- The Tyranny Of The Socially Self-Righteous – A Coercive Green New Deal
Authored by Richard Ebeling via The American Institute for Economic Research,
Social and economic crises, real and imagined, often seem to bring out the most wrongheaded thinking in matters of government policy. Following the 2008 financial crisis and with the fear of “global warming,” there has been a revival in the case for “democratic” socialism. But now its proponents are “out of the closet” with a clear cut and explicit call for forcefully imposed, authoritarian central planning of the world.
John Feffer is affiliated with the Washington, D.C.–based Institute for Policy Studies, a “progressive” think tank that has never seen a government command or control, regulation or redistribution that they seemingly have not liked – as long as it reflects their version of preferred social engineering compared to anyone else’s, of course. He has recently made, “The Case for a Coerced Green New Deal,” on the website of The Nation magazine (July 30, 2019).
The world, he warns, has a window of perhaps 12 years to transform the way people work and live, or its curtains for the planet. Belching out the carbon dioxide by-product of using fossil fuels, the atmosphere is heating up with feared disastrous consequences for all living things on earth. For decades, people have talked and talked and talked about the dangers of global warming; but the time for talk has reached its end, Mr. Feffer declares. It’s time for concerted, planned and comprehensive action of the type proposed in the Green New Deal legislation submitted to Congress earlier in 2019.
China as a Model for a Future Eco-Authoritarianism
He compares two lifeboats lost at sea, whose ship survivors are facing doom if they do not reach the safety of land. On one of the lifeboats, the occupants form committees to discuss and debate which direction to go and how best to manage the meager supplies they have on board. All their jabbering eats up precious time and limited resources, with no definitive decision about what to do. Here is seen the dilemma and dysfunction of indecisive democratic decision-making.
On the other lifeboat, after some debate and discussion, a “leader” emerges and takes charge. He assigns tasks to the people in the lifeboat, he decides on a course for the boat to follow (hopefully) to reach land, and organizes how best to ration out the available supplies for the lifeboat occupants until safety has been reached.
As far as John Feffer is concerned, the time for the delays and indecisiveness of the democratic talking shop of the first lifeboat type is now passed. America and the world must follow the authoritarian model of the second lifeboat. He greatly admires the example of modern China under President Xi Jinping. Under his clear and determined leadership, China knows where it is going, and why. Government directs and plans the overall direction of Chinese society and the economy. The global dimension to China’s role in the world is seen in its Belt and Road project to link more of the world to China’s future development. And the Chinese government has even publicly embraced the idea of an environmentally friendly future for China. (See my article, “Economic Armaments and China’s Global Ambitions”.)
So is Mr. Feffer ready to give his oath of allegiance to a world with Chinese characteristics? Alas, no. President Xi shows determined and forthright leadership, but he is, well, sort of like Donald Trump with the goal of “making China great again.” Besides, while talking clean air, China keeps building coal-burning furnaces. And the Belt and Road strategy for establishing China’s place in the global sun is not geared to bend other countries to fighting global warming, but to serve China’s national interests.
If Not China, Then America’s Green New Deal
Furthermore, Mr. Feffer declares that the problem is that China, well, is not “eco-authoritarian” enough to take on the mantle of “Climate Leviathan.” As he put is, “China is actually not Leviathan enough.” There are too many competing government ministries and regional and business interests for the sufficient and more centralized “stringent standards” needed for a China to compel the world in the direction he wants President Xi to take it. He does not say it, but we could imagine that in a sleep time dream, Mr. Feffer might very well wish for the reincarnation of an environmentally devoted Chairman Mao who would show the leadership qualities not to brook disagreement, dissent or decentralization to get in the way of a unified and fully centralized plan to save mankind from the current heat wave.
Turning away from his wistful wish that China would lead the way, Mr. Feffer sees the national populisms cropping up in various countries to have the right sentiments to do away with the greedy capitalist exploitation from which the world suffers. But they are too nationalistically focused and too often against fighting climate change as he sees its danger. Of course, there is always the hope that the United Nations could play the role of global central planner, but the UN is bogged down in the dead end of talking head committees and unenforceable resolutions.
But don’t completely lose a positive attitude, because Mr. Feffer sees salvation in the Green New Deal (GND):
To achieve the GND’s global goal of net-zero carbon emissions by 2050, the United States would have to lead the way with its own eco-version of Belt and Road initiative, a massive infrastructure development project that would involve high-speed rail, the energy retrofitting of buildings, and huge investments in renewable energy (as well as the creation of staggering numbers of jobs) . . .
Think of it as a potential future Apollo-11-type green moonshot; a focused mobilization of investment, construction, and administrative resolve to achieve what has hitherto been considered impossible . . .
To push through a Green New Deal in the United States, for instance, a non-Republican Congress would have to coerce a range of powerful interests [in the private sector] to fall into line. And for any global pact that implements something similar, an international authority like the UN would have to coerce recalcitrant or non-compliant countries to do the same.
Looking at things through Mr. Feffer’s eyes, we can see America as the focal point and enforcer of a Green New Deal United States of the World. All of humanity confined within and coerced to conform to one overarching environmental central plan from which no corner of the Earth would be exempt or could be resistant. Maybe John Feffer has sugarplum dreams dancing in his head of himself whispering in the ear of the One-World Fuhrer – oh, I mean democratic socialist leader. All hail the anti-global warming “progressive” Caesar! (See my articles, “The Green New Dealers and the New Socialism” and “The Nightmare Fairyland of the Green New Dealers”.”
Mr. Feffer admits “coercion” is “not exactly a sexy campaign slogan.” But unless it’s his environmentally friendly future is not imposed through the force of concentrated and imposed government paternalistic planning in the form of the Green New Deal, some other form of authoritarianism less attractive than his will be humanity’s destiny. Oh, no, “progressivism’s” collectivist evil twin – a Donald Trump type!
Un-Democratic Street Violence for a Green New Deal
So how does Mr. Feffer propose to bring this change about in the current climate of democratic discourse and disagreement that only frustrates his desire for strict and centralized planning through authoritarian controls that many people in American society and around the world are not willing to accept and obey?
It is necessary to go outside of the polite and legitimate avenues of political change, he says. Determined and radical cadres of anti-global warming warriors must take to the streets, organize mass strikes, and shut down sectors of the economy that are viewed as the centers of opposition to a Green New Deal future. In Mr. Feffer’s own words:
Major change of this sort could only come from a far more basic form of democracy: people in the streets engaged in actions like school strikes and coal mine blockades. This is the kind of pressure that progressive legislators could then use to push through a mutually agreed-upon Green New Deal capable of building a powerful administrative force that might convince or coerce everyone into preserving the global commons.
Let’s be clear: Mr. Feffer is so certain that he is right about the dimensions and dangers of presumed global warming that he is willing to see the implementation of thuggery and mob action. In his mind, the time for persuasion is over. It is time to disrupt society, halt some of the wheels of production and industry through violence (that is what “blockades” mean), and pressure the political change that many if not most in the country may have no belief in or desire for.
All Collectivisms are Premised on Coercion
Let us also be clear: These are the same tactics used in the past by Nazis and communists to disrupt society, shut down opposition and resistance, and compel the wider society to acquiesce and conform to the demands of a minority determined to introduce their own collectivist conception of desired social engineering on everyone one else.
No doubt, at this point Mr. Feffer and others like him would accuse me of “red-baiting” and “below the belt” name calling by linking them with anything to do with the Nazis. What is common to all of them, the Nazi and communist tactics of the past in coming to power and Mr. Feffer’s call for violent and disruptive direct action, is the premise of the legitimacy of non-peaceful and non-persuading methods of bringing about political and social change, regardless of the ideology guiding it.
The method itself is a broader ideological presumption: that the threat or the use of force and violence are justified in the arena of human relationships in the name of remaking people and society into different forms, even when many or a large number of the human objects of such remaking disagree with and oppose being remolded and straight-jacketed into such social patterns not of their own choice and desire.
The Tyranny of the Socially Self-Righteous
We are faced with the tyranny of the socially self-righteous. The only difference between such righteous ideologues is the content and purpose the imposed economic dictatorship is to serve. They may fiercely fight each other for control of the government apparatus of coercion, but there is one common characteristic of all of them: they oppose and detest free market liberalism. Nothing is worse than the opponent of all forms of collectivism, because if such a liberalism were to win, the means to politically compel other people in act otherwise than they would peacefully agree to would be taken away. And nothing is worse for all collectivists than having the power to use force on others in society taken out of their hands.
It should not be too surprising that someone like Mr. Feffer, who is so convinced that he knows how the rest of humanity should live, work, and interact in the name of “saving the planet,” should find a model for the authoritarian Leviathan he craves in the boundaries of modern China. Let us not forget, China is a one-party political state imposed by the Chinese Communist Party under Chairman Mao’s firm leadership after the Second World War.
Let us not forget that President Xi, good communist that, no doubt, he is, follows in the Great Helmsman’s footsteps in arresting, imprisoning and executing dissidents of any and all types; as well as throwing perhaps up to a million members of an ethnic minority group into “re-education” camps for opposing the political dogma of the Chinese state. President Xi and his government assure “consensus” through censorship, surveillance, and the neighborhood spying system that he inherited from Chairman Mao.
With comprehensive government planning comes complete political control over virtually every facet of people’s lives. How could it be otherwise, when what is produced, as well as where and how, is dictated by the government? When every job and employment opportunity is directly or indirectly connected with serving and obeying the direction set by the government’s central plan?
But, but, but . . . this is not what I would plan, not what I would impose, it’s not what I would do, no doubt, Mr. Feffer would declare with a tone of being offended by any such suggestion. But it is, whether he believes and admits it or not. He uses the word “coercion” without hesitation or embarrassment. He knows he is right, the future of the world is at stake, and “something has to be done,” through government enforcement of the Green New Deal central plan.
The Fallacy of “Scientific” Predictions to Justify Planning
Mr. Feffer might also say, but this a real danger. This is “science” telling us that something has to be done! Oh, you mean like the “real science” that guided many in the early decades of the 20th century, including many of the leading American “progressives” during that time, that eugenics taught us the superiorities and inferiorities of different racial groups, and the need for “race hygiene” through forced sterilization of those making up biologically and socially undesirable groups? (See my review of, “The Nazi Connection: Eugenics, American Racism, and German National Socialism”.)
Or the type of frequent predictions over the last one hundred years that the world was going to run out of fossil fuels, including such forecasts in the 1970s and 1980s? Or the famous wager between Paul Ehrlich, who in his 1968 book, The Population Bomb believed that by 1990s more of the world’s population would be starving because of insufficient food and resource supplies, and Julian Simon, who said the opposite would be the case in the decades leading up to the 21st century? The general “scientific” consensus was that Ehrlich was right; Simon won the bet.
The funny thing about predicted “scientific” trends in both the natural and social sciences is that they often stop at some point, and even go in totally different directions. John Maynard Keynes, in a biographical essay on the 19th century economist, William Stanley Jevons, recounts that Jevons – a scientifically-oriented economist who was persuaded that Sunspots were the primary cause for the business cycle – was so certain that all the forests of Great Britain would soon be gone, that he hoarded huge amounts of paper bags; decades after his death, his relatives were still using them up.
The socially and ideologically self-righteous are, equally, so certain that they know the shape-of-things-to-come, unless they are in charge to set the world right, that they have neither hesitation or patience with any delay in their having the power and authority to command the changes that they believe are essential to save some part or even all of humanity from its short-sighted, ignorant, and uninformed ways.
The Costs of a Green New Deal
Mr. Feffer, like many of the proponents of the Green New Deal talk about all the nice things they imagine will be forthcoming from this implementation of central planning to recreate how we all live and work. What they too often shunt aside is what it will all cost, besides the loss of many of our individual personal freedoms to manage and direct our own lives, and interact with others as we peacefully and honestly would desire to.
Even the “conservative” estimates run into the tens of trillions of dollars looking over the next several decades. The Green New Dealers just wave this all away. The rich “one-percent” will pay, or corporations will have more of their earnings siphoned off to cover the expenses. The fact is, the bulk of those in society will have to financially bear the burdens of the Green New Deal, because “the rich” do not possess the means to pay for all the central planning dreams in Mr. Peffer’s head.
On this point, it is perhaps appropriate to quote from Edwin L. Godkin (1831-1902), a generally classical liberal journalist who was the founder and long-time first editor of The Nation magazine (1865- 1899), the publication in which Mr. Feffer has recently made his case for coerced Green New Deal central planning.
In his book, Modern Problems of Democracy (1896), Mr. Godkin asked “Who Will Pay the Bills of Socialism” (pp. 225-248), and reminded his readers that the government has no sources of money to do all those wonderful things other than to tax most of the members of society, and that there is a widely held delusion on the part of the socialist planners that there are waiting in the wings all-knowing and wise social engineers who possess the ability to set it all right for all of us. As Mr. Godkin expressed it:
The State has no money which it does not wring from the hard earnings of sorely pressed people . . . The notion that there is a reservoir of wealth somewhere, either in the possession of the Government or the rich, which might be made to diffuse “plenty through a smiling land,” is a delusion which nearly all the writings of the ethical [“progressive”] economists tend to spread, and it is probably the most mischievous delusion which has ever taken hold on the popular mind.
It affects indirectly large numbers of persons, who, if it were presented to them boldly and without drapery, would probably repudiate it. But it steals into their brains through sermons, speeches, pamphlets, Fabian essays, and Bellamy Utopias, and disposes them, on humanitarian grounds, to great public extravagances, in buildings, in relief work, in pensions, in schools, in high State wages, and philanthropic undertakings which promise at no distant day to land the modem world in bankruptcy . . .
It is diffusing through the working class of all countries, also, more and more every day, not only envy and hatred of the rich, but an increasing disinclination to steady industry, and an increasing disposition to rely on politics for the bettering of their condition.
Next in importance to the delusion that there is somewhere a great reservoir of wealth, which can still be drawn on for the general good, is the delusion that there is somewhere a reservoir of wisdom still untapped which can be drawn on for the execution of a new law of distribution. Not only is this current, but some of the philosophers have got into their heads that if our politicians had more money to spend, and more places to bestow, they would become purer and nobler and more public-spirited.
This theory is so much opposed to the experience of the human race that we are hardly more called on to argue against it than against the assertion that there will be no winter next year. We must take it for granted that what is meant is that there is somewhere a class of men whose services are now lost to the world, who would come into the field for the work of production and distribution under the new regime, and display a talent and discretion and judgment, which now cannot be had either for love or money, for the ordinary work of the world.
Well, there is no sign of such men at present. Nobody knows of their existence. The opportunities for display of their talents even now are immense, and yet they do not appear. Nobody says he has ever seen them. Nobody pretends that they could be found, except the ethical [“progressive”] economists, and they never mention their names or habitat. In fact, as in Bellamy’s case, the writers of the social romances are compelled to make them unnecessary by predicting a change in human nature, which will make us all wise, just, industrious, and self- denying.
If only the current senior editors of The Nation magazine were to take heed to the criticisms and questions that almost 125 years ago were already made by their own founding editor, Edwin Godkin, about the disinformation and delusions of the type of socialist thinking underlying the idea of a Green New Deal, we might have been saved the misplaced and misguided thinking of John Feffer, with his dream of coercing mankind into his fairyland of a new climate change-free world.
- Mapping Which States Allow Military-Style Weapons
In Texas and Ohio where two mass shootings occurred last weekend, military-style assault rifles and large capacity magazines are legal.
In fact, as Statista’s Niall McCarthy notes, in both shootings, the weapons used were acquired legally.
The vast majority of U.S. states do not restrict the sale of military-style weapons and only six states and the District of Columbia have banned them, according to the New York Times.
You will find more infographics at Statista
When it comes to large capacity magazines capable of holding up to 100 rounds, only eight states and the District of Columbia have restrictions in place.
In the states where the two mass shootings occurred, carrying rifles in public is also allowed. Once again, a mere six states and D.C. prohibit openly carrying rifles in public.
- Washington's Utterly Failed Diplomacy
Via The Strategic Culture Foundation,
There seems no longer any attempt, or semblance, of seeking diplomacy by Washington. Sanctions and aggression are wielded with reckless abandon. Russia, China, and even America’s own supposed European allies are subject to sanctions by Washington in a high-handed dismissal of any mutual dialogue to resolve alleged grievances.
US President Donald Trump has evolved a certain shrill maximalist attitude in international relations. It can be coined thus: my way or no way.
One recent example is the imposition of sanctions on Iran’s Foreign Minister Mohammad Javad Zarif. That indicates the US cutting off any possibility of a negotiated de-escalation of tensions in the Persian Gulf.
Iran’s Zarif revealed this week that when he was on a diplomatic visit to the US last month he was told by officials that he was expected at the White House for a meeting with President Trump. If Zarif baulked at the “offer” then he would be put on a sanctions list, he was allegedly informed. The Iranian top diplomat declined under the circumstances of apparent coercion, only to find that he was indeed later slapped with sanctions. What kind of American diplomacy is that? Sounds like a mafia-type offer not to refuse.
This heavy-handed approach to “diplomacy” suggests that there is in fact no diplomacy emanating from Washington. President Trump tweeted last week that his administration was “running out of options” in dealing with Iran over mounting tensions in the Persian Gulf. It seems the White House is “offering” faux attempts for negotiation, while all the while mounting military options to strike at Iran.
Another example of failed diplomacy is the resignation this week of US ambassador to Russia, John Huntsman. He quit his post partly out of frustration over the futility of his diplomatic duty to facilitate bilateral dialogue with Moscow. Huntsman’s job became untenable due to the manic anti-Russian animus now embedded in Washington, whereby any attempted dialogue would be portrayed as some kind of “treasonous act”.
Still another example of US repudiation of diplomacy is Trump’s executive order this week to impose a total trade embargo on Venezuela. The South American country is effectively being starved into submission to accept Washington’s demand that elected President Nicolas Maduro stand down, according to US dictate, in order to allow a US-backed dubious opposition politician take the reins of power in Caracas.
These examples, among many more, demonstrate that Washington has no intention of seeking diplomatic discourse with other nations, and is fully intent on issuing dictates – or else; in order to achieve its geopolitical aims.
The appalling and dangerous thing is that Washington is operating on a basis of zero-sum ultimatum. The premises for its dictates are invariably unsubstantiated or irrational. Russia is treated like a pariah state over outlandish allegations of interference in US elections; Iran is treated like a pariah state over hollow claims about Iranian aggression; Venezuela is treated like a pariah state over allegations against an elected president. China is vilified over claims it is a “currency manipulator”. Europe is allegedly “taking advantage” of US trade terms. And so on, and so on. It is tyranny run amok.
The standard of international law and norms of diplomacy are being trashed in the most willful and wanton ways, purely on the basis of American whim and self-serving agenda for domination.
This is an extremely dangerous global situation whereby American political bias, and irrational bias to boot, is being made the standard instead of principles of international law and sovereignty of nations. There is absolutely no diplomacy. Only the writ of American demands for obeisance to Washington’s irrational dictate to satisfy its demands for hegemony.
There seems no other way to describe the present global lawlessness of American presumed power and self-righteousness other than to call it a form of rogue-state fascism on steroids.
When diplomacy, negotiations, dialogue and respect for sovereignty are so utterly disrespected by Washington – whose only response is sanctions and military aggression – then we should know that the present description of American power is not hyperbole. It is a lamentable description of reality whereby American diplomacy is no longer extant. It is becoming way past the possibility of conducting normal relations with this paranoid, lawless rogue regime. A nuclear rogue state, too, capable of destroying the planet on a whim or paranoid rush to its sick brain.
Can American citizens rein in such an errant, irrational regime? Time will tell. But one thing seems for sure, world peace is continually endangered by the regime in Washington which is operating in its own realm of fantasy and criminal megalomania.
Of course US diplomacy is an utter failure. Because in the twisted warmongering megalomania of Washington, diplomacy seems to have become totally irrelevant. Is that not fascism?
- Great Migration: Wealthy Gen X-ers Are Moving To These States
Baby boomers, ages 55-75, have long been migrating to Southern states as they enter retirement years. Now a new study shows wealthy Generation X, ages 40-54, are doing much of the same.
SmartAsset.com, a financial technology company that operates a website that offers financial advice, published a new study reveals how wealthy Gen X-ers are moving to Southern states.
According to the study, six of the top ten states where wealthy Gen X-ers are moving to the South, with Washington as the outlier.
Northeast has become widely unpopular with wealthy Gen X-ers. Most of the outflow is coming from Northeast states, four of which are New Jersey, Massachusetts, Pennsylvania, and New York.
To determine the relocation of rich Gen X-ers, SmartAsset examined inflow and outflow data of people ages 35 to 54 with adjusted gross incomes of at least $100,000.
Top 5 States For Inflows:
1. Florida
More rich Generation Xers are headed to Florida than to any other state in our study. From 2015 to 2016, the Sunshine State welcomed 20,208 people between the ages of 35 and 54 who earn $100,000 and above. Our data shows that 11,110 moved out of the state within that same time period. This resulted in a total net inflow of 9,098 Generation Xers to Florida.
2. Texas
Texas ranks as the second most popular spot to which wealthy Gen Xers are moving. Though Texas had a lower net inflow than Florida, at 22,682 the total number of wealthy Generation Xers who moved into Texas was higher than the number who moved into Florida. Our data shows that 16,504 people between the ages 35 and 54 with adjusted gross incomes of $100,000 and above left Texas during that time span, resulting in a net inflow of 6,178 people.
3. North Carolina
North Carolina ranks third on our list of states where rich Generation Xers are moving, with a net inflow of 2,622 people from 2015 to 2016, which is roughly 29% of the net inflow of our top-ranking state, Florida. In total, 10,299 wealthy people aged 35 to 54 moved to the Tar Heel State during that time span, and 7,677 moved away.
4. Washington
Washington State is the only state in the top five that’s not in the South. The Pacific Northwestern state welcomed an inflow of 8,905 rich Gen Xers from 2015 to 2016. During that time period, 6,591 individuals between the ages of 35 and 54 moved out of the state. This resulted in a net inflow of 2,314 people, making Washington State the fourth-most popular state to which wealthy Generation Xers are moving.
5. South Carolina
With a net inflow of almost 500 people less than its northern neighbor, South Carolina saw a net inflow of 2,142 rich Generation Xers from 2015 to 2016. According to our data, 5,291 people moved into the state. Another 3,149 individuals between the ages of 35-54 and with an AGI of at least $100,000 moved away.
Here’s the complete list:
SmartAsset didn’t discuss the cause behind the Gen-Xer exodus from the Northeast. We think it could have something to do with the removal of state and local tax (SALT) deductions, disproportionately affecting high-tax, or Democrat, states (in the Northeast).
This has direct implications on regional housing dynamics as property tax also falls under the cap. Capping the deduction will mean reduced tax incentives for homeownership. Indirectly, households will want to live in lower-income tax states (in the South).
The chart below from Bank of America shows a heat map for average amount claimed under SALT deductions, with redder states farther above $10k and greener states below. The Northeast and West coast – traditionally liberal bastions and, according to some, explicitly targeted by the Trump administration – generally have higher average amounts and will feel most of the pain. Meanwhile, the West and South have lower average amounts and so those housing markets will be less impacted.
And so it seems SALT deductions could be responsible for large outflows of wealthy Gen X-ers in the Northeast to the South. This trend will likely gain momentum in the coming decade. And by 2040, it will be time for millennials to start their great migration during their retirement years.
- Two Tiered System Of Justice: Top FBI Officials Escape Prosecution, While Others Pay Heavy Price
All we need is what we already know.
And what we know is that top senior officials at the FBI, thus far, have escaped any prosecution for lying and leaking.
It wasn’t the same for others.
Just look at Army Lt. Gen. Michael Flynn, who is still fighting for justice against a bureaucracy that didn’t want him snooping around to discover how those in senior positions of power in the intelligence community and law enforcement were breaking the law and the spine of the U.S. constitution with unwarranted unmaskings, spying and weaponization of the intelligence apparatus.
Flynn was targeted by former Obama Administration officials from the very beginning. Remember how former FBI Director James Comey laughed publicly about how he set up the former National Security Advisor. He also contends it wouldn’t have happened to another administration:
Comey admitted he didn’t go through the White House counsel’s office, but arranged the meeting with FBI Special Agents Joe Pientka and Peter Strzok directly with Flynn. He said it was not standard practice. He said it was “something I probably wouldn’t have done or maybe gotten away with in a more … organized administration.”
Let’s not forget that both Strzok and Pientka did not believe Flynn was lying when he spoke to them about the conversation he had with former Russian Ambassador Sergey Kislyak. In fact, they had the record of the conversation but didn’t tell Flynn they had it when asking him to recall the conversation. Comey even admitted to the fact that the agents didn’t believe Flynn was lying but it didn’t matter. The power of the Special Counsel prosecutors, the threat against dragging his son into the mess and their deep purse was enough to push Flynn to plead guilty.
Comey, however, didn’t need to be pushed. He openly admitted to leaking his confidential memos, of which some contained classified information, to the media. He admitted he did it through a close friend with the intention of getting his other friend former Deputy Attorney General Rod Rosenstein to call for a Special Counsel against President Trump. Comey knew full well the information regarding conspiracy with Russia was unverified garbage and he knew Trump had every right to fire him under Article 2 of the constitution. It didn’t matter.
Comey obviously felt protected. He wasn’t worried about prosecution because those that would hold him accountable were already on his side and they wanted to target Trump. He also had lap dogs in the media spewing every lie he, along with his cohorts, to decided to put out and no one questioning their intentions or actions. It is a perfect storm.
I guess this is why so many people were stunned when DOJ attorney General William Barrdeclined prosecution of Comey for leaking. And although sources have told this reporter that the prosecution would not have been as solid as what the information being collected by appointed Connecticut Attorney John Durham, who is investigating the matter, I’m still not certain that I believe it. I, like so many others, have become a little jaded over the developments.
I said, a little, because I haven’t given up all hope. I know America cannot afford to have a two-tiered system of justice and I believe in Barr, for now.
Liberty does not exist in a banana republic, where there is one set of rules for the political elite and another for its citizens. It would be the beginning of the destruction of the foundation our nation was built on: The Constitution.
If we no longer believe in what it says, what will it mean? It will mean nothing and our nation will no longer be that beacon of light for so many around the world that live in unjust societies.
But it’s hard to believe when we see what happened with former Deputy Director Andrew McCabe, who was referred to the Department of Justice by Inspector General Michael Horowitz in 2018, for leaking information to the media and lying multiple times to investigators. Now it appears McCabe knew early on after Horowitz’s referred him that the DOJ, then under Attorney General Jeff Sessions, would not pursue charges against him. Sessions also failed to pursue charges against former Deputy Assistant Director of International Operations Bryn Paarmann, who leaked information related to the Russia investigation that was sealed in court documents, as first reported on SaraACarter.com.
No wonder McCabe is so emboldened. He’s been all over MSNBC and other cable news outlets recently pushing more and more lies about President Trump and now snobbishly pushing a lawsuit against the DOJ and FBI to reinstate him.
As an American, I’m more than disturbed -I’m sickened – by their uncanny ability to skirt the law and how their friends in high ranking positions are working diligently still to protect them.
If it wasn’t for Judicial Watch’s tenacity and perseverance to obtain documents through the Freedom of Information Act process we wouldn’t have the whole story. Tom Fitton, the president of Judicial Watch, discussed at length this past week that the records reveal that 14 referrals of FBI employees were given to the bureau’s internal Office of Professional Responsibility (OPR) for the unauthorized disclosure of sensitive or classified information. Only four of those people were reprimanded. They, however, did not get the same treatment as Flynn, whose fighting in the courts for his freedom and spent millions of dollars defending himself against the deep purse of the government.
And Judicial Watch has not stopped fighting. The group is going to court for McCabe’s internal texts. There’s a reason why the senior brass at the FBI don’t want those public and has been doing everything to keep those texts from going public.
Just read this section below from one of the latest trove of documents obtained by the watchdog group: It describes exactly when and how McCabe got away with lying and leaking.
“SES [Senior Executive Service] employee released the FBI Sensitive information to a reporter and lacked candor not under oath and under oath when questioned about it, in violation of Offense Codes 4.10 (Unauthorized Disclosure – Sensitive Information); 2.5 (Lack of Candor- No Oath); and 2.6 (Lack of Candor – Under Oath).
The proposed decision in this matter was made by the AD, OPR. The final decision was made by Attorney General Jeff Sessions. DOK retains final decision-making authority for certain high-ranking FBI officials.
MITIGATION: Employee as (redacted) years of FBI service and a remarkable performance record. Employee was facing unprecedented challengers and pressures.
AGGRAVATION: Employee held an extremely high position and was expected to comport himself with the utmost integrity. Lack of candor is incompatible with the FBI’s Core Values.
FINAL ACTION(S): OPR PROPOSED DECISION Proposed DISMISSAL
OPR FINAL DECISION: DISMISSAL
McCabe was fired from the FBI on March 16, 2018, for leaking to the media and lacking “candor.” Then-U.S. Attorney General Jeff Sessions in a statement said:
After an extensive and fair investigation and according to Department of Justice procedure, the Department’s Office of the Inspector General (OIG) provided its report on allegations of misconduct by Andrew McCabe to the FBI’s Office of Professional Responsibility (OPR).
The FBI’s OPR then reviewed the report and underlying documents and issued a disciplinary proposal recommending the dismissal of Mr. McCabe. Both the OIG and FBI OPR reports concluded that Mr. McCabe had made an unauthorized disclosure to the news media and lacked candor − including under oath − on multiple occasions.”
We Should Demand Justice
Americans need to demand that justice be equal. We need to keep fighting for the truth and hold those in positions accountable. Remember they work for us. We pay them with our taxes and they are only allowed to do what we allow them to do.
We are not a banana republic. We are a nation of exceptional people with a document so precious that we are the envy of other nations and people.
We should not give that away to hungry political beasts bent on power because in the end, I’ve said this before, we will only have ourselves to blame.
- JPMorgan: The Fed Will Need To Restart QE Soon
Earlier this week we received an unexpected email from a researcher at the Federal Reserve with an “urgent request” to provide the US central bank with details on an analysis we presented on Tuesday, according to which the Fed was about to be hit with a major liquidity drain as the Treasury, unshackled from the limits of debt ceiling constraints, set off to replenish its cash balance from roughly $130 billion to $350 billion over the next two months, as disclosed recently by the US Treasury.
The reason why the Fed reached out is because as we explained in “Forget China, The Fed Has A Much Bigger Problem On Its Hands“, according to an analysis from Bank of America, the Fed may be forced to launch Quantitative Easing as soon as Q4 to provide the market with the much needed liquidity, or else suffer the consequences of a major liquidity shortage. To wit, in describing the various steps the Fed can engage in, this is what the BofA strategist said:
Outright QE: after OMO dealer capacity is exhausted the Fed may need to start permanently expanding its balance sheet. The Fed would likely describe this as offsetting “bank reserve demand and growth in other non-reserve liabilities”. Regardless, it would represent the Fed permanently buying USTs outright to maintain control of funding markets well above the ZLB.
Apparently this is something that the Fed, which until recently was engaging in additional liquidity draining via QT, was unaware about, and since a return of QE – something that Trump has yet to demand – would cause all sorts of political problems and demand lengthy congressional explanations, the BofA analysis was one of the various factors cited for the dramatic rebound in the market starting on Tuesday, which promptly transformed into the strongest 3-day rally of the year.
Well, it’s no longer just Bank of America that believes the Fed may be forced to pursue QE to replenish the sudden drain in interbank liquidity that would accompany such a dramatic cash rebuild by the Treasury.
In the latest Flows and Liquidity report from JPMorgan’s Nikolaos Panigirtzoglou published late on Friday, the strategist analyzes various components of market liquidity and concludes that “liquidity will likely continue to tighten gradually in the US banking system even after the Fed has stopped its balance sheet shrinkage.”
Specifically, the JPM analysis looks at the bank’s model of US excess money supply, which derives a medium-term money demand target based on 1) the transaction motive, which relates money to nominal incomes and 2) the portfolio motive, which relates money to the nominal values of other assets such as bonds and equities, and 3) the precautionary motive, proxied by US policy uncertainty, whereby agents wish to hold more cash during periods of elevated risk perceptions.
This model suggests that this broad US excess liquidity evaporated during the course of 2018 and shifted further into negative or contractionary territory this year.
The last time this measure of US excess money supply had shifted into negative territory was during the euro debt crisis years of 2010- 2012, which prompted the Fed to launch QE2 (as well as Operation Twist and QE3) and also eventually resulted in the ECB violating Article 123 of the Maastricht treat, prohibiting monetary financing of states, and led to Draghi launching his own QE.
As Panigirtzoglou further explains, the contraction in JPM’s measure of broad liquidity this year has been mostly more driven by a rise in demand and less by a fall in money supply (relative to US GDP). In particular the main drivers have been the rise in uncertainty and the rise in the stock of US financial assets, both of which depress excess money supply via boosting demand.
And while the full analysis focuses on various minutae beyond the scope of this article, one of the things the JPM strategist focuses on was the market’s worries about bank liquidity which have intensified over the past year as the Fed funds rate approached the Interest On Excess Reserves (IOER). This resulted in the Fed twice, in June and December 2018, raising the IOER rate by 20bp rather than the 25bp increase in the Fed funds corridor, and in April 2019 cutting IOER by a further 5bp.
The above chart confirms that starting in early 2019, excess reserves in the banking system shrank to precarious levels, and some needed to resort to the Fed funds market to meet their liquidity needs as reserves are not uniformly distributed across the banking system; some or all of these banks ended up paying rates than are even higher than the IOER. As the chart above shows, this appears to be happening since the end of last year. On December 19th the Fed funds volume-weighted 75% percentile rose above the IOER rate for the first time. In other words, a quarter of the Fed funds market volume is trading above the IOER rate at the time. Since then this tightening has broadened with the median Fed funds rate moving above the IOER in March this year and fixing between 4-6bp above IOER persistently since then.
What is causing this demonstrated shrinkage in liquidity? The key driver is, of course, quantitative tightening, or the shrinking of the Fed’s balance sheet (which the Fed announced it would halt on July 31). The reserve balances at the Fed began to decline well before the Fed started shrinking its balance sheet at the end of 2017. Figure 11 shows that these excess reserves by US depository institutions (in excess of regulatory minimum reserve requirements) peaked almost five years ago at $2.7tr. They had declined to $2.1tr by September 2017 just before the Fed embarked on its balance sheet normalization journey. They declined by another $600bn since then to $1.5tr currently in line with the Fed’s balance sheet shrinkage.
As JPM explains, that earlier reserve depletion has been the result of mostly two factors: the fast growth of banknotes in circulation from $1.2tr in 2014 to $1.7tr currently and the build-up of the Treasury’s General Account at the Federal Reserve from an average of only $50bn before 2014 to around $350bn at the beginning of this year. Both of these two types of Federal Reserve liabilities had drained liquidity from the US banking system as they grew at the expense of depository institutions reserves.
Here is where we get to the issue at hand, namely the upcoming rapid liquidity drain as a result of the Treasury’s stated desire to build up cash. As discussed previously, the Treasury’s General (cash) Account has been depleted since the beginning of the year due to the debt ceiling issue, offsetting in part the reduction in reserves caused by the Fed’s balance sheet shrinkage, but this is now set to go into reverse into year-end as the Treasury issues T-bills to replenish its General Account. In other words even with the Fed stopping its balance sheet shrinkage, we are likely to see significant reserve depletion into year-end as the General Account is replenished following a resolution in the debt ceiling issue.
This is precisely what BofA looked at last week when it concluded that the roughly $200 billion liquidity drain over the next two months will be so sever, the Fed may have no choice but to resort to QE.
But wait, wasn’t the end of QT – something so urgently demanded by president Trump – supposed to neutralize the rapid depletion of reserves?
While the termination of the Fed’s balance sheet shrinkage process would by itself slow the reserve tightening process, it won’t stop it. This is because of three reasons.
- First, as even the Fed was surprised to find last week, now that the debt ceiling issue is resolved, the US Treasury will start replenishing its General Account at the Fed by issuing more T-bills. Replenishing the General Account over the coming months would mechanically drain liquidity from the US banking system by reducing reserves.
- Second, banknotes in circulation have been on a structural uptrend over the past five years driven by offshore demand for highly denominated dollar notes (one wonders if this is due to foreigners parking their wealth in paper instead of digital bank accounts, ahead of NIRP and the devaluation of non-paper money). By itself this force should reduce reserves gradually by $80bn per year.
- Third, the assets of the US banking system are growing naturally roughly in line with nominal GDP, i.e. around 4% per year, something that would put downward pressure on the ratio of reserves to banking system assets even if reserves are unchanged.
Putting this all together implies – to JPMorgan at least – that liquidity will likely continue to tighten gradually in the US banking system even after the Fed has stopped its balance sheet shrinkage, and – here is the punchline – in order to stop this liquidity tightening from advancing further, “the Fed may need to start open market operations sooner rather than later to inject reserves into the US banking system.”
Open market operations is, of course, another name for QE, which as we have been saying all along is inevitable if for no other reason than to monetize the upcoming wave of UST supply especially if China decides to boycott (or outright sell) US Treasurys. Indeed, the Fed may have no choice but to launch QE simply because of too much Treasury supply and the market’s ability to warehouse it – a challenge that will only grow in the coming years, which is why we have been warning for much of the past year to watch out for market crashes – just like the failure of Lehman – these are a convenient and easy scapegoat for the Fed returning launching another round of QE… much to Trump’s applause.
- Federal Judges Are Waging War On The Fourth Amendment
Authored by Chris Calton via The Mises Institute,
In 1984, as part of Ronald Reagan’s renewed war on drugs, the Drug Enforcement Administration launched Operation Pipeline. This program was inspired by the strategies employed by state troopers in New Mexico who, after pulling somebody over, asked specific questions designed to determine whether the driver might be a drug trafficker. Combined with the financial incentives of federal grants for drug enforcement and civil asset forfeiture laws, state and local police had strong new incentives to find reasons to stop vehicles and search for drugs. Operation Pipeline was meant, in part, to train officers how to legally harass drivers.
The problem, of course, was the pesky Fourth Amendment, which prohibited warrantless searches without probable cause. The “probable cause” requirement for warrantless searches is conspicuously open to interpretation, but it imposed important constraints on police harassment by placing the burden of proof on the officer to produce specific facts to justify his suspicion. In 1968, however, the Supreme Court granted the first exemption to this constraint by establishing the “stop-and-frisk” rule. In Terry v. Ohio, the Court ruled that as long as a “reasonably prudent man” would believe that a suspect might be armed, the burden of proof to show probable cause is unnecessary.
The ruling was justified out of concern for officer safety, but it paved the way for Operation Pipeline sixteen years later. The shift from “probable cause” to “reasonable suspicion,” a criterion officers could more easily meet in court, was a sufficient precedent for strategically designed traffic-stop questions to establish legally valid suspicion for vehicle drug searches. Theoretically, the courts could still strike the practice down as unconstitutional, but the Terry case proved this unlikely.
Still, there were many constitutional questions for the Supreme Court to work out. Unsurprisingly, the court served as “loyal foot soldiers” in the Drug war, as Justice Stevens put it, by sanctioning virtually every tactic the police invented, no matter how egregiously it violated civil liberties.
The first important ruling on roadway privacy came in 1991. In Florida v. Bostick, two officers boarded a Greyhound bus in Fort Lauderdale and woke up a sleeping passenger named Terrance Bostick. When the officers asked permission to search Bostick’s bags, he complied, despite possessing a pound of cocaine. However, when Bostick went to court, his attorney’s argued that the police officers had neither probable cause nor reasonable suspicion to justify the search of Bostick’s luggage, and therefore the cocaine should be inadmissible in court. Florida’s State Supreme Court ruled in Bostick’s favor, claiming that bus searches are inherently unconstitutional because the police did not allow passengers to leave the bus during the raid. The case went to the US Supreme Court who reversed the decision, claiming that even though the officers were effectively holding Bostick and other passengers hostage, “a reasonable person” would have felt perfectly comfortable denying armed police officers the right to search his luggage.
With this ruling, the loose “reasonable suspicion” requirement expanded officer prerogative in any situation in which they could show that their searches were voluntary. This changed the way officers were trained to give orders. Like contestants on Jeopardy, officers were taught to give their orders in the form of a question— “Will you put your hands against the wall while we search you?” for example. The courts made this easier by interpreting silence as consent, establishing “consent searches” as standard and legal police practices.
Although Florida v. Bostick took place on a bus as part of highway monitoring activities, the ruling did not clarify any legal boundaries for traffic stops. This came five years later in the case Whren v. United States. After pulling Michael Whren over, a police officer arrested him for possession of crack cocaine. By the officer’s own admission, he pulled Whren over because he suspected him of possessing drugs, but officially, the stop was justified because Whren failed to use his turn signal. The defense argued that the Fourth Amendment prohibited the use of a minor traffic violation as a pretext for a drug search, so the drugs should be inadmissible in court.
The Supreme Court unanimously upheld Whren’s conviction, though, establishing two important precedents. First, they declared that the officer’s intentions are irrelevant as long as there is any objective criteria that could justify the traffic stop — and given the endless list of traffic laws, this ruling effectively grants officers unlimited discretion in pulling drivers over. Second, the decision settled the legal debate over “pretext stops,” the use of minor traffic violations as a pretext for vehicle drug searches.
Even after the Whren ruling, civilians still theoretically have the right to refuse searches, based on the absurd notion that a “reasonable person” would feel free to deny an officer’s request, as established by Bostick. A few months after Whren, though, the Ohio court implicitly rejected the Bostick ruling. After Robert Robinette was pulled over for speeding, he consented to a search of his vehicle— illustrating the tactics of both pretext stops and consent searches in the Drug War. When officers discovered a small amount of cannabis and a single amphetamine pill, they arrested Robinette. Because Ohio v. Robinette reached the state court prior to the final Whren ruling, the pretext stop controversy was still an open question, which made the case viable. But what made the Robinette case important was that the Ohio court pushed back against the Bostick argument by stipulating that for a reasonable person to feel comfortable denying consent to a search, the officers had to inform the driver that they had the right to refuse. It was this stipulation that took Robinette to the higher court, at which point SCOTUS overturned the ruling for being “unrealistic.”
According to SCOTUS, it is more realistic for an untrained civilian to know their rights, which are apparently subject to constant change, than it is for professional police officers to inform drivers of their rights to refuse a search. Taking these expectations to a new extreme, the 2001 case Atwater v. Lago Vista ruled that officers had the legal right to arrest drivers who violated misdemeanor traffic stops, even if the punishment for the violation was a fine, rather than jail time. With this ruling, the court’s imaginary “reasonable person” would presumably know that if they refused to consent to a drug search, they faced the risk of being handcuffed for whatever petty infraction got them pulled over. None of this matters in the twisted logic of the criminal justice system, of course.
To complete the remarkable expansion of highway monitoring prerogatives, the 2004 case Illinois v Caballesruled that it did not legally constitute a search, regardless of consent or pretext, for officers to walk drug-sniffing dogs around a person’s vehicle. Given the precedents established in the previous cases, it may seem that this ruling added no discretionary power the police did not already possess, but this is not quite true. Checkpoints are usually justified as searching for drunk drivers, but they have also been established to randomly verify that drivers have valid licenses, vehicle registrations, and car insurance. In some cases, as James Bovard has noted, the police had no qualms admitting that the true reason for the checkpoints was random drug searches. But sobriety checkpoints fail to meet even the loose requirements of pretext stops, and every now and then, police run into civilians who actually know their rights and refuse to consent to searches. In the Cabellas ruling, the court claimed that drug dogs do not violate the Fourth Amendment, and if the dog signals the presence of drugs, the officers have probable cause to search the vehicle without consent. Even after a recent case has demonstrated that drug-sniffing dogs have a roughly fifty percent accuracy rate, the courts have continued to uphold the practice.
The result is that the police now enjoy unlimited reign in harassing, searching, and arresting drivers. Motivated by civil forfeiture laws that empower them to confiscate civilian property without charging the victim with a crime, the police have institutionalized the practice of conducting mass road stops as means of searching civilians for property to confiscate (a practice recently curtailed by a SCOTUS ruling, but not eliminated). Highway robbery has been legally sanctioned and encouraged by all branches of the federal government, so that state and local police forces can only accurately be understood is roadway pirates.
- Attention Millennials: New Study Reveals E-Scooters Aren't As Green As They Seem
A new study shows shared electric scooter schemes, popularized by Bird, Bolt, Lime, Lyft, and Spin, might not be as green as you think, could actually be damaging the planet.
Researchers from North Carolina State University discovered that shared electric scooters are more environmentally friendly than automobiles, but not when compared to particular forms of public transportation, bicycles, and walking.
Millennials tend to consider themselves as an eco-friendly generation, embracing all new forms of “carbon-free technologies,” like electric scooters.
But what the scooter companies aren’t telling them are the emissions from manufacturing (like the lithium-ion battery and aluminum parts), transportation (shipping the scooter from China or Southeast Asia), and maintenance of a scooter fleet (collecting, charging, and redistributing scooters) is rather dirty for the environment.
“If you only think about the segment of the life cycle you can see, which would be standing on the scooter where there’s no tailpipe, it’s easy to make that assumption,” Jeremiah Johnson, corresponding author of the study and an associate professor of civil, construction and environmental engineering at NC State, told The Verge. “But if you take a step back, you can see all the other things that are a bit hidden in the process.”
Johnson and his research staff determined that the average global warming impact for a shared electric scooter is 202g of CO2 per mile traveled.
About 50% of the carbon footprint per mile traveled is from materials and manufacturing, and 43% is from the collection and distribution process to recharge the fleet. A little less than 5% of the environmental impact is from electricity used to charge them.
At 202g of CO2 per mile traveled, the shared electric scooter is a much cleaner alternative versus the automobile at 414g of CO2 per mile.
Public transportation, like a bus, only emits 82g of CO2 per mile, and the use of a private bike at 8g of CO2 for the same distance. So it seems that conventional ways of moving around a metropolitan area are much cleaner than renting electric scooters.
Researchers said, “the goal of this study is to identify the key drivers for adverse environmental impacts, to offer recommendations on policies or practices that would reduce these impacts, and to compare the overall impacts to other modes of transportation.”
They first said third parties who drive around towns collecting scooters for charging have to limit their CO2 usage.
A scooter company called Lime could be soon introducing a new option that allows people to reserve a scooter ahead of time, thus reducing the amount of unnecessary driving that takes place when collectors are out searching for scooters to recharge.
Researchers said scooter companies need to build better scooters that last longer, could be a temporary solution to reduce the environmental impact.
“If the scooter companies are able to extend the life of their scooters without doubling the impacts of materials and manufacturing, that would reduce the per-mile burden,” Johnson said. “If you can make these things last two years, it would have a very large impact.”
Scooter company Bird could soon unveil its next-generation scooter with a longer-lasting battery and more durable parts. Lime has also rolled out more advanced models to improve the economics of its business.
And it was only in April when a German study published by Christoph Buchal of the University of Cologne, said electric automobiles have “significantly higher CO2 emissions than diesel cars.”
Buchal said that is due to the significant amount of energy used in the mining and processing of lithium, cobalt, and manganese, which are critical raw materials for the production of electric car batteries.
So maybe the green movement with electric automobiles and scooters to save the world is the biggest scam of our lifetime…
- Like "Crack Cocaine For CFOs" – Aussie Construction Giant Collapses After Hidden-Debt Loophole Exposed
Authored by Nick Corbishley via WolfStreet.com,
This “crack cocaine for CFOs” was also extensively used by Carillion until it collapsed.
The world’s seventh largest construction and services company (by sales), with subsidiaries around the globe, Grupo ACS, has revealed it is making extensive use of reverse factoring, a controversial financing technique that played a key role in the collapse of UK construction giant Carillion. In a conference call with analysts, ACS chairman, Florentino Perez, said the firm has been rolling out factoring “across the group,” to “more efficiently manage cash flows and match revenues and costs over the course of the year.”
The admission by ACS that it is using reverse factoring of payables across its vast global empire has spooked investors, given the malign role this supply chain financing tool played in the collapse of Carillion. As Fitch ratings wrote in a report last year that reverse factoring essentially served as a “debt loophole,” enabling Carillion to hide the true scale of its growing debt load. But not indefinitely. In January 2018, it collapsed in almost free-fall fashionunder the sheer weight of that debt.
The global operations of ACS, a Spanish company, are significantly larger than Carillion. Its decision to disclose its use of factoring was probably prompted by recent allegations from Hong Kong research group GMT about the rampant use of reverse factoring of payables and other “accounting shenanigans” at ACS’ Australian subsidiary, CIMIC, which is majority owned by ACS’s Germany subsidiary, Hochtief.
In a report released on April 30, GMT Research said that CIMIC, which builds many of Australia’s biggest infrastructure projects, was using “factoring agreements” with banks and financial institutions to create the illusion of cash flow, reduce the appearance of debt, and lower the appearance of its leverage ratios.
CIMIC initially responded to the accusations by saying its accounts are fully audited, fully compliant, and accurate. But that didn’t seem to work. So, in its half yearly report in mid-July it admitted that its factoring level was close to $2 billion, though it did not differentiate between “reverse factoring” and classic “factoring.” Like most companies, CIMIC lumps the two together on its balance sheet under “trade and other payables.”
In July, the company also reported weaker half-year results than expected, including significantly lower operating cash flow. The news triggered a brutal sell off of its stock, which tumbled 19% in one day’s trading. The shares are now at a three-year low, having plunged 29% since mid-July and 35% since GMT first published the report:
Investors are clearly worried, and probably with good reason. According to Australia Financial Review, “CIMIC has developed a reputation for poor transparency” since its takeover by ACS in 2014, “refusing to answer questions from the media and refusing interviews, even when it reports financial results.”
Here’s how reverse factoring works: a company hires a financial intermediary, such as a bank or a specialist firm to pay a supplier promptly (e.g. 15 days after invoicing), in return for the supplier accepting a small discount. The company repays the intermediary at a later date, often on more extended terms than it had with the supplier.
Both sides feel like they have benefited: the supplier gets quick access to the cash it’s owed, albeit at the price of forgoing a small piece of that cash, while the buyer is able to borrow money without having to disclose it as debt, meaning that it can extend its payment terms and expand its borrowing, while maintaining its leverage ratios.
Investors and auditors are often left none the wiser, since it’s entirely up to the company whether it chooses to classify this new debt as a loan or as trades payable. Most choose the latter. It is virtually impossible to discern by looking at a company’s trade payables whether reverse factoring of payables is being included unless the company expressly says so. Most choose not to.
And it’s not just CIMIC that is making extensive use of factoring and reverse factoring, but ACS’s entire global business. ACS said in its interim results released on Monday that its total factoring bill was running at €2.3 billion ($3.7 billion) at the end of June. Hochtief said it had factored €1.7 billion. Neither company differentiated between factoring and reverse factoring, so investors are still not much the wiser.
Reverse factoring has been in practice for decades but has hugely expanded in recent years, although no one really knows by how much due to the lack of disclosure by the firms that use it. As cash flows get squeezed and debts are piling up, the temptation has grown to use reverse factoring to improve the outward appearance of cash flows and reduce the outward appearance of “debt” and their leverage ratios. Banks and specialized financial institutions in the supply chain finance industry are more than happy to meet that demand.
“This is crack cocaine for CFOs,” says Dean Paatsch, of Australian governance advisory service Ownership Matter.
“Once they start using it, it’s very difficult to stop.” Large users include telecoms, consumer good companies, chemicals, retail, aerospace and, of course, the construction industry.
Getting addicted can be dangerous. When a company gets into financial distress, its bank simply cancels the reverse factoring program, leaving the company stranded and having to scratch together enough funding to pay down its accounts payable to the terms agreed to with suppliers. For a company that is already in dire financial straits and whose last major source of cash flow has just disappeared, it’s an impossible task — hence the reason why a 200-year old company like Carillion collapsed so quickly and with so little warning.
* * *
Digest powered by RSS Digest
Saving...