Wednesday, May 25, 2016

Wednesday, May 25, Night Wall Street Roundup: S&P 500 Ascends 2 Percent In Two Days

By Noel Randewich
May 25, 2016

Wall Street rose robustly for a second straight session on Wednesday, helped by higher oil prices and investors becoming more comfortable with the prospect of an interest rate hike as early as next month.

Combining Tuesday and Wednesday's performances, the S&P 500 gained 2 percent, its strongest two-day run since early March.

The energy sector .SPNY led the way in the latest session, up 1.51 percent as oil prices rose toward $50 a barrel. That followed a report of a larger-than-expected drop in U.S. crude inventories, adding to expectations that a steep selloff in the commodity may be over.

Comments from policymakers in recent days and upbeat U.S. economic data have raised expectations that the Federal Reserve could pull the trigger on a rate increase much sooner than previously thought.

Traders are now pricing in a 38-percent chance for a rate hike in June and 45 percent in July, according to CME Group's FedWatch tool.

The S&P financial index .SPSY rose 1.03 percent and ended the session at its highest point this year. Standing to benefit from higher interest rates that they can pass on to borrowers, Bank of America (BAC.N), JPMorgan (JPM.N) and Citigroup (C.N) rose over 1.5 percent.

"What you're seeing is a recognition that this is going to happen and investors are getting more comfortable with it," said Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia. "There's a recognition that economic growth is okay."

Uncertainty around the United Kingdom's June referendum on whether to leave the European Union, as well as November's U.S. presidential election, could limit stock gains in the next few months, Brunner said.

The Dow Jones industrial average .DJI added 0.82 percent to end at 17,851.51 points and the S&P 500 .SPX gained 0.7 percent to 2,090.54.

The Nasdaq Composite .IXIC climbed 0.7 percent to 4,894.89.

Gains were broad-based, with nine of the 10 major S&P sectors trading higher.

The S&P 500 has risen about 15 percent from its February lows and is up about 2 percent for the year.

Shares of Computer Sciences (CSC.N) soared 42 percent after Hewlett Packard Enterprise (HPE.N) said it would spin off and merge its struggling IT services business with the company. Hewlett Packard Enterprise jumped 6.77 percent.

Alibaba Group (BABA.N) tumbled 6.82 percent after saying it was being investigated by the U.S. Securities and Exchange Commission over whether its accounting practices violated any federal laws.

About 6.9 billion shares changed hands on U.S. exchanges, below the 7.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Advancing issues outnumbered decliners on the NYSE by 2,048 to 944. On the Nasdaq, 1,812 issues rose and 996 fell.

The S&P 500 index showed 34 new 52-week highs and no new lows, while the Nasdaq recorded 96 new highs and 22 new lows.

Article Link to Reuters:

Oil Nears $50/Barrel On Inventory Data, Boosting Stocks

By Caroline Valetkevitch
May 25, 2016

Oil prices climbed to just shy of $50 a barrel on Wednesday after a sharper-than-expected fall in crude inventories, lifting energy shares and world stock markets.

Growing bets on a possible Federal Reserve rate increase as early as in June or July reduced demand for U.S. government debt.

Investors' expectations for higher borrowing costs have risen since last week's minutes from the central bank's April meeting signaled a June increase was on the table. Comments from policymakers and upbeat U.S. economic data in recent days have supported those views.

"What you're seeing is a recognition that this is going to happen and investors are getting more comfortable with it," said Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia. "There's a recognition that economic growth is okay."

Energy Information Administration data showed U.S. crude stockpiles fell last week as imports dropped and refineries cut output. Brent LCOc1 settled up $1.13 at $49.74, while

U.S. crude's CLc1 settled 94 cents higher at $49.56.

World stocks markets rose for a second straight session, helped by energy shares including Chevron (CVX.N), up 1.6 percent, and bank shares, which benefit from higher interest rates.

The Dow Jones industrial average .DJI closed up 145.46 points, or 0.82 percent, to 17,851.51, the S&P 500 .SPX gained 14.48 points, or 0.7 percent, to 2,090.54 and the Nasdaq Composite .IXIC added 33.84 points, or 0.7 percent, to 4,894.89.

Combining Tuesday and Wednesday's performances, the S&P 500 gained 2 percent, its strongest two-day run since early March.

MSCI's all-country world stock index .MIWD00000PUS rose 0.9 percent, while the pan-European FTSEurofirst 300 index .FTEU3 of leading regional stocks ended up 1.3 percent, touching its highest level since late April.

Banks in Europe were buoyed after a new debt deal for Greece seemed to head off the risk of another round of uncertainty over its finances and even its future in the euro zone.

U.S. Treasury prices fell, with short- and medium-dated yields hitting 10-week highs, helped by the solid advance in Wall Street stocks.

Early in the U.S. session, the two-year yield US2YT=RR and five-year yield US5YT=RR reached 10-week highs at 0.938 percent and 1.424 percent, respectively.

The U.S. dollar fell from near a 10-week high against the euro and rose just slightly against the yen as investors took profits on the greenback's recent gains.

The euro EUR= was last up 0.17 percent against the dollar at $1.1161, while the dollar was last up just 0.11 percent against the yen at 110.10 yen JPY=.

Investors await Fed Chair Janet Yellen's appearance at a panel at Harvard University on Friday, the same day as they take in a revised estimate of U.S. first-quarter growth.

Gold dropped to a seven-week low amid the Fed expectations. Spot gold XAU= was down 0.2 percent at $1,223.93 an ounce, off an earlier low of $1,217.25, the lowest since April 6.

Article Link to Reuters:

The Hustle Continues: Why The Feds Haven’t Nailed The Big Banks

And how they could have.

By David Dayen
The New Republic
May 25, 2016

Americans still want to see some measure of justice for the misconduct that precipitated the financial crisis. But Monday’s decision by an appeals court to throw out a $1.27 billion civil penalty against Bank of America will surely generate some despair. So few cases have even been attempted that when a successful one gets reversed, it can raise questions about whether there were any good ones to make in the first place.

The truth is that there were cases out there—but the Department of Justice chose not to pursue them. The Bank of America case, though promising at first glance, wasn’t the most fertile ground for true accountability. When DoJ decided in the wake of the crisis to take the path of least resistance by engaging in this inadequate enforcement, what they really did was take a path to letting big banks and their executives off the hook.

The Justice Department initially won the case in U.S. District Court against Bank of America, though it primarily concerned conduct instigated by Countrywide Home Loans, which Bank of America purchased back in 2008. The year before, as the subprime market began to decay, Countrywide had initiated a lending program called the “High-Speed Swim Lane” or “HSSL” (pronounced “hustle”), designed to encourage its brokers to issue as many mortgage loans as possible, with no regard for borrowers’ ability to repay. Underlings told their superiors at Countrywide about the substandard quality of what were supposed to be prime loans, but the firm ignored the warnings and sold 17,611 of them to mortgage giants Fannie Mae and Freddie Mac, despite contractual guarantees that the loans were investment-grade.

"This story gets to the heart of what the government hasn’t done to bring justice to the people who brought you the Great Recession."

The “hustle case” was brought by a whistleblower: former Countrywide vice president Edward O’Donnell, who argued that his ex-employer defrauded Fannie and Freddie. (O’Donnell later went to work for Fannie Mae.) A jury took about three hours to find Countrywide guilty, and Judge Jed Rakoff imposed the $1.27 billion penalty. Rakoff also ruled that Rebecca Mairone, the Chief Operating Officer of the division of Countrywide that initiated the HSSL program, must pay $1 million personally. That personal liability was a notable difference from other crisis-era cases, where banks, not their executives, make the payments.

A three-judge panel of the Second Circuit Court of Appeals overturned the lower court, ruling that while Countrywide breached its contract with Fannie and Freddie by selling them lower-quality loans than promised, the government did not prove what it had to: that Countrywide acted “knowingly and with a specific intent to defraud” at the time that the loans were sold. In other words, the Justice Department didn’t get sufficiently inside the minds of the executives to prove a deliberate scheme to defraud Fannie and Freddie.

This is not the end of the line for the case. The Justice Department can appeal to the entire Second Circuit or the Supreme Court. The three-judge panel included two appointed by George W. Bush and one by Barack Obama. By contrast, 8 of the 13 judges serving on the Second Circuit were appointed by Democrats—so it could get a better reception from the full panel.

But the case against Bank of America was a poor fit from the start—brought under a funky statute that, by its very design, could never have secured an acceptable punishment for the crime in question. There’s a bigger story here that gets to the heart of what the government hasn’t done to bring justice to the people who brought you the Great Recession.

The hustle case was all too typical of the way the Justice Department has approached the wrongdoings that precipitated the financial crisis.This was a civil case—meaning that DoJ did not not attempt to criminally prosecute anyone responsible. And federal prosecutors only sought a portion of the overall revenue Countrywide made from the sale of shoddy mortgages to Fannie and Freddie. While Countrywide received $2.96 billion from the sale, the government initially asked for a $2.1 billion penalty, and the judge granted $1.27 billion. No matter how this case turned out, all the DoJ was seeking was a portion of Countrywide’s ill-gotten profits.

Like many others, the case was prosecuted under a statute called the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which allows for a lower burden of proof and a ten year statute of limitations in cases of financial misconduct. But FIRREA comes with particular rules: The cases can only be civil in nature, and the fraud has to be seen as “affecting a federally-insured financial institution.”

The seeming legislative intent was to use FIRREA against individuals who rip off banks; the law came out of the savings and loan crisis, when executives often plundered their own banks for profit. But when the Justice Department pulled out the little-used FIRREA for crisis-era cases, it made the novel argument that misconduct by banks affected the bank itself. The Second Circuit chose not to rule on whether or not this passed muster, because the judges didn’t agree that the misconduct in the Countrywide case constituted intentional fraud.

But it’s clear that DoJ jumped through hoops to slot cases under FIRREA because it would be a little easier to prove them in court than standard securities or wire fraud cases. While that enabled the Justice Department to rack up some cash penalties, it constrained them from going full-bore after those who perpetrated fraud. FIRREA doesn’t allow for criminal charges. Evidence uncovered under FIRREA can be used in subsequent criminal cases, but DoJ never brought any of those. And as we’re seeing in the Countrywide case, the notion that FIRREA offered an ironclad way to impose some consequences on financial institutions was also wrong. Throwing away other avenues of exploration for the “sure thing” of FIRREA makes less sense if FIRREA isn’t as much of a sure thing.

What could the Department of Justice have done to bring some real justice to the perpetrators? There is an alternative set of cases that could have been brought, involving millions of pieces of documentary evidence of fraud. That’s the misconduct I detail in my new book Chain of Title, and it’s known as foreclosure fraud. Mortgage companies routinely delivered false documents to courts and county recording offices to show standing in foreclosure cases. Otherwise, they didn’t have the evidence necessary to prove they owned the loans.

"An alternative set of cases, involving millions of pieces of documentary evidence of fraud, would have implicated every major bank on Wall Street."

Fraud upon state courts is in itself a violation of law, requiring no special statute or argument to bring the case. Any police detective would tell you that the way to prosecute the case would be to go up the chain, from who fabricated the document to who authorized it at their company, to which client asked for it, to who at that company authorized that. It would have been slow and meticulous, but if done properly, I have no doubt it would have implicated every major bank on Wall Street, because it was a standard industry practice. And it would have been informed by a paper trail, rather than insinuations about what was in an executive’s mind, as the Countrywide case hinged on.

There were a lot of frauds to choose from when determining how to prosecute post-crisis actions: origination fraud, securitization fraud, loan modification fraud, and foreclosure fraud, just to name a few. But only one of them included millions of pieces of false evidence passed off as real under penalty of perjury. Instead of making that the centerpiece of prosecutions, the Justice Department organized a state and federal settlement with the leading mortgage servicing companies over foreclosure fraud, whitewashing this misconduct for $25 billion, a dollar amount that looked good in headlines but was actually much lower than advertised.

The Second Circuit’s decision should not cause DoJ to retrench and shrink from prosecutions. It should spur the government in the future to think about the best way to provide the smoking guns the courts appear to want in these types of fraud cases. Sadly, when faced with millions of just such smoking guns on foreclosure fraud, the Justice Department put them all back in its holster.

Article Link to The New Republic:

The Republican Party Got the Voters It Deserved

By Jonathan Bernstein
The Bloomberg View
May 25, 2016

My View colleague Megan McArdle thinks people are exaggerating the Republican Party's responsibility for Donald Trump. Blaming the party, she concludes, “is like blaming the weatherman because it’s raining, or an economist for a recession.”

True, most Republican party actors resisted the Trump takeover right up to the point, and in some cases even after, all his nomination opponents dropped out. But the Republican Party nevertheless bears plenty of responsibility for the rise of the reality-show star, and many conservatives have acknowledged shortcomings in the party that Trump exploited. The question is still what exactly paved the way for Trump.

Republicans had encouraged, or at least tolerated, schoolyard taunts and far-fetched conspiracy talk long before Trump's campaign. He started out in Republican presidential politics by accusing the president of not being a U.S citizen, a slur that had been bandied about by many highly visible Republicans. He has now moved on to recycling conspiracy theories from 20 years ago about Hillary Clinton that were promoted at the time by talk-show hosts and Republican members of Congress.

Another part is how Republicans lowered the standards for their politicians. Normally voters might oppose Trump as flat-out unqualified for the job, both by lack of relevant experience and lack of knowledge of government and public affairs. But by giving a megaphone to people like Pat Robertson, Herman Cain, Ben Carson and Carly Fiorina, Republicans showed their voters what counts as a "normal" Republican presidential candidate -- and it isn't all that different from Donald Trump. Republican voters had many well-qualified candidates in 2016, but they had been taught by their party to ignore normal qualifications, and they did so.

That same observation can be made about how Republicans have tolerated and promoted bigotry, forging a path for Trump to go even further. McArdle is wrong to say that the Republicans' “Southern strategy” of the Richard Nixon era was only incidentally pitched to bigots. In 1968, Nixon was clearly and deliberately going after pro-segregation voters abandoned by the Democratic Party, a strategy continued (for example) by Lee Atwater in the 1988 presidential race on behalf of George H.W. Bush.

Additionally, I don't think McArdle’s explanation of the interaction of political elites and masses is quite correct. She says: “You don’t put ideas in peoples’ heads; they just grow there.” But voters have all sorts of ideas in their heads: conservative, liberal, some of which would make for good policy, some which would not. Most of those ideas -- healthy or toxic -- are relatively loosely held, and many times no candidate or party elicits responses based on those particular views.

The more some ideas are frozen out of politics -- for better or for worse -- the less they thrive “in peoples’ heads." And, more important, only when politicians highlight those ideas do they escape from peoples' heads and become political issues. Yes, neither Trump nor earlier Republican dog-whistlers created the audience they played to. But there are many potential audiences in the electorate. Politicians and political parties choose which ones to nurture -- and are fairly held responsible for those choices.

Article Link to the Bloomberg View:

Pre-Market Wall Street Roundup: Wall St. Looks To Resume Rally After Greek Accord

By Matt Clinch
May 25, 2016

U.S. stock index futures indicated a slightly higher open Wednesday, continuing a "risk-on" rally in global indexes after positive economic data, rising oil prices, and a new debt deal for Greece.

U.S. stocks posted their best day since March on Tuesday with gains of more than 1 percent, following encouraging reports on the housing market. But the positive news continued overnight with eurozone finance ministers agreeing with Greece and the International Monetary Fund (IMF) on what they called a "breakthrough" deal that will address Athens' requests for debt relief.

European stocks were trading higher on Wednesday morning with Asian shares also posting gains overnight.

"Anyone tiring of the sideways moves in equity indices should be thrilled. We have finally broken out of the range and despite some technical signals to the contrary, the move has been to the upside," Brenda Kelly, the head analyst at London Capital Group, said in a note.

"Yesterday's surprisingly good new home sales data out of the U.S. was something of a catalyst – but I would not rule out this being a temporary squeeze before the next leg down for U.S. indices."

On Wednesday, earnings are due from Tiffany, Costco, NetApp, Bank of Montreal, Express, Lions Gate, Guess and Popeye's Louisiana Kitchen. There's also international trade at 8:30 a.m. ET and the Federal Housing Finance Agency's house price index at 9 a.m. ET. Also on Wednesday, the U.S. Energy Information Administration oil and fuel releases inventory data at 10:30 a.m. EDT.

Meanwhile, investors will also monitor comments from Federal Reserve members for more hints on when the central bank could next raise rates. Philadelphia Fed's Patrick Harker is due to speak at 9 a.m. ET, Minneapolis Fed President Neel Kashkari will speak at 11:40 a.m. ET and Dallas Fed President Rob Kaplan will talk at 1:30 a.m. ET.

Overnight, St. Louis Fed President James Bullard told CNBC that a U.S. Federal Reserve rate hike in June or July wasn't set in stone, but labor data suggested it was time to pull the trigger. "There's no reason to prejudge June," Bullard said, adding that the Federal Open Markets Committee would look at the data and decide then.

Article Link to CNBC:

Wednesday, May 25, Morning Global Market Roundup: Asian Shares Gain, Dollar Firm As US Data Soothes Rate Fears

By Hideyuki Sano and Nichola Saminather
May 25, 2016

Asian shares jumped on Wednesday while the dollar firmed as upbeat U.S. home sales supported the view that the economy may be strong enough for the Federal Reserve to raise interest rates in coming months.

Europe was also poised for a strong open, with financial spreadbetters expecting Britain's FTSE 100 .FTSE to open up 0.9 percent, Germany's DAX .GDAXI to jump 1.1 percent, and France's CAC 40 .FCHI to start the day 0.8 percent higher.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 1.8 percent, its best one-day gain since late March. Japan's Nikkei .N225 closed up 1.6 percent as exporters got a boost from a weaker yen.

Hong Kong's Hang Seng index .HSI gained 2.4 percent. But China shares .CSI300.SSEC surrendered early gains and slipped into the red amid concerns about sluggish growth in the world's second-largest economy.

U.S. new home sales data on Tuesday showed a jump in April to their strongest monthly pace in more than eight years, with prices setting record highs.

The gains, coming on the heels of a raft of positive U.S. data and comments from various Fed officials highlighting the chance of a rate hike in June or July, helped reinforce the case for one in the next few months and eased investors' fears that the economy may not be resilient enough to withstand an increase in borrowing costs, however modest.

Policy-sensitive two-year U.S. notes were yielding 0.9264 after again rising to a 10-week high of 0.930 percent US2YT=RR touched on Tuesday.

U.S. interest rate futures <0> are pricing in more than a 60 percent chance of a rate hike by July, up from around 20 percent about 10 days ago but still indicating considerable doubt in markets about how soon the Fed will pull the trigger.

"There appears to be a consensus among Fed policymakers that they have to put a rate hike back on the table because markets had been pricing in almost no chance of a rate hike," said Koichi Yoshikawa, executive director of financial markets at Standard Chartered Bank.

Higher interest rates benefit financial shares as they increase interest income, helping to lift bank shares.

On Wall Street, the S&P 500 Index .SPX rose 1.4 percent, helped by high-tech and banking shares, which will benefit from higher rates. European shares climbed sharply overnight, also led by financial shares, with the pan-European stock index .FTEU3 rising 2.3 percent to its highest since late April.

The news flow in Europe was generally positive for investor sentiment.

A UK poll showed a 13-point lead in support among Britons to stay in the European Union over their "leave" rivals, while Greek bond yields hit six-month lows as European finance ministers appeared likely to approve new loans to Athens.

In a major breakthrough, euro zone finance ministers also agreed a deal with Greece and the International Monetary Fund in the early hours of Wednesday that will address Athens' requests for debt relief.

The Brexit poll results helped the British pound GBP=D4 gain 1.1 percent, its biggest daily gain in 10 weeks, on Tuesday.

The sterling traded at $1.4607, near last week's peak of $1.4663, a break of which could open the way for a test of $1.4770, its four-month peak hit in early May.

In another clear sign of easing Brexit concerns, implied volatilities on sterling options GBPVOL= fell to lowest in almost a month.

The U.S. dollar gained against most other currencies thanks to the rate hike expectations.

The dollar index, which measures the greenback's performance against a basket of six major currencies, was holding steady at 95.516, after earlier climbing to a two-month high of 95.661.

The dollar strengthened 0.2 percent to 110.165 yen JPY=EBS, up from this week's low of 109.12 and within sight of its three-week high of 110.59 touched on Friday.

The euro EUR=EBS added 0.1 percent to $1.11535, but remained near its 10-week low of $1.1133 seen Tuesday.

It has shed almost 4 percent since it hit an eight-month peak of $1.1616 in early May. It barely reacted to the news about an agreement on debt relief for Greece.

The Australian dollar AUD=D4 advanced 0.3 percent to $0.7205. It slipped to a 12-week low of $0.7145 AUD=D4 on Tuesday, pressured by expectations of a rate cut by the Reserve Bank of Australia.

Gold XAU= was also under pressure on the dollar's strength. The precious metal slid 0.1 percent to $1,224.72 per ounce, after hitting a seven-week low of $1,223 earlier in the session.

Many emerging market currencies felt the dollar's heat but the Turkish lira TRYTOM=D3 jumped 1.6 percent off near four-month lows on Tuesday after investor-friendly deputy prime minister Mehmet Simsek kept his post in the government.

Oil held firm, helped by a rise in overall risk appetite and expectations of a drawdown in U.S. crude inventories.

U.S. crude futures CLc1 rose 1.3 percent to $49.25 per barrel, close to a 7-1/2-month high of $49.29 seen in early Asian trade. Brent crude futures LCOc1 gained 1.3 percent to $49.22 per barrel, near last week's 6-month high of $49.85.

HP Enterprise To Merge IT Services Unit With Computer Sciences

By Alan John Koshy and Kshitiz Goliya
May 25, 2016

Hewlett Packard Enterprise Co (HPE.N) said it would spin off and merge its struggling IT services business with Computer Sciences Corp (CSC.N), allowing the company to focus on its cloud services business and other fast-growing units.

Shares of Hewlett Packard Enterprise, formed after Hewlett-Packard Co formally split in November, rose 10.5 percent in extended trading on Tuesday.

Falls Church, Virginia-based Computer Sciences' shares jumped 19.5 percent to $42.60.

Under Chief Executive Meg Whitman, Hewlett Packard Enterprise has been restructuring its IT consulting and services group.

The company sold at least 84 percent of its 60.5 percent stake in Indian IT services provider Mphasis Ltd (MBFL.NS) to Blackstone Group (BX.N) for $1.1 billion in April.

HPE is expected to have $33 billion in annual revenue after the spinoff and will concentrate on its remaining enterprise group that includes its cloud services business and makes servers, routers and switches.

Revenue from the enterprise group business rose about 7 percent to $7.01 billion in the second quarter ended April 30, from a year earlier, on a constant currency basis.

However, revenue from the enterprise services business, which the transaction values at about $8.5 billion after tax, fell 2 percent at $4.7 billion year-over-year.

The enterprise services business fell 6 percent year-over-year in the previous quarter.

HPE, which houses the former Hewlett-Packard Co's corporate hardware and services division, said the merger of the two businesses is expected to produce cost synergies of about $1 billion in the first year after close, expected by March 2017.

Computer Sciences Chief Executive Mike Lawrie will become chairman, president and CEO of the new company, 50 percent of which will be owned by HPE shareholders. Whitman will join the board of the new company.

The new company's board will be split evenly between directors nominated by HPE and CSC.

HPE expects $900 million in separation charges regarding the merger, of which $300 million will be recorded in 2016, Chief Financial Officer Tim Stonesifer said on a conference call with analysts.

HPE, which also added $3 billion to its share buyback, said total revenue rose 1.3 percent to $12.71 billion in the second quarter. Analysts on average had expected $12.33 billion, according to Thomson Reuters I/B/E/S.

Goldman Sachs & Co is serving as financial adviser to HPE, while RBC Capital Markets is serving as financial adviser to CSC.

Article Link to Reuters:

Oil Prices Push Closer to $50, U.S. Crude Hits Highest In 7 months

By Keith Wallis
May 25, 2016

Oil futures pushed closer to $50 a barrel on Wednesday, with U.S. crude hitting its highest in over seven months after industry data suggested a larger-than-expected drawdown in U.S. crude inventories last week.

Oil markets were also supported by an overnight surge in U.S. equities and strong home sales that could point to the Federal Reserve raising interest rates as early as June.

U.S. crude futures CLc1 had climbed 71 cents to $49.33 a barrel by 0652 GMT, after ending the previous session up 54 cents. The benchmark earlier on Wednesday touched its highest since mid-October at $49.45.

Brent futures LCOc1 rose 65 cents to $49.26 a barrel, having ended the last session up 26 cents to snap a four-day slide.

U.S. crude, or West Texas Intermediate (WTI), remained at a premium to Brent after flipping above the international benchmark before the last close.

U.S. crude stocks dropped by 5.1 million barrels to 536.8 million last week, data from industry group the American Petroleum Institute showed. That was double expectations of analysts polled by Reuters. [API/S]

Some of the drawdown was caused by falling imports due to wildfires in Canada, which lost about 1.5 million barrels per day in production, said Ben Le Brun, market analyst at Sydney online brokerage OptionsXpress. Although some crude producers restarted operations on Tuesday in Canada's energy heartland.

"A strong U.S. economy is (also) good for oil consumption and demand," Le Brun said.

Investors are awaiting confirmation of the big draw when the U.S. Energy Information Administration (EIA) issues official inventory figures on Wednesday.

"Technically, the market is gearing up for WTI to go above $50 a barrel and it is intriguing on where it goes from there," Le Brun added.

"I think the cap is not too far above that level - the world is still awash with oil even if it is off the peaks."

His views were echoed by Masanobu Hamada, general manager of the crude oil trading department at JX Nippon Oil & Energy Corp, who said the current price rise was due to supply disruptions.

"Unless there is a halt in supply, the market lacks material (strength) to go higher because the inventory levels are high," Hamada said.

Oil prices were buoyed by a rise in U.S. stocks, but appeared to shrug off the impact from a stronger U.S. dollar.

Meanwhile, Iraq is pumping about 4.5 million bpd now and is aiming to boost that to up to 6 million bpd by 2020, said the head of Iraq's State Oil Marketing Organisation (SOMO).

Why the Law Failed To Punish Wrongdoers In The Financial Crisis

By Noah Feldman
The Bloomberg View
May 24, 2016

Historians of the future will want to know why almost no one went to jail in connection with the collapse of mortgage-backed securities that triggered the 2007-8 financial crisis. Monday’s appeals court decision reversing a $1.2 billion fraud judgment against Bank of America will be an important part of the answer. To put it bluntly, the law failed -- because the law as it existed didn’t properly anticipate or cover the events that occurred.

The decision, by the U.S. Court of Appeals for the Second Circuit, was the result of an appeal by Bank of America from a judgment by federal district court Judge Jed Rakoff, the most outspoken judicial critic of how the legal system responded to the crisis.

Technically, the judgment against Bank of America was civil, not criminal -- but it implicated the criminal fraud laws. The government brought the case under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, known as Firrea. The law, passed in the wake of the savings and loan crisis, allows the government to collect civil penalties if a defendant has violated the federal mail fraud and wire fraud statutes in a way that affects a federally insured financial institution.

In other words, to award damages under Firrea, the court has to find that a defendant violated federal criminal fraud statutes.

The evidence presented to Judge Rakoff related to a subprime loan program with the almost-too-poetic name Hustle, which was operated by Countrywide Home Loans, owned by Bank of America.

When Countrywide sold Hustle mortgages to Fannie Mae and Freddie Mac, it contractually promised those government entities that the mortgages would be investment quality. Then, according to the government, countrywide sold Fannie Mae and Freddie Mac mortgages that it knew were below investment grade.

The government brought suit against Countrywide and Bank of America. For good measure, it added countrywide executive Susan Mairone as a defendant.

In its closing argument before the District Court, the government summarized its position with a simplicity worthy of the film version of a Michael Lewis book: “This case … comes down to a few simple facts,” said the government. “First, the Hustle loans were bad. Second, the defendants knew the Hustle loans were bad. And third, the defendants passed the Hustle loans off as good loans anyway to cheat Fannie and Freddie out of money.”

Sounds like fraud, doesn’t it? To a layman, the answer would be yes. And Judge Rakoff agreed.

The Second Circuit thought the answer was more complicated. The government presented evidence to show that Countrywide knew that the loans were below grade when it sold them. But it didn’t provide any evidence to show that, when it made the original sales contracts, Countrywide intended to sell the government below-grade mortgages.

That distinction lay at the heart of the opinion by the three-judge appellate panel. The court held unanimously that, to prove fraud, you need to show that the fraudster knowingly and intentionally meant to defraud the other party when it made the contract in the first place.

The court’s reason lay in the common-law origins of the fraud crime. Traditionally, you couldn’t prove the crime of fraud if your only evidence was that the defendant breached a promise made in a contract. Otherwise, every time someone failed to fulfill the terms of the contract, he or she would be potentially criminally liable. After all, every contract is a promise -- so every knowing breach of contract involves a knowing violation of a promise.

The common law as interpreted today actually favors the option of breaching a contract when circumstances have changed -- so long as you’re willing to pay damages. Modern law and economics analysis calls this the theory of “efficient breach”: by paying damages, you leave everyone better off than they would be if the inefficient contract were fulfilled.

To differentiate efficient breach of contract from fraud, the court held, you need the added element that the fraudster intended from the start not to fulfill the contract. On this view, Countrywide and Mairone couldn’t be held liable, because there was no proof that they intended to deliver below-grade mortgages when they made their initial contractual promise.

Right or wrong, the court’s decision says a lot about why there have been almost no successful criminal prosecutions in conjunction with the mortgage crisis. Sure, it might be possible to identify individual mortgage applicants who lied in their application documents, or mortgage brokers who encouraged or tolerated those lies. And technically, those lies might be the basis for fraud charges.

But such charges would reach only the smallest of the small fish. The really important fraud-related stage of the systemic breakdown was when these bad mortgages, made on the basis of incomplete or false information, were packaged into securities. But that packaging wasn’t done with fraudulent intent – just a kind of negligent failure to check on the underlying value. Even willful blindness doesn’t usually add up to fraud, legally speaking.

Similarly, most of what followed, including the varied and many real and synthetic financial products that were created based on these underlying mortgages, involved contracts made by people who had no intent to defraud.

The law is no better than what it’s able to anticipate. And the simple fact is that, just as the markets didn’t foresee the risks of mistakenly assuming the true value of underlying mortgages, so the law wasn’t designed to punish and disincentivize systemic failure.

It’s easy to say that the legal system is stacked in favor of corporate fat cats, and in many ways that can be true. But it’s also important to remember that law is a system of rules that must be set in advance to have the necessary effect. The challenge now should be to make new laws to make sure all this doesn’t happen again.

Article Link to the Bloomberg View:

The Danger of President Trump Isn't Dictatorship

By Megan McArdle
The Bloomberg View
May 24, 2016

Let’s say Donald Trump manages to romp his way to the White House in November. The New Yorker’s Adam Gopnik paints a dire picture of what will follow: “If Trump came to power, there is a decent chance that the American experiment would be over. This is not a hyperbolic prediction; it is not a hysterical prediction; it is simply a candid reading of what history tells us happens in countries with leaders like Trump.”

Gopnik goes on to assure us that “Countries don’t really recover from being taken over by unstable authoritarian nationalists of any political bent, left or right -- not by Peróns or Castros or Putins or Francos or Lenins or fill in the blanks. The nation may survive, but the wound to hope and order will never fully heal.”

I don’t think I can be accused of being a Trump apologist; I’ve written a lot of words about the man, few of them kind. Nonetheless, I find Gopnik’s essay to be, well, a bit hyperbolic.

Take the notion that countries don’t recover from unstable authoritarian nationalists. It sounds true, because it seems as if it ought to be. But Gopnik fails to marshal much evidence.

The countries he names had big institutional problems before the dictators arrived and big problems afterward, so it’s hard to say that the one caused the other. History -- even of large, prosperous nations -- is littered with unstable authoritarian nationalists, or their smaller-scale equivalent. Precious few are the countries that have not, at one time or other, been ruled by fiercely tribal autocrats with weak administrative skills and size-12 egos jammed uncomfortably into size-4 souls. If your country ever had a monarchy, you can look down the list of kings and pick out your own candidates.

Maybe Gopnik only refers to modern countries? Or perhaps he means that countries require some sort of hard reset after a dictatorship, or that the wounds take a long time to heal? But some countries seem to have transitioned to democracy all right without a “hard reset,” and saying “these things take time to recover from” weakens Gopnik’s statement to the trivial argument that history has consequences.

Moreover, the “modern times” restriction makes it hard to generalize, simply because there just aren’t that many modern democracies around, or enough years of history to study from them. Even then, it seems like a stretch to say that a place like Chile has “never recovered” from a loathsome dictatorship. Chile had a largely peaceful transition back to democracy in the late 1980s, as did South Korea around the same time. I’m sure that psychic scars linger, but are they really worse than, say, the psychic scars of our own Civil War which involved, let us not forget, a certain amount of liberty-taking with constitutional rights?

And that assumes that Trump, having taken power, would turn into a Peron or a Lenin, and not, say, just a bad president. Leave aside for now the argument over whether he has genuinely scary-dictator instincts (I see worrying signs that he does, but this is unprovable until he tries to do scary-dictator things rather than just bray about them).

There are two stages to becoming a scary autocrat. First, you have to get into a position to seize power. The most traditional routes are the military (a task for which Donald Trump’s bone spurs left him tragically disqualified), or winning elected office to abolish or corrupt the electoral process. The former route has its risks, but once you’ve safely arrived in the presidential palace, it’s pretty easy to dispense with democracy, since you have all the guns. The latter route means you need the rest of government, including all the folks with guns, to go along with you.

This certainly does happen, even in countries that have been practicing democracies for a while. But it’s by no means a given. Franklin D. Roosevelt took a certain amount of constitutional liberty with his wackier notions, and when the courts pushed back, he hit on the scary idea of basically throwing out some Supreme Court justices and replacing them with others who would rubber-stamp his policies. (The phrasing was nicer than that, but this was the basic idea, and just the sort of first step that dictators like to take toward cementing themselves as Autocrat for Life). FDR’s own party rebelled, but the Supreme Court began cooperating, too.

There were also civil liberties violations under FDR, notably the internment of the West Coast Japanese population. But while these were appalling abuses, and a stain on the national honor, they are within the (unfortunately) normal range of government behavior in your ordinary, middling-decent democracy of the era.

So the question is not just whether Trump wants to be a dictator, but what the other branches of government will do if he tries to actually become one. I don’t just mean Congress and the courts; I mean “will the bureaucrats of the civil service follow his orders, and will the people with guns agree to go out and arrest his enemies?”

There’s clearly a portion of the electorate that thrills to the more authoritarian and violent parts of his message, and presumably some of those folks are in the military and the civil service. But I’m still fairly confident that the FBI is not, say, going to start tapping journalists’ phones to find out if they’re making fun of President Trump’s comb-over, or disappearing the ones who do.

I worry more about Silvio Berlusconi-style corruption and abuse of regulatory agencies, an impulsive foreign policy that could lead us into open conflict with a nuclear-armed power, and executive-power overreach. I also worry about simple incompetence, given how uninterested Trump seems to be in policy. All-out dictatorship is pretty low on the list, because American institutions do not seem weak enough to allow it.

That doesn’t mean they never will be. The less people identify with the nation, and the more they identify with some tribe within it, the easier it is to get your faction to make total war on the opposition. But I don’t think we’re quite ripe for the plucking by some would-be autocrat. If Trump’s presidency leads into dictatorship, it is more likely to be as the harbinger of doom than the bringer of it.

Article Link to The Bloomberg View:

A Grim Return To Fallujah

By Max Boot
May 25, 2016

Operation Save Haider al-Abadi has now begun in Iraq. No, that’s the not the official name of the offensive that Iraqi security forces and Shiite militias are now mounting to drive ISIS fighters out of Fallujah, but it might as well be.

The Iraqi prime minister teeters on the edge of total powerlessness. His impotence has been revealed by humiliations from both Shiites and Sunnis. In the past week, on the Sunni side, ISIS has carried out suicide bombings in Baghdad that have killed more than 200 people. On Friday, on the Shiite side, firebrand Muqtada al Sadr once again sent his followers to invade the Green Zone — the seat of Iraqi government. The Iraqi security forces appeared helpless to stop the Sadrists.

Not to be outdone, other Shiite factions have sent their armed fighters into the streets of Baghdad, lest Sadr render them irrelevant. The Associated Press quoted a shop-owner located near the Green Zone who was “shocked by the flood of Shiite fighters”:

“I thought the state had collapsed and they were moving in,” he said. Now instead of worrying about Islamic State group attacks, he said, “I’m worried about fighting among the Shiites. Everyone has a gun and money, and now they’re out in the streets.”

In an attempt to show that his government is not entirely feeble, Abadi ordered troops to assault Fallujah, much to the displeasure of American advisers who would rather the Iraqi forces concentrate on the larger objective, which is Mosul. That Iraqi forces have been deflected from Mosul is a sign that the ISIS suicide bomber offensive has worked.

The very fact that Iraqi forces have to attack Fallujah is grimly ironic, given the two major battles that U.S. forces fought to regain that city in 2004. All those gains, which came at such high price in lost lives and limbs, were squandered by President Obama’s ill-considered pullout in 2011, which allowed ISIS — the successor to al-Qaeda in Iraq (AQI) — to march right back in.

The chief weapon that ISIS deploys is not suicide bombers but Sunni grievances. As long as Sunnis remain embittered by what they view as the exclusionary rule of Shiite extremists in Baghdad, they will continue to back either ISIS or some other radical Sunni group as the preferable alternative.

Sunnis will not be reassured to see the photos circulating online, which purport to show General Qassem Suleimani, commander of Iran’s terrorist-exporting Quds Force, meeting with Shiite militia commanders to plot the Fallujah offensive. As one recent refugee from Fallujah told the Wall Street Journal, “Families in Fallujah are scared because they believe that the Shiite militias are going to enter Fallujah and do reprisal killings. This worries them a lot.”

Sunnis have reason to worry, given the grim record of Shiite militias carrying out ethnic cleansing and torture against Sunnis. The only way to truly defeat ISIS is to convince the Sunnis that the government in Baghdad will protect, rather than victimize, them. Because they have no such assurances today, any battlefield victories against ISIS are likely to be fleeting.

ISIS itself is AQI 2.0. Even if it is defeated, which is not likely to occur anytime soon, AQI 3.0 will inevitably arise, so long as Sunnis feel aggrieved. Alas, neither the Iraqi government nor its U.S. backers have made any appreciable process in assuaging Sunni concerns. It’s much easier to concentrate on pursuing narrow tactical results, even if the result is a strategic defeat.

Article Link to Commentary:

Obama's Taliban Airstrikes Are Part Of A Failing Strategy

Mullah Mansour's death in Pakistan will usher in more violence in Afghanistan.

The National Interest
May 24, 2016

Once again, Pakistan faces the ignominy of having a major terrorist group leader killed on its soil in a unilateral U.S. attack. The CIA has conducted over four hundred drone attacks in Pakistan since 2004. But Saturday’s attack, which targeted and is said to have killed Mullah Akhtar Mansour, the Afghan Taliban leader, was unprecedented and shame-inducing for Pakistan, à la the bin Laden raid. It took place in Pakistan’s Balochistan province—an area previously off limits to U.S. combat drones. And it was conducted by the U.S. military, not the CIA. In other words, there was no attempt by the United States at providing itself deniability.

Indeed, President Barack Obama quickly hailed Mansour’s death as “an important milestone” toward bringing peace to Afghanistan. But the president, who has only seen conflict theaters emerge or worsen in Afghanistan, Iraq, Libya, Syria and Yemen under his tenure, has little credibility on the issue of securing peace, despite winning the Nobel Peace Prize. With the exception of the Iran deal, President Obama has played a critical role in making the Middle East and South Asia a much more violent region.

The killing of Mullah Mansour is, unfortunately, more likely to extend the conflict in Afghanistan than hasten its end. To maintain its unity and momentum, the Afghan Taliban is likely to seek a consensus on a successor to Mansour (who would also probably have to be acceptable to the Pakistani military). And to consolidate control over the group, Mansour’s successor will likely have to make formidable demonstrations of violence, much like Mansour had done—bringing great bloodshed to Afghanistan.

Mansour pulled the Afghan Taliban away from the Quadrilateral Coordination Group with Beijing, Islamabad, Kabul and Washington, despite apparent Pakistani pressure on him. The same compulsions—consolidating control and demonstrating power—will likely prevent his successor from pursuing a meaningful negotiation process with the Kabul government this year. It will be nearly impossible for the leader of a unified Afghan Taliban or a splinter group to consolidate power quickly and move his group toward a pause in or cessation of hostilities, as the insurgency gains in momentum vis-à-vis a dysfunctional state.

Only a severely weakened or constrained Afghan Taliban would come to the negotiation table in the near term. But sufficiently weakening the group would require a sustained targeted killing campaign against its senior leaders, irrespective of their location. The use of lethal and nonlethal tools of influence by the Pakistani military would also be necessary. It cannot be done by America alone. A U.S.-Pakistan convergence is necessary. But the two countries are moving toward a strategic divergence, especially as Washington tightens its embrace of New Delhi and assumes a harder posture toward Beijing. In Washington, the consensus is that Pakistan is at best a non-ally—hence Congress’s tightening of military aid to Islamabad.

The New York Times, citing unnamed U.S. officials, claims that Pakistani officials provided “general information” on Mansour’s “location and activities” ahead of Saturday’s attack, but it fell short of specifics, and the Pakistanis, most importantly, were not informed of the drone strike until after it took place. Given that Mansour spent some time in Iran, it is worth speculating whether Obama’s newfound friends in Tehran—whose relations with Islamabad have soured since March since Pakistan’s arrest of an Indian spy operating near its border with Iran—helped Washington track Mansour. However, the insurgent group leader’s alleged use of a machine-readable passport and cell phone, if confirmed, would mean that he effectively served himself on a platter to the United States.

The normally active spokesman of the Pakistan Army, Lt. Gen. Asim Bajwa, has been silent on Saturday’s drone attack. Only mid-level members of the ruling party, which has minimal control over national security policy, have been sent to face the wolves on the country’s talk news channels.

As usual, the people of Pakistan are the last to be told the truth of what is happening in their country by their own leaders. It may be the case that the Pakistani military decided that the irreconcilable Mansour was a liability, especially after Congress denied Pakistan a subsidized purchase of eight F-16s, and Washington agreed in principle to a landmark logistics deal with New Delhi.

But if Pakistan were truly an accessory to Mansour’s killing, the deed could have been done in a less humiliating way for its rulers. Much like with the Abbottabad raid, Pakistan seems to not only have been caught with its pants down—with a global outlaw living freely on its soil—but also a foreign power conducted kinetic activity on its sovereign territory, crossing the red line into what was the no-go area of Balochistan. Were there a true U.S.-Pakistan convergence on Mansour, one might have seen the Taliban leader shot to death in a Quetta street by plainclothes gunmen, giving Pakistan the deniability it would need. News reports in Pakistan would attribute the killing to na maloom afraad (unknown men) and unnamed sources would be able to point their fingers at foreign intelligence agencies, including Afghanistan’s NDS, which has conducted such killings in the past.

There are instances in which the killing of a high-value target has facilitated a reduction in violence in the region. In November 2013, the CIA killed Hakimullah Mehsud, the chief of the Pakistani Taliban, as his group indulged the Pakistani civilian government in talks, but continued to kill Pakistanis on a regular basis. The sham talks with the Pakistani Taliban eventually broke down. The Pakistani Taliban network began to splinter. But, most importantly, the Pakistan military initiated a bombing campaign targeting Miran Shah, the Pakistani Taliban headquarters, followed by a ground operation, known as Operation Zarb-e-Azb, clearing most of North Waziristan.

Since then, terrorism has precipitously dropped in Pakistan, while rising in Afghanistan. According to the South Asia Terrorism Portal, over three thousand Pakistanis died in terrorist attacks in both 2012 and 2013—the most ever in the country’s history. But the death toll dropped by 40 percent in 2014, to 1781, and another 47 percent in 2015, to 940—falling to their lowest levels since 2007, when the Pakistani Taliban umbrella organization was founded.

It’s hard to see the same being achieved in Afghanistan: a weak narco-state governed by a conflicted dyarchy. Most importantly, there is a huge gap in the capabilities of the Pakistani and Afghan militaries. The Afghan National Security Forces (ANSF) lack professionalism, face high attrition and casualty rates and rampant illiteracy, and are unable to manage basic logistics, including the provision of their own footwear. Furthermore, the ANSF has a marginal presence on its border with Pakistan, which Kabul belligerently doesn’t even recognize. Forget the idea of America filling the void. U.S. troop levels will never return to a number meaningful enough to change the balance on the ground.

Into the fifteenth year of the Afghanistan war, the United States has yet to prove its ability to calibrate the use of carrots and sticks to produce a durable reduction in violence. Indeed, there are indications that it is taking highly risky measures that will only exacerbate conflict in Afghanistan. According to the Wall Street Journal, the CIA and Afghan intelligence are providing cash, logistical aid and weapons to an Afghan Taliban faction led by Mullah Muhammad Rasool—a group allegedly linked to the so-called Islamic State.

Similarly, last year, an Afghan parliamentarian claimed that the Kabul government was supporting an ISIS-linked group in the northeastern province of Nangarhar. He alleged that the Pakistani militant group Lashkar-e-Islam (LeI) group, now supported by Afghan intelligence, was providing the group with logistical support.

Oddly, in Jalalabad in January, the Pakistani consulate in Jalalabad was attacked by this ISIS-linked group ten days after militants, allegedly supported by Pakistan, attacked the Indian consulate in Mazar-e Sharif. ISIS chose not to attack the consulates of “Hindu” India and “Shia” Iran located in close proximity. Afghanistan’s support for jihadists against Pakistan is not new. It has, in the past, supported the Pakistani Taliban, an Al Qaeda ally, in its war against Islamabad.

Until recent years, the Pakistani military has also relied on the tactic of supporting one militant group against another. The effects were disastrous: a compounding of the overall jihadist threat. The enemy of the Pakistan Army’s enemy would eventually become its own enemy. It supported the aforementioned LeI against the Pakistani Taliban. Eventually the LeI challenged the Pakistani state, and teamed up with both the Pakistani Taliban and Afghan intelligence, and now an ISIS-linked group in Nangarhar.

It is unclear whether the United States is offering support to other jihadist forces in the region. But the Obama legacy in Afghanistan, beginning with the 2009 surge, is abysmal. It includes record-breaking violence and opium production, thanks to the influx of weapons and support of militias. So much for countering violent extremism.

Pakistan’s contributions to the jihadist challenge in Afghanistan and the broader region are well known. But its mistake in the past two years seems to have been that it oversold its ability to bring the Afghan Taliban to the negotiation table, though elements within the Afghan government helped sabotage the embryonic talks with the Taliban by leaking the news of the death of Mullah Omar.

Violence continues to drop in Pakistan as it grows in Afghanistan. To a large degree, Pakistan has progressed in de-hyphenating itself from Afghanistan. In the near term, Pakistan’s primary goal should be to insulate itself from instability in Afghanistan. But in addition to Pakistan’s moral responsibility to Afghanistan, an unstable, war-ravaged Afghanistan is an obstacle to Pakistan’s long-term plans for regional connectivity, which currently center on an economic corridor connecting it with China, but extend further out into Eurasia. For this country of nearly two hundred million people to truly prosper, it needs to actively produce a post-jihadist environment not just in Pakistan, but in the region itself.

Article Link to The National Interest:

From Team Hillary To Vietnam Lobbyist

Did a lobbying firm close to Hillary Clinton help seal the deal to lift the U.S. arms embargo with Vietnam?

By Betsy Woodruff
The Daily Beast
May 25, 2016

Early this week President Obama announced that U.S. companies can start selling arms to Vietnam, a move predicated on the belief that allowing American arms manufacturers to sell lethal weapons to the communist government in Vietnam will make the Vietnamese people more free.

And it’s quite a coup for the government, which still rewards bloggers, journalists, priests, labor organizers, and other dissidents with harassment, arrest, and torture. And advocates for human rights in Vietnam suspect at least partial credit for the policy change may be due to the lobbying firm it enlisted -- the Podesta Group, a powerful D.C. agency with close ties to Hillary Clinton and to defense manufacturers.

Clinton has been silent on the president’s decision -- a move which has drawn scorching criticism from human rights groups. But the D.C. lobbying firm most publicly associated with the Clintons raked in more than $1 million by greasing the skids for the despotic government there. Disclosure forms show they reached out to top media outlets and dozens of Hill staffers to improve the perception of Vietnam in the United States and grow its public policy clout. And given that the Vietnamese government got what it wanted, it just might have worked.

Clinton’s team didn’t respond to multiple requests for comment on whether or not she supports the president’s decision to let American arms manufacturers sell weaponry to the Vietnamese government. But one of her top former aides at the State Department lobbied for the Vietnamese government for at least two years, during the heat of the debate over the Trans-Pacific Partnership trade deal -- and his firm has also worked for Boeing and Lockheed Martin, two companies that stand to profit handsomely from the new market.

That former aide is David Adams. According to a 2015 profile of him in The Hill, Adams -- formerly chief legislative advisor to Clinton at the State Department and currently a principal at the Podesta Group -- oversaw the lobbying firm’s work for Vietnam’s communist government.

“It is a lot of running around, to be honest,” he told the publication of his lobbying work.

Adams worked closely with Clinton and Huma Abedin to get the Senate to confirm her nominees. He attended daily staff meetings with the then-secretary of state and communicated with her over the private email address that has caused her campaign so many problems and prompted an FBI investigation.

“Her email came up as H and I knew who that was,” he told the paper of her email set-up. “I never thought about email or whose system it was.”

After ending his time at State, Adams jumped to The Podesta Group, one of D.C.’s most powerful lobbying firms. That firm’s CEO and founder is Tony Podesta, whose brother John -- a co-founder of the firm -- is the chairman of Clinton’s presidential campaign and former chief of staff to then-President Bill Clinton.

Foreign Agents Registration Act filings show the Vietnamese government paid the Podesta Group $30,000 per month from Dec. 2, 2013 through Dec. 31, 2015. In total, that’s about $1.08 million.

Adams and a spokeswoman for the firm didn’t respond to requests for comment on the work their firm did for that client. FARA filings show the Podesta Group set up meetings with dozens of Capitol Hill offices, and also contacted numerous media outlets (including Politico, Roll Call, CNN, The Hill, PBS NewsHour, the Washington Post, National Geographic, The Food Network, The New York Times, and the Wall Street Journal) for the purposes of “Vietnam public relations.”

FARA disclosure forms don’t detail any information on the nature of those meetings phone calls, or emails.

But New Jersey congressman, Chris Smith, told The Daily Beast he believes the firm lobbied against his legislation to protect the human rights of the Vietnamese people. Smith, a conservative, Roman Catholic Republican who focuses on international human rights issues, has introduced a bill called the Vietnam Human Rights Act in five Congresses (2004, 2007, 2012, 2014, and 2015).

Opponents of the legislation, including Sen. John McCain, say normalizing relations with Vietnam will do more to benefit the Vietnamese people than linking U.S. aid to the government’s human rights record.

Every year but this one, it’s passed by comfortable, bipartisan margins. In 2014, only 3 members of Congress voted against the bill. But it always stalls in the Senate.

“They have made it clear, the Podesta Group, that they will kill my bill, the Vietnam Human Rights Act,” he said. “I know that to be a fact.”

“It’s money talking again,” he continued. “It’s very disturbing that they don’t care for the dissidents; they care for the client. In this case, the client is a serial abuser of human rights. If you’re arrested as a political prisoner in Vietnam, you’re tortured.”

Duy Hoang, a spokesman for the Vietnamese human rights group Viet Tan (which the country’s government considers a terrorist group) said Hanoi can use all the PR help it can get.

“It’s clear that the Vietnamese government has a human rights problem, and a bad image as a human rights violator, and so that’s why they have to pay a lot of money for lobbyists,” he said. “And despite all the lobbying they can do, they can’t hide the fact that they have political prisoners, and they beat up peaceful protesters. And that’s something, I think, that human rights groups and people who follow Vietnam are very aware of.”

In Obama’s remarks on Monday May 23, his first day in Vietnam, he did not criticize the government’s human rights abuses, instead praising “modest progress on some of the areas that we’ve identified as a concern” and noting that human rights is an “area where our two governments disagree.” By Tuesday, Obama met with human rights activists there, but the country’s government detained some activists who’d been invited to meet with him.

The government released one jailed human rights activist, 80-year-old Catholic Priest Ft. Thaddeus Nguyen Van Ly, a few days before Obama arrived in the country. But attorney Kate Barth of Freedom Now, whose organization advocates for Ly and other political prisoners, told reporters at a Capitol Hill press conference that his health is poor and he still under house arrest.

Le Quoc Quan, a former prisoner of conscience in Vietnam who works there as a human rights lawyer, emailed The Daily Beast that government police kept him from leaving his home during the president’s visit.

“The Gov only allow the person that they think acceptable, the others will be detained if we try to go out, including me!” he wrote.

Numerous reports indicated increased government harassment, surveillance, and intimidation of Vietnamese human rights activists during Obama’s visit.

Rep. Loretta Sanchez, a California Democrat with a large number of Vietnamese-American constituents, also took a skeptical view of the president’s meetings.

“Most of the people who have been working on human rights and have spoken out and have led protests and tried to assemble and written even short documents with respect to democracy are all jailed,” she said.

Sanchez supports Smith’s legislation and is one of its original co-sponsors. She’s long been an outspoken critic of the Vietnamese government’s treatment of bloggers, labor organizers, and political dissidents -- so much so that it made Hillary Clinton’s team nervous. Before she gave a speech on censorship and the internet on Jan. 21, 2010, Scot Marciel, then the ambassador to the Association of Southeast Asian Nations, sent Huma Abedin an urgent warning. Sanchez had asked to speak with Clinton about her concerns regarding the Trans Pacific Partnership trade deal -- which Clinton was pushing for at the time -- and worried the administration was moving too fast, “even as the human rights situation deteriorates.”

“Sanchez may try to button-hold you at your Internet speech today,” Marciel wrote.

The rest of his email, likely containing background and talking points, is redacted. Abedin forwarded it to Clinton (over that same private email address). In her speech that day, Clinton dinged Vietnam for restricting “access to religious information” and to “popular social networking sites.”

But when an audience member -- an activist with the Boat People SOS activist group -- asked her about the human rights situation in the country, she assured him that things were on the up-and-up.

“Well, we have publicly spoken out against the detention, conviction, and imprisonment of not only the bloggers in Vietnam, but some of the Buddhist monks and nuns and others who have been subjected to harassment,” she said. “Vietnam has made so much progress, and it’s just moving with great alacrity into the future, raising the standard of living of their people.”

Since then, however, Sanchez, Smith, and Vietnamese human rights activists say things have gotten worse.

“Just the fact that there are so many political prisoners in jails right now points to the fact that they promise all sorts of things when they want something, and they don’t follow through,” said Sanchez.

Smith said he thinks lifting the arms embargo may actually worsen the human rights situation in Vietnam.

“Surveillance equipment and lethal weapons of any kind could be a risk,” he said. “But I think the biggest blunder was just absolutely squandering the leverage that we have to say to a dictatorship, a communist dictatorship, that you ease up on and you let the political and religious prisoners go free and then we’ll talk about lifting an arms embargo.”

Jailed political prisoners didn’t stop Clinton and Obama from praising Vietnam’s progress, and they didn’t stop the Podesta Group from profiting off the country.

That said, it’s worth noting that Vietnam isn’t the only Podesta Group client to gun for lifting the arms embargo. The firm has also represented Boeing and Lockheed Martin (it even boasts on its website that one of its top victories is “winning key government projects for a major defense company”). Reuters reported that representatives from both of those companies attended a secret defense symposium earlier this month in Vietnam.

“There has been no mention in state-controlled media and defense reporters are not covering the forum,” Reuters noted. “Efforts by Reuters to gain permission to attend have been unsuccessful and Vietnam’s defense ministry could not be reached for comment.”

The White House’s justification for lifting the arms embargo is that increased economic involvement between that nation and the rest of the world will improve conditions for its citizens.

Activists disagree.

“The US wants to help Vietnam’s security,” Hoang said. “But ultimately, what would bolster Vietnamese security is respect for human rights and democratic governance.”

Article Link to The Daily Beast:

Is Kim Jong-Un Auctioning Off His Sister?

The latest, probably totally untrue rumor from the Hermit Kingdom features Kim Jong-un and a Bachelorette-style competition for his sister’s hand.

By Brandy Zadrozny
The Daily Beast
May 25, 2016

Kim Jong-un, the The North Korean leader best known in the states for his love of nuclear tests and his friendship with American former somebody Dennis Rodman, is reportedly out to find his little sister a husband—and using a decidedly Western way to get her hitched.

Kim has allegedly chosen 30 eligible bachelors for his 29-year-old sister Kim Yo-jong. She’s one of the country’s most powerful women, both because of her brother and in her own right, as a newly-appointed member of the Workers' Party of Korea's central committee. The single-and-ready-to-commit comrades would be winnowed down much like contestants on The Bachelor, according to an anonymous high-ranking official-turned-defector quoted in Voice of America and later translated as a breathless “exclusive” in British tabloid, The Sun.

And unlike the personal trainers and the unemployed who make up the American crop of Bachelorette hopefuls, there would be no bums in Kim Yo-jong’s bunch. Reports say Kim, The Onion’s 2012 Sexiest Man Alive, will only consider potential mates who are educated at the Harvard of Pyongyang, Kim Il Sung University. The suitors must also be attractive (obviously), at least 5-foot-9 in tall, be a member of the party, and have served in the North Korean People's Army.

Who among us could resist the image of a plumping, oafish, yet still murderous, Kim Jong-un, standing before two-dozen anxious regime loyalists, all wearing their hair in the state sanctioned style, asking each if he might “accept this rose?”

Delicious as the prospect may be, it's very unlikely to be true, according to Michael Madden, an expert who blogs at North Korean Leadership Watch.

“It's bullshit,” Madden says. “If I had a dime for every rumor told about the leaders and their personal lives, I’d be a millionaire.”

There might be a tiny nucleus of truth in the story, Madden says. “They might be matchmaking her with someone if she’s not married”—though he adds that even that’s unclear, because of the culture of secrecy in the Hermit Kingdom.

Kim Yo-jong has previously been rumored to be married to the son of Workers' Party Secretary Choe Ryong Hae, as well as to a non-elite science professor. A 47-day absence in 2015 drove rumors that the younger Kim had given birth, but again it's all just speculation.

Madden says that the recent activity from North Korea—nuclear tests and space launches and the convening of the party congress for the first time since 1980—might be driving the recent spate of wild tales from South Korea.

“Every time [North Korea] does something strategic, the disinformation comes,” Madden says.

“There’s enough weird stuff about North Korean’s sex and personal lives that’s actually true,” he says.

Madden answers the inevitable “Like what?” to that question with some hesitation, before launching into what he says is a common North Korean “sloppy seconds” fetish having to do, he imagines, with a culture of prostitution and women who perform sexual favors. “It’s also not unheard of in South Korea and Japan among men who run big businesses,” he says.

“It’s something they are into and I don’t know why.”

Then there was the joy brigade, or the pleasure squad, of Kim Jong-un’s father: Kim Jong-Il’s harem of beautiful women who would entertain and delight the Supreme Leader with song and dance or sex. It was reported in 2015 that Kim Jong-un was bringing the practice back, but Madden disputes this.

“I don’t understand why these people don’t actually don’t put something more accurate out there.”

Still the blame doesn't rest solely with tabloids or South Korea, Madden says. Much can be put on the North Korean elite, who—for want of soap operas or reality television—often revert to the age-old hobby of gossiping to keep them occupied.

“Some of it comes from the gossip mill that exists in North Korea among the elite and those who work in Pyongyang. All of these outer figures, they basically gossip about the Kim family and leadership: who is sleeping with who, whose wife went to China for plastic surgery. The gossip mill becomes like a children’s game of telephone,” he says.

So there won’t be a Bachelorette, North Korea edition?

“They would never do that. It’s a funny idea and would make a great comedy bit, but it would never happen in North Korea,” Madden says.

Article Link to The Daily Beast:

Trump Revives The Crazy Clinton Conspiracies

Hillary is about to face the same scorched-earth attacks that Clinton haters first fired a generation ago.

By John Avlon
The Daily Beast
May 25, 2016

Hating Bill and Hillary Clinton has been a conservative cottage industry for a quarter century. But ever since Bill’s self-inflicted sex scandals overtook dark talk about shadowy schemes in his second term, the most unhinged ideas about the Clintons faded into the fringe. Until now.

Donald Trump has grabbed hold of Clinton conspiracy theories with both his tiny hands, shaking loose names like Vince Foster and introducing them to a new generation. There’s more where this garbage came from—festering heaps of paperbacks and VHS tapes that had been rotting in partisan landfills.

So let’s air the old accusations out and expose them to sunlight to show how ugly and absurd the work of the Clinton conspiracy entrepreneurs has been. In the second edition of my book Wingnuts, I added a new section on the unhinged Clinton haters and how they foreshadowed the era we’re living in now. Many of the names echo on in our politics today, from Roger Ailes to Citizens United to WorldNetDaily to an unexpected cameo by then-conservative Ariana Huffington.

* * *

Political thoroughbred Bill Clinton personified his generation’s ambition and indiscipline, traits that turned him into a culture war lightning rod. Bubba’s political baggage included more than just his periodic Bimbo eruptions—there were also unsettled debates about the late sixties and feminism, with Hillary Clinton cast as the villain.

During the 1992 campaign, Republican operative Floyd Brown—author of the infamous race-baiting Willie Horton ad four years before—pursued a new partisan venture named Citizens United, scrambling to finish a book with a young deputy investigator named David Bossie called Slick Willie: Why America Cannot Trust Bill Clinton, which accused the candidate, in liberal journalists Joe Conason and Gene Lyons’ words, of “dodging the draft, raising taxes, coddling blacks, chasing women, corrupting state agencies, flip-flopping on abortion, awarding special privileges to gays, promoting secularism (and witchcraft!), wrecking the school system, flirting with socialism, and, in its stirring final chapter, blaspheming the Lord with his campaign slogan of a ‘New Covenant’ between citizens and government.”

Hillary was considered fair game as well. The New York Times counted at least 20 articles in major publications during the presidential election that compared Hillary Clinton to Lady Macbeth. At the 1992 Republican convention she was derided as a “radical feminist” and in a pointed pushback, Marilyn Quayle, the wife of the vice president, said: “most women do not wish to liberated from their essential natures as women.” A cover story in U.S. News and World Report summed up the situation with this opening paragraph: “For some, she's an inspiring mother-attorney. Others see in her the overbearing yuppie wife from hell—a sentiment that led GOP media guru Roger Ailes to quip that 'Hillary Clinton in an apron is like Michael Dukakis in a tank.’”

The 1992 campaign tracked along cultural more than policy lines—sex, drugs, rock ’n roll and post-collegiate trips to the USSR—and the weekend before the election, the anti-abortion group Operation Rescue took out full-page ads in USA Today and 157 other newspapers, posing this prominent question: “The Bible warns us not to follow another man in his sin nor help him to promote sin—lest God chasten us. How then can we vote for Bill Clinton?”

Clinton’s centrist strategy won the day with 370 electoral votes—but only 43% of the popular vote in a three-way race. For reasons that were moral, political and now statistical, Clinton would be seen as an illegitimate president by his frustrated opponents.

In Congress, Republicans embraced a strategy of total obstruction with GOP leader Newt Gingrich calling the Clintons “Stalinist,” “the enemy of normal people” and “counter-culture elitists.” Right-wing talk radio, just then coming into its own as a nakedly partisan cultural force, thrived with a polarizing target in the White House.

Soon after Clinton’s inauguration, a loose affiliation of old Arkansas enemies, conservative journalists, activist catalysts, leaders of the religious right and big money donors began their effort to demonize the new president.

When Deputy White House Counsel Vincent Foster killed himself in June of 1993, he left a note agonizing over the negative public attention he had come under as one of the Clinton’s closest Arkansas associates from the Rose Law Firm. “WSJ editors lie without consequence,” he wrote, referring to the Wall Street Journal. “I was not meant for the job or the spotlight of public life in Washington. Here ruining people is considered sport."

It was a tragedy, but the Clinton Haters smelled a conspiracy. Rush Limbaugh started to spout rumors that “Vince Foster was murdered in an apartment owned by Hillary Clinton,” rather than Fort Marcy Park, where his body in fact was found with gun in hand.

In Pittsburgh, the conservative owner of the Tribune Review, Richard Mellon Scaife, ordered reporter Christopher Ruddy (now the publisher of Newsmax) to investigate the conspiracy claims in an extended series of articles. Scaife was also the multi-million-dollar funder of what became known as “The Arkansas Project” within The American Spectator, in which a then-conservative journalist named David Brock broke the news of Clinton’s Little Rock dalliances and surfaced the first name of Paula Jones.

Scaife likewise funded the conservative non-profit Western Journalism Center, founded by Joseph Farah, the former publisher of Scaife’s shuttered Sacramento Union (and now best known as the publisher of the for-profit conspiracy website World Net Daily). In a money-go-round, The Western Journalism Center paid for Ruddy’s series on Foster to be reprinted in other papers and publicized a pamphlet collecting it in full-page ads, raising half a million dollars from donors. Among the right-wing luminaries on the WJC board were Arianna Huffington and conservative professor Marvin Olasky, both of whom also worked as senior fellows at Newt Gingrich-associated Progress and Freedom foundation. Scaife’s generosity came at a cost—when the American Spectator ran a critical review of Ruddy’s book their funding stream was cut off. But in the meantime, the money train was rolling for the obsessively anti-Clinton crowd.

A flurry of further allegations followed, pushed out in those pre-Internet days by magazines, talk radio and videotape. Tiny Jeremiah Films had previously produced videos for the evangelical circuit with titles like “The Evolution Conspiracy” and “Gay Rights, Special Rights.” Now a group with the lofty name Citizens for Honest Government was looking for anti-Clinton video and Jeremiah films’ Pat Matrisciana worked with veteran Arkansas Clinton antagonist Larry Nichols to produce a series.

Their first video, Circle of Power, was distributed by the Reverend Jerry Falwell’s Liberty Alliance. It began with Vince Foster’s death and went on from there to include 34 people who were allegedly killed at Bill Clinton’s behest. Former Congressman William Dannemeyer sent a list of the body count and demanded a Congressional investigation.

Their follow up, The Clinton Chronicles, cast an even wider net. Opening with the allegation that Clinton “achieved absolute control over the political, legal and financial systems of Arkansas—as president he would attempt to do the same with the nation” the hour-long video expanded to include allegations of Clinton overseeing millions of dollars of cocaine smuggling from the tiny Mena airport and then laundering the money through foreign banks.

There were voiceover testimonies from Arkansas associates who claimed that the twenty-something Bill Clinton “went to Moscow and did business with them against the United States government.” “His sexual partners numbered over 100” the video’s narrator intoned, going on to allege that one talkative paramour was confronted by Clinton’s goons who told her she could have “a federal job—or break her legs—whichever one was best.”

The video ended with a list of witnesses’ mysterious deaths and harassment, including Larry Nichols, who said he’d narrowly survived three attempts on his life. “Clinton can be a very dangerous individual,” the video explained.

Viewers of Jerry Falwell’s Old Time Gospel Hour were repeatedly treated to excerpts of the videos in the spring of 1994 and a half-hour infomercial offering them for purchase at the low, low price of $40 plus $3 for shipping and handling. It was a classic success story for conspiracy entrepreneurs. Citizens for Honest Government claimed sales of more than 150,000 videotapes and copies were sent to every member of Congress.

The accusations worked in the short term. The conservative base was fired up and they took control of the congress in the narrow-but-intense turnout of the 1994 midterm elections. But our modern pattern was established when Clinton roared back to re-election in 1996. Much of the promise of Clinton’s second term was squandered amid the impeachment crisis that followed the Starr Report and the unveiling of the Monica Lewinsky sex scandal. The president who once wisely remarked, “I have less and less control over my reputation but I still have full control over my character” made himself vulnerable to his enemies.

But the intensity of the Clinton animus on the right ended up spurring a backlash that helped propel Hillary Clinton to the U.S. Senate in 2000 and let Bill Clinton leave the oval office with a 60% approval rating. And so it goes.

The Clintons eventually won over some of their enemies—most notably David Brock, Chris Ruddy and Richard Mellon Scaife. Rush Limbaugh and Roger Ailes of course still linger and Citizens United became the plaintiffs in the infamous Supreme Court case that institutionalized big money.

But onetime defender Donald Trump careened to the other side of the spectrum, embracing Obama birther conspiracy theories and seeing an opening to demagogue his way to the 2016 nomination.

The scorched earth strategy pioneered by partisan media against the Clintons has become the norm—and many of the attacks we’ll hear during the coming Big Ugly of an election have their roots in the first round of the Clinton culture wars.

Article Link to the Daily Beast: