- Why A UK Billionaire Believes Brexit Would Be "Good For The UK"
The City of London and the pound would both benefit from the U.K. leaving the EU, says billionaire Peter Hargreaves. Brexit may knock the pound initially, but it would rebound, the co-founder of Hargreaves Lansdown — the largest U.K. retail broker, with more than $84.1 billion equivalent in assets — told Bloomberg Briefs' Geoff King in a June 17 interview.
Q: Why do you support "Leave"?
A: Every year in the EU it gets more political, it gets more legislative, more regulative; we don’t seem to get very much benefit from it. We will be far better out. The EU as an economic mark is declining in the world, when there were only nine countries in it was 30 percent of the world's GDP, now there are 28 it is only 17 percent. That's some serious decline. Other countries that are growing — India, parts of Africa, Brazil, China and even Russia — are the places we should be trading with.
Q: How do you counter strong economist/analyst support to remain?
A: There's a huge amount of vested interest, a lot people making these comments are politically motivated and also work for big banks that aren’t British. They’ve built these enormous dealing rooms and offices in the City of London and Canary Wharf and their bosses are saying we don't want to endanger this huge investment of ours. I don't think it will endanger that huge investment. You can't move the City of London to anywhere else in Europe. It's madness to suggest it. Frankfurt, the place everybody keeps talking about, only has a population of 700,000, it could not accommodate anything like the City of London. The City of London is absolutely guaranteed, it is bound to survive. The only center that could take over would be Zurich and that's not in the EU either. It's absolute drivel that the City of London will be affected. The City of London will go out and it will deal with these emerging economies in the Pacific Basin, Southeast Asia, Africa — they're all going to want finance for different things. You can't set up the City of London anywhere else. It takes years, and during that time the City of London will have grown stronger. Any attempt at usurping it will fail.
Q: How will London's role change?
A: It will become more global. There are only two global financial cities: New York and London. The fact London is no longer shackled to the EU means it will go out and deal with the rest of the world. New York is not in a great place, it is only in a great place for dealing with America and South America. The London time-zone is perfect for almost everywhere else in the world.
Q: What will happen to the EU?
A: The EU will disintegrate when we leave. They will realise there is nothing left. The political union is going to be a disaster and they'll want a free-trade area. Do you know who'll be the first country invited to that free trade area? The U.K.
Q: What happens to interest rates with a Brexit?
A: I don't think there'll be any change. One thing every country in the world is trying to do is get the value of their currency down. That's why interest rates are low. It is quite likely the pound will come under a bit of pressure, initially it will go down. That will be compensation for any tariffs, so the tariffs won't bother us. Not that they will instigate tariffs anyway, but any worry about it will already be compensated by the pound. The pound will become strong again, just like after we left the ERM snake under John Major. [At that time] the pound came under enormous pressure, but within 12 months was one of the strongest currencies in the world because we weren't shackled to the euro.
Q: How will factors holding down inflation differ?
A: Everyone is trying to increase inflation by reducing their interest rates and reducing the value of their currencies. We don't know what the impact of us leaving will be. I can't make any suggestion on how we get the currency to the level we want and inflation to level we want until I know how markets react to us leaving the EU. It is a hypothetical question, it may do it automatically, we may have measures to take. I think there'll be a knee-jerk reaction, but afterwards there'll be calm with people realizing it is no big deal us leaving. I think everyone is going to realize it is actually going to be good for the British economy.
Q: Would leaving the EU impact savings and investment?
A: I have more money in the stock market than any other person in the U.K., I have 2 billion pounds in the U.K. stock market. No one has anything like that. Do you think I would be intent on leaving if I thought that was going to endanger my wealth?
- The New Iron Curtain – A Monument To Washington's Imperial Folly
Submitted by Justin Raimondo via Anti-War.com,
A foreign army consisting of 31,000 soldiers from an anti-American alliance are conducting military “exercises” a few miles from San Diego. Hundreds of tanks converge on the Rio Grande, while jets from 24 countries converge in attack formation, darting through Mexican skies.
It isn’t hard to imagine Washington’s response.
Yet that’s precisely what has been happening on Russia’s border with the NATO alliance, as the cold war returns. Economic sanctions aimed at sinking Russia’s fragile economy, plus a propaganda campaign designed to characterize Russian President Vladimir Putin as the second coming of Stalin – or, in Hillary Clinton’s view, Hitler – have history running in reverse. Once again, an iron curtain is descending across Europe – only this time it’s the West’s doing.
The European Union renewed sanctions against Crimea on Friday: their “crime” – holding a referendum in which the overwhelming majority of voters opted for union with Russia, restoring what had been the status quo since the days of Catherine the Great. And the EU is slated to extend sanctions against the Russian Federation later this week.
Yet dissent against this revival of the cold war is rising in Europe, notably in Germany, where Foreign Minister Frank-Walter Steinmeier is calling for the “gradual” lifting of sanctions to reflect progress in the implementation of the Minsk accords, which call for the demilitarization of Ukraine and elections in rebel-held territory. This reflects a division within Germany’s left-right coalition government: Angela Merkel’s Christian Democrats are holding out for “full” implementation of the accords. Yet it is the government in Kiev – held hostage by far-right crazies – that has been dragging its feet over Minsk, refusing to grant autonomy to east Ukraine and vowing to continue the war against the rebels in spite of Kiev’s lack of success in pacifying the rebellious region.
Steinmeier went further in another interview, characterizing provocative military exercises conducted near Russia’s borders as “warmongering.” The “drill,” which ended Friday, simulated a Western response to an improbable Russian attack on Poland. “What we shouldn’t do now is inflame the situation further through saber-rattling and warmonger,” averred Steinmeier:
“Whoever believes that a symbolic tank parade on the alliance’s eastern border will bring security is mistaken. We are well-advised to not create pretexts to renew an old confrontation. [It would be] fatal to search only for military solutions and a policy of deterrence.”
The reality is that it is NATO that has to be deterred: ever since the collapse of the Warsaw Pact and the implosion of international communism the West has been advancing eastward, gathering its forces at the very gates of Moscow. They didn’t call the recent exercises “Spearhead” for nothing. Herr Steinmeier is correct that the “tank parade” within spitting distance of the Kremlin is “symbolic,” but neglects to tell us what it symbolizes, which is nothing less than World War III.
The Germans are rebelling against the EU/NATO war on Russia because, as in the old cold war, they will be caught in the middle: if the unthinkable becomes thinkable and hostilities break out Germany will become a battlefield, i.e. a smoking ruin. As Cold War II rears its ugly head, it’s hardly surprising that Euro-neutralism is making a comeback.
Aside from that, the post-cold war structures erected by the new cold warriors are coming apart at the seams: the EU itself is disintegrating, with Euro-skepticism threatening to take Britain out of the Union and the rise of anti-EU parties across Europe challenging the legitimacy of the Brussels bureaucracy.
And here in the US, questions are being raised about the utility of the main bulwark of the anti-Russian foreign policy of the West: former defense secretary Robert Gates wants to know why our European protectorates are failing to pay their fair share of NATO’s mounting costs. And presumptive GOP presidential candidate Donald Trump has gone much further, declaring that NATO is “very obsolete” and raising the possibility that, if he makes it to the White House, the Western alliance will be no more, or will, at least, take on a much different form.
With the focus of US foreign policy on the Middle East, and the alleged threat of ISIS preoccupying US policymakers, the impending collapse of the post-World War II international order has taken a back seat in the public eye. Yet this development is far more important, in the long run, for the simple reason that relations with Russia far outweigh whatever is happening in, say, Syria – where the Russian factor is key to solving that seemingly intractable problem.
Here, again, the political class and their journalistic camarilla split with the American people: most Americans want nothing to do with Ukraine and its many problems. The elites, however, have taken up the cause of what is one of the world’s most corrupt regimes as if it is a paragon of virtue and democratic liberalism. It is neither: the present rulers came to power in a violent coup, chasing out the democratically-elected President, and paving the way for a far-right regime that openly celebrates World War II collaborators with the Nazis.
The demonization of Putin’s Russia is based on historical illiteracy. It was only a short time ago that Russia was a one-party dictatorship where millions were enslaved by a regime that had as much blood on its hands as Nazi Germany. To fail to acknowledge the enormous progress that country has made, against overwhelming odds, is beyond ridiculous.
The neoconservatives have long held a grudge against Putin for denouncing the Iraq war as a foolish adventure: American liberals use Putin as a piñata, the puncturing of which is supposed to prove how “tough” they are. Indeed, the Clintons have long been among the worst of the Russia-bashers, and a Clinton Restoration will see the US go head-to-head with Putin, not only in Europe but also in Central Asia, where Bill has long been canoodling with various despots.
It’s time to lift the new iron curtain that is descending across Europe. Russia and the United States have many interests in common: a new cold war, which could easily escalate into a hot war, is in no one’s interests.
- The Chinese Real-Estate Bubble Has Gone Parabolic: Land Prices Soar 50% In One Year
The saying goes “when in a hole, stop digging.” In China, conventional wisdom appears to be flipped on its head as follows: “when facing a massive real estate bubble, keeping blowing.” That is the case at least according to the following chart showing the average price of land, the main ingredient of the property world, in the top 100 Chinese cities, which as of May has hit a record 3,100 Yuan per square meter.
As the WSJ calculates, the average land price per square meter for the top 100 Chinese cities in the first five months of this year jumped nearly 50% from same period last year, citing Wind Information. More stunning is that according to Wind, some land prices are even higher than asking prices for fully-built houses nearby.
You read that right: unbuilt land in many places in China now costs more than fully-finished apartments.
Some examples of how the government itself, through SOEs, is pushing the real-estate bubble on a parabolic path that will lead to an unmitigated bubble explosion.
- State-owned developer Poly Real Estate bought a piece of land in a Shanghai suburb for 5.5 billion yuan ($835.5 million) last month. This translates to roughly 44,000 yuan per square meter of buildable space. This is more than what full-built houses in the region sell for, with the average price at around 40,000 yuan per square meter. After taking into account construction costs, taxes and other expenses, property prices would have to nearly double for the developer to make money.
- A property subsidiary of China Gezhouba Group, a state-owned builder of power plants and dams, spent 3.3 billion yuan last month to buy the most expensive land, in terms of price per square meter, in Nanjing. Another state dam construction company, Power Construction Corp. of China, snapped up a piece of land in China’s bubbliest property market, the southern metropolis of Shenzhen, for 8.3 billion yuan.
- Cinda Real Estate, a subsidiary of state-owned “bad bank” China Cinda Asset Management, has splurged on at least 35 billion yuan of land over the past year, even though the market value of the company, listed in Shanghai, is just 7.3 billion yuan.
Behind all the ludicrous transaction? The Government. And while we understand that the ultimate debt issuers are government-owned entities, the question of where the money comes – ignoring the ultimate guarantor – from is still applicable.
The answer: mountains of new debt.
The WSJ reports that to fund the purchases, Cinda’s net debt has swelled to more than three times its shareholders’ equity. It still managed to raise 3 billion yuan last month in a bond financing at 5.5%, mostly because of its state backing.
And since the company is backstopped by the government, it will be able to issue even more debt before it inevitably defaults on its obligations, leading to yet another zombie company which can not be liquidate due to Beijing being on the hook, yet which can no longer operate.
As the WSJ puts, it, “the domestic bond market and growth in asset-backed securities have made financing easier for developers, causing companies to chase whatever assets they can.”
Which really boils down to one simple admission: it’s a bubble.
It gets better: continuing “reforms” of state-owned enterprises could also be a trigger, as these firms have incentives to inflate their balance sheets to gain clout in consolidation talks. For some which have already invested heavily in real estate, keeping land prices high makes sense. In other words, to keep the value of their collateral high and avoid insolvency, the firms are forced to “paint the tape” and buy even more assets at ever higher prices.
And since the money comes from naive bondholders who are convinced they may even get repaid one day, this reflexive charade will continue for a long time until one day China, too, will realize that one can’t create money out of thin air in perpetuity and live happily ever after.
- A Perfect Recipe For Mayhem
Submitted by Howard Kunstler via Kunstler.com,
At a most troubled moment in history, both major political parties appear set to nominate time-bomb candidates for president with a fair percentage chance of blowing up their own campaigns and the parties themselves.
We’ve been living in the era of anything goes and nothing matters — that is, the era of no consequences — but at some point between now and November 8 someone surely will press FBI chief James Comey as to why his agency issued neither a criminal referral nor an explanatory memorandum in the matter of Hillary Clinton’s private email server and its role in the money-gathering activities of the Clinton Foundation while she was Secretary of State.
Hapless Bernie Sanders blew his chance to call her on that months ago — “The American people are sick and tired of hearing about your damn emails!” — but it’s absolutely certain that Trump will jump up and down and shout woo-woo-woo about it during the general election campaign, if he manages to not get dumped at the GOP convention. Or his as-yet-hypothetical replacement will.
The email issue won’t go away because it entails serious issues of racketeering in public office, not just niceties of security procedure. One of the Secretary of State’s duties is to approve weapons sales to foreign countries. During her three years at State, Hillary signed off on $165 billion worth of sales by private commercial arms contractors to Clinton Foundation foreign donors. On top of that was an additional $151 billion of separate Pentagon-brokered deals for 16 of the countries that gave to the Clinton Foundation. It also happened that the weapons contractors themselves and companies connected financially to them made substantial donations to the Clinton foundation — and paid whopping speaking fees to Hillary’s husband ex-president Bill, during her years at State.
Salon Magazine has also reported that in contradiction of a 1995 directive signed by then-president Bill against arms sales to nations violating human rights, Hillary approved such weapons sales. Salon’s David Sirota writes:
As just one of many examples, in its 2011 Human Rights Report, Clinton’s State Department slammed Algeria’s government for imposing “restrictions on freedom of assembly and association,” tolerating “arbitrary killing,” “widespread corruption” and a “lack of judicial independence.
That year, the Algerian government donated $500,000 to the Clinton Foundation and the next year Clinton’s State Department approved a one-year 70 percent increase in military export authorizations to the country. The jump included authorizations for almost 50,000 items classified as “toxicological agents, including chemical agents, biological agents and associated equipment.” The State Department had not authorized the export of any of such items to Algeria the year before.
There’s no way that the shady doings of the Clinton Foundation will not become a campaign issue whether Trump emerges as the eventual GOP nominee or not, and of course the other noisome matter of exactly what Hillary told Too-Big-To-Fail banks in exchange for many quarter-million dollar “speaking fees” still lurks behind all that. Hillary’s partisans at the The New York Times and The WashPo have ignored these stories for months, but the telltale stench remains, like a dead body under the floorboards.. In contrast to her beaming victory lap after the California primary, all this stuff promises some serious frowny-face for Mz. It’s-My-Turn in the months ahead.
As for Trump, the hand-wringing and Maalox-gulping among GOP nabobs got a lot more intense since the Orlando Club massacre, and the (as usual) disjointed utterances by the presumptive Republican Party nominee. This guy is not just a loose artillery shell rolling around on the deck — he’s a dirty bomb wrapped in a smallpox blanket threatening to turn the Grand Old Party into a political Flying Dutchman. Speaker of the House Paul Ryan underscored his extremely conditional endorsement of Trump on the Sunday TV chat forums, hinting that even if Trump got where he is playing by the rules, the rules can be changed at the convention.
That would set the stage for a melee both inside and outside the GOP convention in Cleveland a month from now. The tragedy of a legitimately irate populace vested in such an obviously inept champion will lead to a political explosion when the party poobahs try to maneuver him off-stage. The only worse alternative is if they actually go ahead and nominate the ham-headed sonofabitch. Either way, the Republican Party comes out as burnt toast.
Remember, too, the Black Lives Matter movement and its affiliates promised months ago to bring a disruptive presence to both conventions. Imagine how they will get on with thousands of outraged Trumpsters moiling in the streets. Add a dash of Mexican hot sauce to this farrago and you’ve got a perfect recipe for mayhem.
- The IMF Tells Japan: Abenomics Is A Miserable Failure, Recommends "Forcing Companies To Raise Wages.. Or Else!"
For those confused as to whether or not Abenomics was working, all one has to do is glance at the recent export data released by the Ministry of Finance for confirmation that it's been a complete disaster.
Japan's exports fell 11.3% in May on a y/y basis, the eighth consecutive month that exports have fallen according to Bloomberg. Exports to the US fell 10.7% from a year earlier, and exports to China, Japan's largest trading partner plummeted 14.9% y/y.
However, do not be alarmed, as the IMF is all over the matter. In a statement released on Monday, the IMF had a lot of sage advice to provide Prime Minister Abe about his Abenomics policies that have failed to produce literally any of the intended results.
As the Nikkei Asian Review summarizes, the IMF said that "Abenomics needs to be reloaded", arguing that income policies and labor market reforms should be moved to the forefront. What stands out immediately here, is that the IMF is advocating a policy whereby companies are made to raise wages by at least 3%, and if they fail to do so, penalties are imposed. If central planning hadn't jumped the shark a long time ago, we'd submit that this would be that point.
From the Nikkei Asian Review
Despite initial success, progress under Abenomics, Prime Minister Shinzo Abe's trademark economic policies, has stalled in recent months. The inflation rate has dropped to negative territory again, while economic growth has remained anemic.The IMF now expects Japan's economy to grow by about 0.5 percent in 2016, before slowing to 0.3 percent in 2017, with potential growth sliding to close to zero by 2030, due to the declining demographic.
"Abenomics needs to be reloaded," the IMF said in its report and argued that income policies combined with labor market reforms should "move to the forefront" of the country's fight against lagging growth.
"The government can introduce a 'comply or explain' mechanism for profitable companies to ensure that they raise base wages by at least 3% and back this up by stronger tax incentives or — as a last resort — penalties," the IMF wrote. Promoting intermediate contracts that balance job security and wage increases will "reinforce income policies," it added.
"Our perception is that much of the stasis of inflation [in Japan] comes from the legacy, the history of having negative inflation," said David Lipton, first deputy managing director at the IMF, in a press conference in Tokyo. "Certainly firms have at this point the cash flow and resource at hand to provide some wage increases. There are wage increases evident in a wide range of companies across this economy, so our thought is to suggest that this be a broader practice and that it be more uniform."
Upon learning of the news that Abe delayed Japan's long awaited tax hike, we pointed out that it was an admission of failure for Abenomics, and Japan had no hope of ever reducing its debt load. The IMF is now pushing Japan to not only put the tax hikes back on the table, but incresae the percentage to "at least 15%." as part of a "credible fiscal plan." – good luck with all of that.
The fund noted that these reforms need to be backed up by measures to support demand as well as credible fiscal plans, and argued that the consumption tax hike to 10%, which the government delayed until October 2019, should be replaced by a gradual increase towards "at least 15%."
"Starting the increases soon and replacing the currently planned 2019 hike with such a pre-announced, gradual path would enhance the credibility of the long-run fiscal adjustment, reduce uncertainty for consumers and avoid large intertemporal shifts in spending around the time of the tax hikes," the IMF said.
The IMF even admits that NIRP has failed to generate any domestic demand at all, and is calling for the BOJ to scrap any expectation of inflation in order to be more realistic.
The Bank of Japan in February introduced a negative interest rate in part to support domestic demand. However, in the event that the IMF's suggestions will not be implemented, Japan will lack growth and therefore would need a longer time to get its fiscal books in order. In that scenario, the IMF called on the bank to scrap its time frame for achieving its 2% inflation target, which the BOJ now sets at somewhere in fiscal 2017.
"The monetary policy framework would need to become more flexible, with the BOJ abandoning the use of a specific calendar date for achieving its inflation target," the IMF said. "While such a shift should raise BOJ credibility by setting a more realistic goal, the transition will need to be well-communicated to avoid perceptions that the BOJ is reducing its commitment to achieving its inflation target and to limit the potential for adverse market reactions, including yen appreciation."
* * *
So in summary, the IMF has studied Japan's economy and has come to the conclusion that Abenomics has been a miserable failure. The advice now is to scrap all of the plans for hitting any kind of economic targets, and just start forcing companies to raise wages, while simultaneously raising everyone's taxes 15%. The central planners are literally starting to lose their collective minds.
- When Brexit Has Come And Gone, The Real Problems Will Remain: A Reminder From Socgen
In a few days, Brexit will come and go, and just a few days later it will be forgotten, as either outcome will be far less dramatic than has been widely predicted by the same fearmongering economist pundits who have been wrong about everything else for the past 8 years. Ironically, the better outcome for the market is precisely a Brexit as the panic selloff will prompt central banks around the globe to boost enough monetary stimulus to send risk assets to new all time highs.
What will remain, however, are the real problems.
Here is SocGen with a useful reminder of just what those are, and why the market may have already forgotten that just one week ago the Fed threw in the towel when addressing precisely these problems.
From SocGen’s Andrew Lapthone:
Global equity markets continued to struggle last week, with the MSCI World index off 1.8% pushing the index back into red for the year. Big losses were seen in Japan with the Topix 500 down 6% and the volatile Mothers index crashing 18.5% over the week as the yen continued to strengthen. According to the BOE measure, the trade-weighted yen is now up more than 20% over the past year and back to where it stood three years ago. In the battle for the weakest currency, Japan looks to have thrown in the towel.
Whatever the outcome of the Brexit vote this week investors will still be facing the prospect of negative rates and negative yields on a huge range of bonds, massive corporate leverage with worryingly rising delinquencies and of course expensive equity markets and falling profits. To that extent these political events are a distraction from the main event, weak global economic growth and perverse asset markets. So whilst the market preference for the status quo might be celebrated in the short-term, actually when the fog clears all of the problems will still be there.
Let’s take the UK for example. The market will most probably rally as it is doing today if Brexit is rejected, but rally to where? We have already highlighted the excessive leverage and payout ratios in the UK, but these are not the only problems. On a disaggregated basis, median valuations are at the upper end of historical estimates (see below), profitability whether measured on an ROE, ROA or ROIC basis has rarely been this weak outside of an economic slump, and these figures do not materially change whether the problematic commodity and financial sectors are included or not. Brexit or not, the UK equity market hardly looks healthy.
- Why An Ex-Credit Suisse Banker In Brazil Made More Money Than The CEO
Ever had to testify in a trial involving your father's dealings in corrupt activities, and as a result had your tax records leaked for all of the public to see? Sergio Machado, the ex-head of Credit Suisse's Brazil fixed-income business has, and now everyone knows how much he made in 2015.
Sergio's father, who goes by the same name, is a former Brazilian politician who went on to head the state run oil company Petrobras before being investigated for corrupt activities involving bid-rigging and bribery. During the case (which the elder Machado has since agreed to a plea bargain) Sergio was called on to testify about an HSBC account he opened in Switzerland that some of the illegal funds allegedly moved through. As part of the court proceedings, Sergio had submitted tax records for 2015, and those records were released to the public.
What the tax record shows has left many bankers thoroughly confused – in 2015, the younger Sergio Machado made $14 million with Credit Suisse as the head of Brazil's fixed income business. What makes it curious, is that this was during a year where, as Bloomberg reports, deal fees plummeted 42% to the lowest level in a decade, and as we discussed, in an economy that fell off a cliff in 2015. In addition to the Brazilian elements, Credit Suisse overall suffered its first annual loss since the financial crisis in 2015, with its global markets and investment banking operations performing horrendously.
Machado's $14 million in compensation for 2015 was much higher than the highest paid CS executive board member Rob Shafir, who earned $8.2 million. Additionally, CEO Tidjane Thiam earned $4.7 million for six months of work in 2015, which annualized doesn't even come close to Machado's haul. Bloomberg notes that the $14 million did include deferred bonuses from prior years, however those would be some significant bonuses to get the banker up to $14 million. Then again, under Machado's watch, CS lent $1.27 billion to Minas Gerais State in 2013, and then promptly turned around and sold it to investors a month later for a cool $116 million profit, so perhaps Machado got a large cut of that deal – we'll never know.
Credit Suisse declined to comment, saying it doesn't discuss employee earnings.
Machado left the firm in April amid global cutbacks after spending 17 years at the bank, and perhaps the removal of Machado's lofty paycheck will be spun by Thiam as evidence that the CEO is serious about turning the organization around in hopes that the stock will stop crashing. Then again, probably not.
Also, for those interested in the other piece to the story, which is how the younger Machado testified to the fact that illegal funds were moving through his bank account, Sergio said that he had been kept in the dark about any allegedly illegal activities:
"The whole time, I believed in the lawful purposes of the account."
And just in case anyone gets any ideas of prosecution, don't, because the trail may lead to the very top and that is not acceptable.
- FBI Tried To 'Lure' Omar Mateen Into A Terror Plot Before Orlando Shooting
Submitted by Max Blumenthal & Sarah Lazear via AlterNet.org,
Before Omar Mateen gunned down 49 patrons of the LGBTQ Pulse Nightclub in Orlando, the FBI attempted to induce him to participate in a terror plot. Sheriff Ken Mascara of Florida’s St. Lucie County told the Vero Beach Press Journal that after Mateen threatened a courthouse deputy in 2013 by claiming he could order Al Qaeda operatives to kill his family, the FBI dispatched an informant to "lure Omar into some kind of act and Omar did not bite."
While self-styled terror experts and former counter-terror officials have criticized the FBI for failing to stop Mateen before he committed a massacre, the new revelation raises the question of whether the FBI played a role in pushing Mateen towards an act of lethal violence.
Since 9/11, the FBI has relied heavily on informants to entrap scores of young, often mentally troubled Muslim men and send them to prison for as long as 25 years. As Aviva Stahl reported for AlterNet’s Grayzone Project, the FBI recently encouraged an apparently mentally disturbed recent convert to Islam named James Medina to bomb a South Florida synagogue and pledge allegiance to ISIS, a militant group with which he had no prior affiliation. On trial for planning to commit an act of terror with a weapon of mass destruction, Medina has insisted through his lawyer that he is mentally ill.
Trevor Aaronson, a journalist and author of “Terror Factory: Inside the FBI’s Manufactured War on Terror,” revealed that nearly half of terror cases between 9/11/01 and 2010 involved informants, including some with criminal backgrounds raking in as much as $100,000 from the FBI. The FBI's assets have often preyed on mentally ill men with little capacity to resist their provocations. “Is it possible that the FBI is creating the very enemy we fear?” Aaronson wondered.
The revelations of FBI manipulation have cast Mateen’s case in a troubling light. Though he refused to bite when an FBI asset attempted to push him into a manufactured plot, he wound up carrying out an act of spectacular brutality years later and allegedly swore loyalty to ISIS in the midst of it.
“It looks like it's pretty much standard operating procedure for preliminary inquiries to interview the subject or pitch the person to become an informant and/or plant an undercover or informant close by to see if the person bites on the suggestion,” Coleen Rowley, a former FBI agent and division counsel whose May 2002 memo to the FBI Director exposed some of the FBI’s pre-9/11 failures, told AlterNet.
“In the case of Mateen, since he already worked for a security contractor [G4S], he was either too savvy to bite on the pitch or he may have even become indignant that he was targeted in that fashion. These pitches and use of people can backfire.”
To highlight the problematic nature of informants, Rowley pointed to the case of Humam Khalil al-Balawi, a Jordanian physician whom the CIA used to gather intelligence on Al Qaeda,. The CIA ignored obvious warning signs like Balawi’s extremist online manifestos and never subjected him to a vetting process. While Balawi claimed to have penetrated Al Qaeda’s inner circle, he was actually exploiting his CIA security clearance to plan a major attack. On December 30, 2009, Balawi strode into Camp Chapman in Khost, Afghanistan, and detonated an explosive vest that killed seven CIA agents and wounded six more — the deadliest attack on CIA personnel in 25 years.
Mateen, for his part, displayed many of the psychological characteristics that typify both FBI informants and those they attempt to ensnare in bogus terror plots. Raised in a troubled home by an abusive mother and an apparently eccentric father, Mateen exhibited signs of erratic, violent behavior throughout his life. His ex-wife told reporters that he physically abused her and was “unstable and mentally ill.” He transformed from a chubby adolescent to a burly young man with the help of steroids, yearning for a career in law enforcement.
Seven months into a job as a prison guard in 2007, Mateen was fired for threatening to bring a gun to class. He settled on a career as a low level security guard for G4S Security Solutions, a global security firm that employed him for nine years. Though Mateen’s applications to two police departments were rejected, he was able to pass a G4S background check and receive several guard assignments. (The world’s third largest private employer, G4S has accumulated a staggering record of human rights abuses, including accusations of child torture.)
While the full extent of Mateen’s contact with the FBI is unknown, the fact that an informant encouraged Mateen to agree to carry out a terror attack should provoke serious questions and further investigation. Whether or not manipulation by a FBI informant had any impact on Mateen’s deadly decision, there is no denying that the attempt to entrap him did nothing to protect the public.
“The FBI should scrutinize the operating procedure where they use undercovers and informants and pitch people to become informants,” said Rowley. “They must recognize that, in this case [with Mateen], it had horrible consequences if it did, in fact, backfire.”
- China Threatens To Leave UN Sea Convention If Court Invalidates Maritime Claims
As an arbitration court in The Hague gets ready to make a decision regarding an ongoing territorial dispute between China and the Philippines, China has reportedly told some other Asian countries that it may leave the UN Convention on the Law of the Sea if it disagrees with the ruling.
The Philippines has been the most vocal critic of China's activities in the South China Sea, and filed a case with the Permanent Court of Arbitration in The Hague in 2013 in an attempt to invalidate China's "nine-dash line", China's version of what territory it owns.
Here is a map showing different maritime claims each country has, many overlap each other.
Zoomed version
China believes the worst outcome would be for the tribunal to rule that Beijing's claim over the sea has no international legal grounds, and invalidates its line.
From Kyodo News
China thinks the worst outcome would be for the tribunal, constituted by the 1982 convention, or UNCLOS, to rule that Beijing's claim of "historic rights" over the sea has no international legal grounds and invalidate its expansive line, according to the sources.
China has told some diplomats of the Association of Southeast Asian Nations that it does not rule out withdrawing from the convention, often referred to as the constitution of the oceans, if that happens, the sources said.
Many experts believe that the ruling will not be favorable for China, which also has territorial disputes in the South China Sea with three other members of the 10-member association, namely Vietnam, Malaysia and Brunei.
The significance of the claim is understood when realizing what is at stake. The territory encompasses a key international shipping route for trade, is rich in fisheries (key for China, as protein is expensive for its citizens right now), and is believed to have large oil and gas deposits. Due to these reasons, it is not a surprise that China claims it won't honor any unfavorable decision, nor does it like the fact that outside parties (read: United States) intervene in the dispute.
China's massive reclamation in recent years of islands in the South China Sea — a key international shipping route that is rich in fisheries resources and is also believed to hold large oil and gas deposits — and its building of military facilities on them have generated widespread concerns, not only among the claimants, which also include Taiwan.
China, which ratified UNCLOS in 1996, has said it will neither accept nor honor the upcoming ruling by the tribunal. It has criticized the Philippines for filing the case "unilaterally" and breaking their past agreement of trying to settle territorial disputes through bilateral negotiations.
China has also asserted that the court has no jurisdiction over the case.
However, the Philippines' action has been backed by numerous countries including the United States and Japan, which regard it as a step toward resolving disagreements and easing tensions peacefully through international law.
While China has urged non-claimants not to meddle in territorial disputes in the South China Sea, those countries described by Beijing as "outsiders" have said they do not take sides in the feuds but have a say in opposing to any attempt to undermine rule-based order in the region.
They have put pressure on China to respect the forthcoming ruling if it wants to be a responsible major country in the international community.
China has accused the United States, not a signatory to UNCLOS, of having no right to talk about the arbitration case and argued that it is part of Washington's attempt with its allies in the region to contain Beijing's growing influence in the name of international law.
China's noncompliance with the decision is likely to damage its international image, but the tribunal has no enforcement mechanism.
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If the tribunal has no enforcement mechanism, this begs the question will the United States step in and try to enforce any ruling that is handed down from the court. If so, already elevated tensions between the US and China could get exponentially worse.
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