Sunday, December 11, 2011

The "Potato Battle"


Courtesy of a link at CDR Salamander's place, I learned of "The Maine Potato Episode". It involved USS O'Bannon, a Fletcher class destroyer of the US Navy during World War II. The Destroyer History Foundation tells the tale.

On 5 April 1943, DesRon 21 was returning from a night of shelling Japanese shore installations deep in the New Georgia area of the Solomon Islands. Our destroyer, the O’Bannon, as part of this force, picked up a radar contact that turned out to be a large Japanese submarine cruising on the surface and apparently unaware of our presence. The Japanese lookouts undoubtedly were fast asleep.

We approached rapidly and were preparing to ram the sub. Our captain and other officers on the bridge were trying to identify the type of sub and decided, at the last minute, that it could be a mine layer. Not wanting to blow up ourselves along with the sub, the decision was made that ramming was not a wise move. At the last moment, the rudder was swung hard to avoid a collision and we found ourselves in a rather embarrassing situation as we sailed along side of the Japanese submarine.

On board the sub, Japanese sailors, wearing dark shorts and dinky blue hats, were sleeping out on deck. In what could be considered a rude awaking, they sat up to see an American destroyer sailing along side. Our ship however, was far too close to permit our guns lowered enough to fire and since no one on deck carried a gun, not a shot was heard. Ditto on the Japanese sub, no one there had a gun either. In this situation, no one seemed sure of the proper course of action and it probably would not have been covered in the manual anyway. Therefore everyone just stared more or less spellbound.

The submarine was equipped with a 3-inch deck gun and the sub’s captain finally decided that now was probably a good time to make use of it. As the Japanese sailors ran toward their gun, our deck parties reached into storage bins that were located nearby, picked out some potatoes and threw them at the sailors on the deck of the sub. A potato battle ensued. Apparently the Japanese sailors thought the potatoes were hand grenades. This kept them very busy as they try to get rid of them by throwing them back at the O’Bannon or over the side of the sub. Thus occupied, they were too busy to man their deck gun which gave us sufficient time to put a little distance between our ship and the sub.

Finally we were far enough away to bring our guns to bear and firing commenced. One of our shells managed to hit the sub’s conning tower but the sub managed to submerge anyway. At that time our ship was able to pass directly over the sub for a depth charge attack. Later information showed that the sub did sink. When the Association of Potato Growers of Maine heard of this strange episode, they sent a plaque to commemorate the event. The plaque was mounted in an appropriate place near the crews mess hall for the crew to see.





Sounds like both sides were in a vegetative state for a while!

There's much more about US Navy destroyers at the Destroyer History Foundation. It describes its mission thus:

The purpose of the Destroyer History Foundation is to perpetuate interest in US Navy destroyer history by preserving and making accessible records, accounts, images and other artifacts that might otherwise be lost when US Navy destroyer veterans pass on. It is an outgrowth of this web site, an on-line collection prepared in collaboration with shipmates, organizations, active duty naval officers and others. Some items too large to present on the web such as the complete Fletcher-class engineering drawings from Bath Iron Works are available on disk.


I highly recommend the Destroyer History Foundation's Web site to all navy buffs. I can see I'll be spending many hours over there, reading through its collection of sea stories.

Peter

"Midnight Battle With The Raccoon Of Doom"


That's the title of a very funny blog post by Ken Thomas, self-proclaimed 'Hillbilly At Large'. Here's an excerpt.

One night around midnight I put on my slippers and bathrobe, grabbed a gun and a flashlight, stuck of box of .22 shells in my pocket, and headed to the backyard for my (unexpected) date with destiny.

I should mention something about the particular gun I decided to take with me. It’s one of my favorites, a little single-shot survival rifle made by Springfield Armory called the M6 Scout ... The downside being that it’s a single-shot, so you have to kind of break the whole gun open and put one little round at a time in one little hole, then close it all back up in order to shoot it. Since it takes a long time to reload, and fires a very small .22 bullet, this isn’t normally the kind of blunderbuss a person would bring along to a life-and-death encounter with a ravenous hellbeast . . .

. . .

I’d just turned around to head back to the house when I heard a faint scratching sound from somewhere above me. I turned the flashlight upward, and there in the beam, was a raccoon. Not just a raccoon mind you, but a raccoon 10 feet over my head, looking down at me, with one arm wrapped around the trunk of the tree and the other arm buried elbow-deep in my woodpecker feeder. Frozen in the light, and caught in the act.

I think it would be fair to say that we were both pretty damned surprised.

Now, I had a decision to make. If there’s a person on this continent with a wide variety of firearms-related options readily and easily available, then I’m probably that guy. I’ve got a decent collection of guns, and they were no farther away than my house, right across the yard. The problem? The problem was that by the time I got to the house, selected a more appropriate shootin’ iron, acquired suitable ammunition, and returned to the scene of the crime, I knew perfectly well that the masked suet junkie would be long gone. As Don Rumsfeld wisely pointed out, you go to war with what you’ve got, not with what you wish you had.

So I commenced this fairly complicated loading procedure, and that raccoon started climbing, and he’d probably gotten about 20 feet up into that maple tree when I popped a cap in his ass.

Now, I’m a pretty good shot, and normally when I shoot something it dies. Sometimes there’s a little bit of thrashing and flailing and such, but there’s generally a predictable result on the downstream end when I take it upon myself to deliver a little lethality. This raccoon however, apparently hadn’t gotten the memo. Not only did he not die, but he didn’t thrash or flail or anything at all. Instead, he stopped, turned around, took a good look at me, and he growled. I don’t know if you’ve ever heard a raccoon growl. I also don’t know if you’ve ever heard a raccoon growl at midnight on a cold December evening when you’re standing there in your bathrobe and a pair of slippers with nothing but a $3 Wal-Mart flashlight and a single-shot .22 rifle in your hands. I’m not going to go into a tremendous amount of detail trying to describe the sound – let’s just say that raccoons make this high-pitched hissing and yowling sound when they’re irritated, and this guy was definitely irritated.

Looking back on the events of the evening, this is probably the point when I should have realized that things might not work out exactly as I had anticipated.


There's more at the link. Wonderfully entertaining reading, particularly for those of us who've encountered raccoons in the wild at uncomfortably close quarters. They're not nearly as cuddly or appealing when they're trying to rip your face off!





Peter

The banksters are at it again


If you haven't heard the term 'bankster' before, it emerged in common usage around the time of the 2007/2008 financial crisis - or, if you will, the first instalment of the ongoing financial crisis, which is very much still with us (and will be for years to come). It's a combination of the words 'banker' and 'gangster', and sums up the ethical proclivities of the larger banks and their senior executives fairly accurately, IMHO.

It seems they're at it again. Bloomberg reported in October:

Bank of America Corp. [BoA], hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC-insured bank accounts from risks generated by investment-banking operations. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.

“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.”


There's more at the link.

What this means is that the Federal Reserve wants the FDIC to protect and insure investment transactions in the same way that it protects and insures banking transactions. However, the two are very different in nature. If I make a deposit of (say) $1,000 into my savings account, I'm investing my money in the expectation that it'll be there when I want to withdraw it. The FDIC insures that account as an additional safeguard. However, if I make an investment of $1,000 in the financial markets, hoping that the value of my investment will rise, I'm taking a calculated risk. If its value declines instead, I'll lose money on the deal. I know that before making the investment. However, it now appears that the Federal Reserve wants the FDIC to insure my investment, my 'bet' on the market, in the same way that it would insure my deposit into a savings account. In other words, I'll be indemnified for the risk I'm taking by the US government, via the FDIC's line of credit with the US Treasury.

Needless to say, this is lunacy! It exposes every US taxpayer to vastly increased liability for transactions that should not be subject to such insurance at all. As Karl Denninger points out, it's being done for Bank of America's benefit, so that it doesn't have to post more collateral as security for its investment transactions.

So let's see what we have here.

Bank customer initiates a swap position with Bank. In doing so they intentionally accept the credit risk of the institution they trade with.

Later they get antsy about perhaps not getting paid. Bank then shifts that risk to a place where people who deposited their money and had no part of this transaction wind up backstopping it.

This effectively makes the depositor the "guarantor" of the swap ex-post-facto.

That the regulators are allowing this is an outrage.

If you're a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.

Incidentally, the amount of exposure in question is unknown but Bank of America has some $53 trillion in total derivative exposure (out of $75 trillion in total between it and Merrill, which is also a subsidiary of the holding company.)

Of course we do not know how much was shifted and BAC won't comment on the record -- but this sort of movement of liabilities should be flatly prohibited as the counterparty in question accepted the risk of the entity they traded with originally when the transaction was first initiated. That the firm's ratings have deteriorated and thus it may be required to post additional capital against these positions by those counterparties does not justify shifting the risk to depositors simply so the bank can avoid posting collateral against a deteriorating credit picture, which for all intents and purposes shifts the risk to the taxpayer since the FDIC has a line of credit at Treasury. Never mind that posting that collateral should not materially impair operations.


Again, more at the link. Bold, italic and underlined print are Mr. Denninger's emphasis.

Bear in mind, the total debt of the US government stands at about $15.1 trillion right now. BoA's exposure to financial derivatives is at least $53 trillion. That's three and a half times as much as current US government debt! And we, the taxpayers of this country, will be on the hook to guarantee much of it - no-one knows how much for sure - if BoA is allowed to shift its investment transactions beneath the financial transaction 'insurance umbrella' of the FDIC.

Does the Federal Reserve care that it's burdening the taxpayers of this country with such a responsibility? Like hell it does! It doesn't give a damn about you and I, the 'little people' of this country. Its loyalties are to the bankers and investment houses from which most of its senior staff are drawn. It's an incestuous relationship, whereby the banks and investment houses are 'in bed' with the most powerful financial agencies of our government, for the mutual benefit of all concerned - and no-one else.

If that doesn't make you spitting mad, it should! It's yet another reason why we need to 'clean house' in the 2012 elections, and elect Representatives and Senators who'll stop this madness. If we don't . . . we're doomed.





Peter

EDITED TO ADD: Jim March, a long-time online buddy, added this information as a comment to this post. I thought it was important enough to copy it here, in the body of the article.

The situation is actually far, far worse than you think.

Peter, I hope you pay attention to this post because I'm about to blow your mind.

In 2005 the bankster's lobbyists got a re-write of the bankruptcy rules passed. First thing it did is made it even harder on consumer bankruptcies and student loan debt discharges, so that alone tells you this was a pro-banker bill.

It also set up a "chapter 15" bankruptcy process especially for "international financial institutions". It defined the term "forward contract" as including the kinds of garbage we now know are dirty words: swaps, derivatives, hedges, etc.

It then says that in a chapter 15 bankruptcy, "forward contracts" get paid FIRST - before any other debtor.

Yup. The gambling debts get paid first.

Go find a bill from 2005 titled "Bankruptcy Abuse Prevention and Consumer Protection Act". Do a text search on the phrase "forward contract". Under the chapter 15 section you'll find that such "forward contracts" and other idiotic instruments:

"shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by any order of a court or administrative agency in any proceeding under this title."

So. It's not just that the FDIC back-stops the gambling debts (which is what "derivatives" are). Oh no. Problem now is, BofA's money goes flowing out to that crap the moment the bank goes bankrupt, leaving the FDIC to try and pick up the pieces of whatever is left (which will be a lot!).

But it STILL gets worse. The "derivatives market" is an unregulated international casino worth somewhere over a quadrillion dollars - 1,000 times a trillion. The numbers are just silly. Well let's ask a key question then: how easy would it be for a highly placed manager at BofA to place bets with an overseas accomplice that they both know will lose? The money goes wooshing out to the overseas bookie and the executive in question follows it out by plane to a villa in Monaco or whatever and a seriously fat retirement.

Final thought: the bankruptcy "reforms" of 2005 are now easily spotted as preparation for the blowup that happened in 2007/2008. So while the "powers that be" were mocking Peter Schiff, Ron Paul and the like regarding the housing bubble, in secret they fully agreed with the people who knew the bubble was going to blow - and made detailed preparations for it via their "friends" in congress.


Thanks, Jim. Your added information merely underscores the importance of getting rid of everyone - politicians and banksters alike - responsible for this fiscal catastrophe!

Saturday, December 10, 2011

A different kind of 'toy story'


Via a link sent to me by Miss D., I came across this video titled 'Address Is Approximate'. Its creator describes it as follows:

A lonely desk toy longs for escape from the dark confines of the office, so he takes a cross country road trip to the Pacific Coast in the only way he can – using a toy car and Google Maps Street View.


The music is by The Cinematic Orchestra.







Very creative!

Peter

A famous urinal has been rediscovered


Yes, I said 'urinal' - although it's more correct to say that the person for whose use it was installed was famous, rather than the receptacle itself. The Telegraph reports:

German maritime archaeologists claimed to have found a urinal used by Kaiser Wilhelm II lying on the bottom of the Baltic Sea.

The piece of porcelain history was discovered in the wreck of the Undine, a light-cruiser which was sunk in the First World War by the Royal Navy, that now lies 28 nautical miles off the German island of Rugen.



SMS Undine (click the image for a larger view)



"It was sunk by the British in 1915," said Reinhard Oser, the archaeologist leading the expedition. "We managed to take some great photographs, and made this unusual discovery."

At the time the significance of the urinal went unnoticed until later research revealed that the urinal was part of a special bathroom laid on for the emperor's convenience.

"Kaiser Wilhelm was on board the ship when it was launched in Kiel on December 11, 1902, and went on its maiden voyage," explained Mr Oser, who added the team had been surprised by the identity of the urinal's user.


There's more at the link.

I didn't know much about SMS Undine, so I looked for more information. She was the last of ten light cruisers of the Gazelle class built for the Imperial German Navy at the turn of the 20th century. She was armed with ten single 4.1" cannon, plus smaller weapons, and could attain a maximum speed of 20 knots with her coal-fired 8,500-horsepower steam engines.




She was sunk in 1915 by the British submarine E-19, part of the Royal Navy's submarine flotilla in the Baltic during World War I. E-19 had a fairly successful war career in the Baltic before having to be scuttled in 1918 to prevent capture by advancing German land forces.

I was intrigued to learn that another ship sunk by E-19, the merchant vessel SS Nicomedia, had been explored by divers in 1999.



Sidescan sonar image of the wreck of the SS Nicomedia on the Baltic seabed



Some intact bottles of beer were recovered from the wreck. They were analyzed by a Swedish brewery, which has produced a modern variant, sold under the name of "Wreck Beer"! I daresay the shades of the crew of E-19 would approve.

Since E-19 sank both ships, perhaps the Kaiser's urinal, if it could be salvaged from the wreck of SMS Undine, might be an appropriate receptacle for the residue of the beer resurrected from SS Nicomedia?





Peter

This made me laugh


Received via e-mail (source/origin unknown):






Peter

An avoidable aviation tragedy


I've written before about the tragedy of Air France Flight 447, which crashed in the South Atlantic Ocean in 2009 with the death of all aboard. Now Popular Mechanics has published an in-depth examination of the cockpit voice recorder and what it reveals about the last minutes of the flight. Here's an excerpt.

We now understand that ... AF447 passed into clouds associated with a large system of thunderstorms, its speed sensors became iced over, and the autopilot disengaged. In the ensuing confusion, the pilots lost control of the airplane because they reacted incorrectly to the loss of instrumentation and then seemed unable to comprehend the nature of the problems they had caused. Neither weather nor malfunction doomed AF447, nor a complex chain of error, but a simple but persistent mistake on the part of one of the pilots.

Human judgments, of course, are never made in a vacuum. Pilots are part of a complex system that can either increase or reduce the probability that they will make a mistake. After this accident, the million-dollar question is whether training, instrumentation, and cockpit procedures can be modified all around the world so that no one will ever make this mistake again—or whether the inclusion of the human element will always entail the possibility of a catastrophic outcome. After all, the men who crashed AF447 were three highly trained pilots flying for one of the most prestigious fleets in the world. If they could fly a perfectly good plane into the ocean, then what airline could plausibly say, "Our pilots would never do that"?


There's more at the link. An even more chilling account, by the same author, of 'What Passengers Experienced During AF447′s Final Moments' may be found here.

AF447 was a horrendous and entirely avoidable disaster. I daresay Air France will be hit by lawsuits from many of the families of those who died, now that pilot error has been definitively established as the cause of the accident. Still, if there's any silver lining to this very dark cloud, one may hope that the lessons it's taught us might save future pilots from making similar errors. That may be the most fitting and lasting memorial to those who died.

Peter

Friday, December 9, 2011

Sex education with Julia Sweeney


To offset at least some of any bitter taste left by my previous post, here's Julia Sweeney's hilarious description of how she fielded her eight-year-old adopted daughter's questions about the birds, the bees and the flowers (and a frog). It's probably not safe for work, but not in a pornographic or distasteful way - it's just a sensitive subject. She handles it very well, in my opinion.







I wonder how long it was before Mulan came back with more questions - and whether Ms. Sweeney's response next time was "Ask your father!"?



Peter

The financial crisis gains momentum


I really, really hate being a 'prophet of doom' type. I upset even those closest to me when I talk about the current financial crisis, because they say that since there's nothing they can do about it, they see no point in talking about it. Some have even accused me of schadenfreude, which certainly isn't true, since my financial ox is about to be gored as hard as anyone else's!

However, I come from a background that has taught me to remain aware of my surroundings and what's going on in my environment. It's taught me, if I see danger approaching, to sing out loud and clear to let others know, and take what precautions I can to defend and protect myself and my loved ones. That's why I continue to post about the financial crisis on this blog: not because we can somehow magically prevent the inevitable from occurring, but because there are some things even 'little people' like us can to do preserve at least something of what we have. We'll talk about them at the end of this article.

However, if we plan on doing those things, we'd best act fast, because time appears to be running out. Here are the latest developments.


1. The Eurozone is showing signs of imminent implosion.

  • The Telegraph reports: 'The eurozone banking system is on the edge of collapse as major lenders begin to run out of the assets they need to keep vital funding lines open ... Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding ... Moody's on Friday downgraded France's three largest banks, BNP Paribas, Credit Agricole and Societe Generale in light of what the US rating agency said were "liquidity and funding constraints".'
  • Bloomberg reports that wary European CEO's are moving their funds and corporate assets out of more threatened economies into sounder ones: 'Contingency planning for an unraveling of the currency involves cutting investment, moving money to Germany, transferring headquarters to northern Europe from southern, and even going out of business, according to interviews with more than 20 executives ... “How do you control an explosion in a controlled way?” Fiat SpA (F) Chief Executive Officer Sergio Marchionne told reporters in Brussels on Dec. 2. “That’s a contradiction in terms. This will be an implosion of some size with potentially disastrous consequences".'
  • Bank runs are already occurring in Greece, and there are signs they may be spreading to other Eurozone nations. Der Spiegel points out: 'Many Greeks are draining their savings accounts ... By withdrawing money, they are forcing banks to scale back their lending -- and are inadvertently making the recession even worse ... The hemorrhaging of bank savings has had a disastrous impact on the economy ... Many Greeks now hoard their savings in their homes because they are worried the banking system may collapse ... Those who can are trying to shift their funds abroad. The Greek central bank estimates that around a fifth of the deposits withdrawn have been moved out of the country.' Britain is already preparing for the problem to spread to other Eurozone nations.
  • The impact of a possible collapse of the Eurozone is only now beginning to sink in. Fox Business reports: 'Citigroup's chief economist on Thursday warned a collapse of the currency will result in years of a global depression that could send unemployment spiking above 20% in the West ... The comments ... underscore the growing concern that policymakers won’t be able to forge a credible solution that will keep the currency union intact.'


John Hussman, writing at Hussman Funds, sums up the European problem as follows:

Investors were quite excited last week when central banks announced a coordinated reduction in the interest rate for U.S. dollar swap lines.

. . .

Very simply, what happened last week was a liquidity operation - essentially, European banks can now borrow dollars for a fraction of a percent less than they previously could. This prevents transactions denominated in dollars from "freezing up" across Europe (since European banks are no longer willing to lend to each other). But it does nothing to address the sovereign debt crisis. It does nothing to make European banks more solvent.

. . .

Europe doesn't face a liquidity problem. It faces a solvency problem. What investors really want isn't just for someone to buy distressed European debt, but for someone to buy that debt and willingly take a loss on it so the money doesn't ever actually have to be repaid. That isn't going to happen easily. Short of major fiscal improvements in Europe (which appear increasingly hopeless in the face of an oncoming recession) any solution will have to explicitly or implicitly impose losses on someone.


There's more at the link. Technical, but highly recommended reading.


2. Consumer demand for goods - and, therefore, demand for raw materials and components by producers - appears to be drying up.

  • Yesterday Reuters reported: 'Texas Instruments cut its outlook for the current quarter and warned demand was broadly lower as customers reduce their inventories ... Weak economies in the United States and Europe have sapped demand for microchips and investors have been looking for signs of when the industry will bottom out and begin to improve ... Worries about slow demand have pushed manufacturers in recent months to trim inventories of chips and other components, a trend that is continuing, Ron Slaymaker, TI's head of investor relations, told analysts on a conference call.'
  • The world's chemical industries are experiencing a similar problem. Canada's Globe and Mail reported today: 'Shares in E.I. du Pont de Nemours & Co., one of the world’s biggest chemicals makers, dropped almost 5 per cent after the company warned on profit. It cited weakening demand, particularly for products such as polymers, used in a range of goods, and consumer electronics ... The warning – which came a day after Texas Instruments cut its earnings forecast – could fuel fears that earnings growth will slow down next year after several years of strong profit increases for big companies following the recession. The chemicals industry is often seen as an economic bellwether, since its products are used in a wide range of consumer goods, from soap and saucepans to computers and solar panels. DuPont’s warning follows a similar cut in profit outlook by Wacker Chemie, the German chemicals company, and downbeat comments from BASF, another German chemicals group, as the industry tries to cope with shrinking inventories.'


In the light of earlier reports about container ships sailing with only partial loads from the Far East to Europe and America, signaling a reduction in the quantity of goods ordered by wholesalers and retailers for this Christmas season, I'm not surprised to see producers reporting a slowdown in demand as well. What this means, of course, is that economic activity overall is slumping - just when other financial pressures on the world economy are peaking, as we'll discuss next.


3. The MF Global bankruptcy has revealed a nightmarish risk threatening the entire world's financial system.

Thomson Reuters reports:

Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.

MF Global's bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.

If anyone thought that you couldn’t have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone else’s cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing.

Current estimates for the shortfall in MF Global customer funds have now reached $1.2 billion as revelations break that the use of client money appears widespread. Up until now the assumption has been that the funds missing had been misappropriated by MF Global as it desperately sought to avoid bankruptcy.

Sadly, the truth is likely to be that MF Global took advantage of an asymmetry in brokerage borrowing rules that allow firms to legally use client money to buy assets in their own name - a legal loophole that may mean that MF Global clients never get their money back.


There's much more at the link.

The entire article is very well-written and explained. It's essential reading if you want to understand why MF Global's collapse has uncovered an international financial house of cards so fragile that it's almost certain to collapse. That company wasn't the only one involved in this misuse of client funds. Many of the world's largest banks and financial institutions have done the same thing; and all of the client assets they've used in that way are now at risk, as the financial derivatives markets totter. If one goes, they're all going to go. As Zero Hedge explains:

And there you have it: in this world where distraction and diversion often times is the only name of the game, while banks were pretending to have issues with their traditional liabilities, it was really the shadow liabilities where the true terrors were accumulating. Because in what has become a veritable daisy chain of linked shadow exposure, we are now back where we started with the AIG collapse, only this time the regime is decentralized, without the need for a focal, AIG-type center. What this means is that the collapse of the weakest link in the daisy-chain sets off a house of cards that eventually will crash even the biggest entity due to exponentially soaring counterparty risk: an escalation best comparable to an avalanche - where one simple snowflake can result in a deadly tsunami of snow that wipes out everything in its path. Only this time it is not something as innocuous as snow: it is the compounded effect of trillions and trillions of insolvent banks all collapsing at the same time, and wiping out the developed world and the associated 150 years of the welfare state as we know it.

In this light, it makes far more sense why, as we suggested yesterday, the sanest central bank in Europe, the German Bundesbank, is quietly making stealthy preparations to get the hell out of Dodge, as it realizes all too well, that the snowflake has arrived: MF Global's bankruptcy has already set off a chain of events which not even all the world's central banks can halt. Which is ironic for the Buba - what it is doing is "too little too late." But at least it is taking proactive steps. For all the other central banks in the Eurozone, and soon the world, unfortunately the deer in headlights image is the only applicable one. And all because of unbridled greed, bribed and corrupt regulators sleeping at their job, and governments which encourage the TBTF ['Too Big To Fail'] modus operandi as the only fall back one, which in turn gave banks a carte blanche to take essentially unlimited risk.

We are all about to suffer the consequences of all three.


Again, more at the link. (I think the phrase 'trillions and trillions of insolvent banks' is a misprint in the original; I believe the author meant to refer to 'trillions and trillions of [dollars in leveraged derivatives coming due], insolvent banks all collapsing at the same time', etc.)

The inevitable result of MF Global's use of customer assets to underwrite its trades is going to be chaos in every derivatives brokerage, as customers try to ensure that their assets remain legally theirs, despite being in the temporary custody of the brokerage and/or its agents. This is already beginning to produce legal ramifications over who owns what asset(s) managed by MF Global. For example, Bloomberg reports:

An HSBC Holdings Plc (HSBA) unit sued the MF Global Inc. brokerage trustee to establish whether he or another person is the rightful owner of gold bars worth about $850,000 and silver bars underlying contracts between the brokerage and a client ... “HSBC has received conflicting instructions regarding ownership and disposition of the property,” it said. “Accordingly, HSBC is exposed to multiple liabilities with respect to the disposition of the properties.”


Again, more at the link. Look for this contagion of uncertainty to spread - rapidly.

The MF Global collapse may prove, in hindsight, to have been the domino that started a worldwide collapse in financial derivatives, of which there are about $1.4 quadrillion in circulation (see Point 5 of my earlier article here). To put that figure in perspective, the capitalization of all the world's stock markets - all of them - is no more than $36 trillion: one-fortieth of the derivative total. The entire derivatives market is nothing more than a financial house of cards . . . and it's begun to topple.


4. There aren't enough bailouts in the world to avert this financial storm.

Since the crisis hit in 2007/8, governments and central banks around the world have been trying desperately to shore up the financial system, plug the leaking holes in the fiscal dikes, and reassure all of us that things will be OK in the end. They've incurred trillions of dollars in new debt, and spent it on so-called 'stimulus packages' that were designed to get the world's economies moving again.

They were all lying, and all their efforts have failed. Let John Hussman sum it up for us.

What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world's policy makers are increasingly wrecking the prospects for long-term economic growth.


Again, more at the link.


5. What can we do about this crisis?

Not much, in global terms: it's inevitable. However, here's what I'm going to do as an individual:

  1. I'm going to add to my (not very extensive) food reserves. I'm not wealthy, and can't afford to build up a large reserve; but if normal supplies are disrupted due to problems with the US banking system, I want to be able to feed myself and those for whom I'm responsible for at least a few weeks until supplies are once again available.
  2. I'm going to withdraw a chunk of my emergency financial reserve, and keep it on hand in cash. Again, I don't have a lot, but if the use of credit cards, checks and other common financial instruments is disrupted for a few days to a few weeks due to problems in the banking system, I want to be able to buy food, gasoline, etc. (By the way, if your bank accounts are with large institutions that are highly exposed to the global financial meltdown, if I were in your shoes, I'd immediately move at least half my financial assets to a local credit union or small bank - one that's well-capitalized [check that carefully!] and less exposed to failure. I think all of us should, if possible, start keeping at least a month's expenditure in our possession, in cash, just in case.)
  3. I'm going to continue to implement the measures I've discussed previously, in an attempt to prepare myself as best I can for what I believe has now become an imminent financial disaster.


Those are my short-term plans. Your mileage may vary. We may yet find a way through this mess that doesn't involve too much financial pain and suffering to people like you and I . . . but right now, if it exists, I can't see it. Still, I'll continue to hope for the best, even as I try to prepare as best I can for the worst.

Peter

Thursday, December 8, 2011

Saigon - now Ho Chi Minh City - and its traffic


I know many of my readers served in the US armed forces during the Vietnam War, or had parents who served there. This video of Ho Chi Minh City - as Saigon was renamed after the war - shows the current challenges of navigating its streets. It's still choked with motorcycles and bicycles, it seems, just as reported by those who were there in the war years.







I'd be interested to hear (in Comments) from readers who were there before the fall of South Vietnam. How does the city look in comparison to your memories of the place?

Peter

Dog vs. cat people - the differences


Yahoo!'s 'Shine' lifestyle magazine has an article on the subject. I'm not sure where I fit in, because I like both dogs and cats; I grew up with both, I've had both as pets, and I fully expect to have both as pets again in the future sometime. To me, it's not an either/or situation at all. Still, they offer some interesting statistics collected and analyzed by Hunch.com, including these examples:

Dog people: 15% more likely to be extroverts
Cat people: 11% more likely to be introverts

Dog people: 67% more likely to call animal control if they happen upon stray kittens
Cat people: 21% more likely to try to rescue stray kittens

Dog people: 18% more likely to consider Paul McCartney their favorite Beatle
Cat people: 25% more likely to consider George Harrison their favorite Beatle


There's more at the link.

I'm not at all convinced. What do you think, readers? Are they right about these differences, based on your experience of 'dog' or 'cat' people? What about those who, like me, enjoy both dogs and cats?

Peter

The perils of resting on your technological laurels


The good people at Casey Research, in their latest Daily Dispatch newsletter, have a very interesting article on how Research In Motion (RIM), makers of the BlackBerry smartphone/PDA, lost their market leadership in the field. Here's an excerpt.

Last week (on Friday after market close, no less – the time when companies send bad news they hope the market will forget about by Monday), Blackberry smartphone maker Research in Motion (RIMM) dropped a bombshell, announcing that not only was its Playbook line of tablet computers floundering – not news to anyone who watches these things – but that the company would incur a massive $485 million charge in Q3 from writing off excess Playbook inventory and expenses.

The amount was so staggering that many analysts and industry observers were left wondering exactly how the company could have screwed up so badly. However, given RIM's decline in its core smartphone market – it's been rapidly bleeding market share for a few years now – there was little chance the company could make a tablet play successful. While RIM's most ardent fans insisted that the company was simply down but not out, the writing has been on the wall for some time that this company has lost its mojo. This latest blunder teaches some important lessons that all technology investors should understand.


There's much more at the link. Highly recommended reading as a case study in how not to maintain your market dominance!

Peter

That's what I call a strong gust of wind!


Scotland has been lashed by storms today, with one gust measured at 164 mph - well into Category 5 hurricane territory. The Daily Mail has an article with many photographs of damage caused by the storm. This one in particular caught my eye. It shows a wind turbine that literally exploded when the wind damaged its mechanism.




There are two larger images of the turbine at the link, along with many other photographs.

That's the best part of three million dollars down the drain - yet another illustration of why wind power is a chancy thing, at best . . .





Peter

Top 100 cult films?


NPR has an article about a forthcoming book, '100 Cult Films'. They invite readers to nominate a 101st movie, with the winner's selection being used on air.

I read through the list of films, and wasn't particularly impressed. I'm not a great movie fan at the best of times, but I've not seen most of those listed, and I certainly wouldn't award many of them 'cult film' status - in fact, I'd dismiss many of them as no more than pornography, and certainly not deserving of space in a 'general' cult movie listing. Here's the list, with those I've watched underlined.

2001: A Space Odyssey, Stanley Kubrick, 1968
Akira, Katsuhiro Otomo, 1988
Angel of Vengeance, Abel Ferrara, 1981
Bad Taste, Peter Jackson, 1987
Baise-moi, Virginie Despentes, Coralie Trinh Thi, 2000
Begotten, E. Elias Merhige, 1991
Behind the Green Door, Artie Mitchell, Jim Mitchell, 1972
La belle et la bĂŞte, Jean Cocteau, 1946
Beyond the Valley of the Dolls, Russ Meyer, 1970
The Big Lebowski, Joel Coen, Ethan Coen, 1998
Blade Runner, Ridley Scott, 1982
Blue Sunshine, Jeff Lieberman, 1978
Brazil, Terry Gilliam, 1985
Bride of Frankenstein, James Whale, 1935
The Brood, David Cronenberg, 1979
Das Cabinet des Dr. Caligari, Robert Wiene, 1920
Café Flesh, Stephen Sayadian, 1982
Cannibal Holocaust, Ruggero Deodato, 1979
Casablanca, Michael Curtiz, 1942
Un chien andalou, Luis Buñuel, Salvador Dalí,1928
Coffy, Jack Hill, 1973
Daughters of Darkness, Harry KĂĽmel, 1971
Dawn of the Dead, George A. Romero, 1978
Deadly Weapons, Doris Wishman, 1974
Debbie Does Dallas, Jim Clark, 1978
Deep Red, Dario Argento, 1975
Dirty Dancing, Emile Ardolino, 1987
Django, Sergio Corbucci, 1966
Donnie Darko, Richard Kelly, 2001
Don't Torture a Duckling, Lucio Fulci, 1972
Edward Scissorhands, Tim Burton, 1990
Emanuelle and the Last Cannibals, Aristide Massaccesi, 1977
Emmanuelle, Just Jaeckin, 1974
Enter the Dragon, Robert Clouse, 1973
Eraserhead, David Lynch, 1977
The Evil Dead, Sam Raimi, 1981
Fight Club, David Fincher, 1999
Flaming Creatures, Jack Smith, 1963
Freak Orlando, Ulrike Ottinger, 1981
Freaks, Tod Browning, 1932
Ginger Snaps, John Fawcett, 2000
The Gods Must Be Crazy, Jamie Uys, 1981
Godzilla, IshirĂ´ Honda, 1954
The Harder They Come, Perry Henzell, 1972
Harold and Maude, Hal Ashby, 1971
Häxan, Benjamin Christensen, 1922
Hellraiser, Clive Barker, 1987
The Holy Mountain, Alejandro Jodorowsky, 1973
The House with the Laughing Windows, Pupi Avati, 1976
I Walked with a Zombie, Jacques Tourneur, 1943
Ichi the Killer, Takashi Miike, 2001
In Bruges, Martin McDonagh, 2008
Invasion of the Body Snatchers, Don Siegel, 1956
Invocation of My Demon Brother, Kenneth Anger, 1969
It's a Wonderful Life, Frank Capra, 1946
The Killer, John Woo, 1989
Lady Terminator, H. Tjut Djalil, 1988
The Lord of the Rings, Peter Jackson, 2001–3
Mad Max 2: The Road Warrior, George Miller, 1981
Man Bites Dog, Rémy Belvaux, André Bonzel, Benoît Poelvoorde, 1992
Manos, the Hands of Fate, Harold P. Warren, 1966
The Masque of the Red Death, Roger Corman, 1964
Monty Python and the Holy Grail, Terry Gilliam, Terry Jones, 1975
Near Dark, Kathryn Bigelow, 1987
Nekromantik, Jörg Buttgereit, 1987
Night of the Living Dead, George A. Romero, 1968
Pink Flamingos, John Waters, 1972
Piranha, Joe Dante, 1978
Plan 9 from Outer Space, Ed Wood, Jr, 1959
Re-Animator, Stuart Gordon, 1985
Reefer Madness, Louis Gasnier, 1936
Repo Man, Alex Cox, 1984
Ringu, Hideo Nakata, 1998
The Rocky Horror Picture Show, Jim Sharman, 1975
Rome Armed to the Teeth, Umberto Lenzi, 1976
The Room, Tommy Wiseau, 2003
Salò, or the 120 Days of Sodom, Pier Paolo Pasolini, 1975
She Killed in Ecstasy, JesĂşs Franco, 1971
Showgirls, Paul Verhoeven, 1995
Soul Vengeance, Jamaa Fanaka, 1975
The Sound of Music, Robert Wise, 1965
Star Wars, George Lucas, 1977–2005
Superstar: The Karen Carpenter Story, Todd Haynes, 1988
Suspiria, Dario Argento, 1977
Tank Girl, Rachel Talalay, 1995
Tetsuo, Shinya Tsukamoto, 1989
The Texas Chainsaw Massacre, Tobe Hooper, 1974
This Is Spınal Tap, Rob Reiner, 1984
Thriller: A Cruel Picture, Bo Arne Vibenius, 1974
Thundercrack!, Curt McDowell, 1975
El Topo, Alejandro Jodorowsky, 1970
The Toxic Avenger, Michael Herz, Lloyd Kaufman, 1984
Two-Lane Blacktop, Monte Hellman, 1971
Two Thousand Maniacs!, Herschell Gordon Lewis, 1964
The Vanishing, George Sluizer, 1988
Videodrome, David Cronenberg, 1983
The Warriors, Walter Hill, 1979
Witchfinder General, Michael Reeves, 1968
Withnail & I, Bruce Robinson, 1987
The Wizard of Oz, Victor Fleming, 1939


With only 15 out of 100 on my list, I'm sure most of you have done better. How many have you seen? Let us know in Comments - or, if you're a fellow blogger, post the list on your own blog, indicate your 'viewed list', and ask your readers the same question.

Peter

Wednesday, December 7, 2011

More wingsuit maneuvers


Here's another video clip of someone who's clearly enjoying his wingsuit jumping far, far too much for my idea of safety! It's pretty spectacular - I recommend watching it in full-screen mode, if possible, to get the full effect.







Sooner him than me!





Peter

Doofus Of The Day #553


Today's winner comes from Germany.

A man who tried to hold up a bank that closed 17 years ago has been jailed for seven years, a court said, in what the Bild daily called Friday the case of "Germany's dumbest bank robber."

The regional court in the western city of OsnabrĂĽck said the defendant, identified only as 57-year-old Siegfried K., arrived at the bank branch, now equipped only with cash machines, with a toy gun in May.

He seized a female "hostage" in the lobby of the building to demand a €10,000 ($13,483) ransom from bank employees.

"This plan failed however due to the fact that the building has not held a bank for more than a decade but rather a physiotherapy practice," the court said in a statement.

Bild said the bank had moved out 17 years ago.


There's more at the link.

Holding up a bank that hasn't been a bank for seventeen years? That takes a special kind of doofidity, if you ask me!



Peter

"A fundamental misalignment between political incentives and economic requirements"


Arnold Kling highlights a very important aspect of the current economic mess.

What markets and the economy need are policies that resolve uncertainty. That way, people know who is going to take a hit. Most important, they know where they can invest with confidence going forward.

What politicians need are vagueness and opacity. Having a clear, well-defined policy exposes the politician to the people who are hurt by that policy. Thus, instead of producing a balanced budget today, you produce a plan to produce a plan to balance the budget down the road. Instead of restructuring sovereign debt, you make a commitment that everyone will be made whole, without explaining how that commitment will be honored.

For example, the United States managed to make its insolvent banks whole (for now, at least), using a massive subsidy from the Fed. ... Naturally, this subsidy was made as vague and opaque as possible. The Fed will tell you that this was necessary to prevent runs on the weakest banks. But in fact the motivation was much more that the Fed wanted to avoid the political resistance that would have built up had people actually known what it was doing.


There's more at the link. Bold print is my emphasis.

That's about the best explanation I've heard yet for why our politicians can talk a blue streak about them, but can't seem to actually do anything to solve our economic problems!





Peter

More amazing macrophotography


The Daily Mail has published an article containing many high-magnification photographs of insects. Here are a couple to whet your appetite.






There are many more (and larger) images at the link. They make fascinating viewing.

Peter

In memoriam: Harry Morgan


I was saddened to learn that Harry Morgan, the actor who's most famous for his role as Colonel Sherman T. Potter in the TV series M*A*S*H, died in Los Angeles today. He was 96 years old.

I can recall many happy hours spent with Mr. Morgan as he portrayed the crusty old Colonel with a heart of gold. During the 1980's, with the civil unrest and violence of South Africa's racial tensions all around me, he and his colleagues provided very welcome light relief. I also enjoyed his performances in the films Support Your Local Sheriff! and Support Your Local Gunfighter, comedies that brought many a smile to my face. Here's a scene from the first of those movies, where the mayor (played by Morgan) meets the would-be new sheriff (played by James Garner).







Thanks for the memories, Mr. Morgan. You helped make the unbearable more bearable, and helped save my sanity with your sense of humor and ability to convey it. I'll miss you.

Peter

Tuesday, December 6, 2011

This is a war warning


On this anniversary of the Pearl Harbor attack of 1941, I hate to have to point out the risk of a new war, into which the USA may again be dragged. Unfortunately, I'm not exaggerating. I fully expect at least one war, possibly more than one, to break out within the next year, and quite possibly within the next three to six months. There's a confluence of events, problems, crises and pressures that stretches in an arc from Egypt, through the Middle East to Pakistan and India, and then jumps over to South-East Asia and China. Let me walk you through it, one country at a time.

First, Egypt is in the process of holding elections. Guess who's leading in the vote count? If you said 'Muslim fundamentalist parties', you just won first prize. According to a report in USA Today, after the initial round of voting, the nominally 'moderate' Muslim Brotherhood has 37% of the vote, and the more hardline Al-Nour Party took 24%, for a combined Muslim fundamentalist vote tally of 61%. There are more rounds of voting to come, but I'll be surprised if a more secular trend emerges. Within a matter of months, we will - not may, will - be faced with an Islamic fundamentalist government in Egypt - one where leaders of both of the parties mentioned above have denounced the Camp David peace agreement with Israel. I'm sure you can appreciate just how warm and fuzzy this makes Israel feel . . .

Moving north, Hamas, the ruling party in the Gaza Strip (which shares a border with Egypt in the Sinai Peninsula) is an offshoot of the Egyptian Muslim Brotherhood. It'll expect much greater support from that country after an Islamic fundamentalist government is installed - almost certainly including sophisticated weapons, and training in how to use them against Israel, if not actual military assistance by heavily-armed 'volunteers'.

Let's keep going north. Hezbollah, the Muslim fundamentalist terrorist organization that dominates southern Lebanon, shares many objectives, goals and tactics with Hamas. If the latter organization, encouraged by a Muslim fundamentalist government in Egypt, becomes more militant against Israel, we can confidently expect Hezbollah to do likewise in southern Lebanon, in order to threaten Israel on more than one front and force it to divide its attention and its forces.

Furthermore, Hezbollah is - or, rather, was until recently - closely aligned with the government of Syria, which has just been hit with sanctions imposed by the Arab League due to its brutal suppression of internal dissent. If Syria's government falls, it's almost certain that Hezbollah will become involved in the resulting power struggle, to secure its own position. Any new Syrian government will probably be dominated by Islamic fundamentalists. As the Guardian pointed out some months ago, this may have widespread consequences.

If the Syrian regime of President Bashar al-Assad fails to reassert its authority, and is instead brought down or merely enfeebled by a prolonged period of popular agitation, the geopolitical implications could be considerable. Syria's allies – the Islamic Republic of Iran, the Shia resistance movement Hezbollah in Lebanon, the Hamas government in Gaza – would all come under pressure. For all three, loss of Syrian support would be painful.

Israel would no doubt view such a development with great satisfaction. It has long sought to disrupt the Tehran-Damascus-Hezbollah-Hamas axis, which has challenged its regional supremacy – even acquiring a certain deterrent capability, intolerable in Israel's eyes. But Israel's feelings might be tempered by fear that Assad could be replaced by an Islamist regime, even more threatening to its interests and security.

. . .

More broadly, the region is witnessing the unravelling of alliances formed in a critical period three decades ago that saw the Egypt-Israel peace treaty in 1979; the Iranian revolution of the same year; and Israel's devastating invasion of Lebanon in 1982, followed by its 18-year occupation of the south, which led to the emergence of Hezbollah. Having been Syria's ally in the 1973 war, Egypt changed sides and became Israel's partner in peace. Iran, Israel's ally under the shah, changed sides under the Islamic republic, becoming Syria's ally instead. Syria and Israel swapped partners.

These arrangements are now under threat. Post-Mubarak Egypt is likely to distance itself from Israel and rejoin the Arab camp, while Syria's alliance with Iran – unpopular with the Sunni- majority population, – could be endangered by any change of regime in Damascus. Other significant changes to the regional geopolitical map include the emergence of Turkey as a beneficent player, promoting trade and conflict resolution, and Iraq's slow recovery as a major Arab power from the devastation inflicted on it by Tony Blair, George Bush and America's pro-Israel neocons.

Are we then about to witness some reshuffling of alliances formed 30 years ago? Iraq and Iran, who fought a bitter war in the 1980s, could well draw closer now both are under Shia leadership. Together they will form a formidable power block. America's colossal investment in men and treasure in the Iraq war will seem vainer than ever.


There's more at the link.

Consider, too, the close ties between Syria, Iran and North Korea. Israel destroyed what it alleged was a nuclear reactor being constructed by Syria, with North Korean assistance, during Operation Orchard in 2007. North Korea is allegedly working with Iran to develop nuclear weapons and a nuclear-capable intercontinental ballistic missile. Iran has, in turn, supplied missiles to Syria, and through Syria to its allies in Hezbollah, which threatens Israel with them. Syria, Iran and North Korea - talk about an 'axis of evil' or an unholy trinity . . .

DEBKAfile, an Israeli Web site that's alleged to have very close ties to Israeli intelligence sources, stated in a blunt headline yesterday that 'Israel and Syria brace for regional war between mid-Dec. 2011 and mid-Jan 2012'. The site advances evidence for its expectations, which dovetails neatly with some of the things I've pointed out in this article. I strongly suggest you click over to DEBKAfile and read their report for yourself. Given what many Israelis regard as a distinct lack of support for their country from the present US administration, that country's leaders may be more willing than usual to 'go it alone'.

(That expectation of war may be one reason why Russia has just completed the rush delivery of supersonic anti-ship missiles to Syria - missiles that have forced the USA to move its warships further away from that country's coast, for fear of being targeted. Furthermore, Russian warships are planning an imminent visit to that country. Syria is a very important client state for Russia, one of its last footholds of influence in the Middle East. If Syria gets dragged into a war with other nations, particularly Israel, don't expect Russia to sit idly on the sidelines. If it allows Syria to go under, it'll lose all credibility in the region - and it can't afford that.)

Israel, too, is apparently very close to military action against a perceived nuclear threat from Iran. That's been all over the news lately, so I don't need to go into detail about it here. You'll find many news articles if you do a search on the topic. The only aspect I'll highlight is that, if some of Iran's nuclear facilities are 'hardened' against conventional attack (i.e. buried deep underground), it may be necessary to use nuclear weapons to inflict enough damage to destroy them. If Israel 'goes nuclear' against Iran, you can bet every cent you own that every Arab state in the region will instantly go all-out to acquire nuclear weapons and delivery systems of their own. Pakistan, to date the only declared Muslim nuclear power, is likely to be deluged with requests for assistance; and, given the growing influence of Muslim fundamentalists in that country, I wouldn't be surprised if such assistance is provided. Once that genie is out of the bottle, who knows where things will end up?

Iran, a Shi'ite Muslim state, is also increasing its influence in Iraq, which is now ruled by a Shi'ite-dominated coalition. Indeed, the Iraqi Prime Minister has just warned that the fall of the Syrian government might plunge the entire region, from Iran through Iraq to Syria (and involving the states around them as well), into a conflict between Shi'ite and Sunni Muslim states. That's just great. Not only do we have to worry about Arab-Israeli hatred and distrust, but now we have to worry about inter-Arab and inter-Muslim wars as well! It's about as certain as it can be that, in so unstable a region, one kind of conflict will inevitably spill over into other kinds of conflict as well. The entire Middle East and Persian Gulf region is a giant tinderbox of religious, cultural, ethnic and political sensitivities right now. One spark, and . . .

Let's move further east. Iran borders Afghanistan (where it's allegedly been arming the Taliban and other opposition groups) and Pakistan. It's under enormous stress right now, with unexplained explosions killing many of its senior military personnel and scientists involved with its missile and nuclear programs. Its Revolutionary Guard has just been placed on a war footing in response. This isn't a conventional army; it's a highly organized militia of fundamentalist Shi'ite Muslim troops, loyal not to the State, but to the Ayatollahs, the theocratic leaders of Shi'ite Islam in Iran. The latter won't order it into action based on political, economic or military logic. They'll do so based on their theological world view and their perspective on what God requires of them. If that means acting in such a way as to plunge the rest of the world into war, they don't care. God's will, as they perceive it, is more important than such mundane secular concerns.

Iran is more than capable of shutting down the Strait of Hormuz, through which flows at least a third of the world's oil supply. It doesn't even need to use ships or aircraft to do so: the Strait is so narrow (about 31½ miles wide at its most constricted point) that land-based missiles, even conventional artillery, could threaten shipping. Disrupting that traffic would double or triple oil prices overnight, delivering a hammer blow to the world's economy, already disrupted by the ongoing recession and debt crises in Europe, the US and elsewhere. Europe and the USA would have to react, sending military forces to reopen the Strait of Hormuz; and that would escalate the conflict as Iran tried to destroy those forces. Where it would end is anybody's guess, particularly if Israel used the confusion to launch a strike on Iran's nuclear sites. If both Israel and the West attack Iran, it's bound to draw other Muslim nations into the conflict: then it's all aboard the warfare merry-go-round . . .

This brings China into the mix. China has extensive oil supply agreements with Iran, and in return provides weaponry to that country, including advanced missiles. Iran, in turn, passes some of that weaponry on to its clients in Syria and Hezbollah. (The latter organization used a Chinese-made C-802 anti-ship missile to damage the Israeli corvette INS Hanit in 2006.) If Iran is attacked by the West and/or Israel, expect China to intervene on behalf of its clients there, at least politically, perhaps through the supply of additional advanced weapons, possibly even militarily. Furthermore, China is closely allied with Pakistan, which is also a customer for its weaponry (for example, the JF-17 Thunder jet fighter is co-produced by Pakistan and China). If Pakistan intervenes to support its neighbor Iran, urged on by Muslim fundamentalists in both nations, China will be under enormous pressure to support both countries, regardless of the consequences.

Such pressure may not be unwelcome in China. That country's economy is entering a difficult period, as we've pointed out here before. China has traditionally sought to divert its population's attention from internal problems by a diversionary foreign policy - using (and, if necessary, fomenting) external crises to distract them. The prospect of intervening to help Pakistan and/or Iran against Western 'imperialism' may come at a very useful time for the Chinese leadership.

Alternatively, China could make use of Western preoccupation with the Straits of Hormuz (including the movement of US aircraft carrier battle groups to that area) to engage in political, even military muscle-flexing of its own. What price a sudden move to take over Taiwan, long regarded by China as a rebel province, and a very popular cause among its people? If I were in Taiwan right now, I'd be looking over my shoulder very nervously indeed! There's also the territorial dispute between China and five other nations over the South China Sea, quarrels with Japan over the Senkaku/Diaoyutai Islands . . . there's no shortage of issues that China could use to foment trouble while her major potential opponents are distracted elsewhere. Ominously, this very day China's President told its Navy to "speed up its development and prepare for warfare". If you believe he didn't mean anything by that, but was merely posturing for public relations reasons, I have a bridge in Brooklyn, NYC I'd like to sell you. Cash only, please - or, rather, in this economy and with the risks of war being what they are, gold, please!

Muslim fundamentalists in Pakistan might also seek to take advantage of any turmoil in the Persian Gulf to advance their interests in Kashmir, even to the point of starting a war with India. Both nations are nuclear powers. If a conventional war got out of control, and Pakistan began to get the worst of it (as happened in each of the previous wars between the two nations, and is likely to happen again, given their respective military strengths), who knows whether it might use nuclear weapons against its neighbor? That would lead to nuclear retaliation from India, and where that would take the world is something I'd rather not find out!

So, dear reader, there you have it. There's an axis of enormous and growing instability, political, religious, social and economic, running from Egypt, north through Gaza to Lebanon, then east to Syria, south-east through Iraq to Iran, across to Afghanistan and Pakistan, thence to the Indian border. A hop and a jump further east we have China, tied by treaties, agreements and self-interest to Iran and Pakistan, and eager to use any disruption that preoccupies the West to score points of its own in the East. Almost all the 'players' are linked in one way or another. They're like a row of dominoes set on end. If any domino falls, the whole row of them is likely to be caught up.

There are other factors I haven't mentioned for lack of space and time (for example, the fact that advanced weapons from Libya have been smuggled out of that country, and are turning up in the hands of Al Qaeda terrorists in North Africa, and perhaps even in Gaza, threatening Israel). There are so many sparks flying around right now, and so much tinder out there, that sooner or later (probably sooner) one of those sparks is going to land on fuel that's all too ready to burn.

With China and Russia involved in supporting their client states (respectively, Iran and Syria), and the US trying desperately to be even-handed, but pulled in different directions by different interest groups, the odds of one or more of the great powers being dragged into such a war, whether they like it or not, are (in my opinion) better than even right now. To my mind, the biggest single danger facing the US right now is one or both of the following:

  • Israel gets dragged into open war in the Middle East, either against Iran, or against Syria, or against Hamas and Hezbollah, or perhaps a combination of more than one of those enemies, thereby inevitably dragging the USA into the confrontation as a perceived ally of Israel;
  • US forces in Afghanistan are attacked by Iran (either using its Revolutionary Guard, and/or sponsoring attacks by the Taliban and other terrorist organizations), and possibly in the same way by elements of Pakistan's armed forces (inspired by the growing Muslim fundamentalist influence in that country), in an attempt to take US prisoners and use them as bargaining chips during a wider conflict. Both countries may also believe that the US would have to divert so much of its attention and military assets to extricating its forces from Afghanistan that it wouldn't be able to intervene elsewhere, perhaps by a more direct attack on Iran.


Either or both possibilities would play right into the hands of both China and Russia, who would be delighted to have the US distracted in the Middle East while they pursue their own policies elsewhere. They might even think they can get away with overt military action of their own, to distract their citizens from their internal troubles. Frankly, they may be right. One must question whether the US could even afford a large-scale military action, given our current parlous economic state!

I'd love to be proved an alarmist: but in the light of all the elements I've outlined above, I don't think I am. If there isn't at least one war in the nations and areas I've mentioned, within the next year, I'll eat crow right here on this blog, with all due contrition. However, I somehow don't think that will be necessary . . .

I hope and pray that the USA can avoid being dragged into yet another war. Your guess is as good as mine whether or not that's a realistic hope.

Peter