

Levi Stubbs? I can't help myself for loving you and your music. Wherever you are right now, I hope you know that!

Visit the archive: http://lefsetz.com/wordpress/

Friday, October 17, 2008

The weekend awaits

...and I have nothing planned

excellent

Thursday, October 16, 2008

Musical landmark to close





Things just got a lot greyer for the old order of the music industry in Auckland this week.

The prices were too high,the staff generally either seemed to bored to care or to rude to bother....

It was a wonderful music store and we'll probably never see the likes of Real Groovy again

sad

Wednesday, October 15, 2008

NZ Copyright Law

Government wavers on web cut-offs

"The Government has issued mixed messages on whether it might freeze controversial new copyright law that could lead to customers being disconnected from the internet.


Industry bodies including the Computer Society and InternetNZ united to slam an amendment to the Copyright Act passed by Parliament in April, voicing most concern over a clause that could require them to cut off people's Internet connections if they had repeatedly been involved in copyright breaches.

They described that as "a deeply flawed law that undermines fundamental rights and simply will not work"."

Commentary: Cutting off your Internet if you are accused of infringement

"I’m particularly worked up about that act. You may remember that, few months ago, the government pushed through, without any consultation, some harsh new copyright restrictions. I say without consultation, although its clear that someone was consulted because the minister, Judith Tizard, thanked the music industry lobbyists in the house when she pushed it through. Go figure."

Crikey

Tuesday, October 14, 2008

Rocksteady star Ellis dies at 70

Reggae star Alton Ellis, known as “the Godfather of rocksteady”, has died at the age of 70.

The Jamaican-born singer, who moved to Britain in the 1970s, achieved fame with a number of hits, including I’m Still in Love and I’m Just a Guy.

He was a leading pioneer of the more laid-back “rocksteady” sound, which came out of Jamaica in the 1960s.

Ellis was still performing until August this year, when he collapsed after a concert in central London.

His manager and agent Trish De Rosa described him as “my guiding star and my inspiration”.

“His life was the music and the stage,” she said. “He was getting a tremendous amount of work right up to the end - it was very difficult to get him to slow down.”

The Jamaican authorities are considering giving Ellis a state funeral, Ms De Rosa added.

The prolific singer, who began his career in the 1950s and fronted vocal group The Flames, was diagnosed with cancer in 2007.

Ellis underwent chemotherapy before returning to the stage, but died in London’s Hammersmith hospital on Friday night.

He leaves more than 20 children.

http://news.bbc.co.uk/2/hi/entertainment/7665594.stm

www.en.wikipedia.org/wiki/Alton_Ellis

Monday, October 13, 2008

750,000 lost jobs? The dodgy digits behind the war on piracy


By Julian Sanchez Published: October 07, 2008 - 11:30PM CT from Ars Technica

A 20-year game of Telephone

If you pay any attention to the endless debates over intellectual property policy in the United States, you'll hear two numbers invoked over and over again, like the stuttering chorus of some Philip Glass opera: 750,000 and $200 to $250 billion. The first is the number of U.S. jobs supposedly lost to intellectual property theft; the second is the annual dollar cost of IP infringement to the U.S. economy. These statistics are brandished like a talisman each time Congress is asked to step up enforcement to protect the ever-beleaguered U.S. content industry. And both, as far as an extended investigation by Ars Technica has been able to determine, are utterly bogus.

"I have said it thrice," wrote Lewis Carroll in his poem The Hunting of the Snark, "what I tell you three times is true." And by that standard, the Pythagorean Theorem is but schoolyard gossip compared with our hoary figures. As our colleagues at Wired noted earlier this week, the 750,000 jobs figure can be found cited by the U.S. Department of Commerce, Customs and Border Patrol, and the U.S. Chamber of Commerce, among others. Both feature prominently on TheTrueCosts.org, an industry site devoted to trumpeting the harms of piracy. They're invoked by the deputy director of the U.S. Patent and Trademark Office. And, of course, they're a staple of indignant press releases from the congressional sponsors of tough-on-piracy legislation.

By more conventional standards of empirical verification, however, the numbers fare less well. Try to follow the thread of citations to their source, and you encounter a fractal tangle of recursive reference that resembles nothing so much as the children's game known, in less-PC times, as "Chinese whispers," and these days more often called "Telephone." Usually, the most respectable-sounding authority to cite for the numbers (the FBI for the dollar amount, Customs for the jobs figure) is also the most prevalent—but in each case, that authoritative "source" proves to be a mere waystation on a long and tortuous journey. So what is the secret origin of these ubiquitous statistics? What doomed planet's desperate alien statisticians rocketed them to Kansas? Ars did its best to find the fountainhead. Here's what we discovered.

Looking for lost jobs

First, the estimate of 750,000 jobs lost. (Is that supposed to be per year? A cumulative total over some undefined span? Those who cite the figure seldom say.) Customs is most often given as the source for this, and indeed, you can find press releases from as recently as 2002 giving that figure as a U.S. Customs and Border Patrol estimate. Eureka! But when we contacted CBP to determine how they had arrived at that imposing figure, we were informed that it was, in essence, a goof. The figure, Customs assured us, came from somewhere else, and was mistakenly described as the agency's own. This should come as no great surprise: CBP is an enforcement agency, whereas calculating the total loss of jobs from IP infringement would require some terrifyingly complex counterfactual modeling by trained economists. Similar claims have appeared in Customs releases dating back at least to 1993, but a CBP spokesperson assured us that the agency has never been in the business of developing such estimates in-house.

With Customs a dead end, we dove into press archives, hoping to find the earliest public mention of the elusive 750,000 jobs number. And we found it in—this is not a typo—1986. Yes, back in the days when "Papa Don't Preach" and "You Give Love a Bad Name" topped the charts, The Christian Science Monitor quoted then-Commerce Secretary Malcom Baldridge, trumpeting Ronald Reagan's own precursor to the recently passed PRO-IP bill. Baldridge estimated the number of jobs lost to the counterfeiting of U.S. goods at "anywhere from 130,000 to 750,000."


Where did that preposterously broad range come from? As with the number of licks needed to denude a Tootsie Pop, the world may never know. Ars submitted a Freedom of Information Act request to the Department of Commerce this summer, hoping to uncover the basis of Baldridge's claim—or any other Commerce Department estimates of job losses to piracy—but came up empty. So whatever marvelous proof the late secretary discovered was not to be found in the margins of any document in the government's vaults. But no matter: By 1987, that Brobdignagian statistical span had been reduced, as far as the press were concerned, to "as many as 750,000" jobs. Subsequent reportage dropped the qualifier. The 750,000 figure was still being bandied about this summer in support of the aforementioned PRO-IP bill.

$250 billion? What's that in real money?

What, then, of that $200 to $250 billion range? Often, it's attributed to the Federal Bureau of Investigation, and indeed, the Bureau routinely cites those numbers. According to FBI spokesperson Catherine Milhoan, the figure "was derived through our coordination with industry, trade associations, rights holders, and other law enforcement agencies" at a 2002 anti-piracy confab. But neither the Bureau nor the National Intellectual Property Rights Coordination Center, which assembled the inter-agency powwow, could find any record of how that number was computed.

At this point, it's necessary to get a little speculative. As with Customs, the FBI is not in the habit of doing sophisticated economic analysis in-house. And the last time the government conducted any sort of verifiably rigorous study of the costs of IP theft—about which more presently—it was a protracted undertaking that involved sending detailed questionnaires to hundreds of businesses, which government economists concluded was still insufficient to produce a reliable figure for the economy as a whole. However, $250 billion is about the number you come up with if you start with $200 billion in 1993 dollars and adjust for inflation to 2002. And that lower end of the range, $200 billion, happens to date back to 1993.

Another group that routinely uses the $200 to $250 billion figure is the International Anti-Counterfeiting Coalition, which (along with the FBI) is often given as the source of the number. That organization's white papers, as recently as 2005, footnote the figure to 1995 congressional testimony urging passage of what became the Anticounterfeiting Consumer Protection Act of 1996. So Ars dug into the archives at the Library of Congress to discover where the witnesses before the House and Senate Judiciary Committees got their data.

Several of the witnesses were conspicuously vague about their sources. An IACC factsheet submitted for the hearings said the group itself "estimates the economic cost due to product counterfeiting to exceed $200 billion each year," a number repeated by the group's then-president, John Bliss. Congressman Bob Goodlatte (R-VA) gave the same figure without sourcing. But several witnesses pointed to Forbes magazine as the source of the number. Rep. John Conyers (D-MI) noted that the International Trade Commission had placed the size of the counterfeit market at $60 billion in 1988 and that "a more recent estimate by Forbes Magazine says that American businesses are losing over $200 billion each year as a result of illegal counterfeiting." Finally, Charlotte Simmons-Gill of the International Trademark Association was kind enough to give a precise citation: the October 25, 1993 issue of Forbes.

Ars eagerly hunted down that issue and found a short article on counterfeiting, in which the reader is informed that "counterfeit merchandise" is "a $200 billion enterprise worldwide and growing faster than many of the industries it's preying on." No further source is given.

Quite possibly, the authors of the article called up an industry group like the IACC and got a ballpark guess. At any rate, there is nothing to indicate that Forbes itself had produced the estimate, Mr. Conyers' assertion notwithstanding. What is very clear, however, is that even assuming the figure is accurate, it is not an estimate of the cost to the U.S. economy of IP piracy. It's an estimate of the size of the entire global market in counterfeit goods. Despite the efforts of several witnesses to equate them, it is plainly not on par with the earlier calculation by the ITC that many had also cited.

But here, at last, we have a solid number to sink our claws into, right? Sure, it's 20 years old, but the U.S. International Trade Commission at least produced a reputable study yielding a definite figure for the cost of piracy to the U.S. economy: $60 billion annually.

Well, not quite.

"Biased & self-serving"

The number the ITC actually came up with, based on a survey of several hundred business selected for their likely reliance on IP for revenue, was $23.8 billion—the estimated losses to their respondents. That number was based on industry estimates that the authors of the study noted "could admittedly be biased and self-serving," since the firms had every incentive to paint the situation in the most dire terms as a means of spurring government action. But the figures at least appeared to be consistent and reasonable, both internally and across sectors.

The $60 billion number comes from a two-page appendix, in which the authors note that it's impossible to extrapolate from a self-selecting group of IP-heavy respondents to the economy as a whole. But taking a wild stab and assuming that firms outside their sample experienced losses totaling a quarter to half those of their respondents, the ITC guessed that the aggregate losses to the economy might be on the order of "$43 billion to $61 billion."

The survey also, incidentally, asked respondents to estimate the number of job losses they could attribute to inadequate intellectual property protection. The number they came up with was 5,374. If we assume, very crudely, that job losses are proportionate to dollar losses, then the ITC's high-end estimate of $61 billion in total economic costs would correspond to a loss of not 750,000 jobs, but 13,774.

If we want to be very precise, however, we should note that the ITC was not calculating losses from IP "theft," but rather "inadequate protection" of intellectual property. And "inadequate protection" was interpreted to mean protection falling short of the level provided by U.S. law. The protection provided by a foreign country might be deemed "inadequate," the study explained, if "exceptions to exclusive rights are overly broad"—for example, if a country's law contained "broad exceptions for public performances in hotels or film clips" or "too broad exceptions for educational photocopying." A legal regime could be "inadequate" because "terms of protection are too short" or because of "inadequate" civil or criminal remedies, meaning monetary damages or criminal penalties for infringers were not high enough.

Calculating the net cost of piracy to the economy

One final, slightly theoretical point deserves emphasis here. All the projections we've discussed, the rigorous and the suspect alike, calculate losses in sales or royalties to U.S. firms. This is often conflated with the net "cost to the U.S. economy." But those numbers—whatever they might be—are almost certainly not the same. When someone torrents a $12 album that they would have otherwise purchased, the record industry loses $12, to be sure. But that doesn't mean that $12 has magically vanished from the economy. On the contrary: someone has gotten the value of the album and still has $12 to spend somewhere else.

In economic jargon, charging anything for pure IP—which has a marginal cost approaching zero once it has been produced—creates a deadweight economic loss, at least in static terms. The actual net loss of IP infringement is an allocative loss that only appears in a dynamic analysis. Simply put, when people pirate IP, the market is not accurately signaling how highly people value the effort that was put into creating it, which leads to underproduction of new IP. To calculate the net loss to the economy over the long run, you'd need to figure out the value of the lost innovation in which IP owners would have invested the marginal dollar lost to piracy, and subtract from that the value of the second-best allocation—which is to say, whatever the consumer of the pirated good spent his money on instead—and the value of the deadweight loss (free music or software is a net economic benefit to someone) incurred by pricing IP at all.

If that sounds incredibly complicated, it is. And in fact, it's more complicated than that, because as Yochai Benkler has argued persuasively, IP is an input to innovation as well as the product of innovation. So under certain very specfic conditions, "piracy" can produce net gains. While it seems extremely unlikely that this is the case in the aggregate—IP theft almost certainly does impose net economic costs—simply calculating lost sales and licencing fees, assuming someone could produce a credible figure, would not provide a complete picture of the economic impact of IP infringement. It would give us, at most, one side of the ledger.

Conclusions

But enough theory and speculation; here is what we can say for certain: the two numbers that are invariably invoked whenever Congress considers the need for more stringent IP enforcement are, at best, highly dubious. They are phantoms. We have no good reason to think that either is remotely reliable.

Perhaps more importantly, both numbers are seemingly decades old, gaining a patina of currency and credibility by virtue of having been laundered through a relay race of respectable sources, even as their origin recedes into the mists. That's especially significant, because these numbers are always invoked as proof that the piracy problem is still dire—that everything we've done to step up international enforcement of intellectual property laws has been in vain. But of course, if you simply recycle the same numbers from 15 and 20 years ago—remember that IACC's 2005 publications still cite that 1995 congressional testimony, from which it seems safe to infer that they have no more recent source—then it will necessarily seem as though no ground has been gained.

Neither figure is terribly plausible on its face. As Wired noted earlier this week, 750,000 jobs is fully 8 percent of the current number of unemployed in the United States. And $250 billion is more than the combined 2005 gross domestic revenues of the movie, music, software, and video game industries.

Still, anything is possible: The figures could happen to be more or less accurate. But given the shady provenance of the data, the one thing we know for certain is that we don't know for certain. And we're making policy on the basis of our ignorance.

Sunday, October 12, 2008

The West is Broke

By Deepak Tripathi

October the 7th was a day of high drama and panic on both sides of the Atlantic. The New York Stock Exchange suffered further massive losses, despite the $700 billion rescue package coming into force. In London, shares in the banking sector collapsed, some falling by as much as 40 percent. The Chairman of the US Federal Reserve, Ben Bernanke, admitted that the risk of a deeper economic slump had increased. And George W. Bush, whose presidency looks destined for an ignominious end, pleaded for coordinated action by the leading industrialized countries. The International Monetary Fund estimates financial losses of around $1.4 trillion. But there is no certainty. They could be higher.

Central banks of several major countries have now announced cuts in their interest rates, after weeks of indecision when each country seemed to be engaged in domestic fire-fighting. America's rescue package was for its institutions, although, if successful, it would benefit others. On October the 8th, the British government became the latest to announce a bailout plan of its own. It will spend up to £50 billion in return for ‘preference shares' in eight of the largest banks in the country. The measure gives the government some control over the banking system. And there will be restrictions on huge executive salaries and generous dividends to shareholders that have caused strong public resentment in recent years.

In the immediate run, individual governments have largely done what is best for their own economies rather than the global system. In Europe, the Irish Republic, Greece, Spain, Germany, and Britain, have taken unilateral action. Their conduct shatters what was left of the idea of unity in the European Union, especially among members of the euro currency zone. In the longer run, the era of deregulation of the kind we have seen in recent years is over. Protectionism in trade has migrated to the world of finance. How far the latest measures will succeed remains to be seen.

What we see is the result of a catastrophic loss of trust in the West. It goes well beyond economics and finance. It is the sincerity of political leaders of the West that is at stake. If those in power in Washington, London and elsewhere cannot be trusted on the critical matters of war and peace, law and justice and treatment of different sections of their own populations, their ability in other areas is bound to be questioned. The leaders of America and its allies have simply become captivated by a doctrine that leaves their economies at home, to be run by the large private institutions that they befriend, while they themselves go and fight wars abroad.

Today, America's wars are financed by money borrowed from China and the oil-rich Gulf states which are awash with petrodollars. The invasion of Iraq was launched on the false pretext of weapons of mass destruction. Later, a person of no less importance than the former Chairman of the US Federal Reserve, Alan Greenspan, was to say that the war was all about oil.

Instead of easy access to the oil-fields of the Gulf, what the US-led expedition has achieved is turmoil in the region and beyond. America's actions have contributed to dramatic oil price rises, which have hit the world economy. And countries like China, Russia and Saudi Arabia, which have accumulated huge reserves in US dollars, don't trust the West. The resentment in the Arab world against the treatment of Muslims by the West is strong. And the government of Iceland criticizes its ‘friends' for not doing enough to help it and looks towards Russia to bail it out. The West is simply broke - morally, politically and economically.

Deepak Tripathi, former BBC journalist, is a researcher and an author. His works can be found on http://deepaktripathi.wordpress.com

Saturday, October 11, 2008

Black Friday?

By Mike Whitney

10/10/08 ICH -- -Panic has spread to stock markets around the world. A massive sell-off, which began when Henry Paulson announced a $700 billion bailout for the banking system, has turned into a global stampede. Shares fell sharply across Europe and Asia for fifth straight day following a 679 drop on the Dow Jones. Nearly $900 billion was wiped off the value of U.S. equities in just one trading day. The Chicago Board Options Exchange Volatility Index, the "fear index", soared to a record 64. Credit markets remain frozen. Libor, London interbank offered rate, nudged up slightly on Thursday night, signaling even greater resistance to lending between the banks. Until there is relief in the credit markets, stocks will continue to slide. But trust has vanished. The 50 basis points rate cut that was coordinated with foreign central banks has had no effect. The market is being driven by fear and pessimism. Friday is shaping up to be a bloodbath on Wall Street.

White House press secretary, Dana Perino said yesterday that President Bush will address the country on Friday morning:

"He will assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system. The Treasury Department is moving quickly to use new tools to improve liquidity, which is the root cause of this problem."

Bush still believes that the problem is "liquidity" rather than "insolvency". When liabilities vastly exceed assets, liquidity does not help. The bad banks need to be closed so the good ones can be strengthened with capital injections.

New York Times columnist Paul Krugman said, "Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson, the Treasury Secretary, was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman’s failure caused the world financial crisis, already severe, to get much, much worse."

Lehman's credit default swaps, (the derivatives which Warren Buffett calls "financial weapons of mass destruction") will be "unwound" on Friday. It could be a "non event" or it could trigger another sell off; it is impossible to know. If tens of billions of dollars are drained from already weakened balance sheets in counterparty deals that have turned sour, the market will react violently. Wall Street is on tenterhooks waiting for the news from Lehman.

There is general agreement among economists about what needs to be done to stabilize the financial system. The banks have to be recapitalized, deposits have to be guaranteed (beyond the $100,000 FDIC limit) and additional stimulus has to be provided to increase consumer demand. Otherwise the United States will face another Great Depression. Too much time has been wasted on Paulson's failed bailout for G-Sax and his friends on Wall Street. Buying the bad assets of underwater banks does not fix the problem. The banks need capital so they can resume lending and transmit credit to consumers and businesses.

Former head of the FDIC, William Isaac summed it up like this:

"I was opposed to the bailout bill, mostly because I don't think it will work. The banks -- taking $700 billion of bad loans out of the banks doesn't help get banks lending again. It just solves some problems in some banks. And it doesn't have any leverage to it. If the Treasury were to put that same $700 billion and used that to invest in bank capital, the banks can loan $10 for every dollar of capital, roughly, which means that the Treasury would be creating $7 trillion of new lending capacity in the banks. And that is vastly superior to buying $700 billion of problem loans. It just -- it will really give some punch to the economy. It will get banks back into the lending business..... And to do that we need to get some capital back in there."

Isaac added: "The other major thing they really need to do... They really need to have the FDIC declare that there is a financial emergency. And when the FDIC does that, the FDIC should announce that during this period of crisis, all general creditors, all depositors, insured and uninsured, bondholders in our banking system, will be protected if a bank fails. And that, I think, will get the inter -- the financial markets working again and get banks willing to loan to each other again."

Nearly one third of all deposits ($2.5 trillion) are not insured under present FDIC guidelines. If these deposits are not insured, as Isaac says, there will continue to be a slow run on the banks which is why the credit markets are paralyzed.

Much of this week's volatility in the market is the result of program trading (many sell orders were automatically executed when the Dow hit 9,000) and massive deleveraging in the hedge funds, the secretive $1.7 trillion industry. As credit gets tighter, the funds are unable to roll over their short term debt and have been forced to dump their assets in an illiquid market at firesale prices. This explains the recent see-saw motion in the stock market; the huge 2 to 3 percent intraday swings (positive/negative) This has added to the fear of smaller investors who have left the market in droves for the safety of US Treasuries or cash. That's why the dollar has strengthened even though the Federal Reserve is printing money at a furious pace. The inflationary effects will not be apparent until the destruction of credit abates.

The biggest danger we face in the short term, is a run on the financial system. Calm must be restored if we want to avoid another depression. Investors have already pulled a record $72 billion from stock and mutual funds, and put the money in US Treasurys and government-insured bank deposits. If the trend continues, the financial system will collapse. This is where leadership and credibility really matter. The Bush administration's record on these issues is dismal. If the government overreacts and limits bank withdrawals or closes the stock market; the sense of desperation and panic will only grow. That increases the likelihood of rioting and violence, which is what took place in China just this week.

The falling stock market reflects the mood of the country as a whole. Confidence in the system is at an all-time low. The government has lost the moral authority to rule. People have lost faith in everything. Bush has created a tinder box which could explode in flames at any time. It is a dangerous situation.

BLACK FRIDAY: False alarm or Armageddon?

The econo-blogs were abuzz all night Thursday. The prevailing feeling is that Wall Street will suffer historic losses on Friday and that this will mark the end of America's dominance as the lone superpower. As always, economist Nouriel Roubini provided a chilling analysis of the present financial malaise:

Nouriel Roubini: "The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system... and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.

At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown....

When... even the most radical policy actions don’t provide rallies or relief to market participants, you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway." (Nouriel Roubini's Global EconoMonitor)

There's a way forward but it will take a lot of digging out and a vision of the future that doesn't center on Wall Street.

A War to be Lost

The Surge That Failed
Afghanistan under the Bombs
By Anand Gopal

A bit past midnight on a balmy night in late August, Hedayatullah awoke to a deafening blast. He stumbled out of bed and heard angry voices drawing closer. Suddenly, his bedroom doors banged open and dozens of silhouetted figures burst in, some shouting in a strange language.

The intruders blindfolded Hedayatullah and, screaming with fury, forced him to the ground. An Afghan voice told him not to move or speak, or he would be killed. He listened for sounds from the next room, where his brother Noorullah slept with his family. He could hear his nephew, eight months old, crying hysterically. Then came the sound of an automatic rifle, after which his nephew fell silent.

The rest of the family -- 18 people in all, including aunts, uncles, and cousins -- was herded outside into the darkness. The Afghan voice explained to Hedayatullah's terrified mother, "We are the Afghan National Army, here to accompany the American military. The Americans have killed one of your sons and his two children. They also shot his wife and they're taking her to the hospital."

"Why?" Hedayatullah's mother stammered.

"There is no why," the soldier replied. When she heard this, she started screaming, slamming her fists into her chest in anguish. The Afghan soldiers left her and loaded Hedayatullah and his cousin into the back of a military van, after which they drove off with an American convoy into the black of night.

The next day, the Afghan forces released Hedayatullah and his cousin, calling the whole raid a mistake. However, Noorullah's wife, months pregnant, never came home: She died on the way to the hospital.

Surging in Afghanistan

When, decades from now, historians compile the record of this Afghan war, they will date the Afghan version of the surge -- the now trendy injection of large numbers of troops to resuscitate a flagging war effort -- to sometime in early 2007. Then, a growing insurgency was causing visible problems for U.S. and NATO forces in certain pockets in the southern parts of the country, long a Taliban stronghold. In response, military planners dramatically beefed up the international presence, raising the number of troops over the following 18 months by 20,000, a 45% jump.

During this period, however, the violence also jumped -- by 50%. This shouldn't be surprising. More troops meant more targets for Taliban fighters and suicide bombers. In response, the international forces retaliated with massive aerial bombing campaigns and large-scale house raids. The number of civilians killed in the process skyrocketed. In the fifteen months of this surge, more civilians have been killed than in the previous four years combined.

During the same period, the country descended into a state of utter dereliction -- no jobs, very little reconstruction, and ever less security. In turn, the rising civilian death toll and the decaying economy proved a profitable recipe for the Taliban, who recruited significant numbers of new fighters. They also won the sympathy of Afghans who saw them as the lesser of two evils. Once confined to the deep Afghan south, today the insurgents operate openly right at the doorstep of Kabul, the capital.

This last surge, little noted by the media, failed miserably, but Washington is now planning another one, even as Afghanistan slips away. More boots on the ground, though, will do little to address the real causes of this country's unfolding tragedy.

Revenge and the Taliban

One day, as Zubair was walking home, he noticed that the carpet factory near his house in the southern province of Ghazni was silent. That's strange, he thought, because he could usually hear the din of spinning looms as he approached. As he rounded the corner, he saw a crowd of people, villagers and factory workers, gathered around his destroyed house. An American bomb had flattened it into a pancake of cement blocks and pulverized bricks. He ran toward the scene. It was only when he shoved his way through the crowd and up to the wreckage that he actually saw it -- his mother's severed head lying amid mangled furniture.

He didn't scream. Instead, the sight induced a sort of catatonia; he picked up the head, cradled it in his arms, and started walking aimlessly. He carried on like this for days, until tribal elders pried the head from his hands and convinced him to deal with his loss more constructively. He decided he would get revenge by becoming a suicide bomber and inflicting a loss on some American family as painful as the one he had just suffered.

When one decides to become a suicide bomber, it is pretty easy to find the Taliban. In Zubair's case he just asked a relative to direct him to the nearest Talib; every village in the country's south and east has at least a few. He found them and he trained -- yes, suicide bombing requires training -- for some time and then he was fitted with the latest model suicide vest. One morning, he made his way, as directed, towards an office building where Americans advisors were training their Afghan counterparts, but before he could detonate his vest, a pair of sharp-eyed intelligence officers spotted him and wrestled him to the ground. Zubair now spends his days in an Afghan prison.

A poll of 42 Taliban fighters by the Canadian Globe and Mail newspaper earlier this year revealed that 12 had seen family members killed in air strikes, and six joined the insurgency after such attacks. Far more who don't join offer their support.

Under the Bombs

In the muddied outskirts of Kabul, an impromptu neighborhood has been sprouting, full of civilians fleeing the regular Allied aerial bombardments in the Afghan countryside. Sherafadeen Sadozay, a poor farmer from the south, spoke for many there when he told me that he had once had no opinion of the United States. Then, one day, a payload from an American sortie split his house in two, eviscerating his wife and three children. Now, he says, he'd rather have the Taliban back in power than nervously eye the skies every day.

Even when the bombs don't fall, it's quite dangerous to be an Afghan. Journalist Jawed Ahmad was on assignment for Canadian Television in the southern city of Kandahar when American troops stopped him. In his possession, they found contact numbers to the cell phones of various Taliban fighters -- something every good journalist in the country has -- and threw him into prison, not to be heard from for almost a year. During interrogation, Ahmad says that American jailors kicked him, smashed his head into a table, and at one point prevented him from sleeping for nine days. They kept him standing on a snowy runway for six hours without shoes. Twice he fainted and twice the soldiers forced him to stand up again. After 11 months of detention, military authorities gave him a letter stating that he was not a threat to the U.S. and released him.

Starving in Kabul

If you're walking his street, there isn't a single day when you won't see Zayainullah. For as long as he can remember, the 11 year-old has perched on the sidewalk at one of Kabul's busiest intersections. Zayainullah has only one arm; the Taliban blew the other one away when he was a child. He uses this arm to beg for handouts, quietly in the mornings, more desperately as the day goes on. Both his parents are dead so he lives with his aunt, a widow. Given the mores of modern-day Afghanistan, she can't work because a woman needs a man's sanction to leave the house. So she puts young Zayainullah on the street as her sole breadwinner. If he comes home empty-handed she beats him, sometimes until he can no longer move.

He sits there, shirtless, with a heaving, rounded belly -- distended from severe malnutrition -- as scores of other beggars and pedestrians stream by him. No one really notices him though, because poverty has become endemic in this country.

Afghanistan is now one of the poorest countries on the planet. It takes its place among desperate, destitute nations like Burkina Faso and Somalia whenever any international organization bothers to measure. The official unemployment rate, last calculated in 2005, was 40% percent. According to recent estimates, it may today reach as high as 80% in some parts of the country.

Approximately 45% of the population is now unable to purchase enough food to guarantee bare minimum health levels, according to the Brookings Institution. This winter, Afghan officials claim that hunger may kill up to 80% of the population in some northern provinces caught in a vicious drought. Reports are emerging of parents selling their children simply to make ends meet. In one district of the southern province of Ghazni last spring things got so bad that villagers started eating grass. Locals say that after a harsh winter and almost no food, they had no choice.

Kabul itself lies in tatters. Roads have gone unpaved since 2001. Massive craters from decades of war blot the capital city. Poor Afghans live in crumbling warrens with no electricity and often without safe drinking water. Kabul, a city designed for about 800,000 people, now holds more than four million, mostly squeezed into informal settlements and squatters' shacks.

Washington spends about $100 million a day on this war -- close to $36 billion a year -- but only five cents of every dollar actually goes towards aid. From this paltry sum, the Agency Coordinating Body for Afghan Relief found that "a staggering 40 percent has returned to donor countries in corporate profits and salaries." The economy is so underdeveloped that opium production accounts for more than half of the country's gross domestic product.

What little money does go for reconstruction is handed over to U.S. multinationals who then subcontract out to Afghan partners and cut corners every step of the way. As a result, the U.N. ranks the country as the fifth least-developed in the world -- a one-position drop from 2004.

The government and coalition forces may not bring jobs to Afghanistan, but the Taliban does. The insurgents pay for fighters -- in some cases, up to $200 a month, a windfall in a country where 42% of the population earns less than $14 a month. When a textile factory in Kandahar laid off 2,000 workers in September, most of them joined the Taliban. And that district in Ghazni where locals were reduced to eating grass? It is now a Taliban stronghold.

Biking in Kabul

A spate of suicide bombings and high-profile attacks in recent years have turned Kabul into a sort of garrison state, with roadblocks and checkpoints clogging many of the city's main arteries. The traffic is, at times, unbearable, so I bought a new motorbike, an Iranian import that can adroitly weave through traffic. I was puttering along one day recently when a police commander stopped me.

"That's a nice bike," he said.

"Thank you," I replied.

"Is it new?"

"Yes."

"I'd like to have it. Get off."

I stared at him in disbelief, not quite grasping at first that he was deadly serious. Then I began threatening him, saying I'd call a certain influential friend if he laid a finger on the bike. That finally hit home and he stepped back, waving me on.

Journalists may have influential friends, but ordinary Afghans are usually not so lucky. Locals tend to fear the neighborhood police as much as the many criminals who prowl Kabul's streets. The notoriously corrupt police force is just one face of a government that much of the population has come to loathe.

Police are known to rob passengers at checkpoints. Many of the country's leading members of parliament and cabinet officials sport long, bloody records of human rights abuses. Rapists and serious criminals regularly bribe their way out of prison. Warlords and militia commanders run wild in the north, regularly raping young girls and snatching the land of villagers with impunity. Earlier this year newspapers revealed that President Hamid Karzai pardoned a pair of such militiamen accused of bayonet-raping a young woman.

What Karzai does hardly matters, though. After all, his government barely functions. Most of the country is carved up into fiefdoms run by small-time commanders. A U.S. intelligence report in the spring of 2008 estimated that the central government then controlled just 30% of the country, and many say even that is now an optimistic assessment.

Drive a few miles outside Kabul and the roads are controlled by bandits, off-duty cops, or anyone else with a gun and an eye for a quick buck. The Karzai government's popularity has plummeted to such levels that, believe it or not, many Afghans in Kabul wax nostalgic for the days of Dr. Mohammad Najibullah, the country's last Communist dictator. "That government was cruel and indifferent, but at least they gave us something," an Afghan friend typically told me. The Karzai government provides almost no social services, expending all its efforts just trying to keep itself together.

Shadow Government

Power abhors a vacuum, and so, in those areas where central government rule has crumbled, the Islamic Emirate of Afghanistan -- the Taliban government -- is rising in its place. In Wardak, a province bordering Kabul Province, the Taliban has a stable foothold, complete with a shadow government of mayors and police chiefs. In Logar, another of Kabul's neighboring provinces, some "government-controlled" areas consist of the home of the district head, the NATO installation down the road -- and nothing else.

With the rise of the Taliban in these areas comes their notorious brand of justice. Shadow courts now dispense Taliban-style draconian judgments and punishments in many districts and ever more locals are turning to them to settle disputes, either out of fear or because they are far more efficient than the corrupt government courts. The Taliban recently chopped off the ears of a schoolteacher in Zabul province for working for the government. They gunned down a popular drummer in Ghazni simply for playing music in public. Even the infamous public executions are back. The Taliban recently invited journalists to watch the execution of a pair of women on prostitution charges.

The Taliban are as uninterested in social services and human rights as the Karzai government or the international forces, but they know how to turn a world of poverty, insecurity, and death from laser-guided missiles to their advantage. This is how the Islamic Emirate spreads, like so many weeds at first, poking out of areas where the government has failed. As the central government spins towards irrelevancy, the whole south and east of Afghanistan is becoming a thicket of Taliban before our very eyes.

A War to be Lost

One night the Taliban raided a police check post near my Kabul home, killing three policemen. The following morning, when a police contingent arrived on the scene to investigate, a bomb that the rebels had cleverly hidden at the site exploded and killed two more of them. I arrived shortly afterwards to find pieces of charred flesh littering the ground and a mangled, burnt out police van sitting overturned on a pile of rubble.

The raid didn't make much news at the time, but it was actually the deepest the insurgents had penetrated the capital since they were overthrown seven years ago. They have dispatched many individual suicide bombers into the capital and rocketed it as well from time to time, but never had they marched in as an attacking force on foot. When I told an Afghan colleague that I couldn't believe the Taliban were coming into Kabul this way, he responded: "Coming? They've been here. They were just waiting for the government and the U.S. to fail."

Failure is a notion now preoccupying the Western leadership of this war, which is why they are scrambling for yet another "surge" solution.

Of course, the Taliban won't be capturing Kabul anytime soon; the international forces are much too powerful to topple militarily. But the Americans can't defeat the Taliban either; the guerrillas are too deeply rooted in a country scarred by no jobs, no security, and no hope. The result is a war of attrition, with the Americans planning to pour yet more fuel on the flames by throwing in more soldiers next year.

This is a war to be won by constructing roads, creating jobs, cleaning up the government, and giving Afghans something they've had preciously little of in the last 30 years: hope. However, hope is fading fast here, and that's a fact Washington can ill afford to ignore; for once the Afghans lose all hope, the Americans will have lost this war.

Anand Gopal writes frequently about Afghanistan, Pakistan, and the "War on Terror." He is a correspondent for the Christian Science Monitor, based in Afghanistan. For more of his information and dispatches from the region, visit www.anandgopal.com

Friday, October 10, 2008

The Technical Sessions

The Technical Sessions show is a new video podcast featuring tutorials on music production and DJing and is hosted by producer,sound engineer and DJ, Kerry Adams (aka Unity Gain).
To celebrate the launch of the Technical Sessions a party is being held at Fu Bar on Friday, 10 October. The evening will also feature the release of a limited edition E.P. containing original tracks from some of the artists performing that night.
Every ticket purchased on the door will receive a free EP download.

Thursday, October 09, 2008

Wednesday, October 08, 2008

We're on the edge of the abyss

French Premier Francois Fillon: We're on "the edge of the abyss”

By Mike Whitney

06/10/08 'Years from today, when the current financial crisis is over, historians are likely to agree that it would have been far better if the Bush administration had declared a state of emergency earlier in the process so that the necessary steps could have taken to avoid a complete financial meltdown. The media could have been used to bring the American people up to date on market-related developments and educated in the bizarre language of structured finance. Knowledge is power; and power can prevent panic.

Now we're in a terrible fix. People are scared and removing their money from the banks and money markets which is intensifying the freeze in the credit markets and driving stocks into the ground like a tent stake. Meanwhile, our leaders are "caught in the headlights", still believing they can "finesse" their way through the biggest economic cataclysm since the Great Depression. It's madness.

If something is not done to increase the flow of credit immediately, the stock market will tumble, unemployment will spike, and many businesses will grind to a standstill. We could be just days away from a severe shock to the system. Secretary of the Treasury Henry Paulson's $700 billion bailout does not focus on the fundamental problems and is likely to fail. At best, it puts off the day of reckoning for a few weeks or months. Contingency plans should be put in place so the country does not have to undergo post-Katrina bedlam.

Does Congress have any idea of the mess they've made by passing the Bailout bill? Do they even read the papers or are they so isolated in their Capital Hill bubble-world that they're entirely clueless? Did any Senator or congressman even notice, that while they were busy mortgaging off America's future, the stock market was plummeting to new lows? Between the time the ballots were cast on Paulson's bailout, and the announcement of the final tally (which was approved by a generous margin) the market went from a 310 point gain to a 157 point loss; a whopping 467 plunge in less than two hours.

Thus spake the Market: "Paulson's bill is a fraud!"

Listen up, Congress: This massive trillion dollar deleveraging process cannot be stopped. The system is purging credit excesses which are unsustainable. The levies you're building with this $700 billion bill may plug a few holes, but it won't stop the flood. Economist Ludwig von Mises put it like this:

"There is no means of avoiding the final collapse of a boom brought on by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

The best course of action is to soften the blow as much as possible for underwater homeowners and let the market correct as it should. Otherwise the dollar will be torn to shreds.


Look around; the six year Bush economic boom is vanishing before our eyes. Manufacturing is contracting, wages are stagnant, good paying jobs are headed overseas, unemployment is rising, and the middle class has shrunk every year since Bush took office. Is this the miracle of the "Washington consensus" and neoliberalism? The prosperity of the Bush era is as fake as the weapons of mass destruction; it's all smoke and mirrors. The Federal Reserve created the massive equity bubble in housing and finance through its low interest monetary policies. Cheap money is the rich man's method of social engineering; swift and lethal. The public be-damned. Now that the bubble is bursting, Congress needs to decide what it can do to soften the hard landing. Paulson's bill does not do that. In fact, even Paulson's supporters admit it's a flop. Here's what Martin Feldstein had to say in a Wall Street Journal editorial:

"The recent financial recovery plan that Congress enacted will not rebuild lending and credit flows. That requires a program to stop a downward overshooting of house prices and the resulting mortgage defaults....The prospect of a downward spiral of house prices depresses the value of mortgage-backed securities and therefore the capital and liquidity of financial institutions. Experts say that an additional 10% to 15% decline in house prices is needed to get back to the prebubble level. That decline would double the number of homes with negative equity, raising the total to 40% of all homes with mortgages. The mortgages of five million homeowners would then exceed the value of their homes by 30% or more, which could prompt millions of defaults." (Martin Feldstein, "The Problem is still Falling house Prices", WS Journal)

Get it? Feldstein doesn't give a hoot about the struggling homeowner who is worried-sick about losing his home in foreclosure. He just wants to make sure that the banks get their blood-money back, and the only way they can do that is by putting a floor under housing prices so mortgage-backed securities (MBS) and all the other derivatives that are gunking-up the financial system begin to stabilize. Even though the article is little more than a paean to human greed; it does admit that Paulson's bailout falls short of its objectives. It won't work.

Not only that, but it elevates G-Sax ex-chairman to Finance Czar, with almost unlimited powers to buy whatever toxic "structured" garbage he wants without any real oversight. Who will stop the Treasury Secretary if he decides to waste the taxpayers money on the full range of impaired assets including complex derivatives, collateralized debt obligations (CDOs), low-rated MBS, or even credit default swaps (CDS), which were sold in unregulated trading and which are oftentimes nothing more than side-bets made by speculators with no direct connection to the housing market?

Is that what Congress approved? What if he decides to spend the whole $700 billion buying back mortgage-backed bonds from China and Europe, leaving US banks still underwater? (except for Goldman, of course) It's possible; especially if he thinks China will stop purchasing our debt if we don't back up our worthless bonds with cold hard cash.

This bailout has DISASTER written all over it.

Consider this from a September 29 report in the Washington Post:

“Twenty of the nation's largest financial institutions owned a combined total of $2.3 trillion in mortgages as of June 30. They owned another $1.2 trillion of mortgage-backed securities. And they reported selling another $1.2 trillion in mortgage-related investments on which they retained hundreds of billions of dollars in potential liability, according to filings the firms made with regulatory agencies. The numbers do not include investments derived from mortgages in more complicated ways, such as collateralized debt obligations.” (from Paul Craig Roberts, "Can a Bailout Succeed", counterpunch.org)

So, how does Paulson expect to recapitalize the banks--which are loaded up with $2.4 trillion in mortgage-related investments--when congress's bill allocates a paltry $700 billion for the rescue plan? It's impossible. Just as it is impossible to keep prices artificially high with this kind of government buy-back program. These structured investments were vastly overpriced to begin with due to the fact that the market was hyperinflated with the Fed's low interest credit. As Doug Noland said, "This Credit onslaught fostered huge distortions to the level and pattern of spending throughout the entire economy. It is today impossible both to generate sufficient Credit and to main previous patterns of spending. Economic upheaval and adjustment are today unavoidable." (Doug Noland's Credit Bubble Bulletin)

Yes, and "economic upheaval" leads to political upheaval and blood in the streets. Is that what Bush wants; a chance to deploy his North Com. troops within the United states to put down demonstrations of middle class people fighting for bread crumbs?


In less than 8 years, the Financial Sector Debt tripled, mortgage debt doubled, and financial borrowing rose 75 percent. Why? Was it because the US was producing more goods that the world wanted? Was it because production rose sharply or demand doubled?

No, it was because of asset-inflation; a chimera created by the illusionists at the Federal Reserve and the investment banks. That's the source of the massive credit expansion which is presently collapsing and pushing the world towards another Great Depression. As Henry Liu said in his article “Liquidity Boom and Looming Crisis” in the Asia Times:

"Unlike real physical assets, virtual financial mirages that arise out of thin air can evaporate again into thin air without warning. As inflation picks up, the liquidity boom and asset inflation will draw to a close, leaving a hollowed economy devoid of substance. …A global financial crisis is inevitable”

The man who is most responsible for the current meltdown, Alan Greenspan, even admitted that he spotted the humongous equity bubble early on but refused to do anything about it. Here's a clip from an article by Maestro in the Wall Street Journal:

"The value of equities traded on the world's major stock exchanges has risen to more than $50 trillion, double what it was in 2002. Sharply rising home prices erupted into major housing bubbles world-wide, Japan and Germany (for differing reasons) being the only principal exceptions." ("The Roots of the Mortgage Crisis", Alan Greenspan, Wall Street Journal)

This admission proves Greenspan's culpability. If he knew that stock prices had doubled their value in just 3 years, then he also knew that equities had not risen due to increases in productivity or demand.(market forces) The only reasonable explanation for the asset inflation is the deeply-flawed monetary policies of the Fed. As his own mentor, Milton Friedman famously stated, "Inflation is always and everywhere a monetary phenomenon". Any capable economist would have known that the explosion in housing and equities prices was a sign of uneven inflation. Now the bubble has popped and the tremors are likely to be felt through the global economy.


No one in Congress has the foggiest idea of what is going on in the economy. They're all in La-la Land. The credit markets are paralyzed. The capital-starved banks are dramatically cutting back on lending and making it nearly impossible for consumers to borrow or businesses to even carry out daily operations like payroll. The commercial paper market has slowed to a crawl, forcing cash strapped companies to try and access existing credit lines or sell corporate bonds. Money market rates are soaring but wary depositors keep withdrawing their money putting more pressure on financial institutions. The whole system is wading through quicksand. The banking system is breaking apart before our eyes. The $700 billion "rescue package" will not relieved the situation at all. In fact, the various rates (like Libor, Libor-OIS spread, or the TED spread) which indicate the amount of stress in interbank lending have stayed at record highs signaling huge dislocations in the near future. Are we headed for an October stock market crash?

This is from the Times Online:

"US banks borrowed a record $367.8 billion (£208 billion) a day from the Federal Reserve in the week ended October 1. Data from the US central bank shows how much financial institutions are relying on the Fed in its role as lender of last resort as short-term funding becomes almost impossible to find elsewhere. Banks' discount window borrowings averaged $367.80 billion per day in the week ended October 1, nearly double the previous record daily average of $187.75 billion last week."

$368 billion a day, just to keep the banking system from collapsing. Did they forget to mention that on FOX News?

And, yes; the Fed has started up the printing presses as everyone feared from the beginning. This tidbit appeared on the op-ed page of Saturday's Wall Street Journal:

"Thursday, the Federal Reserve released the latest data on its balance sheet, which has ballooned by some $500 billion to $1.5 trillion in the past month. That may sound alarming, but it beats cutting interest rates across the board to prop up the banks. Those extra Fed assets and liabilities can be worked off as the crisis passes without the long-term inflationary impact of pushing interest rates still further into negative territory. By lending freely in a bank run until they stop running, the Fed can make banks pay for their desire for safety while contributing to financial stability." (Wall Street Journal)

"$1.5 trillion"? But the Fed's balance sheet is only $900 billion. Where is the extra money coming from? Gutenberg, no doubt.

Rep. Peter DeFazio made an impassioned plea on the floor of the House in a failed effort to stop Paulson's bailout. It's a good summary of the bill's shortcomings as well as an indictment of its author:

Rep. Peter DeFazio: "This $700 billion bill is not aimed at the real economy in America. Not one penny of it will go to Main Street. It is aimed solely at the froth on Wall Street, the speculators on Wall Street, the non productive people on Wall Street the certifiably smart , masters of the universe, like Secretary of the Treasury Henry Paulson who created these weapons of financial destruction and now, lit the fuse by claiming there would be worldwide economic collapse if we didn't pass this bill to bail out Wall Street....I believe there are simpler answers. I just came from a meeting with William Isaacs who was head of the FDIC, they deal with banks. Mr. Paulson was a speculator on Wall Street; he deals with speculation. He doesn't understand regulative banking. (What is happening is) there is a tremendous amount of pressure being applied by some very powerful creditors such as the People's Republic of China who own a lot of this junk ($450 billion) and they want their money back or they're threatening us. That is not a good reason for going ahead with this faulty proposal. It does not deal with the underlying problems in housing.

If we don't deal with the foreclosures and the deteriorating values, then, when the values drop another 5 or 10 percent, we're going to find there's another trillion dollars in junk securities out there and we will have already maxed out our credit and more people will have already lost their jobs. People are not spending because they are afraid they will lose their jobs. Their wages haven't increased. They are worried about the real economy, not the Wall Street economy. This bill will not solve the underlying problems.

There is a cheaper, low cost alternative. The FDIC should declare an emergency. That would give them the power to assess the same guarantee to all bank depositors. (According to Isaacs) That would immediately free up all interbank lending. It would immediately bring a flood of foreign deposits into the US because we would be a safe haven for depositors. But Isaacs is a regulator; a regulator with experience who piloted this country out of the savings and loans crisis and saved us a bunch of money. He's not a big-time Wall Street speculator who came down here and got appointed by George Bush with three-quarters of a billion dollars in his pocket from money he had made creating these financial weapons of mass destruction. So, we are listening to the wrong guy here...Don't be stampeded!" (Watch the whole 5 minute video http://www.infowars.com/?p=5056)

DeFazio is exactly right, especially about Paulson. As the New York Times article on Friday, "Agency’s ’04 Rule Let Banks Pile Up New Debt, and Risk", points out, Paulson, as chairman of Goldman Sachs, was one of the leaders of the five investment banks, who duped the SEC into loosening the rules on capital requirements which created the problems we are now facing.

According to the Times:

(The Big 5 investment banks) "wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments."

This is the crux of the matter. Paulson polluted the system by bending the rules for the prudent leveraging of assets so he and his dodgy friends could maximize their profits. It's all about the bottom line. Paulson walked away with hundreds of millions of dollars in a scam that has now put the nation's economic future at risk.

Last year the five Wall Street behemoths had "combined assets of more than $4 trillion". Now, everyone can see that it was all froth created through extreme leveraging that was intentionally ignored by S.E.C. boss Chris Cox. Now the banks are getting clobbered by short-sellers that are going from one financial institution to the next making them prove that they are sufficiently capitalized. They know its all a smokescreen, so they are saying, "Show me the money". One by one, the investment banks have fallen by the wayside. If the SEC was really operating in the public's interest, they'd being thumbing through G-Sax and Morgan Stanley's balance sheets right now making them prove that they're solvent. Instead, Cox has declared a moratorium on short selling while the investment banks have positioned themselves to get multi-million dollar taxpayer treats for their crappy assets. Where's the justice?


As for Paulson's "No Banker Left Behind" boondoggle; it is not an effective way to recapitalize the banks and it doesn't fix the systemic problems in the credit markets. All it does is put the US at greater risk of losing its Triple A rating. If that happens it will be impossible to attract foreign capital which would be the equivalent of detonating a nuclear bomb in every city in the country. This is not the time to be putting more chips on the table like a riverboat gambler. It's time to show judgment and restraint, otherwise this whole thing will blow up. Emergency measures should be thoroughly examined so that liquidity is provided for the credit markets as fast as possible. The markets are already in meltdown-mode.

"Real" economists--not the ideological hacks and loose cannons in the Bush administration--understand the fundamental problems and have generally agreed on a solution. It is a difficult issue, but one that anyone can grasp if they make the effort. Watch this 8 minute video with Nobel Prize winning economist, Joseph Stiglitz, http://www.cnbc.com/id/15840232?video=874100965&play=1

Stiglitz says: "There is a growing consensus among economists that any bail-out based on Paulson's plan won't work. If so, the huge increase in the national debt and the realization that even $700bn is not enough to rescue the US economy will erode confidence further and aggravate its weakness.

Stiglitz's point is proven by the fact that the Dow Jones cratered after reports circulated that the House had passed the bailout. Paulson's fiasco has not calmed the markets at all; in fact, investors have begun to race for the exits. Confidence is draining from the system faster than the deposits in the dwindling money market accounts.

Stiglitz adds:

"This is not a good bill...It is based on "trickle down" economics which says that is you throw enough money at Wall Street and than some of it will go into ways that help the economy, but it is not really doing what needs to be done to recapitalize the banking system, stem the hemorrhaging of foreclosures, and deal with the growing unemployment..... We have seen these problems with banks before we know how to repair them. (Stiglitz worked with the World Bank during many similar crises) So why didn't they use these "tried and proven" methods? They (Paulson) decided that rather than a capital injection; they would try the almost impossible task of buying up all these bad assets, millions of mortgages and complex products, and hope that this will somehow solve the problem. It doesn't fix the big hole in the banks balance sheets, unless they vastly overpay for these products (Mortgage-backed securities)"


This isn't rocket science. Many of the economists who disapproved of the bill have been through this drill before and they know what to do. The way to proceed is to have the US Treasury buy preferred shares in the banks that are not already technically insolvent. (The insolvent banks will have to be unwound by the FDIC) This will give the banks the capital they need to continue operations while protecting the taxpayer who gets an equity share with "upside potential" when the bank starts making profits again.

This is how one goes about recapitalizing the banking system IF that is the real intention. Paulson's phony-baloney operation suggests he has something else up his sleeve; some ulterior motive like rewarding his friends on Wall Street with boatloads of taxpayer money or buying-back the toxic mortgages from foreign investors so they don't stop buying US debt. Here's how Bloomberg's Jonathan Weil sums it up:


"If the government wants to save dying banks before they take others down with them, it should choose the clean and direct path: Inject capital into them. Take ownership stakes in return. And, where that's not feasible, seize them and sell their assets in an orderly way, just as the Resolution Trust Corp. did after the 1980s savings-and-loan crisis.

Infusing capital directly, though, was too simple for Paulson. It lacked subterfuge. He decided the way to save the financial system from the evils of structured finance was through more structured finance.
Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices. This would have let other banks create phony capital by writing up the values of similar assets on their own balance sheets, using Treasury's prices as their guide. Small Wonder.

In short, Paulson's plan was one part robbery (with the banks doing the robbing) and one part accounting sleight of hand. No wonder House members rejected it.(at first)
If Paulson or congressional leaders devise a Plan B, they should look to the example of Fortis, Belgium's biggest financial-services company. This week, the governments of Belgium, the Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis. In exchange, they got ownership of almost half its banking business.

That's how a government intervention is supposed to work. The company gets fresh capital, which has the added benefit of not being fake. The buyers get equity. Legacy shareholders get slammed with dilution. And if the company recovers, the government can sell shares to the public later, maybe even at a profit." (Jonathan Weil, Bloomberg News)


Direct capital injections is the best way to recapitalize the banks and save the taxpayer money. Paulson's plan is just more flim-flam intended to reflate the value of sketchy assets. So far, investors and taxpayers are equally skeptical about the bill's prospects. Interbank lending remains clogged and the VIX, the "fear gauge", is still rising to record levels. Paulson hasn't fooled anyone.

This bill does nothing to reduce foreclosures, reassure the markets, decrease unemployment, unfreeze the bond market, increase consumer spending, or put a floor under the stumbling dollar. All it does is hand out a few ripe plums to Paulson's buddies on Wall Street while (temporarily) soothing the frayed nerves of China's Finance Minister. That doesn't mean that China will be increasing its stash of US Treasuries or other US financial assets anytime soon. As the saying goes: "Fool me once, shame on you. Fool me twice, ..."

Worst of all, Paulson's bailout bill wastes precious resources on a plan that is considerably wide of the mark. These problems have to be dealt with quickly to avert a larger catastrophe. Here's how Nouriel Roubini sees it:

"It is now clear that the US financial system - and now even the system of financing of the corporate sector - is now in cardiac arrest and at a risk of a systemic financial meltdown. I don’t use these words lightly...The Commercial paper market is shut down...Corporations have no access to long or short term credit markets. Brokers are increasingly not dealing with each other. The interbank market is seizing up...This cannot continue for more than a few days. It is the economic equivalent to cardiac arrest." (Nouriel Roubini's Global EconoMonitor)

The levies have already broken, and the water is flooding into the city. The Federal Reserve will be forced to act. Expect an emergency rate cut of 50 basis points or more in the next 10 days coordinated with cuts in the other G-7 countries. Also, expect another bailout by the time Obama or McCain take office. As the French premier, Francois Fillon, warned on Saturday the world is “on the edge of the abyss”.