- Asymmetrical Warfare And 4GW: How Militia Groups Are America's Domestic Viet Cong
“It is interesting to hear certain kinds of people insist that the citizen cannot fight the government. This would have been news to the men of Lexington and Concord, as well as the Mujahedeen in Afghanistan. The citizen most certainly can fight the government, and usually wins when he tries. Organized national armies are useful primarily for fighting against other organized national armies. When they try to fight against the people, they find themselves at a very serious disadvantage. If you will just look around at the state of the world today, you will see that the guerillero has the upper hand. Irregulars usually defeat regulars, providing they have the will. Such fighting is horrible to contemplate, but will continue to dominate brute strength.”
– Col. Jeff Cooper
When one discusses the real reason for the Second Amendment – the right of citizens to defend themselves against a potentially tyrannical government – inevitably someone points out the stark difference in firepower between a guerilla uprising in the United States and the United States government itself.
This is not a trivial observation. The U.S. government spends more on the military than the governments of China, Russia, Saudi Arabia, India, France, United Kingdom, and Japan combined. Plus, the potential of a tyrannical government is arguably upon us – with the federal government spying on its own citizens, militarizing local police departments with equipment and tactics from the War on Terror, and repeatedly searching Americans, which desensitizes them to this invasive process.
There is much historical precedent, however, for guerilla uprisings defeating more powerful enemies. For instance, the Cold War saw both superpowers brought to their knees by rural farmers – for the Soviets, their adventure in Afghanistan against the Mujahideen, and for the United States, the Vietnam War against the Viet Cong.
In both cases, nuclear weapons could have been used against the guerilla uprising, but were not. Even assuming the use of nuclear weapons from the position of total desperation, it’s hard to imagine they would have made much of a difference in the final outcome of either conflict. Unlike the invading armies, the local resistance enjoyed both broad-based support as well as knowledge of the local terrain.
Now imagine such a scenario in the United States. You wouldn’t be the first person to do so. From Red Dawn to James Wesley, Rawles’ Patriots series, there is a relatively long-standing tradition of American survival literature about the hoi polloi resisting the tyranny of big government, either before or after a collapse.
For the purposes of this article, consider what a domestic American terrorist or freedom fighter (after all, the label is in the eye of the beholder) organization based on the militia movementwould look like in open revolt against the United States government. In the spirit of levity, we’ll call them the “Hillbilly Viet Cong.” They would most likely find their largest numbers in Appalachia, but don’t discount their power in the American Redoubt, or the more sparsely populated areas of the American Southwest, including rural Texas.
Here we have tens of thousands of Americans armed to the teeth with combat experience, deep family ties to both the police and the military, extensive knowledge of the local geography, and, in many cases, survivalist training. Even where they are not trained, militant and active, they enjoy broad support among those who own a lot of guns and grow a lot of food.
On the other side, you have the unwieldy Baby Huey of the rump U.S. government’s military, with some snarky BuzzFeed editorials serving as propaganda.
Could the Hillbilly Viet Cong take down the USG? Maybe, maybe not. But it’s difficult to imagine that the USG could take them down.
Indeed, even with a number of nasty little toys on the side of the federal government, we live in an age of a technologically levelled playing field. This is true even when it comes to instruments of warfare. While the USG has nuclear weapons, it’s worth remembering that a pound of C4 strapped to a cheap and readily available commercial-grade drone is going to break a lot of dishes.
This sort of guerilla insurgency has a name: It’s called fourth-generational warfare (4GW), and you might be surprised to learn that you already live in this world.
What Are the First Three Generations of Warfare?
To understand how 4GW is a new and improved form of war, we first need to explain what the first three generations of warfare were:
First-Generation Warfare
The first generation (1GW) is basically what you would have seen in the movie 300. The hallmarks of this generation of warfare are armies from two different state actors leveraging line-and-column tactics and wearing uniforms to distinguish between themselves.
This generation is not entirely without subterfuge. For example, counterfeit currency was used to devalue the money supply during the 1GW Napoleonic Wars. Other examples of 1GW conflicts include the English Civil War and the American Revolutionary War.
Second-Generation Warfare
The second generation (2GW) comes with the advent of rifling and breech-loaded weapons. As students of military history know, the invention of rifling was one of the reasons that the United States Civil War was so bloody. This meant that firearms that were once mostly for show after 100 feet or so, were now deadly weapons – and tactics did not immediately evolve.
But evolve they did. Many things we take for granted as being just part of warfare – such as camouflage, artillery, and reconnaissance – are defining features of 2GW. The American Civil War is probably the first 2GW conflict. Others include the First World War, the Spanish Civil War and, much more recently, the Iran-Iraq War. The United States military coined this phrase in 1989.
Third-Generation Warfare
This phase of warfare, also known a 3GW, is the late modern version of warfare, where speed and stealth play a much bigger role. Weapons and tactics alone are less important. Instead, military units seek to find ways to outmaneuver one another before – or even instead of – meeting on the battlefield.
The era of 3GW was initiated with the Blitzkrieg, which marked the decisive end to cavalry and replaced it with tank and helicopter warfare. Junior officers were given more leeway to give orders. The Second World War was the first 3GW conflict, with the Korean, Vietnam and both Iraq Warsbecoming further examples of this style of fighting.
What Is Fourth-Generation Warfare?
The most direct way of discussing 4GW is to say that it describes any war between a state actor and a non-state actor. This is also known as asymmetrical warfare, but it’s not the only difference between 4GW and other, earlier forms of conflict. Asymmetrical warfare does, to be sure, blur the lines between combatants and civilians. This is in part what made the Bush-era “war on terror” so difficult and complicated: The war was against a set of ideas rather than a nation or even an extra-national army.
There are a number of characteristics that flow from the state actor vs. non-state actor aspect of 4GW. The first is the use of terrorism as a regular tactic, almost always on the part of the non-state actor. Particularly for the state actor, non-combatants become tactical problems – you simply can’t just carpet bomb and hope everything works out.
The non-state actors tend to be highly decentralized. One faction can stop fighting as another 10 crop up in its place. Funding and source of manpower and material comes from a wide array of sources spread out over nearly the entire globe. This necessarily makes 4GW long and drawn out over years or perhaps even decades. The psychological warfare, propaganda and lawfare aspects are an integral part of the conflict.
The genesis of 4GW lies in the Cold War and the post-colonial era. Insurgent groups and counter-insurgency groups vied for power, often times with state actors operating behind the scenes and in the background. Sometimes the goal was to establish a new state or reestablish a defunct one. However, many times the only goal was to delegitimize the existing state and create a power vacuum.
Places such as Laos, Myanmar, Iran, Guatemala, Vietnam, the Congo, Cuba, East Timor, Korea, Poland, and Afghanistan were all pieces in the global chessboard of the Cold War as various insurgency and counter-insurgency groups backed by the Soviets, the Americans, and/or the Chinese fought one another or fought against occupying forces.
What Is the Difference Between 4GW and Asymmetrical Warfare?
Put simply, all 4GW is asymmetrical, but not all asymmetrical warfare is 4GW. It refers to virtually any asymmetry in combat. This can be as simple as one military having more advanced technology than another – for example, the English longbow at the Battle of Crécy gave the English forces a decisive technological advantage. The Spartan forces were greatly outnumbered by their Persian adversaries and used the landscape to compensate.
In one sense, 4GW can be seen as asymmetric warfare come to full fruition. The less powerful forces must find a way to compensate for their relative lack of strength. On the other hand, the stronger forces must paradoxically find ways to compensate for their abundance of strength. This is because of the all-important propaganda war, an integral part of 4GW. State actors often seek deniability during war by proxy when engaging non-state actors.
John Boyd, Chuck Spinney, and 4GW
Colonel John Boyd may be the most remarkable unsung hero in all of American military history. Widely considered to be the greatest U.S. fighter pilot ever, Boyd developed the F-15 and F-16, revolutionized ground tactics in war, and covertly designed the coalition battle plans for the 1990-91 Gulf War. He foresaw 4GW, and he shunned wealth, fame, and power in his pursuit to get things done, despite the bureaucracy of the Pentagon.
Boyd closely studied Sun-Tzu (The Art of War) and Carl von Clausewitz (On War). This informed his push for greater adaptability and agility of United States fighting forces. Simple, cheap, effective, dependable, durable weapons were prized over flashy tricks. Decentralized command, control and communications were Boyd’s cause – looking for a way to avoid burying boots on the ground underneath layers of officers with potentially less field knowledge than they had.
Franklin C. “Chuck” Spinney became the voice of 4GW preparation after Boyd’s passing inside the Pentagon. He spent more than 20 years campaigning against rigid forms of thinking and budget bloat. Spinney believes that the 9/11 attacks should have been a wake-up call for the United States military, and sees 4GW as something beyond mere terrorism, but rather a new form of warfare. He believes the United States military is stuck in second-generation warfare thinking and is woefully unequipped for 4GW. Ultimately, Spinney believes that the United States military’s response to 9/11 in particular and 4GW in general was not enough.
Where Is 4GW Happening Today?
While many think 4GW is something in the far-off future, it’s actually happening right now. The most archetypal 4GW is perhaps the conflict with ISIS – a non-state actor with recruits all over the world in conflict with several states. Some of the conflict is classically military, but there is also the propaganda war taking place all over the Internet. In fact, ISIS was using the PlayStation network to communicate because they correctly believed it wasn’t being monitored by international intelligence services. These attacks on the West were not limited to the area controlled by ISIS, but extended all around the world.
Counter-attacking ISIS was a bit like trying to catch water in a net. Attacking ISIS proper was possible: There was territory. But attacking the support of ISIS was a whole other problem.
It’s worth noting that the international Islamist movement is not limited to ISIS. Al-Qaeda and its offshoots still exist. What’s more, they seem to multiply over time. This is another feature of 4GW. A state actor can make peace with one faction of a group while other, more militant factions simply retreat deeper into the metaphorical mountains to continue the fight – which is precisely the situation that the Republic of the Philippines has faced in its struggle against the Moros separatists of the Southern Philippines.
But the Philippines and Syria are all likely far away from where you live in terms of geography, sociology, demographics and culture. What does 4GW have to do with London, Paris or even Springfield, MO? Probably a lot more than you think.
Is 4GW Coming to the Developed World?
Is fourth-generational warfare coming to the developed world? Quite possibly, especially when you consider the spectre of failed states in the West.
Many Western states are not quite as stable as they are made out to be. Sweden and France in particular have extensive problems with No Go Zones. Other parts of Europe want to secede, such as Catalonia in Spain, and are being violently suppressed from doing so.
Elsewhere around the world, previously first-world countries like South Africa are deteriorating in the span of a generation due to government mismanagement. The United States, for its part, is in what some have described as a “Cold Civil War,” with many futurists agreeing that the potential for outward civil war is greater than you’d like to think.
How might such a 4GW scenario play out in the West? There are two potential scenarios, one for Europe and one for the United States. Each of these is worth considering.
4GW: The European Model
For our purposes, we’re going to call this the “European Model” of 4GW. This is because this model is based on the political and social realities of life in Europe today. It is by no means the only place something like this could unfold, nor is it impossible that 4GW could unfold in an entirely different way in Europe.
4GW in Europe will likely be an outgrowth of No Go Zones and resulting failed states. Geographic areas within European nations will likely increase in size. And conflict will likely develop between the de facto areas of the No Go Zones, as well as more militant elements of the civilian population. While there is not much of a militia movement to speak of in Europe, in true 4GW fashion, people will find ways to improvise weapons out of what they have available to them.
It’s impossible to talk about this phenomenon in Europe without discussing the ethnic and religious character of the areas, as ethnic and ethno-religious conflict will likely be the infrastructure for such a war – especially since many of these areas have legal and social structures based on Islamic laws and customs.
In a scenario leading to a 4GW conflict in mainland Europe, attacks on civilians will escalate while the legitimate civilian authority is increasingly incapable of dealing with it. There will be both an inability and an unwillingness to maintain legal norms within larger and larger areas in Europe.
Next would come the formation of militias. The model here is close to what happened in Lebanon during its civil war. Militias will form around political, ethnic and religious lines. Some of these will be the No Go Zones attempting to consolidate their power. Others will be European civilians seeking to protect themselves and their neighborhoods from the growing power of the No Go Zones. This, in turn, will further fuel the breakdown in government control. Members of the government, both law enforcement and military, will increasingly pick sides in the conflict, leaving their allegiance to the rump state behind. In the end, this will make it more difficult for the state to assert its power.
The remaining government will begin taking measures against free speech and free association in an attempt to crack down and regain lost power. But at this point, the battle will mostly already be lost. Factions of the government will cease cooperating with one another, making it harder and harder to maintain order. These factions will, to varying degrees, start lining up behind the militias and parallel legal structures that have begun cropping up at the street level. This will also be the time foreign governments will step in and begin supporting local militias more. An example of this is Serbian-backed militias in Croatia and Bosnia during the Yugoslav Wars, or Israeli support of Maronite Christians and Iranian support of Shiite Muslims during the Lebanese Civil War.
Crime will increase, but not just petty street crime. Insurgent movements have a long history of using organized crime to fund their operations and the 4GW conflicts in Europe would be no exception to this. The drug trade, human trafficking and financially driven kidnapping are three examples of how militias will fund themselves using extra-legal means. This will serve as an additional cause to restrict freedom of movement through both de jure and de facto means within a nation’s borders, another case where the Yugoslav Wars and Lebanese Civil War are instructive cases. Conversely, refugee scenarios will develop, which will further complicate the situation.
4GW: The American Model
The American 4GW Model is somewhat different and is based more on ideological and political differences than ethnic and cultural ones – though the ethnic and cultural differences will play a role, as we will soon see.
In the United States, the federal system of government can play a key role. For example, while the prospect of a gun ban causing the peasants to pick up their pitchforks and torches is unlikely, a scenario where states simply refuse to enforce the law is far closer to the realm of possibility. Consider that this is already starting under the Trump Administration – cities and states are refusing to comply with the President’s directives on federal immigration law. Flipping the script, it’s worth wondering just how much state and federal compliance a federal ban on AR-15s, a high tax on ammunition, or a call for widespread registration would generate.
This could happen one of two ways: Leftist states like California and Massachusetts balk at a new federal law, or more conservative and libertarian states like Arizona and New Hampshire refuse compliance. It’s worth noting that states themselves are not monoliths. California is largely still a conservative state outside of Los Angeles and the Bay Area, while several municipalities in deep blue Massachusetts went for Trump. On the other hand, Arizona has blue enclaves like Flagstaff and New Hampshire’s cities vote almost identically to Boston.
The red state / blue state divide is very real, but it also exists within states as well as between them. In the event that a cleavage between the two political and cultural halves of America started, this divide would become increasingly unstable within the states themselves.
Unlike Europe, the United States has a homegrown militia movement that is heavily armed and, to varying degrees, ready for battle. When the AR-15 is talked about as a “weapon of war on our streets,” it is frequently mentioned in the same breath how an insurrection in the United States would never stand a chance against the modern weapons of war wielded by the federal government. This would be news to the Viet Cong. People who make such statements are unaware of the dynamics of 4GW.
While the political aspects are very real, so are the demographic ones. In particular, there is the spectre of the Scotch-Irish in Appalachia. These are a people with hundreds of years of long skepticism (and often outright hostility) toward the federal government. It’s also, geographically speaking, a very difficult place to conquer. Eric Rudolph evaded the feds for five years in the mountains of North Carolina, despite being on the FBI’s Ten Most Wanted Fugitive List.
This segment of American society has a significant connection to both the police force and the military. Simple suggestions that local police, SWAT teams or even the military will be quick to crush such a rebellion are ill-informed on two counts. First, the aforementioned one: In many cases, the military and police who are being sent out are going to be friends, family and intimates of the Hillbilly Viet Cong. What’s more, due to the extensive military experience in this area, many of the foot soldiers of an anti-government rebellion centered in Appalachia would not only just be trained, but also battle-tested. Divided loyalties always play a role in 4GW, and the United States will be no exception.
The weapons of war are leveled in 4GW. There is air war by drones, but also the role of computer hacking, kidnapping and other unsavory activities. The point of 4GW, from the perspective of the underdog, is less about “winning” in some quick and dramatic fashion, and more about dragging out the conflict as long as possible, causing the dominant power to lose through blood loss and death by 1,000 cuts.
Consider the Vietnam Conflict: Between the end of the French occupation of Vietnam in 1954, through the Fall of Saigon when U.S. forces abandoned the city to the Viet Cong, the American Vietnam War lasted approximately 20 years. And that doesn’t count the seven bloody years of French occupation post-WW2, when French colonial forces lost approximately 100,000 troops attempting to put down the guerilla movement in Indochina.
Finally, there’s the U.S. government’s track record in 4GW. The United States does not have a solid track record of being able to defeat guerilla insurgencies. From the Filipino Insurrection in the late 19th century to the current Afghan insurgency – the United States military can make inroads against 4GW actors, but it’s never really able to seal the deal.
4GW in America: The Battle of Athens
There is a history of 4GW in the United States and we don’t need to go very far back to find it. In 1946, there was an uprising of the citizens of Athens, TN (in McMinn County) to reestablish the rule of law. The story illustrates how American patriots resisting domestic tyranny can succeed in their struggles.
Citizens of Athens had complained about election fraud since 1940. The town was filled with battle-hardened veterans from both the European and Pacific theaters of World War II. This filled them with a militancy that did not exist before the war. Several citizens of Athens had complained, but the administration of Franklin Roosevelt did nothing, perhaps because the town was ruled over by an entrenched Democratic Party machine.
First, the men ran one of their own, a GI named Knox Henry, for sheriff. They wanted fair elections, so they petitioned the FBI to monitor, a request which was denied. The machine, for their part, imported 200 strong arms to “protect” the polling places from voters. In one case, a deputy pointed his revolver at a GI, ejecting him from the polling station and telling him “If you sons of bitches cross this street I’ll kill you!” Poll watchers were arrested and in one case, a black poll watcher was shot. Finally, the party machine locked the ballot boxes up in the county jail.
Despite lacking in numbers, ammunition and arms, the veterans used the key to the local armories belonging to the State and National Guard. This evened the score considerably. They went to the jail house and requested the release of the ballot boxes, but were rebuffed with the sheriff’s men shooting two of the GIs. A firefight erupted and the GIs were reinforced by men from neighboring Meigs County and their IEDs. Eventually, the sheriff and his men surrendered, releasing the ballots.
After obtaining the ballots, the men cleaned and returned the weapons. The GI candidate was elected sheriff and several others were elected to key county positions.
This demonstrates 4GW in miniature in the United States. For those concerned about nuclear retaliation or other heavy guns the USG has, it’s worth noting that the underdog can always obtain some of these weapons by hook or by crook.
The Militia Movement and 4GW
No discussion of 4GW in the United States would be complete without touching on the militia movement, something specific to the U.S. While Europe has a history of factions in the military who oppose the government (the French Secret Army Organization is the most famous of these), it does not, to nearly the same extent as the United States, have men actively training in the woods getting ready for civilizational collapse or 4GW.
The militia movement began in the early 1980s, when it was known as the Posse Comitatus movement. It exploded (no pun intended) after the attack on the Oklahoma City Federal Building and the showdown at Ruby Ridge. By the mid-1990s, the militia movement had a presence in all 50 states and was comprised of approximately 60,000 people.
Note that the militia movement is no longer limited to the political right. Left-wing organizations have begun openly training with arms since the election of Donald Trump as President in 2016. In any kind of 4GW scenario in the United States, it’s likely that these two strains of the militia movement would come into conflict with each other, as well as the United States government. And don’t forget about the narcissism of small differences that tends to plague fringe political movements – the most bitter enemies in a 4GW conflict in the United States will likely be competing factions of left- and right-wing political movements.
Skills Required for 4GW
Combat isn’t the only helpful skill for 4GW. If you’re concerned with 4GW and want to get ready for everything to go down, here’s a list of skills for you to acquire in preparation for 4GW.
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Weapons Versatility: Let’s just get this out of the way. Combat training with a variety of weapons is important for 4GW. This is because in 4GW, combatants often have to use weapons commandeered from their enemies. What they capture can vary widely from what their unit ordinarily uses.
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Survivalism: Knowing how to live off the land is an indispensable skill for any SHTF scenario, and 4GW is no exception to this rule. 4GW combatants must know how to hunt, fish, trap, track, stay hidden, find potable water, and prep game.
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First Aid: Any time there’s combat, there are casualties. 4GW requires the knowledge of first aid at the very least. Knowing other medic skills is a welcome addition to the toolkit as well.
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Physical Fitness: Those involved in 4GW combat will have to walk long distances, often with a lot of weight strapped to their back. Being in top physical condition can mean the difference between life and death.
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Navigation: 4GW combatants need to know the area, but they also need to know how to find their way around unfamiliar terrain. That means without electronic equipment, and instead using items like compasses and maps.
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Demolition: This might also be filed under weapon versatility. Demolition is a big part of 4GW for depriving the enemy of a base and cutting off lines of communication and transit.
Many of the above skills are just as helpful when it comes to general survivalism, so you don’t have to be getting ready for 4GW to make them worth acquiring. And as with any kind of SHTF preparation and training, we hope you never have to use what you learn.
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- 'Made-In-China' Diamonds Poised To Rock Global Market
A diamond in the rough can fetch over $2,000 per carat. These precious stones are mined deep within the Earth where they were forged in extreme pressure and heat over thousands of years. However, companies in mainland China have now mastered advanced technology to manufacture them en masse in several weeks or even in days, with products almost indistinguishable from natural ones, reported Xinhua News Agency.
China, a significant consumer of mined diamonds, has a decent chance of becoming a large supplier of synthetic gems and could reshape the entire global diamond industry, analysts warn.
By Chinese industry estimates, the country produces about 10 billion carats annually, but most are used in industrial applications, such as aeronautics, oil rigs, and electronic chips.
As competition swells and technology to manufacture synthetic gems matures, Chinese companies on the mainland have shifted from using diamonds in industrial applications to fine jewelry, a move that could upset Anglo American, De Beers Sa, Alrosa, and Rio Tinto.
Liu Yongqi, the general manager of Sino-Crystal, told Xinhua the company manufactures between 2 million and 3 million carats per year, with more than half of the carrots used for expensive jewelry.
“We began our transformation in 2014 to expand to gem-grade diamonds,” said Liu.
According to Paul Zimnisky, a diamond expert in New York, “It is important to understand that even if synthetic diamond production is initially lower quality, the diamonds can be ‘enhanced’ with processes that turn lower quality goods into higher-quality.”
He further explained that if a fraction of Chinese synthetic gems is upgraded to jewelry-quality diamonds, it will unleash a massive deflationary wave that could collapse diamond prices.
“China, and by extension Asia, is the main producer of synthetic diamonds,” Margaux Donckier, spokeswoman for Antwerp World Diamond Center, told Xinhua. “Synthetic goods only represent about 3-5% of the [consumer] market, but the share is growing rapidly.”
In the last several years, an ample supply of synthetic diamonds have flooded the global market, Chinese manufacturers said, mainly originating from De Beers, one of the largest players in the diamond space who popularized the saying, “a diamond is forever.”
Reversing its previous position on lab-made gems, De Beers did an about-face that shocked the diamond industry in 2018 by selling synthetic diamonds through its Lightbox Jewelry brand.
“Since De Beers embraced man-made diamonds, the market has been developing rapidly,” said Liu, citing expanding sales in Japan.
Synthetic diamond’s growth prospects are their increasing quality at declining cost. It is almost impossible to tell a fake diamond from a mined one with the naked eye.
Experts with high-tech computers can distinguish the two, but that distinction is so irrelevant to the Federal Trade Commission (FTC) of the US, that the previously specified “natural” origin within the FTC’s definition of a diamond was removed last year.
In its handbook for Jewelry, Precious Metals, and Pewter Industries, the FTC ruled “based on changes in the market, the final Guides eliminate the word ‘natural’ from the definition of diamond…because lab-created products that have essentially the same optical, physical and chemical properties as mined diamonds are also diamonds.”
Regulations in China and many other countries require that synthetic gems and natural diamonds be clearly labeled so that consumers can understand the difference.
Man-made diamond jewelry is classified as “fashion jewelry” while natural diamonds are called “fine jewelry,” Zimnisky said.
While synthetic diamonds represent 3-5 % of the consumer market, the share is growing at an exponential rate, expected to grow 22% annually from $1.9 billion to $5.2 billion by 2023, Zimnisky projected. The analyst added that Chinese companies could soon compete with De Beers.
Yonden Lhatoo, the chief news editor at the Hong Kong-based South China Morning Post, wrote in a recent column: “Anyone with a basic education should know by now that the ridiculous tradition of men having to buy diamond engagement rings for women before marriage was wholly concocted.”
“Diamonds are such a waste of money,” he wrote: “If you must buy a diamond, it makes much more sense to go for a lab-manufactured one.”
In a world where global wealth inequality is at extremes, made-in-China diamonds could be the best news American millennials have heard in a while, considering they are wrapped up in insurmountable debts with borrowing costs moving higher, have delayed marriage, i.e, they cannot afford a real diamond — until now.
- Trifecta Of Folly: Pritzker Admin's Pension Plan For Illinois Will Center On The Three Worst Ideas Available
Authored by Mark Glennon via WirePoints.com,
Deputy Governor Dan Hynes today released the first details of the Pritzker Administration’s plan for addressing Illinois’ pension crisis.
The administration will pursue three of the worst ideas available:
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First, the state will borrow to pay off pension debt by offering a $2 billion pension obligation bond. We and many others have already written very extensively on why pension obligation bonds are irresponsible. One credit card to another solves nothing and adds risk.
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Second, the state will kick the can on its ramp for taxpayer pension contributions out seven years. The new goal for reaching 90% funding (which is still inadequate) will be 2052. Your grandchildren will fully understand why pensions are called “intergenerational theft.
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Third, the state will gift public assets to the pensions. The particular assets and their value remain to be identified, but speculation has centered on the Illinois Tollway, the Illinois Lottery and government office buildings. The concept goes by the name “asset transfer.” We explained why it’s a sham in an article just yesterday. A pension actuary writing in Forbes did the same.
The combined effect of the first two is odd. All $2 billion from the bond offering will go immediately to the pensions, but the regularly scheduled pension contribution for the upcoming fiscal year will drop by $800 million.
That $800 million will be needed by the administration to balance the upcoming budget, to which it has firmly committed. Pritzker’ budget speech will be on February 20 and will have the details.
We have no idea how Pritzker will be able to claim a balanced budget, even with that $800 million and even using all the gimmicks available under the phony budget accounting rules used by the state. Those phony accounting rules show the upcoming budget to be $3.2 billion short, according to the Pritzker administration.
But see my colleagues’ article showing why, if the state were truly paying its bills, the shortfall would be $9 billion. In other words, the true shortfall amounts to almost one-fourth of the budget, almost three times the government number Pritzker is using, which most of the press falls for. We can’t say this often enough: The budget numbers the regular press focus on are junk, and shortfalls of the magnitude Illinois faces cannot be fixed without drastic, structural remedies.
Deputy Governor Hynes and Governor Pritzker
The pension specifics were part of a speech delivered by Hynes at the City Club, the full text of which is linked here.
Also in the speech, Hynes repeatedly trumpeted a progressive income tax as the gold at the end of the rainbow. “The fair income tax will change the arc of this state’s finances in a very positive way – forever,” he said. He already has some of it spent. The state, he says, will dedicate $200 million per year out of the additional revenue from a progressive income tax to pensions, in addition already scheduled taxpayer contributions.
Good grief. $200 million per year is almost meaningless. Currently, pension and related healthcare contributions are running about $6 billion short of what actuaries say they should be, as my colleagues’ piece today explains.
And the progressive tax requires a constitutional amendment that the public will have to vote on, which can be no earlier than 2020. We think its chances are slim. Pritzker and his party seem drunk on their overwhelming election success last year, believing their own you-know-what about the progressive utopia they painted for voters. In reality, the “fair tax” panacea for our fiscal crisis is myth, which is why Pritzker has never offered specifics.
We’ve documented why repeatedly. It either won’t raise much money or the rates would be absurdly high, even for the middle class. Pritzker’s own budget advisor during his transition offered a specific set of rates that he admitted would raise just $2 billion per year, not even enough to cover the current budget deficit.
Reality is on the march. So is math. In its first skirmish with them, the Pritzker Administration fled the battlefield.
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- Visualizing America's Crime Rate Perception Gap
There’s a persistent belief across America that crime is on the rise.
Since the late 1980s, Gallup has been polling people on their perception of crime in the United States, and, as Visual Capitalist’s Nick Routley notes, the majority of respondents consistently indicate that they see crime as becoming more prevalent. As well, a recent poll showed that more than two-thirds of Americans feel that today’s youth are less safe from crime and harm than the previous generation.
Even the highest ranking members of the government have been suggesting that the country is in the throes of a crime wave.
We have a crime problem. […] this is a dangerous permanent trend that places the health and safety of the American people at risk.
– Jeff Sessions, Former Attorney General
Is crime actually more prevalent in society? Today’s graphic, amalgamating crime rate data from the FBI, shows a very different reality.
Courtesy of: Visual Capitalist
DATA VS PERCEPTION
In the early ’90s, crime in the U.S. was an undeniable concern – particularly in struggling urban centers. The country’s murder rate was nearly double what it is today, and statistics for all types of crime were through the roof.
Since that era, crime rates in the United States have undergone a remarkably steady decline, but public perception has been slow to catch up. In a 2016 survey, 57% of registered voters said crime in the U.S. had gotten worse since 2008, despite crime rates declining by double-digit percentages during that time period.
There are many theories as to why crime rates took such a dramatic U-turn, and while that matter is still a subject for debate, there’s clear data on who is and isn’t being arrested.
ARE MILLENNIALS KILLING CRIME?
Media outlets have accused millennials of the killing off everything from department stores to commuting by car, but there’s another behavior this generation is eschewing as well – criminality.
Compared to previous generations, people under the age of 39 are simply being arrested in smaller numbers. In fact, much of the decline in overall crime can be attributed to people in this younger age bracket. In contrast, the arrest rate for older Americans actually rose slightly.
There’s no telling whether the overall trend will continue.
In fact, the most recent data shows that the murder rate has ticked up ever-so-slightly in recent years, while violent and property crimes continue to be on the decline.
A GLOBAL PERSPECTIVE
Perceptions of increasing criminality are echoed in many other developed economies as well. From Italy to South Korea, the prevailing sentiment is that youth are living in a society that is less safe than in previous generations.
As the poll above demonstrates, perception gaps exist in somewhat unexpected places.
In Sweden, where violent crime is actually increasing, 53% of people believe that crime will be worse for today’s youth. Contrast that with Australia, where crime rates have declined in a similar pattern as in the United States – yet, more than two-thirds of Aussie respondents believe that crime will be worse for today’s youth.
One significant counterpoint to this trend is China, where respondents felt that crime was less severe today than in the past.
- Veni, Vidi, Tweeti – An Obituary For The Republic
Authored by Tom Engelhardt via TomDispatch.com,
What dreamers they were! They imagined a kind of global power that would leave even Rome at its Augustan height in the shade. They imagined a world made for one, a planet that could be swallowed by a single great power. No, not just great, but beyond anything ever seen before — one that would build (as its National Security Strategy put it in 2002) a military “beyond challenge.” Let’s be clear on that: no future power, or even bloc of powers, would ever be allowed to challenge it again.
And, in retrospect, can you completely blame them? I mean, it seemed so obvious then that we — the United States of America — were the best and the last. We had, after all, outclassed and outlasted every imperial power since the beginning of time. Even that other menacing superpower of the Cold War era, the Soviet Union, the “Evil Empire” that refused to stand down for almost half a century, had gone up in a puff of smoke.
Imagine that moment so many years later and consider the crew of neoconservatives who, under the aegis of George W. Bush, the son of the man who had “won” the Cold War, came to power in January 2001. Not surprisingly, on viewing the planet, they could see nothing — not a single damn thing — in their way. There was a desperately weakened and impoverished Russia (still with its nuclear arsenal more or less intact) that, as far as they were concerned, had been mollycoddled by President Bill Clinton’s administration. There was a Communist-gone-capitalist China focused on its own growth and little else. And there were a set of other potential enemies, “rogue powers” as they were dubbed, so pathetic that not one of them could, under any circumstances, be called “great.”
In 2002, in fact, three of them — Iraq, Iran, and North Korea — had to be cobbled together into an “axis of evil” to create a faintly adequate enemy, a minimalist excuse for the Bush administration to act preemptively. It couldn’t have been more obvious then that all three of them would go down before the unprecedented military and economic power of us (even if, as it happened, two of them didn’t).
It was as clear as glass that the world — the whole shebang — was there for the taking. And it couldn’t have been headier, even after a tiny Islamist terror outfit hijackedfour American jets and took out New York’s World Trade Center and part of the Pentagon on September 11, 2001. As President Bush would put it in an address at West Point in 2002, “America has, and intends to keep, military strengths beyond challenge, thereby making the destabilizing arms races of other eras pointless, and limiting rivalries to trade and other pursuits of peace.” In other words, jihadists aside, it was all over. From now on, there would be an arms race of one and it was obvious who that one would be. The National Security Strategy of that year put the same thought this way: “Our forces will be strong enough to dissuade potential adversaries from pursuing a military build-up in hopes of surpassing, or equaling, the power of the United States.” Again, anywhere on the planet ever.
Look at more or less any document from the period and you’ll sense that they weren’t shy about touting the unprecedented greatness of a future global Pax Americana. Take, for instance, columnist Charles Krauthammer who, in February 2001, six months before the terror attacks of September 11th, wrote a piece swooning over the new Bush administration’s “unilateralism” to come and the “Bush Doctrine” which would go with it. In the process, he gave that administration a green light to put the pathetic Russians in their nuclear place and summed the situation up this way:
“America is no mere international citizen. It is the dominant power in the world, more dominant than any since Rome. Accordingly, America is in a position to reshape norms, alter expectations, and create new realities. How? By unapologetic and implacable demonstrations of will.”
“How Did USA’s Oil Get Under Iraq’s Sand?”
And soon enough after September 11th, those unapologetic, implacable demonstrations of will did, in fact, begin — first in Afghanistan and then, a year and a half later, in Iraq. Goaded by Osama bin Laden, the new Rome went into action.
Of course, in 2019 we have the benefit of hindsight, which Charles Krauthammer, Vice President Dick Cheney, Secretary of Defense Donald Rumsfeld, Deputy Secretary of Defense Paul Wolfowitz, and the rest of that crew didn’t have as they applied their Roman-style vision of an imperial America to the actual world. It should be added, however, that the millions of people who hit the streets globally to protest the coming invasion of Iraq in the winter of 2003 — “How did USA’s oil get under Iraq’s sand?” said a typical protest sign(which Donald Trump would have understood in his own way) — had a far better sense of the world than did their American rulers-to-be. Like the Soviets before them, in fact, they would grievously confuse military power with power on this planet.
More than 17 years later, the U.S. military remains stuck in Afghanistan, bedeviled in Iraq, and floundering across much of the Greater Middle East and Africa on a planet with a resurgent Russia, and an impressively rising China. One-third of the former axis of evil, Iran, is, remarkably enough, still in Washington’s gunsights, while another third (North Korea) sits uncomfortably in a presidential bear hug. It’s no exaggeration to say that none of the dreams of a new Rome were ever faintly fulfilled. In fact, if you want to think about what’s been truly exceptional in these years, it might be this: never in history has such a great power, at its height, seemed quite so incapable of effectively applying force, military or otherwise, to achieve its imperial ends or bring its targets to heel.
And yet, wrong as they may have been on such subjects, don’t sell Krauthammer and the rest of that neocon crew short. They were, in their own way, also prophets, at least domestically speaking. After all, Rome, like the United States, had been an imperial republic. That republic was replaced, as its empire grew, by autocratic rule, first by the self-anointed emperor Augustus and then by his successors. Arguably, 18 years after Krauthammer wrote that column, the American republic might be heading down the same path. After all, so many years later, the neocons, triumphantly risen yet again in Washington (both in the administration and as its critics), finally have their Caesar.
Hail, Donald J. Trump, we who are about to read your latest tweet salute you!
A Rogue State of One
Let’s note some other passing parallels between the new Rome and the old one. As a start, it’s certainly accurate to say that our new American Caesar has much gall(divided into at least three parts). Admittedly, he’s no Augustus, the first of a line of emperors, but more likely a Nero, fiddling while, in his case, the world quite literally burns. Still, he could certainly say of campaign 2016 and what followed: Veni, Vidi, Tweeti (I came, I saw, I tweeted). And don’t forget the classic line that might someday be applied to his presidency, “Et tu, Mueller?” — or depending on who turns on him, you can fill in your name of choice.
One day, it might also be said that, in a country in which executive power has become ever more imperial (as has the power of the Senate’s majority leader), blowback from imperial acts abroad has had a significant, if largely hidden, hand in crippling the American republic, as was once true of Rome. In fact, it seems clear enough that the first republican institution to go was the citizen’s army. In the wake of the Vietnam War, the draft was thrown out and replaced by an “all-volunteer” force, one which would, as it came to fight on ever more distant battlefields, morph into a home-grown version of an imperial police force or foreign legion. With it went the staggering sums that, in this century, would be invested — if that’s even the word for it — in what’s still called “defense,” as well as in a vast empire of bases abroad and the national security state, a rising locus of power at home. And then, of course, there were the never-ending wars across much of the Greater Middle East and parts of Africa that went with all of that. Meanwhile, so much else, domestically speaking, was put on the equivalent of austerity rations. And all of that, in turn, helped provoke the crisis that brought Donald Trump to power and might, in the end, even sink the American system as we’ve known it.
The Donald’s victory in the 2016 election was always a sign of a deep disturbance at the heart of an increasingly unequal and unfair system of wealth and power. But it was those trillions of dollars — The Donald claims seven trillion of them — that the neocons began sinking into America’s “infinite” wars, which cost Americans big time in ways they hardly tracked or noticed. Those trillionsdidn’t go into shoring up American infrastructure or health care or education or job-training programs or anything else that might have mattered to most people here, even as untold tax dollars — one estimate: $15,000 per middle-class family per year — went into the pockets of the rich. And some of those dollars, in turn, poured back into the American political system (with a helping hand from the Supreme Court’s 2010 Citizens United decision) and, in the end, helped put the first billionaire in the Oval Office. By the 2020 election campaign, we may achieve another all-American first: two or even three of the candidates could be billionaires.
All of this not only gave Americans a visibly unhinged president — think of him, in axis-of-evil terms, as a rogue state of one — but an increasingly unhinged country. You can feel so much of this in President Trump’s confused and confusing attempts to both end American wars and ratchet them up, 17-and-a-half — he always claims “almost 19” — years after the invasion of Afghanistan. You can feel it in his gut-level urge to attack the “deep state” and yet fund it beyond its wildest dreams. You can feel it in his attempts to create a corps of “my generals” and then fire them all. You can feel the unhinged nature of events in a world in which, after so many years of war, America’s enemies still seem to have the formula for staying afloat, no matter what Washington does. The Taliban in Afghanistan is on the rise; al-Shabaab in Somalia, is still going strong; the Houthis in Yemen remain functional in a sea of horror and starvation; ISIS, now without its caliphate, has from Syria to the Philippines, Africa to Afghanistan, become a distinctly global brand; al-Qaeda in the Arabian Peninsula thrives, while terror groups more generally continue to spread.
You can feel it in the president’s confused and confusing explanations for his urges to withdraw American troops in days or four months or whenever from Syria and do the same or maybe not exactly in Afghanistan. (As he said in his State of the Union address, American troops would both withdraw and “focus” on “counterterrorism” in that country.) You can feel it in the way, after so many years of visible failure, the neocons are once again riding high in Washington, ascendant both in his administration and as critics of its global and military policies.
These days, who even remembers that classic early Cold War question — who lost China? — that rattled American domestic politics for years, or later, the similar one about Vietnam? Still, if Donald Trump ever truly does withdraw American forces from Afghanistan (undoubtedly leaving this country’s allies in a Vietnam-style ditch), count on foreign policy establishmentarians in Washington and pundits around the country to ask an updated version of the same question: Did Donald Trump lose Afghanistan?
But no matter what happens, don’t make the mistake of blaming him. It’s true that he tweeted endlessly while the world burned, but he won’t be the one who “lost” Afghanistan. It was “lost” in the grisly dreams of the neocons as the century began and it’s never truly been found again.
Of course, we no more know what’s going to happen in the years ahead than the neocons did in 2001. If history has taught us anything, it’s that prediction is the diciest of human predilections. Still, think of this piece as an obituary of sorts. You know, the kind major newspapers write about those still living and then continually update until death finally occurs.
Think of it not as an obituary for a single loopy president, a man who, with his “great, great wall,” has indeed been an opiate of the masses (for his famed base, at least) in the midst of an opioid crisis hitting them hard. Yes, Donald J. Trump, reality TV star and bankruptee, he of the golden letters, was elevated to a strange version of power by a troubled republic showing signs of wear and tear. It was a republic feeling the pressure of all that money flowing into only half-noticed distant wars and into the pockets of billionaires and corporate entities in a way that turned the very idea of democracy into a bad joke.
Someday, if people ask the obvious question — not who lost Afghanistan, but who lost America? — keep all those failed imperial wars and the national security state that went with them in mind when you try to answer. Cumulatively, they had a far more disruptive role than is now imagined in toppling the dominos that sent us all careening on a path to nowhere here at home. And keep in mind that, whatever Donald Trump does, the Caesarian die was cast early in this century as the neocons crossed their own Rubicon.
Hail, Caesar, we who are about to die salute you!
- Russians Told To "Prepare For Worst Outcome" As US Prepares New Sanctions
A bipartisan team of US senators is preparing to hit Russia with additional sanctions over its 2016 US election interference and military operations in Syria and Ukraine.
Sens. Bob Menendez (D-N.J.) and Lindsey Graham (R-S.C.) are spearheading the measure, called the Defending American Security from Kremlin Aggression Act, which includes a wide range of financial penalties targeting Russia’s energy complex, financial industry and “political figures, oligarchs, and family members and other persons that facilitate illicit and corrupt activities, directly or indirectly, on behalf of Vladimir Putin,” reported The Independent.
Threats of the sanctions rocked Russian stock and government bond markets at the end of the week, and the country’s debt insurance costs jumped alongside FX volatility.
Moscow has responded to the prospect of new sanctions with anger.
A former minister told Russians to prepare for the worst outcome; the Kremlin accused the US of “racketeering.”
“We see clear symptoms of emotional Russophobia,” Kremlin spokesperson Dmitry Peskov told journalists. “But behind the emotions … is an entirely pragmatic, assertive trade calculation, and … nothing less than an attempt to engage in dishonest competition.”
Frants Klintsevich, a member of the Defence and Security Committee of Russia’s upper house, described the new sanctions as a “dangerous habit” similar to “smoking a pipe before breakfast, poisoning all those around.”
The head of Russia’s largest bank and its former economics minister, Herman Gref, warned that the sanctions could damage the already slowing economy.
“We need to prepare for the very worst of situations,” Gref warned.
The sanction also includes support for NATO, including requiring a two-thirds majority in the Senate for the US to leave the alliance. It includes plans to make it easier to transfer military hardware to NATO countries to reduce their dependences on Russian arms.
The possibility of new sanctions suggests that the US is ready to increase its economic war against Russia. As the global economy rapidly slows in 2019, relations with the US and the rest of the world are at tense levels, the possibility of a geopolitical flare-up is right around the corner.
Should we be looking in the East China Sea or the South China Sea for potential conflicts, or maybe hone in our attention on the Ukraine and Russia border?
Judging by the additional sanctions, all eyes should be on Europe.
- The 'Disappearing Democrat' Scandal – Part 1
Authored by Tim Donner via Liberty Nation,
This is the first of a two-part series on a massive scandal that has gone largely unreported, based on an interview on Liberty Nation Radio with Luke Rosiak, author of Obstruction of Justice: How the Deep State Risked National Security to Protect the Democrats.
Have we had enough of scandals – fake or real – in Washington? On one side, we’ve been hearing for two years about accusations of collusion between Trump and Russia – no proof found. From the other side comes claims that innocent Trump campaign operatives were drawn into an FBI trap to trigger an unfounded investigation – plenty of proof on that one.
But if you think you have a handle on all the scandals pervading the DC swamp, think again. There was another truly shocking turn of events involving Congress that flew mostly under the radar in the heat of the 2016 presidential campaign. An unvetted Pakistani national given to blackmail gained access to the computer files of more than 30 Democrats in the House of Representatives, and from there the story reads like a spy novel. Some have called it the biggest scandal in congressional history, notwithstanding the lack of publicity surrounding it.
Luke Rosiak, investigative reporter at The Daily Caller, has unmasked the scandal in his new book, Obstruction of Justice: How the Deep State Risked National Security to Protect the Democrats. And he dove into the details on Liberty Nation Radio.
Luke Rosiak: Imran Awan was an IT guy for Congress for many years. He was working for Debbie Wasserman Schultz and other members of Congress. In the heat of the 2016 election, actually the same week that the DNC was hacked, Congress’ own internal police caught him hacking Congress. So although he was the IT guy, he was taking much more data than he should have had access to, impersonating members of Congress, and logging into their accounts and so on, and shuttling data off the House network and taking steps to hide what he was doing.
So obviously, especially with the context of what was going on in the DNC, this was a huge deal. And yet no one ever heard about it from month to month to month. Even after that, you never heard anything about it.
So it turned out after I pulled the thread on this for two years and found everywhere I looked literally just James Bond stuff, just the absolute wildest things. This guy was taking money from an Iranian government minister and laundering it through a front company called CIA LLC. After he was banned from Congress, he had a back door into the House network, because he was impersonating an intelligence staffer. The list goes on and on.
So, they kicked the can down the road until after the election. They let him continue to log in to Congress this whole time while they’re building this Russian narrative. After the election, they still don’t want this to really go public. So they kick him off the network and they fire him, but they don’t arrest him. That’s when I find out that he’s still got access. He goes into Debbie Wasserman Schultz’ office at midnight, takes her laptop, after he’s been banned from Congress, and leaves it in a phone booth. So as I say, truly this is a surreal tale. As I investigated it, I just couldn’t believe what I was learning, and yet this was concealed from the American public.
Imran Awan
Tim Donner: Did Mr. Awan have so much on so many Democrats that there was a great hesitancy to really bring down the full weight of the law on him?
Luke Rosiak: Actually that’s what he himself said. So a couple of reasons why they wanted this to go away. The first is the Russian narrative. They didn’t want this competing hack involving Pakistanis that they had failed to vet. And there were a series of very embarrassing missteps by the Democrats that allowed this happen, and incompetence.
Then the other thing is, what you just said. I mean, this guy had access to everything. I think there was the worry that he would release it if they didn’t kind of make this thing go away. So his own wife goes to the FBI and says, “My husband told me that he’s a mole in Congress from Pakistan. He told me that he knows so much that he can never be prosecuted. So it’s okay.” And then she says, “I’m going to go to the FBI.” And he goes, “Well, I’ve been surveilling you. I’ve got videotape, a sex tape. I’m going to release that in Pakistan if you come forward.”
So here we are. This is a guy hacking Congress and he’s caught, and he starts blackmailing people to prevent them from going to the FBI. His stepmother comes forward, and it’s virtually the identical story. She says, “I’ve been held in captivity by this guy to prevent me from coming forward. He said he’s going to have my family killed in Pakistan.” They basically intimidate this woman, and witnesses are scared. Evidence starts disappearing, and really this remarkable coverup is in full swing.
The funniest part of all is the Democrats who are working frantically behind the scenes to orchestrate this coverup. Publicly they kind of say, “Oh, what are you talking about? That sounds crazy. It must be a conspiracy theory. I bet it’s Donald Trump somehow behind this being Islamophobic.” Meanwhile, these poor women, who are, of course, Muslim, are basically begging for their lives, and they’re being hung out to dry while this guy’s being protected.
* * *
In part two of this series, Mr. Rosiak discusses the Capitol police investigation, how a server with critical evidence suddenly disappeared, and the media’s refusal to cover this scandal.
- Deutsche Bank Renegs On Pledge To Help Distressed Homeowners
This ought to win Deutsche Bank some badly needed good will with global prosecutors investigating the bank for its involvement in various financial frauds – not to mention Financial Services Committee Chairwoman Maxine Waters.
According to a Bloomberg report on Friday, DB has decided – apparently with the blessing of a federally appointed monitor – that it won’t pay out the $4 billion balance on its commitment to help distressed homeowners impacted by the housing collapse. The bank had agreed to spend billions of dollars on consumer relief during the waning days of the Obama administration as part of a massive settlement with the DOJ over its role in selling mortgages.
Instead, the bank will use the money on providing new loans.
The bank’s monitor said the decision might disappoint some homeowners who had reached out to the bank for relief over the past two years…but, to be fair, DB has already paid out $1.5 billion as part of the program.
The decision reverses pronouncements by the bank and the U.S. Justice Department that some of the funds – part of an overall $7.2 billion settlement over bad mortgage bonds sold before the 2008 crisis – would go to aiding people who were in imminent risk of defaulting on their mortgage payments, have especially high interest rates or owe more on their mortgage than in the value of their home.
The change in plans “may disappoint distressed homeowners and others, including the many individuals who have reached out to the monitor over the past two years, hoping to receive different types of consumer relief from the bank,” Bresnick wrote in the report, which was posted online.
Bresnick, a partner at the law firm Venable LLC and a former U.S. prosecutor, declined to comment for this article. The Justice Department didn’t have an immediate comment.
The bank rationalized its decision by saying the “most effective” form of consumer relief would be to provide loans to consumers so they can purchase homes (though, presumably, those distressed consumers wouldn’t qualify under the more stringent lending standards of the modern era).
The decision reverses pronouncements by the bank and the U.S. Justice Department that some of the funds – part of an overall $7.2 billion settlement over bad mortgage bonds sold before the 2008 crisis – would go to aiding people who were in imminent risk of defaulting on their mortgage payments, have especially high interest rates or owe more on their mortgage than in the value of their home.
The change in plans “may disappoint distressed homeowners and others, including the many individuals who have reached out to the monitor over the past two years, hoping to receive different types of consumer relief from the bank,” Bresnick wrote in the report, which was posted online.
Bresnick, a partner at the law firm Venable LLC and a former U.S. prosecutor, declined to comment for this article. The Justice Department didn’t have an immediate comment.
Unlike other bank settlements from the Obama era, DB’s settlement didn’t require the bank to spend the money on consumer relief; instead, DOJ and DB had what amounted to a handshake agreement. The money earmarked for consumer relief wasn’t specifically earmarked for loan modifications, which means the bank is free to use it for loans at its discretion. By comparison, similar settlements reached during the Trump era haven’t required money be set aside to help consumers.
Earlier monitor reports said the bank was planning to offer loan relief and had entered into financing arrangements with two companies specializing in modifications.
“The bank now has declined to pursue these options for relief,” the latest monitor report said. “It will not, after all, help any underwater homeowner by forgiving a portion of the principal owed on a mortgage, offer forbearance to any homeowner finding it difficult to make a monthly mortgage payment, or provide any of the other relief addressed in the monitor’s prior report.”
The settlement – which initial reports suggested could be as high as $14 billion – instead required the bank to pay a roughly $3 billion fine and offer the $4 billion for consumer relief. But rest assured, the bank’s new Democratic overlords on the House Financial Services Committee likely won’t forget this.
- Why Schumer And Sanders Are Wrong On Buybacks
Authored by Ben Steil and Benjamin Della Rocca via CFR.org,
In a widely discussed New York Times op-ed, Senators Chuck Schumer and Bernie Sanders excoriated share buybacks as “corporate self-indulgence,” diverting profits away from investment and worker compensation.
Is this true?
Logically, there is no basis for believing that a firm prevented from buying back its stock will, in consequence, increase investment or compensation. If it can’t find other ways to return excess cash to its owners, it can always park it in, say, Treasuries. More importantly, other companies do need cash for equipment, R&D, attracting workers, and the like. And it makes sense for investors to re-allocate funds from companies that don’t need it to those that do.
So if buybacks are happening for sound economic reasons, we would expect to see them at firms whose return on capital is falling—that is, companies with deteriorating investment opportunities. Is this the case?
Take a look at the left-hand graphic above, which plots the growth in buyback activity between the first halves of 2017 and 2018 and the change in return on capital relative to the post-crisis (post-2010) average. The relationship is as we would expect. Firms that experience a deterioration in return on capital boost buybacks, which is a logical way to return underperforming cash to investors. And, as expected, the sector in which buybacks increased the most—Information Technology (IT)—is also the sector that experienced the biggest decline in return on capital.
Now look at the right-hand graphic. This one shows that the three sectors experiencing the largest decline in return on capital – IT, Health Care, and Energy – account for nearly 80 percent of the rise in buyback activity in the first half of last year.
In short, Schumer and Sanders have this wrong. The data show clearly that buybacks are being undertaken overwhelmingly by companies that should be returning cash to investors – companies that don’t have good uses for it. That cash is not disappearing into the vaults of billionaires, but is being reinvested in firms that do have good uses for it – like capital investment and worker retention.
And isn’t that what Schumer and Sanders say they want?
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