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PLA Officer: China Must Establish South China Sea ADIZ | The Diplomat

PLA Officer: China Must Establish South China Sea ADIZ | The Diplomat.

A Chinese military officer has said that establishing a South China Sea ADIZ is necessary to China’s national interest.

zachary-keck_q
February 22, 2014

A senior researcher and officer in China’s People’s Liberation Army said that establishing an Air Defense Identification Zone (ADIZ) is essential to China’s national interest.

“The establishment of another ADIZ over the South China Sea is necessary for China’s long-term national interest,” Senior Colonel Li Jie, a researcher at the PLA Navy’s Military Academy and frequent media commentator, said on Friday, according to a report in Reuters.

Li’s comment seemed to be slightly inconsistent with a statement from China’s Foreign Ministry back in February, which dismissed Japanese media reports that said China was preparing to establish a South China Sea ADIZ. That statement, however, seemed to leave open the possibility that China might do so in the future.

When initially announcing its East China Sea ADIZ, Chinese officials readily admitted that they intended to establish other ADIZ over other areas in the future.

Li’s remark came in the context of a discussion about remarks made by U.S. Captain James Fanell, director of intelligence and information operations at the US Pacific Fleet. As The Diplomat previously reported, at a recent U.S. Naval Institute conference Capt. Fanell said that the PLA had held a drill to practice defeating Japan’s Maritime Self Defense Forces in the East China Sea as a prelude to seizing the disputed Diaoyu/Senkaku Islands.

In that same speech (see video below) Fanell also predicted that China would establish an ADIZ in the South China Sea by 2015 at the latest. Li characterized this remark as America’s attempt to deter China from establishing a South China Sea ADIZ.

On Thursday, however, the Pentagon distanced itself from Fanell’s remarks, with Pentagon spokesperson Rear Admiral John Kirby saying that “those were his views to express.” Kirby continued: “What I can tell you about what Secretary Hagel believes is that we all continue to believe that the peaceful prosperous rise of China is a good thing for the region, for the world.  We continue to want to improve our bilateral military relations with China.” Indeed, Army Chief of Staff Ray Odierno is currently in China meeting his PLA counterpart.

Li said that the Pentagon’s decision to distance itself from Fanell’s comments was a tactical move on the part of the U.S. “It’s a typical U.S. diplomatic strategy,” Li said, according to Reuters. “Washington is very concerned about the tension developing in the South China Sea, which will relate to its strategic interests.”

It’s worth noting that Rear Admiral Kirby distancing the Pentagon from Fanell’s remarks was likely referring in particular to the latter’s comments about China’s military forces training to defeat Japan’s MSDF in the East China Sea.

Fanell’s remark about China’s interest in establishing a South China Sea ADIZ was much less controversial and in fact broadly consistent with the comments made by numerous senior officials in recent months. As far back as last December, Secretary of State John Kerry stated: “Today, I raised our deep concerns about China’s announcement of an East China Sea Air Defense Identification Zone…. The zone should not be implemented, and China should refrain from taking similar unilateral actions elsewhere in the region, and particularly over the South China Sea.”

Here’s a video of the panel in which Capt. Fanell made his blunt assessment. Fanell begins speaking around the 19:00 minute mark, right after The Diplomat’s own Naval Diplomat gives his remarks, which we republished here.

oftwominds-Charles Hugh Smith: The Dollar and the Deep State

oftwominds-Charles Hugh Smith: The Dollar and the Deep State.

If we consider the Fed’s policies (tapering, etc.) solely within the narrow confines of the corporatocracy or a strictly financial context, we are in effect touching the foot of the elephant and declaring the creature to be short and roundish.

I have been studying the Deep State for 40 years, before it had gained the nifty name “deep state.” What others describe as the Deep State I term the National Security State which enables the American Empire, a vast structure that incorporates hard and soft power–military, diplomatic, intelligence, finance, commercial, energy, media, higher education–in a system of global domination and influence.

Back in 2007 I drew a simplified chart of the Imperial structure, what I called the Elite Maintaining and Extending Global Dominance (EMEGD):

At a very superficial level, some pundits have sought a Master Control in the Trilateral Commission or similar elite gatherings. Such groups are certainly one cell within the Empire, but each is no more important than other parts, just as killer T-cells are just one of dozens of cell types in the immune system.

One key feature of the Deep State is that it makes decisions behind closed doors and the surface government simply ratifies or approves the decisions. A second key feature is that the Deep State decision-makers have access to an entire world of secret intelligence.

Here is an example from the late 1960s, when the mere existence of the National Security Agency (NSA) was a state secret. Though the Soviet Union made every effort to hide its failures in space, it was an ill-kept secret that a number of their manned flights failed in space and the astronauts died.

The NSA had tapped the main undersea cables, and may have already had other collection capabilities in place, for the U.S. intercepted a tearful phone call from Soviet Leader Brezhnev to the doomed astronauts, a call made once it had become clear there was no hope of their capsule returning to Earth.

Former congressional staff member Mike Lofgren described the Deep State in his recent essay Anatomy of the Deep State:

There is another, more shadowy, more indefinable government that is not explained in Civics 101 or observable to tourists at the White House or the Capitol. The subsurface part of the iceberg I shall call the Deep State, which operates according to its own compass heading regardless of who is formally in power.

The term “Deep State” was coined in Turkey and is said to be a system composed of high-level elements within the intelligence services, military, security, judiciary and organized crime.

I use the term to mean a hybrid association of elements of government and parts of top-level finance and industry that is effectively able to govern the United States without reference to the consent of the governed as expressed through the formal political process.

I would say that only senior military or intelligence officers have any realistic grasp of the true scope, power and complexity of the Deep State and its Empire.Those with no grasp of military matters cannot possibly understand the Deep State. If you don’t have any real sense of the scope of the National Security State, you are in effect touching the foot of the elephant and declaring the creature is perhaps two feet tall.

The Deep State arose in World War II, as the mechanisms of electoral governance had failed to prepare the nation for global war. The goal of winning the war relegated the conventional electoral government to rubber-stamping Deep State decisions and policies.

After the war, the need to stabilize (if not “win”) the Cold War actually extended the Deep State. Now, the global war on terror (GWOT) is the justification.

One way to understand the Deep State is to trace the vectors of dependency. The Deep State needs the nation to survive, but the nation does not need the Deep State to survive (despite the groupthink within the Deep State that “we are the only thing keeping this thing together.”)

The nation would survive without the Federal Reserve, but the Federal Reserve would not survive without the Deep State. The Fed is not the Deep State; it is merely a tool of the Deep State.

This brings us to the U.S. dollar and the Deep State. The Deep State doesn’t really care about the signal noise of the economy–mortgage rates, minimum wages, unemployment, etc., any more that it cares about the political circus (“step right up to the Clinton sideshow, folks”) or the bickering over regulations by various camps.

What the Deep State cares about are the U.S. dollar, water, energy, minerals and access to those commodities (alliances, sea lanes, etc.). As I have mentioned before, consider the trade enabled by the reserve currency (the dollar): we print/create money out of thin air and exchange this for oil, commodities, electronics, etc.

If this isn’t the greatest trade on Earth–exchanging paper for real stuff– what is?While I am sympathetic to the strictly financial arguments that predict hyper-inflation and the destruction of the U.S. dollar, they are in effect touching the toe of the elephant.

The financial argument is this: we can print money but we can’t print more oil, coal, ground water, etc., and so eventually the claims on real wealth (i.e. dollars) will so far exceed the real wealth that the claims on wealth will collapse.

So far as this goes, it makes perfect sense. But let’s approach this from the geopolitical-strategic perspective of the Deep State: why would the Deep State allow policies that would bring about the destruction of its key global asset, the U.S. dollar?

There is simply no way the Deep State is going to support policies that would fatally weaken the dollar, or passively watch a subsidiary of the Deep State (the Fed) damage the Deep State itself.

The strictly financial arguments for hyper-inflation and the destruction of the U.S. dollar implicitly assume a system that operates like a line of dominoes: if the Fed prints money, that will inevitably start the dominoes falling, with the final domino being the reserve currency.

Setting aside the complexity of Triffin’s Paradox and other key dynamics within the reserve currency, we can safely predict that the Deep State will do whatever is necessary to maintain the dollar’s reserve status and purchasing power.

Understanding the “Exorbitant Privilege” of the U.S. Dollar (November 19, 2012)

What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012)

Recall Triffin’s primary point: countries like China that run trade surpluses cannot host reserve currencies, as that requires running large structural trade deficits.

In my view, the euro currency is a regional experiment in the “bancor” model,where a supra-national currency supposedly eliminates Triffin’s Paradox. It has failed, partly because supra-national currencies don’t resolve Triffin’s dilemma, they simply obfuscate it with sovereign credit imbalances that eventually moot the currency’s ability to function as intended.

Many people assume the corporatocracy rules the nation, but the corporatocracy is simply another tool of the Deep State. Many pundits declare that the Powers That Be want a weaker dollar to boost exports, but this sort of strictly financial concern is only of passing interest to the Deep State.
The corporatocracy (banking/financialization, etc.) has captured the machinery of regulation and governance, but these are surface effects of the electoral government that rubber-stamps policies set by the Deep State.

The corporatocracy is a useful global tool of the Deep State, but its lobbying of the visible government is mostly signal noise to the Deep State. The only sectors that matter are the defense, energy, agriculture and international financial sectors that supply the Imperial Project and project power.

What would best serve the Deep State is a dollar that increases in purchasing power and extends the Deep State’s power. It is widely assumed that the Fed creating a few trillion dollars has created a massive surplus of dollars that will guarantee a slide in the dollar’s purchasing power and its demise as the reserve currency.

Those who believe the Fed’s expansion of its balance sheet will weaken the dollar are forgetting that from the point of view of the outside world, the Fed’s actions are not so much expanding the supply of dollars as offsetting the contraction caused by deleveraging.

I would argue that the dollar will soon be scarce, and the simple but profound laws of supply and demand will push the dollar’s value not just higher but much higher. The problem going forward for exporting nations will be the scarcity of dollars.

If we consider the Fed’s policies (tapering, etc.) solely within the narrow confines of the corporatocracy or a strictly financial context, we are in effect touching the foot of the elephant and declaring the creature to be short and roundish. The elephant is the Deep State and its Imperial Project.

HAA HAA: Will Another Creditanstalt Be Revealed Once The Hypo Alpe Aldria “Black Box” Is Opened? | Zero Hedge

HAA HAA: Will Another Creditanstalt Be Revealed Once The Hypo Alpe Aldria “Black Box” Is Opened? | Zero Hedge.

Recall that the bank which precipitated the first Great Depression was Austria’s Creditanstalt, which declared bankruptcy on May 11, 1931 and which resulted in a global financial crisis, after its failure waterfalled into the chain-reaction of bank failures that marked the first systemic financial collapse. As part of CA’s rescue, Chancellor Otto Ender distributed the share of bailout costs between the Republic, the National Bank of Austria and the Rothschild family (and as a bit of historic trivia, following the Austrian Anschluss to Nazi Germany in 1938, Creditanstalt-Bankverein was targeted for a variety of reasons, leading to the arrest of Louis Nathaniel Rothschild and his imprisonment for the losses suffered by the Austrian state when the bank collapsed. Aggrieved, he emigrated to the US in 1939 after more than one year in custody).

A little over 80 years later, while the world is knee deep in explaining how snow during the 4th warmest January on record is the culprit for an abrupt and dramatic slowdown in world growth, and is following the geopolitical developments out of Crimea with great attention, the real action may once again be taking place in the small, quaint and quiet central European country, where yet another bank may be sowing the seeds of further financial mayhem.

Presenting Hypo Alpe Aldria (or “HAA” although certainly not funny as in funny HAA HAA: more shortly), a bank which in reality has been in the news for years following its nationalization in 2009 by the Austrian government to prevent a bank collapse. In fact, just last week, Austrian Chancellor Werner Faymann said the government is right to avert the collapse of Hypo Alpe-Adria-Bank International AG, as he cited the precedent of Creditanstalt, whose crash helped trigger the 1930s depression. “The crash of Creditanstalt in 1931 caused economic meltdown,” Faymann told parliament’s lower house in Vienna today. “There was a consensus in 2009 to act where necessary, to avoid the mistakes of the 1930s, to avoid a collapse by nationalizing and by installing protection measures at the European level.”

As a follow up, as Bloomberg also reports, the fate of HAA – whatever it ends up being – may have significant political consequences for the Austrian government. Again Bloomberg reports that “support for Austria’s ruling coalition is slipping five months after it won a narrow majority as inaction over the nationalized Hypo Alpe-Adria Bank International AG lifts backing for protest parties. Latest polls suggest voters are losing trust in Social Democratic Chancellor Werner Faymann and People’s Party Vice Chancellor Michael Spindelegger and warming to the euro-skeptic Freedom Party before May’s European Parliament elections. The Green and Neos parties also stand to gain, said Hubert Sickinger, a political scientist at the University of Vienna.”

“The ruling parties have a problem,” Sickinger said in an interview. “They postponed the Hypo Alpe ‘dead bank’ problem hoping that the economy would change but they’ve known since early 2013 that this wouldn’t help.”

One party that has been quite vocal on the issue of HAA is the Austrian Freedom Party nationalists, who seek to restrict immigration, and which has the most to gain from detouring the status quo as they would finish first in the EU parliamentary election, according to a Feb. 14 Gallup poll commissioned by the Oesterreich newspaper. The Freedom Party under deceased leader Joerg Haider helped build Hypo Alpe from a regional lender into one of the biggest banks in the Balkans.

“The European elections will be payback day” over the government’s handling of Hypo Alpe, said Franz Schellhorn, director of Agenda Austria, a Vienna-based research group.

“Anger is growing,” Schellhorn said in an interview today. “This black box has to be opened to see what is going on inside.”

It is the “opening of this black box” that suddenly has the entire investment community on edge, even if most of them hope the story simply goes away as it has for the past five years. Only this time it may be impossible to once again kick the can, er, box.

And while the legacy story of the post-bail out HAA may be known, it is the recent developments that are largely unknown and where the risks lie. This can be seen in the recent dramatic drop in HAA bond prices.

So why should people care about HAA? Bank of America explains:

The real surprise of the Hypo Alpe Adria (HAA) situation is not that bondholders may lose money, but the sight of the third richest country in Europe by per capita income apparently looking for ways out of paying what are clearly guaranteed debts of a 100% nationalized bank, for HAA debt is guaranteed by the Austrian State of Carinthia under a deficiency guarantee. The Austrian Finance Minister may be targeting a contribution from bondholders, according to reports on Bloomberg on Friday, We would consider it an astonishing turn of events if this actually ever came to pass, with wide-ranging negative implications for investors in not just Austria but potentially Europe as a whole.

What are the other implications from a potential HAA fallout? Here are the cliff notes:

  • Direct impacts: other Austrian banks?

Erste Bank and RBI will likely trade as proxies in any negative newsflow which could pressure their spreads. They aren’t really affected, though, in our view.

  • Indirect: negative for marginal banks

The Carinthia guarantee is a throwback to a very different banking world – when banks enjoyed implicit and explicit institutional support. Those days are over. We underline
that we have moved to a bail-in regime where investors will contribute to the costs of bank clean-up. This has implications for other very marginal banks e.g. the Cooperative Bank in the UK which we think is struggling.

  • Why the fuss? Who pays for HAA?

The European Commission in its decision on State Aid (dated 3rd Sept 2013) puts the capital need at €5.4bn in a stressed scenario. Liquidity needs are put at up to €3.3bn, meaning that the total outlay could be as high as an extra €8.7bn, in addition to the billions that have already been committed by the current and former shareholders. HAA’s total assets as of June 2013 were ‘only’ €31.3bn, recall.

  • What kind of outcomes for HAA?

We struggle to see how those positing bondholder losses get around the guarantee from Carinthia and all that implies. However, with lower cash prices in many of the bonds, perhaps the way forward opens up for e.g. substitution (of Austria for Carinthia) at a discount. There may also be the time value of return of principal to factor in.

  • Negative outcomes: maybe tough to do

If the Austrian Government decides to be tough, then the negative scenarios for HAA bondholders are potentially many. The Government may be somewhat hampered however by the fact that HAA bonds under the 2006 Prospectus are issued under German Law.

* * *

For the extended, and must read, notes on what Hypo may lead to, here is the full note from Bank of America’s Richard Thomas:

Funny HAA HAA or funny peculiar? Implications of Hypo Alpe Adria

HAA – the implications

The emerging crisis re: how to resolve Austria’s Hypo Alpe Adria (HAA) looks like it’s already one destined for the textbooks.

It has been rumbling around in our ‘bank peripheral vision’ for years as a problem child but now seems to be coming to a head because of what appears to be increased political pressure for a solution that potentially involves the imposition of senior bondholder losses in the mix. As such, we need to look at it to see what read-across, if any, there is to other European banks, as it seems to represent a hardening of attitudes to bank resolution amongst one of Europe’s richest countries.

We do not express an opinion or investment recommendation on the securities of HAA itself. Using conventional bank analysis, we believe that HAA is potentially uninvestable not only because of its evident non-viability and the lack of appetite to save it but also because of the allegations of past misconduct, as widely reported in the press, and what appears to be ongoing incompetence e.g. leasing invoicing ‘irregularities’ in Italy provided against as recently as in 1H13 numbers. The outcome for bondholders will ultimately be based on Austria’s view of its obligations and how it deals with the Carinthia guarantee, in our view. We expect that prices will therefore trade according to the last comment from someone important – highly unpredictable. For example, they were down on Friday following comments from the Austrian FinMin, but up this morning on comments over the weekend from the Head of the Austrian Central Bank. A final decision on what happens could be many months out.

For us, the shock of the current situation is not so much about bail-in being applied in the case of a failed bank – like most credit investors, we are used to this by now. The real surprise of the situation is the sight of the third richest country in Europe by per capita income apparently trying to manoeuvre out of paying what are clearly guaranteed debts (HAA debt is guaranteed by the State of Carinthia). We would consider it an astonishing turn of events if this actually ever came to pass, with wide ranging negative implications for investors in not just Austria but Europe as a whole.

Direct implications?

The read across from HAA to other banks is weak, in our view. However, there are a few implications to highlight which may impact spreads.

  • The most directly impacted bank would seem to be Bayerische Landesbank (BYLAN), former owner of the bank and where there is still some outstanding exposure. BofAML analyst Jeroen Julius talked about this in his note on BYLAN last week here. We remain Underweight-70% the BYLAN 5.75% T2 bonds. There is still an outstanding line of €2.3bn from BYLAN to HAA of which we understand €1.8bn was due at end 2013 – by March (if not sooner) then this will need to move to an impaired classification. HAA is saying that these monies are an equity substitute and are trying to claw back €2.3bn already repaid. Our view is that BYLAN may sacrifice some of the outstanding amount in  any settlement but seem unlikely to have to pay back the repaid amount. In the meantime, it seems that they do have a say in some of the levers which Austria may want to use in resolving HAA, so their negotiating stance looks solid.
  • Other widely traded banks where spreads could come under pressure are Erste Bank and RBI. We will likely see these banks trade as proxies in any negative newsflow which could pressure their spreads – their illiquid CDS is probably already trading some 10-15bps wider in senior and ~13bps wider in sub CDS. These banks should be much more sensitive to negative news from Central and Eastern Europe rather than Austria though, in our view, given their focus on emerging economies.
  • RBI’s exposure to Austria reflects its domicile and the corporate ties between Austrian companies and the EE corporates where most of RBI’s operations are placed. It does not have direct exposure to the Austrian complex in the way that e.g. BAWAG or Erste Bank have. The RBIAV 6% is probably down a point from its highs in the last week or so. We see the impact on RBI as quite tangential: if Austria takes a tough stance with bondholders, it’s more negative for sentiment on the banks, given that it implies a reduced sovereign exposure – so hardly negative for the sovereign from e.g. higher debt levels, albeit lower contingent liabilities.
  • About half of Erste Bank’s credit risk exposure is to Austria. It is therefore more of an ‘Austrian’ bank than RBI but that’s not really the problem here, in our view.
  • We are still very comfortable with RBI at this point, especially given the recent capital increase. However, we recommend reducing risk by switching into lower cash priced bonds versus higher cash price bonds. That means out of e.g. the 6.625% bond with a cash price of about €113 into lower cash priced bonds like the 6% (€106.5) or the 5.163%, though this is a much more illiquid security. We downgrade the 6.625% bonds to Underweight-30%.

Indirect implications?

The wider implications of what happens in the HAA case include:

  • If we do move to some kind of forced loss imposition from Austria on these bonds, then it probably isn’t a good moment for bank risk (or indeed European risk). However, as we explain, in this case loss imposition is rather tricky to do, given the existence of the guarantees from Carinthia.
  • Whatever happens, we see the HAA situation as reflecting a growing impatience with marginal and near-failing banks and that a hard line is likely to be followed in resolving them. It underlines that we have moved to a bail-in regime where investors will contribute to the costs of bank clean-up. This has implications for other very marginal banks e.g. the Cooperative Bank in the UK which we think is struggling. Underweight-70% the 11% T2 bonds of the Coop Bank at £123.
  • The Carinthia guarantee is a throwback to a very different banking world – when banks enjoyed implicit and explicit institutional support. Those days are over. Such support often allowed excessive expansion on the back of cheap funding – we can point to the continued need for adjustment in the Landesbank sector for evidence of that.
  • One final point: in our view there would be a negative read-across to the German Landesbanken more generally if a way was found around the deficiency guarantee in this case. The Landesbanken heavily rely on State guarantees. For example, HSH Nordbank has a €10bn guarantee (that helps its capital position) form Hamburg and Schleswig- Holstein.

Funny HAA HAA or funny peculiar?

A special case?

We think there is a good argument for saying that HAA is a special case amongst European banks. One can read its downfall and subsequent full nationalization as a familiar juxtaposition of overexpansion (in the former Yugoslavia) without sufficient risk controls being in place as a result of too cheap funding, owing to its funding guarantee from the Austrian State of Carinthia (currently rated A2 by Moody’s). Yet the narrative is worsened by allegations of serious past misconduct involving money laundering, fraud and possibly murder. See for example The Economist, Sept 9th 2010 or the New York Times, October 20th 2010.

Whilst mismanagement may well have been a feature of some European banks before the crisis; we would hesitate to attribute this level of alleged misconduct, however, to even many of the most stressed European banks. The nature of the allegations, in our view, serves to underline Austrian public antipathy for taxpayers having to pay for the continuing losses at the bank. It also differentiates it sharply from other European, and of course Austrian, banks. HAA’s situation and alleged misconduct is simply too severe to have systemic implications for other Austrian banks, in our view.

Could there be a haircut? Wait!

Bloomberg reports that two thirds of the Austrian public is against the use of further public monies being used to prop up the bank. With such a powerful consensus against such a move and elections next year, it’s not surprising that recently the rhetoric has turned firmly towards finding solutions for HAA that involve imposing losses somewhere – anywhere – other than at the door of the Austrian taxpayer. Hence, the comments from the Finance Minister Spindelegger on Feb 21 that Austria was looking at ways to get bondholders to contribute.

So far, so straightforward: the only problem is that the bulk of HAA senior bonds enjoy a deficiency guarantee from the State of Carinthia. This complicates the burden sharing. We note, by the way, that the EC ruling on State Aid for HAA made no mention of senior bondholder losses at all. Is it really possible to get around the deficiency guarantee and impose losses?

Our understanding is that the deficiency guarantee is not quite like other guarantees. It’s this ‘gap’ that allowed Moody’s to downgrade HAA to Baa2 from A1 on Feb 14. It means that a creditor must have attempted in vain to satisfy his or her claims against (in this case) HAA first before he can use the guarantee, though not if bankruptcy proceedings were already started. Non-payment alone may not be sufficient to invoke the guarantee, absent due process. Even so, it still looks to us that it’s just a matter of time before creditors could ask Carinthia to satisfy their claims. It seems doubtful that the State could afford to perform on the guarantee however with the €12.3bn or more of bonds being many multiples of Carinthia’s income, according to Moody’sIt seems hardly credible that we could be looking at bankruptcy of a Federal State of one of the richest countries in Europe.

Hence, the dilemma. This really would be a new departure for a European country – we’ve had bondholder haircuts before, but not on instruments guaranteed by a governmental entity like Carinthia.

What’s the size of the hole at HAA?

The European Commission in its decision on State Aid (dated 3rd Sept 2013) puts the capital need at €5.4bn in its stressed, or worst case, scenario. Similarly, the liquidity needs are put at €3.3bn in the stressed scenario, assuming that the above capital is provided in cash, meaning that the total outlay could be as high as €8.7bn, in addition to the billions that have already been committed by the current and former shareholders. HAA’s total assets as of June 2013 were ‘only’ €31.3bn, remember, and of this, €3.5bn was already earmarked as for disposal – giving a pro forma number of €27.8bn. To put this in further context, existing capital resources at HAA (equity plus sub debt) are €3bn, and provisions existing already are €3.5bn. Loans net of provisions are ~€17bn.

The now former Chairman of the Bank, Mr. Liebscher, has previously commented that HAA could require up to €4bn of further capital (‘only €400mn a year over 10 years’). Capital needs could vary considerably if assets were transferred out of the regulatory capital environment e.g. to an asset management company, since these require much less capital. We note too that Weiner has reported that the loss for the year at HAA may have grown to €1.8bn (from the €0.8bn at half year 2013) – we think it’s likely that is already reflected in the EC’s numbers though we’re not completely sure.

The €5.4bn of capital needs calculated by the EC could be higher or lower therefore but let’s use it as a basis for thinking about outcomes. Are there any offsets? Certainly,
HAA believes so. It is claiming that €4.6bn of funds extended to the bank in 2008 by BayernLB is an equity substitution under Austrian Law. €2.3bn of this is still outstanding (it’s not being serviced by HAA) but HAA has applied to the Munich Regional Court for a return of amounts that they’ve already paid back. Our core case is that BayernLB will lose some of this money (if only to settle the case) but we have no real idea how much they and HAA would settle at, of course, or if they will settle at all.

How (much) could bondholders pay?

Is it conceivable that the senior bondholders could be expected to contribute a sizeable chunk of the €5.4bn? As of end-June 2013, issued bonds at HAA totaled €11.1bn (we exclude Pfandbriefe); we don’t have data for any redemptions in 2H13. We do however know that there is a very substantial redemption of senior debt on March 17th of €750m (the HAA 3.75% bond). Again, the interim financials showed a cash balance of €2.6bn at the bank which on its own should comfortably cover the repayment. We are more skeptical about HAA’s liquidity, given the continued deterioration of its financial position implied by the reported further €1bn loss in 2H13. Perhaps it is this that is focusing the attention of Austrian policymakers on bondholders.

Repaying this bond would be a substantial cash outflow from the bank and bondholders would be getting par – these bonds are currently quoted at a mid-cash price of ~€96 but the bid/offer is something like 5 points, underlining the huge uncertainty. But it would also probably be taken as a pointer towards future treatment of bonds and so, if repaid, would likely positively impact prices.

The €5.4bn additional capital need would imply a forced senior bondholder haircut of anything from 20% upwards in our view depending on what is considered the pool of bailin-able liabilities, though admittedly we find it quite hard to believe this will be the actual outcome at this point. This number could be kept down not least by any  settlement with BayernLB – and we can’t really imagine that Austria will make a zero contribution here. Even the €5.4bn total capital needs number calculated by the EC is ‘only’ about 2% of Austrian GDP.

We also struggle to see how those positing bondholder losses get around the guarantee from Carinthia and all that implies. It’s this, we think, that is the really interesting part for European bank bondholders. We have seen headlines suggesting that the Republic of Austria would substitute itself as guarantor for the bonds, subject to bondholders agreeing to a substantial haircut.When the bonds were at par, that looked really unlikely, but with e.g. the 2016 and 2017 bonds having traded down so dramatically in the last few days (currently quoted with a cash price at around €85-86), perhaps the conditions are beginning to evolve for this type of liability management.

Ultimately, we think it’s unlikely that Carinthia could pay back bondholders and remain solvent itself – as Moody’s highlights in its downgrade of the State on Feb 14 2014, the debt outstanding is some six times Carinthia’s 2013 budgeted operating revenue. Recall that HAA is 100% owned by the Republic of Austria – it seems unlikely that the shareholder would enforce the insolvency of a regional State without acting itself.

We also wonder if there is some leeway in terms of the timing difference implied by the final payment under the deficiency guarantee – how prompt might this be? Months? Years? Longer? If it could be demonstrated that bondholders would have to wait many years before getting any of their principal back, then perhaps there is the basis for an offer that gives investors liquidity today, albeit at a discounted price.

What could induce bondholders to agree to any changes?

We suspect that this is currently under consideration – there likely is little limit to the scenarios that could be conceived, but it all depends on the view the Republic takes of itself in the markets and its concerns about any likely fallout from its actions. Freezing the liabilities of the bank and the guarantee? Rescission of the guarantee? Anything is possible but perhaps some of these worst scenarios are not the most probable. However, what is clear is that the outcome for bondholders, as we have seen before in these haircut scenarios, is highly unpredictable and politicized.

In spite of the Austrian Finance Minister’s comments to the contrary, we are of the view that most HAA bonds are still with the original, investment grade, investor base. We believe that the rotation into ‘trader’ or ‘hot money’ hands is probably only still at the beginning – only recently have we heard that blocks of bonds have been coming out, rather than the trading of very small amounts. This could change rapidly in the coming weeks if Austria decides to step up the bondholder loss rhetoric of course but at this point, it would be ordinary money managers, we think, who would be absorbing most of the losses, not hot money or speculators.

As an added twist, we note that HAA bonds issued under the August 2006 Prospectus are under German Law (rather than Austrian). Again, this points in the direction of either repayment of the bonds under the guarantee, or a negotiated settlement with bondholders, rather than the imposition of an arrangement by the Austrian Government, since legally they may not have the flexibility to do much else.

* * *

In conclusion all we have to add is that it would indeed be supremely ironic if the “strong” foreign law bond indenture would be tested, and breached, not by Greek bonds, as so many expected in late 2011 and early 2012, but by one of the last contries in Europe which is still AAA-rated. We would find it less ironic if the next leg of the global financial crisis was once again unleashed by an Austrian bank: after all history does rhyme…

Russia Fires First Retaliatory Salvo, May Limit Ukraine Food Imports | Zero Hedge

Russia Fires First Retaliatory Salvo, May Limit Ukraine Food Imports | Zero Hedge.

Russia represents over 25% of Ukraine’s exports and is the divided nation’s largest trade partner. As Ukraine remains deep in its self-described “pre-default” state, the economy languishes vainly in the hopes of a trade deal with ‘someone’ and a bailout from ‘someone’ else. However, the IMF’s first move to bail the nation out has now been met by a subtle punch to the country’s kidneys as Interfax reports that Russia threatens to limit food imports on the basis of “veterinary and phytosanitary risks.”

Via Interfax,

Russia and the Customs Union could temporarily limit increased-risk food imports from Ukraine, given fears of loose safety control, said Sergei Dankvert, head of the Russian veterinary and phytosanitary oversight service Rosselkhoznadzor.

My Belarusian colleague and I are extremely concerned about the situation in UkraineWe do not rule out that curbs could be introduced on the imports of products of high veterinary and phytosanitary risks from Ukraine,” Dankvert told Interfax after talks with his Belarusian counterpart Yury Pivovarchik in Bryansk, and telephone talks with Ukraine’s Deputy Agrarian Policy Minister Ivan Bisyuk.

Restrictions could also be imposed on transit shipments, he said.

The conditions in which Ukrainian experts are working arouse queries and doubts that their work is being done properly, especially amid reports of African swine fever infections, he said.

Cooperation between veterinary and phytosanitary experts is largely based on trust, Dankvert said. If the conditions in which the Ukrainian service is working do not improve, moreover, if its leadership is replaced, the business contacts, built over the past few years, may be affected,” he said. “They were not always cloudless, but our Ukrainian colleagues were trying to work for expanding trade between our counties,” he said.

It might seem like an odd reason to suddenly do this but of course the timing is perfect – especally as the anti-Russian provinces tend to be the most agricultural and farming based – as opposed to the eastern (more industrial) regions that are wealthier and more pro-Russia.

But as a reminder, great deal of the nation’s wealth resides in non-pro-Europe eastern Ukraine

Oil Spill Shuts New Orleans Port & Mississippi River | Zero Hedge

Oil Spill Shuts New Orleans Port & Mississippi River | Zero Hedge.

65-mile stretch of the Mississippi near New Orleans remained closed Monday after two vessels collided and caused an oil spill on Saturday in foggy conditions about 30 miles west of New Orleans. As NBC news reports, the Lindsay Ann Erickson crashed with the Hannah C. Settoon, which was pushing two barges carrying barrels of light crude oil that spilled into the river. Clean-up efforts are underway.

In this aerial photo, river traffic is halted along the Mississippi River between New Orleans and Vacherie, La., due to a barge leaking oil in St. James Parish, La., Sunday, Feb. 23, 2014. The collision happened Saturday afternoon near Vacherie.

 

Via UPI,

The U.S. Coast Guard said the source of an oil spill was secured but 65 miles of the Mississippi River including the Port of New Orleans remained closed Sunday.

The Coast Guard said in a news release the oil spill occurred Saturday when a barge collided with another vessel near Vacherie, between New Orleans and Baton Rouge.

“Lightering operations on the damaged barge concluded early Sunday morning and the source of the spill was secured,” the release said. “Oil spill response vessels and recovery equipment are deployed in the river.”

The Coast Guard said the Captain of the Port closed the river from mile marker 90 to mile maker 155 “to avoid possible contamination of passing vessels and to reduce the amount of oil spreading further down the river.”

A unified command including the Coast Guard, the Louisiana Oil Spill Coordinator’s Office, the environmental cleanup company ES&H and the Louisiana Department of Environmental Quality was cooperating on the response to the spill, the Coast Guard said.

Viktor Yanukovych Arrest Warrant Issued, As Ukraine Authorities Hunt President In Crimea

Viktor Yanukovych Arrest Warrant Issued, As Ukraine Authorities Hunt President In Crimea.

CP  |  By Yuras Karmanau And Maria Danilova, The Associated PressPosted: 02/24/2014 3:46 am EST  |  Updated: 02/24/2014 8:59 am EST

Viktor Yanukovych

SIMFEROPOL, Ukraine – Ukraine’s acting government issued a warrant Monday for the arrest of President Viktor Yanukovych, last seen in the pro-Russian Black Sea peninsula of Crimea, accusing him of mass crimes against protesters who stood up for months against his rule.

Calls are mounting in Ukraine to put Yanukovych on trial, after a tumultuous presidency in which he amassed powers, enriched his allies and cracked down on protesters. Anger boiled over last week after snipers attacked protesters in the bloodiest violence in Ukraine’s post-Soviet history.

The turmoil has turned this strategically located country of 46 million inside out over the past few days, raising fears that it could split apart. The parliament speaker is suddenly nominally in charge of a country whose economy is on the brink of default and whose loyalties are torn between Europe and longtime ruler Russia.

Ukraine’s acting interior minister, Arsen Avakhov, said on his official Facebook page Monday that a warrant has been issued for the arrest of Yanukovych and several other officials for the “mass killing of civilians.” At least 82 people, primarily protesters, were killed in clashes in Kyiv last week.

Avakhov says Yanukovych arrived in Crimea on Sunday and relinquished his official security detail then drove off to an unknown location.

After signing an agreement with the opposition to end a conflict that turned deadly, Yanukovych fled the capital for eastern Ukraine. Avakhov said he tried to fly out of Donetsk but was stopped, then went to Crimea.

Tensions have been mounting in Crimea, where pro-Russian protesters raised a Russian flag on a city hall in one town and scuffled with police. Russia maintains a big naval base in the Crimean port of Sevastopol that has tangled relations between the countries for two decades.

Yanukovych set off a wave of protests by shelving an agreement with the EU in November and turning toward Russia, and the movement quickly expanded its grievances to corruption, human rights abuses and calls for Yanukovych’s resignation.

“We must find Yanukovych and put him on trial,” said protester Leonid Shovtak, a 50-year-old farmer from the western Ivano-Frankivsk region who came to Kyiv’s Independence Square to take part in the three-month protest movement. “All the criminals with him should be in prison.”

The speaker of parliament assumed the president’s powers Sunday, even though a presidential aide told the AP on Sunday that Yanukovych plans to stay in power.

The speaker, Oleksandr Turchinov, said top priorities include saving the economy and “returning to the path of European integration,” according to news agencies. The latter phrase is certain to displease Moscow, which wants Ukraine to be part of a customs union that would rival the EU and bolster Russia’s influence. Russia granted Ukraine a $15 billion bailout after Yanukovych backed away from the EU deal.

U.S. Ambassador Geoffrey Pyatt said the U.S. is ready to help Ukraine get aid from the International Monetary Fund.

The European Union, meanwhile, is reviving efforts to strike a deal with Ukraine that could involve billions of euros in economic perks. EU foreign policy chief Catherine Ashton is visiting Kyiv on Monday and Tuesday.

The protest movement has been in large part a fight for the country’s economic future — for better jobs and prosperity.

Ukraine has struggled with corruption, bad government and short-sighted reliance on cheap gas from Russia. Political unrest has pushed up the deficit and sent exchange rates bouncing, and may have pushed the economy back into a recession.

Per capita economic output is only around $7,300, even adjusted for the lower cost of living there, compared to $22,200 in Poland and around $51,700 in the United States. Ukraine ranks 137th worldwide, behind El Salvador, Namibia, and Guyana.

Ukraine has a large potential consumer market, with 46 million people, an educated workforce, and a rich potential export market next door in the EU. It has a significant industrial base and good natural resources, in particular rich farmland.

Fair Elections Act: NDP Starts Push To Have Hearings On Changes

Fair Elections Act: NDP Starts Push To Have Hearings On Changes.

CP  |  By The Canadian PressPosted: 02/24/2014 4:10 am EST  |  Updated: 02/24/2014 10:38 am EST

OTTAWA – MPs are set to debate a New Democrat motion today that calls for cross country hearings by a commons committee on the Harper government’s proposed overhaul of the Elections Act.

The governing Conservatives have scoffed at the idea of public hearings across the country, saying they would be nothing more than a circus.

The Tories have used their majority to limit debate and push the bill through the House.

New Democrat MP David Christopherson said last week that such significant changes to electoral laws have never been made before without input from the opposition parties and the chief electoral officer.

The legislation effectively divides Elections Canada, the watchdog that oversees election fairness, by putting its investigative powers in a separate office.

It also restricts the chief electoral officer from communicating with Canadians and effectively increases the amount parties will be able to spend during campaigns.

Chief Electoral Officer Marc Mayrand has questioned the proposed changes, fearing they will undermine Elections Canada’s efforts to encourage all Canadians to cast a ballot.

Christopherson says he fully realizes the Conservatives will squash efforts to start public hearings, but hopes today’s debate will draw public attention to the controversial legislation.

The great Australian electricity rip off – Solar Business Services

The great Australian electricity rip off – Solar Business Services.

The great Australian electricity rip off

20 Feb, 2014

 

Right, now I’m really, really annoyed.

Although I’ve spent more than two decades in the solar and energy field, in the last two years as solar has grown and we have become an intrinsic and material part of  Australia’s energy mix I have come to realize something fundamental.

The Australian public is being duped and constantly lied to on a monumental scale when it come to electricity.

Now I am a fundamentally trusting person; it’s the way I was brought up. I’m not a conspiracy theorist. I always give people, Governments and corporations the benefit of the doubt.

However, the more I read, research and understand about the way our electricity system operates the more alarmed I become. I admit, I am not an expert in the complex and ever changing world of electricity regulation, but a lot of what is happening in the industry is not rocket science. Events of the last few weeks have simply brought it all home for me.

Lets look at a few examples.

The RET

The facts on what the RET does and doesn’t cost are absolutely, 100% clear, ironically thanks to a Government body, The Australian Energy Market Commission. It’s the single smallest component of electricity bills  (bar one) and is already declining in proportional terms.

And yet, from the Prime Minister all the way down to the subtle messages passed on to their very close friends in  media who helped them gain power, time and time again the RET (and the Carbon Price) are made out to be the root of all evil.

This is despite the data, the facts and the truth from their own departments. I am boggled and stunned by the willingness of our leaders to tell blatantly astounding mistruths about this issue and to conveniently overlook the real source of price rises. Even Joe Hockey (who seems like a nice bloke) jumped on the band wagon yesterday suggesting that the RET had something to do with Alcoa’s decision to exit Australia, despite the fact that the company had received hundreds of Millions of dollars in exemptions and grants. The only ones not blaming the RET and the Carbon Price, were Alcoa.

The real source of price rises

When you look at the data, it shows you some staggering facts about what is really going on. Take for example, one of Australia’s largest network owners, NSW Government owned Ausgrid.

Ausgrid has the single largest share of customers in the entire National Electricity Market (around 18%) making them the canary in the coal mine. In their 2013 report, the Australian Energy Regulator had this to say: “There have been many large changes in the relative and overall magnitude of the charging parameters within the period. Of particular note is the 471.14 per cent increase in the fixed charge in 2012–13, 18 per cent decreases in energy charges in 2006–07 and over 200 per cent increases in energy charges in 2009–10.”

Did you get that ? Ausgrid, a Government owned network operator increased fixed charges by 471.14 % to business customers.

If you look at it over the period 2004 to 2013 it is a total increase of 1125%. Peak energy costs increased 600%, shoulder by 649%, Off peak by 1111% and peak capacity by 869%.

And yet, the RET is the problem apparently.

So despite all the bleating about wanting to reduce peak demand, they have in fact increased fixed charges which consumers can have NO IMPACT on, no matter how hard they try.  These  ”price signals”  are counter intuitive to reducing peak demand and in fact utterly dis-empower consumers in a most profound way, a fact that was outlined in a report in 2013 by the Centre for Policy Research. And they are completely Government sanctioned.

If that’s not enough, the same report actually shows that in 44 out of 46 cases across 8 network companies between 2005 and 2011, revenues (that are regulated) were ABOVE expectation. That means they mademore profit and we all paid for it. And guess what; when you look at the AEMC’s data here’s what it shows is going to happen as a proportion of the average National electricity bill between 2014 and 2016:

  • Distribution network charges will RISE by 8.2%
  • Generation costs will RISE by 5.7%
  • Retail Margins will RISE by 6.3%
  • Transmission costs will RISE by 6.7%
  • The RET (Small and Large scale) will REDUCE by 55.6%

Of course, these changes could be somewhat masked by State price settinghours a day.  regimes and the assumed removal of the Carbon Price. How terribly, terribly convenient.

But of course, there are rewards for electricity consumers in some cases. years ago, many tariff structures were revised so that their was an incentive to use less energy and to reward energy efficiency. But the AEMC document demonstrates the inexorable shift away from this and back to rewarding higher consumption. Use more and pay less. This works beautifully if your profit comes from meeting this demand or expanding your network to cope but the impact on the rest of society is that prices rise to fund it all.

Highlighting the case, I spoke to an installer recently who was facing challenges because of this issue. He had stumbled across several large agricultural facilities that were obsessed with ensuring their demand was constantly high enough to get them to the next (lower) tariff rate. The solution? Install a 200kW water pump, suck water out of a dam and pump it back in again. Constantly. 24 hours a day.

Wonderfully efficient.

But lets not forget the retailers because after all “they just pass on the regulated network costs from the distributors” (like Ausgrid). Poor guys. They are scrambling to scrap the RET at a rabid pace, have erroneously called it  middle class welfare and are laying the blame for the countries woes squarely at our mutual, solar panel installing feet. All the while they have Government sanctioned approval to make proportionally MORE profit from you and me and every single Australian business owner (and Alcoa of course, had they stayed).

Meanwhile, the regulators and the Government just keep saying “Don’t worry. its ok, you can just switch providers and save a FORTUNE because switching is really, really easy and the market is in a state of healthy market based competition”. Bullshit.

Firstly, the vast majority of the Australian electricity industry is still Government owned. Not  really renowned for innovation or their creative market based behaviour, the Government.

Secondly, consumers are lazy and switching is a pain in the backside. Most of us are too busy dealing with life to worry about trying to save a few percent here or there. Where’s the reward for loyalty gone in this world, for goodness sake? And you know what? Switching and “customer churn” is on the increase and the poor utilities are facing increased costs because of it which is exactly the reason they are allowed to charge us more. Because we are all switching. Because that’s how we’ll save money. But it puts costs up. So it will cost us money. But we should switch because we’ll save money.

You’re getting this, right?

But hey, if we swallow the assumption (and advice from Government) that we will save money by switching then that’s awesome. You’ll knock 10 0r 15% off my bill? Yes? Awesome, because my last bill was a shocker. Terms and conditions? Yep, read all 279, 621 tiny little words of your terms and conditions after following ten links on your website (lie). Didn’t understand a word of (true). Yes, I’ll sign your contract because I’m Australian, you’re Australian and a deal is a deal. I’d spit and shake on it if you weren’t in Bangalore.

Now as it turns out, the totally awesome discount you just got is actually pretty “fluid”.  Turns out current laws allow the retailers to increase the price they charge you for electricity at any time during a contract.  But I hate switching, it’s a pain, so I’ll just lump it in 6 or 12 months when you hit me with a price rise caused by factors completely outside your control.

Wow, that wasn’t such a good deal after all.

The rules

Then there are the rules. My god, the rules.  Simply trying to understand the rules and regulations that govern the industry, how they translate to your bill and what they can and cant do is like trying to understand what your Optus phone is actually costing you. You have absolutely no hope.

Take business customers for example. I recently analysed 5 business bills, which were from different locations in Australia but all similar costs and by co-incidence, all from the same retailer.

Firstly, there was a a complete lack of consistency which made understanding and comparing them virtually impossible. Different terms for the same thing, slight changes in wording,some charges on energy, some on demand and an utter lack of consistency. In some cases customers paid for simply awesome things like “VIP Metering” and “Consumer advocacy”. Unreal. If I was a business owner, I would be so impressed to know that my retailer is charging me to be an advocate. For me. And then charging me. Now that’s service!

Then there is the complete and total transparency which allows me to compare commercial offerings. Yep, you can go to a web site, look at every offer in the market upload your consumption data and work out which offer is best.  And its easy (switching, remember?). Bullshit.

There is a chasm greater than the Western Australia’s Big Pit here.

First, if you want to know your demand profile, they’ll take weeks and probably charge you. For knowing. Your consumption.

Secondly, if you ask for an offer, they’ll pretty quickly slot you into a demand “band”. No one actually knows what these bands are or what they mean and they vary by region, by offer, by your size and the color of your neighbors hair (god help you if they are a blood-nut). It’s like a mystery flight; just shut up, sit down and hang on. If you don’t know your demand yet, don’t worry because they have a secret formula so they can tell you how much it will cost and what your profile will look like. Without knowing anything about your demand. At all.

But hey, I’m probably being unfairly critical because its complicated; I couldn’t possibly hope to understand. Go right ahead.

Then of course, you might have a relationship going back many, many years with your retailer. You watch the news, you’ve seen the drought, you listened to the issues about peak demand and the greatest moral issue of our time and you decided; Screw it. I’ll stump up hundreds of thousands of dollars of my own money and whack some solar up.

Your retailers reaction? Well at least one I know of said “Awesome!” “We’ll just renegotiate the contract you broke, your energy rate will dramatically reduce from 25c kWh to 5c. Your standing charges (don’t worry about them) will increase form 25c a day to $2  day”. For those unfamiliar, that’s called “the big switcheroo”, formerly the domain of dudes in weird waistcoats with cups and balls, but now a wholly owned subsidiary of electricity retailers.

Oh and because the rules have changed to protect consumers (enter the National Energy Customer Framework) , if you want solar, we will need to come and do a horrendously expensive study because  well, the fact that you have been on our network for thirty years and we approved everything counts for nothing. Because we have to protect you. In one actual case from a network operator one of the reason the gave for delaying a solar installation was, and I quote “The LV OH supply from the Council access track North of premises is quite sneaky visually and very hazardous to the unsuspecting. “

Damn it, sneaky wires. That’s a damn good reason to stop progress and infuriate a 30 year customer who’s (sneaky) installation was approved by you.You’re right. We are busted for excessive sneakiness.

I was also fascinated to see the variation in loss factors that are applied to bills, as  a separate and definable item. They varied between 0.1% and a staggering 15.19%. and are applied as a multiplier to the energy you consume. So in one case, the business bill I looked at was 15.9% higher than their actual consumption because the network is so grossly inefficient at delivering energy to their premises.   That’s akin to a mechanic saying “Sorry mate, I spilled 15.9% of the oil when I was doing your service because my pipe has a leak, but the law says I can charge you for it”. 

Not only are they allowed to do this by law, but they will charge you a huge proportion of your bill for building owning operating and maintaining that same network, then charge you (again) if they happen to do a lousy job of it where you happen to have your business. Really.

Then we can also consider the regulations around the pass through of the costs of RET. In NSW for example, Retailers were allowed (by the State regulator) to pass through the “full cost” of certificates at $40 and recover these costs from consumers and business. The catch here is the real price of certificates has moved from $16-$36 over the last few years and of course, if those same retailers create their own certificates (by selling you a solar system and capturing the STC’s) then they could get prices way down. So we know and it has been ackowledged by IPART that the Retailers stood to gain, potentially substantial sums from this quirk.

So in reality, the RET and the SRES in particular, has contributed to the profits of the Retailers.

I could go on with a myriad of other examples but I suspect you get my point.

The Government owns, regulates and controls the vast majority of the electricity industry in Australia all the way back to the coal reserves in some cases. The make a phenomenal amount of money from it, as do the non Government retailers and they don’t want it to change. The US based Edison Electric Institute (an electricity industry think tank) summed up the substantial concerns of their industry to disruptive challenges in blunt terms in a document released lat year, warning that industry had to adapt or perish. Through their vast media connections they will say what is politically convenient even if it is complete and utter rubbish and we wont even get a return phone call from the same reporters.

It seems to me that they have all got themselves into a corner so dark, they just have to keep rolling out the same rubbish and hope no one notices.

Guess what? We noticed.

US And Israel Quietly Provide Military Support And Parts To Iran, Which In Turn Is Arming Syria | Zero Hedge

US And Israel Quietly Provide Military Support And Parts To Iran, Which In Turn Is Arming Syria | Zero Hedge.

Before the Ukraine, there was Syria. Before Syria, there was Iran. For over 30 years, Iran was the perpetual strawman of every attempt to escalate hostilities in the middle east. One only needs to recall that the original “red line” was not Obama’s but that of Israel’s PM Netanyahu referring to Iran’s nuclear program (which most likely was under the control of Stuxnet, and thus the NSA, more than it was Iran’s to begin with).

What is surprising in recent months, is how quickly in the aftermath of the Syrian failed escalation script from last summer, Iran quickly dropped off the axis of America’s worst enemies, and from the biggest bogeyman, has rapidly become a nation with which the US is eager to resume diplomatic and trade relations. Sure, Israel pretended to be angry about Iran’s ascent in the ranks of US foreign allies-to-be, and issued a few angry press releases, but that’s all it was – posturing, fit only for the front page of tabloids. It is what was happening behind the scenes that is noteworthy.

And what is happening behind the scenes is the same thing that happens every time the US (or Israel, or any other western nations) finds a surprising new ally: said ally proceeds to purchase military equipment from the US (or other western nations), using loans from the US (or other western nation banks).

Enter bizarre twist #1 – US companies selling military parts to none other than the formerly country non grata (at least until mid-2013): Iran. Reuters reports:

U.S. aerospace companies are seeking permission to sell airliner parts to Iran for the first time in three decades, in a key test of the temporary relief on sanctions given under talks to curtail Iran’s nuclear activities.

 

At least two leading manufacturers, Boeing and engine maker General Electric, have applied for export licenses in a six-month window agreed by Iran and six world powers in November, industry officials and other sources familiar with the matter said.

 

If approved, the sales would be the first acknowledged dealings between U.S. aerospace companies and Iran since the 1979 U.S. hostage crisis led to sanctions that were later broadened during the dispute over Iran’s nuclear activities.

 

A source familiar with the matter said that Boeing, the world’s biggest manufacturer of passenger jets, had also filed a request for permission to export parts to Iran.

 

Boeing declined to comment, referring questions to the U.S. State Department, which in turn referred queries to the U.S. Treasury. A spokeswoman for the Treasury Department, which enforces international sanctions, declined to comment on specific license requests or applications.

Enter bizarre twist # 2 – “GE is doing it for the kids.”

A GE spokesman said his company had been asking since 2004 for permission to provide parts and maintenance for engines for safety reasons, without profiting from the scheme. GE, the world’s largest maker of jet engines by sales, refiled its request after the sanctions relief came into force, he added.

 

“We don’t want to make a penny on it. It’s entirely for flight safety,” Rick Kennedy said, adding that GE would donate any proceeds to charity.

But of course, because when one thinks suing the US to get tax refunds corporate generosity (if not bailouts), one thinks GE.

Enter bizarre twist # 3 – it is not only the US that is seeking to promptly capitalize on this “temporary” elimination of Iran sanctions. It is Iran’s perpetual nemesis, Israel, that is not only planning to supply weapons to Iran, but is already doing so. However, unlike the US which at least has clumsily stumbled upon a detente whose only purpose is logically to get Iran to buy Made in America weapons, with Israel the hypocrisy takes on a whole new meaning. Quote the Telegraph:

Benjamin Netanyahu, the Israeli prime minister, called for increased pressure on Iran to force it to abandon a programme that Israel regards as a front for building an atomic bomb and a threat to its existence.

 

Visiting the Golan Heights on Tuesday, he accused Iran of “arming those who are carrying out the slaughter” in neighbouring Syria.  “I would like to tell the world, today, as the talks between the major powers and Iran are being resumed, that Iran has changed neither its aggressive policy nor its brutal character. Iran is continuing to support the Assad regime, which is slaughtering its own people,” Mr Netanyahu said.

And this is where it gets embarrassing for Bibi: it was Israel that was arming Iran.

[A] court in Athens has told The Telegraph that parts appearing on an American list of forbidden military-grade materials had been shipped from Israel on two occasions, apparently destined for Iran.

 

The seized items comprised spare parts for military aircraft: a constant speed drive designed for the F-4 Phantom jet, and a voltage output sensor used in the F-14 Tomcat. The parts were confiscated by Greece’s financial crimes squad and were being sent to the US for investigation, court officials said.

 

 

Israeli arms dealers twice tried to send spare parts for fighter planes to Iran, The Telegraph has established, flouting an international arms embargo and openly contradicting the bitter enmity between the Jewish state and the Islamic regime.

 

The illegal shipments are now being investigated by the US Homeland Security Department after they were intercepted by authorities in Greece.

 

The shipments – one in Dec 2012 and the other last April – were sent by courier from the Israeli town of Binyamina-Givat Ada, near Haifa, via a company in Greece, the newspaper reported. The firm was later established to be a ghost company. Its contact number was said to belong to a British national in the Greek city of Thessaloniki, who could not be traced.

Was Mossad involved? But of course.

A blogger, Richard Silverstein pointed the finger at two possible culprits who he said were well-known arms dealers living in Binyamina-Givat Ada. The pair had come to the attention of Israeli and US authorities on suspicion of violating the arms embargo on Iran in the past, Silverstein wrote, but had never been charged or prosecuted. “There can be no doubt that they are colluding with Israeli intelligence,” he added.

For those who are not convinced, “The defence and foreign ministries in Israel declined to comment on the seizures, which were first revealed by Kathimerini, a Greek newspaper. 

Finally, tying it all together, is another report from Reuters. in which we learn that “as Syria’s war nears the start of its fourth year, Iran has stepped up support on the ground for President Bashar al-Assad, providing elite teams to gather intelligence and train troops, sources with knowledge of military movements say.

This further backing from Tehran, along with deliveries of munitions and equipment from Moscow, is helping to keep Assad in power at a time when neither his own forces nor opposition fighters have a decisive edge on the battlefield.

Assad’s forces have failed to capitalize fully on advances they made last summer with the help of Iran, his major backer in the region, and the Hezbollah fighters that Tehran backs and which have provided important battlefield support for Assad.

 

But the Syrian leader has drawn comfort from the withdrawal of the threat of U.S. bombing raids following a deal under which he has agreed to give up his chemical weapons.

 

Shi’te Iran has already spent billions of dollars propping up Assad in what has turned into a sectarian proxy war with Sunni Arab states. And while the presence of Iranian military personnel in Syria is not new, military experts believe Tehran has in recent months sent in more specialists to enable Assad to outlast his enemies at home and abroad.

 

Assad’s forces have failed to capitalize fully on advances they made last summer with the help of Iran, his major backer in the region, and the Hezbollah fighters that Tehran backs and which have provided important battlefield support for Assad.

 

But the Syrian leader has drawn comfort from the withdrawal of the threat of U.S. bombing raids following a deal under which he has agreed to give up his chemical weapons.

 

Shi’te Iran has already spent billions of dollars propping up Assad in what has turned into a sectarian proxy war with Sunni Arab states. And while the presence of Iranian military personnel in Syria is not new, military experts believe Tehran has in recent months sent in more specialists to enable Assad to outlast his enemies at home and abroad.

To summarize: in an act of complete disregard for the official diplomatic song and dance, both Israel and the US are now providing military support to Iran, which in turn is providing military support to Syria, which is also getting military support from Russia. And now, just to make things more interesting, the same labyrinth of “military support” is about to be unleashed in the Ukraine, whose western half is just as likely getting arms and military equipment (not to mention funding)from the West under the table, while Russia, whose main Black Sea port is in the Ukraine’s Crimean peninsula, is arming the Eastern part of the Ukraine.

What can possibly go wrong?

Selco On Riots: Do Not Go Out: “You Do Not Prepare to Be a Hero… You Prepare to Survive”

Selco On Riots: Do Not Go Out: “You Do Not Prepare to Be a Hero… You Prepare to Survive”.

Selco
February 21st, 2014
SHTF School

Editor’s Note: The following article has been shared with our community by Selco ofSHTF School. His personal experiences during the Balkan war have been documented in One Year in Hell and are an invaluable knowledge base for any serious preparedness minded individual. When riots break out in your city or the infrastructure systems upon which we depend begin to destabilize there will be confusion, panic and violence. Selco explains what to expect from those around you, and what it might look like in what was once your friendly and peaceful neighborhood. Pay attention, because this is how things really go down when the ‘S’ hits the fan. 

If you are not eating right now take a moment and watch this video of a monkey eating a gazelle.

It feels very wrong for most people to look at this. This shows how much we are out of touch with nature. Most people want to eat meat but not kill it themselves for example. What happens to gazelle is not good and not bad, its nature. It simply is.

When you find yourself in survival situation you get quickly in touch with nature again, and nature is cruel and concept of fairness does not exist.

It is hard to be prepared for that before you experience it. But understanding how nature really is and that we only live in soft bubble protected from true face of nature, is a first step.

I talk a lot in interview in my course about events that lead to total collapse. Here is one more experience I want to share.

selco-nature

When SHTF started, in the time when great majority of us thought that what was going on around us is something like temporary rioting that got a bit out of control, city services still worked in some parts of the city, everybody was waiting for madness to stop.

In that short period before the S. hits the fan with full force, people usually lost their lives because they did not recognize situation.

People were out rioting, stealing, fighting. But all that was still like “moderate”.

At that moment people were still ”inside” the system, so we all were trying to hide more or less when looting was going on in the neighborhood. Police were still arresting people and trying to control things. People were shooting each other yes, but it was not yet like full scale shooting and violence, mostly people were scaring each other with shootings.

One of my friends was involved in shootings in those days, after looting some stores, he got wounded. Wound was not too dangerous, he was shot in foot.

As I said, most of the city services were still working and trying to bring order to that chaos. City ambulances came and picked him up and they rushed to hospital with him.

About one kilometer from place where he got picked up, the group of people that actually shot him stopped the ambulance on some improvised barricade, first shot the driver and then killed my friend in the back of the ambulance. They killed him little bit slower than driver, and more painfully, they used knives. We got there a bit later, too late.

Now this story may sound confusing to you, you may say “it happens in war” but for 95% of folks at that time it was not war, it was something like violent rioting, and those 95% of folks still trusted the system, had trust in police and government that they are going to restore law and order. People still trusted that ambulances are like “protected” and nobody will stop them, not to mention shoot at one.

In this story here that wounded guy and ambulance driver simply did not recognize situation. He was a nice guy, why would this happen to him? Back then I probably would go with ambulance as well if I was shot. It felt very wrong that this happened but was one of first wakeup calls that fair and unfair are concepts of the past.

My friend in the first place should not have been there in that time of chaos. Ambulance driver should have said ”screw it” take valuable medicines and go home at first signs of real violence and total collapse. He did not. It is easy to call him hero and maybe day before or hours before he helped save life of someone else but it was still too high risk to be out at this point in time.

It is easy to say that now, in those time we all still called things by old names, police, trust, government, law, system, penalty…
If that happened maybe day or two later my friend would have crawled and treated his wounds alone, or driver would have refused to drive, or…

Few days after that event s. hit the fan with real force, and nobody had illusions anymore that something temporary is going on or that things get back to normal.

But point is that lots of people died in that short period before realizing that things aren’t the same. You can not still believe in good of people around you, but most people did. This ambulance event was one of many that ended with similar deaths.

So next time, when some rioting erupts in your city, some violence after football game, or some protests because high unemployment or similar and you hear gunshots and screams, and words about people being killed on the streets, stores being looted, you need to hope that it is temporary disturbance but you can not trust in that.

Be suspicious, trust in your bug out bag, trust in your storage, trust in your weapon. Do not go out just “because everyone goes out”. Avoid being greedy and go looting to have a bit more, even if it sounds easy, you prepare to not have to go out.

When you realize how random and brutal nature and violence is, then you realize you do not prepare to be hero, you prepare to survive. That ambulance guy could have helped many more people in later months when we were fighting for survival if he would not have died. But back then, we did not understand situation.

If you experienced situation that reminded you that fairness and unfairness are just concepts in our “civilized” world, please share in comments.

You can follow Selco’s story at SHTF School and learn how he survived one year in hell. 

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