Pakistani Prime Minister Yousaf Raza Gilani’s ouster this week was more than merely a significant development for national politics, it was an unequivocal message to the people of Pakistan that ineptness, subservience, and corruption will not go unpunished. Though it is fashionable to conclude that Gilani was dismissed because of his failure to investigate charges against President Zardari – undoubtedly a major part of this story – the reality is that his ineffectiveness in dealing with a range of issues from energy policy to bilateral relations with the United States is what cost him the premiership.

Political power in Pakistan – always a complex issue – is now up for grabs. The ruling Pakistan People’s Party (PPP) has lost its legitimacy in the eyes of the people while other parties struggle to establish a significant base of support. In the background, the military leadership, which has, since the early days of Pakistan’s independence, played a dominant role in the political establishment, grows ever stronger. With such doubt surrounding the nation’s political future, and Pakistan at the center of some of the most pressing global issues of our time, the one thing that is certain is that the eyes of the world are watching Islamabad closely.

Corruption and Contempt

The event which directly precipitated Gilani’s ouster was the contempt of court charge in relation to his refusal to investigate his close ally, President Zardari, and the outstanding corruption charges against him. Despite being ordered by the court to lead a probe into allegations of money laundering through Swiss bank accounts, Gilani refused and continued in his role as Prime Minister, thumbing his nose at the order issued by the Supreme Court. This week, this brazen disregard for the judiciary finally caught up with the Prime Minister.

Although Gilani defied the court order, this was not his only judicial transgression. As Pakistani journalist Atif K. Butt noted in an interview for StopImperialism.com, “Gilani and other members of the PPP continuously ridiculed the court publicly, in gatherings and on television.� This sort of blatant disrespect undoubtedly angered the Supreme Court Justices and fueled their desire to remove the Prime Minister.

Despite the personal animosity that exists between the PPP and the judiciary, this was merely the legal explanation for the Prime Minister’s removal. The series of mistakes and sheer ineptitude of the PPP in dealing with the energy crisis, maintaining productive relations with the United States while protecting Pakistani sovereignty, and addressing the growing unrest in Balochistan and elsewhere, caused the people of Pakistan to be fed up with Gilani and, possibly, made the political decision a “no brainerâ€� for the court. Read more È

The Boiling Frogs Presents Michael Hughes

Michael Hughes joins us to discuss his investigative article exposing President Hamid Karzai’s mob boss brother Qayum Karzai, and the subsequent legal threats issued against him and his exposé by the family’s business partners in Washington. He explains how the infamous Karzai brothers, who lived in the United States, went from middle-class small business owners living on average wages to bringing in billions of dollars a year and building mansions in Dubai, all in less than a decade and through the unholy alliance that was forged between the brothers Karzai, rapacious warlords and incestuous multinational corporations-all lubricated by US Taxpayer dollars.

Michael Hughes is a Washington D.C.-based journalist and policy analyst whose work can be found in The Huffington Post, Examiner.com and CNN. Michael has also been quoted as an expert in Reuters and the Middle East Policy Journal and has made several live appearances on RT News. Mr. Hughes has recently been assigned to attend and cover daily press briefings at the U.S. State Department for Examiner.com.

Listen to the preview Here
 

Here is our guest Michael Hughes unplugged!

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An Inside Story into How the Beltway Powers Intimidate & Silence Journalists

Boiling Frogs Post has obtained a threat letter issued by Technologists Inc to the Examiner in response to its recent exposé involving President Hamid Karzai’s brother Qayum Karzai and his mob-like operations.

In a letter dated May 5, 2012, the company’s General Counsel Michelle E. Crawford accuses the investigative reporter of being inaccurate and libelous without providing any specific or concrete counter claim, and threatens the Examiner with legal action:

If the Examiner.Com fails to print the requested correction/retraction , Ti will be left with no choice but to seek legal action against your organization and will seek damages as well as the costs of litigation, including any filing fees, attorney’s fees, and any other costs that may be incurred.

…

The letter was provided to Boiling Frogs Post by an anonymous source familiar with the case. To read the letter click here.

On April 27 the Examiner published an exclusive article written by investigative journalist Michael Hughes titled ‘Karzai Family Looks to Extend Boss Rule in Afghanistan.’ The article exposes President Hamid Karzai’s mob boss brother Qayum Karzai, who has lived and operated businesses in the United States and has reportedly been on the list of ‘hand-picked’ potential candidates as Afghanistan’s next president.

Two of Qayum Karzai’s companies, Technologist Inc. and Daman Construction, are known to dominate the construction, logistics and security sectors throughout southern Afghanistan, and win every government contract with zero competition:

Qayum’s primary companies, Technologist Inc. and Daman Construction, win every government contract without having to deal with the nuisance of free market competition, which allows Qayum to reap healthy margins by, for example, selling $4 million generators to the governor of Kandahar for $50 million.

…

Hughes provides accounts of Qayum Karzai’s manipulation of business and news sectors in Afghanistan and his mob-style intimidation tactics including assassination plots against competitors: Read more È

Hastert & Emanuel: Who Made Hay While The Sun Shined?

 “Lobbyists make more money than Congressmen because lobbyists write more laws than we do.â€� – Congressman Ron Paul (TX)

Government work can inspire a certain image, particularly if you are still swayed by idealistic grade-school texts that extolled the work of ‘public servants.’  These are people working not for themselves, primarily, but for a greater good.  Government workers accept a discount from what they could earn in the private sector, because they care about the public.  We owe them our gratitude.

Well, some of them, to be sure. 

In economics, there is a fundamental principle called ‘rationality.’  A lot of students tend to rebel against this notion, and it has some critics from the behavioral finance profession as well.  But I still remember the day one of my favorite professors in economics, facing heat from students on this score, stepped back and defined rationality simply as ‘self-interested, purposive behavior.’  People don’t intentionally try to harm themselves, even if they don’t always make consistent or good decisions.  People try to pursue their own self-interest, to try to make themselves better off.  In a world without significant government intervention, this tendency usually promotes cooperation among buyers and sellers, and the common good as well.

Does public service make for a vow of poverty?  Our public servants are people, like the rest of us.  As a general tendency, we all tend to pursue our self-interest.   And in the public service world, some of the most ambitious, loudest champions about what is good for the rest of us are also intensely self-interested.  When self-interest combines with the pursuit of profit through government intervention, public servants can make themselves better off while leaving the rest of us worse off.

Assuming that policymakers pursue their own self interest is a central tenet of the public choice school of economics.   The “Chicago School� of regulation (the University of Chicago economics department, not the City of Chicago) similarly calls for us to suspend any enduring belief that public servants are always unselfish.  And when public servants serve themselves, well-organized special interest groups can more easily capture regulatory policy and drive it to their own benefit.  In turn, the revolving door, with our servants moving seamlessly between government and the regulated, and back again, can be a very lucrative business.   

Lobbying can also lead government policy to generate results the opposite of what is being advertised.  For example, anti-trust policy can actually make consumers worse off, particularly if well-organized producers run the show.  Government financial regulation can actually destabilize the financial system, if public guarantees spawn moral hazard and gambling with the public purse.  And the resulting crises can become a lever for taking more money from the many, in order to stabilize and cement the positions of the favored few. Read more È

Mainstream Media – Actually On a Case?

In the previous article in this series, we provided a brief review of the long train of corruption cases in Chicago and Illinois, and how they provide valuable perspective for some compelling national and international issues. 
Earlier this week, we had two indications that some elements of the City that Works may actually be working in a good way, and on matters related to international terrorism, drug trafficking, corruption in the city, state, and federal governments, and even the events of September 11, 2001.

On November 1, the Chicago Tribune reported how the City of Chicago’s “Corporation Counsel,� Stephen Patton, responded to a question about a dispute over the authority of the City Inspector General, Joseph Ferguson.  Ferguson has faced noncompliance with subpoenas he has issued to the city.  New mayor Rahm Emanuel’s Corporation Counsel has argued to the State Supreme Court that the city has the authority to enforce these subpoenas, not the inspector general alone, and the city also holds sole authority to hire outside counsel in matters at issue. 

This article did not identify any of the specific cases for which subpoena demands had been rebuffed.  But the fact that the City Inspector General has been issuing them is alone room for optimism. Read more È

The Ultra Secret FBI Criminal Files in the Chicago Field Office

In the first edition of their series of reports on corruption in Chicago, University of Illinois professors Thomas Gradel, Dick Simpson and Andris Zimelis included a good discussion of the evolution of machine politics over time.  They looked at the period with Mayor Richard J. Daley (1955-1976), as well as an equally-lengthy interval with his son, Richard M. Daley, serving as mayor (1989-2011).  The earlier regime drew its authority primarily from entrenched ties with ethnic communities, while the latter evolved a more sophisticated set of relationships with a variety of supporters including unions, corporations, and other special interest groups.  The report from the University of Illinois professors was written in early 2009, on the heels of the indictment of former Illinois governor Rod Blagojevich.  And after listing a long train of successful convictions, they concluded simply that “corruption continues unabated in city, county, suburbs and state today.� 

The authors have gone on to write four more updates to this report, which are all available here.  The fourth edition was released in early 2011, following the last Daley term and the passing of the torch to new Mayor Rahm Emanuel.  This fourth report listed over 340 city officials convicted in public corruption cases in the past few decades, with little sign of any slowing in recent years.  The authors listed cases of “bribery, patronage, contract rigging, conflict of interest, nepotism/family ties, clout, and theft,� noting that they were pervasive across a range of agencies.

Chicagoans can be thankful for some prosecutors, but the “City that Works� and the state and federal government functions dealing with it haven’t earned a presumption of innocence.  A careful, cautious and even cynical perspective is warranted when considering the prospects for reform under new Mayor Rahm Emanuel, especially in light of the strong ties that helped lay the basis for his political career in recent decades.

And while thinking about the Chicago political environment and its relevance for the case of Sibel Edmonds, it is useful to be careful about distinctions between the two main parties in our political system.  We have Democrats and Republicans, on the one hand, and the rest of us, on the other hand.  The long train of scandals and convictions such as those laid out by the University of Illinois professors have entrenched bi-partisan roots, with Democrats as well as Republicans breeding disenchantment and suspicion.  The Edmonds case reaches across party lines, as well. Read more È

Burrowing Into Some Rabbit Holes

Chicago has a lot of strengths, along with a deserved, well, reputation. The City of Big Shoulders?  Perhaps.  But legal and illegal corruption have long greased the wheels in the City That Works.  Chicago is joined at the hip with the State of Illinois, with no shortage of its own symptoms.  Paul Powell, an Illinois Secretary of State who passed away while in office in 1970, just before $800,000 in cash (nearly $5 million in today’s dollars, given the inflation since then) was found stuffed in a shoebox and other places in his hotel room, along with 49 cases of whiskey.  George Ryan, a former governor still in jail on corruption convictions.  And they don’t seem to learn.  Rod Blagojevich was elected to the governor’s seat after Ryan, and Blagojevich now stands to be sentenced following his conviction on corruption charges earlier this year.

The longer-term financial consequences arising when public institutions are used to fleece the public can be seen in the fiscal status of the City of Chicago, as well as the Land of Lincoln.  Last year, interest rates and credit default swap costs for Illinois state debt climbed above California, suggesting the market considered Illinois the worst credit quality among the 50 United States.

The latest nasty recession hasn’t helped, but long-festering inefficiency and corruption have been a major factor in financial deterioration.  A recent study led by Dick Simpson of the University of Illinois/Chicago estimated costs of $350 million a year in Chicago arising simply from waste, theft, patronage, nepotism and contract rigging.  And speaking of waste, an illuminating symbol comes from the cost of garbage disposal in Chicago.  A recent Wall Street Journal article reviewed the city’s finances, and found Chicagoans paying far higher costs per ton of garbage disposed than any other city in the country, nearly twice as much as the second highest.

 

In light of the environment, and the seeming inability of public institutions to reform after scandal after scandal, the prospects for ethical and cultural renewal in Chicago in the new administration led by Mayor Rahm Emanuel might best be viewed cautiously. 

Here’s another reason for caution on that score.

A 2009 article/interview published in The American Conservative summarized some of Sibel Edmonds’ testimony in a court case in Ohio.  This venue allowed her to speak about topics where this former FBI translator had been silenced by a dubious legal constraint called the ‘state secrets privilege.’  The 2009 article included shocking material about corruption and influence peddling.  And the city of Chicago was surprisingly prominent, given the scope of her material. 

Edmonds closed her 2009 article / interview with the following observations:

As soon as Obama became president, he showed us that the State Secrets Privilege was going to continue to be a tool of choice. It’s an arcane executive privilege to cover up wrongdoing—in many cases, criminal activities. And the Obama administration has not only defended using the State Secrets Privilege, it has been trying to take it even further than the previous terrible administration by maintaining that the U.S. government has sovereign immunity. This is Obama’s change: his administration seems to think it doesn’t even have to invoke state secrets as our leaders are emperors who possess this sovereign immunity. This is not the kind of language that anybody in a democracy would use.

The other thing I noticed is how Chicago, with its culture of political corruption, is central to the new administration. When I saw that Obama’s choice of chief of staff was Rahm Emanuel, knowing his relationship with Mayor Richard Daley and with the Hastert crowd, I knew we were not going to see positive changes. Changes possibly, but changes for the worse. It was no coincidence that the Turkish criminal entity’s operation centered on Chicago.

In our coming series, we are going crawl into a few of these rabbit holes.

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“Beyond a certain limit, military spending constitutes the classic example of parasitic growth.�- Thomas E. Woods, JR.

Thomas E. Woods, Jr.; Rollback:  Repealing Big Government Before the Coming Fiscal Collapse; Regnery Publishing, Inc. (2011)

In Rollback, Thomas Woods provides a thoughtful, clearly written wake-up call.  The breadth of the topic is a bit ambitious, particularly for such a portable read, but Woods provides numerous, wide-ranging examples that will lead readers to reconsider some of their assumptions and expectations.  At times, one might be left a bit confused whether Woods thinks government fiscal collapse is inevitable, or if we still have time to forestall that collapse by ‘repealing big government.’  Either way, however, he leaves no doubt he believes we have large-scale upheaval ahead of us, and that the architecture of much of our federal as well as state government faces a forced and forceful diet. 

Woods is a fellow at the Ludwig von Mises Institute.  The Mises Institute was founded in 1982 by Lew Rockwell, former chief of staff for Rep. Ron Paul of Texas.  The Institute has been a center for academic scholars dedicated to the principles of the “Austrian School� of economics as well as classical liberalism more generally.  The Austrian school is so named due to the influence and collaboration of founding members like Friedrich Hayek, Ludwig von Mises, and Carl Menger.  In the United States, Murray Rothbard became one of the leading Austrian voices, which rejected much of the mathematical and statistical foundations of mainstream economics and their application in government economic programs.  The Austrian school stands out for its dedication to free markets and a sharply curtailed role for government in society, and Woods’s Rollback clearly reflects this perspective.

Woods opens Rollback with two neat quotes, including a long running truth from a Roman senator and historian named Tacitus – “The more corrupt the state, the more numerous the laws.� This idea is fleshed out most explicitly in Rollback’s Chapter 6, “The Myth of Good Government,� where Woods looks carefully at the asserted justifications and politically practical sources of demand for a variety of government programs and extensive regulatory practices.  One common thread to those examples is the notion of regulatory capture, where regulation is sought out and developed by the industries being regulated, at the expense of consumers and the common good.

But the fiscal challenges we face arise from a broader set of political influences, including general public laziness and acquiescence in programs based, in Woods’ eyes, on fiscally unsustainable promises.  He takes a closer look at Medicare and Social Security, and depicts demographic icebergs likely to sink the ship. 

Some fun facts from Rollback’s opening chapter include:

A May 2010 poll found that an incredible 85% of graduating college students planned to move back in with their parents after graduation, facing an average of $23,000 in debt before they even start working.

Many states are ‘going bust;’ seven states likely to see their pension systems fail by 2020, and thirteen more by 2025.

Dozens of cities are contemplating bankruptcy.

Washington D.C. has seen demand for new homes rise faster than another other large American city, and it also has the highest median household income of any of the 25 largest metropolitan areas.

This last item is related to Wood’s opening quote about ‘the more corrupt the state, the more numerous its laws.’  Included along with the 50 states, Washington D.C. has by far the highest income per capita, and it also has by far the largest numbers of lawyers per capita.  When you want to get cynical, one way to think about DC is as a factory full of lawyers and lobbyists, who make laws and programs enriching their clients and themselves at the expense of the rest of us.

In Chapter 2, Woods turns to Barack Obama and the “Change We Can Believe In,� finding not much change nor little to believe in, particularly in the new Administration’s health care programs.  The chapter’s strongest and most interesting elements, however, deal with the stimulus programs for the weak economy, their pork-barrel origins, and their unseen costs that can actually retard recovery. 

From there, Woods broadens his perspective to a general review of the role of government in economic crisis, with particular reference to the origins and solutions developed for our Great Recession in recent years.  Woods provides a careful review of housing market finance and the consequences of government programs like Fannie Mae and Freddie Mac, and their interplay with monetary policy of the Federal Reserve. 

Woods and others have strong words, in hindsight, for what they assert were artificially low interest rates arising from Fed monetary policy in 2002-2006 as seeding the recent housing crisis.  This perspective may be a little too easy, in hindsight, and it can also deflect attention from other worthy sources of investigation into regulator behavior, including the Fed’s outsourcing of capital and other financial regulations to the anointed set of credit rating agencies.  This proved a critical point of failure, Fed advertising that it promotes financial stability to the contrary.  But to his credit, Woods at least notes the credit rating interaction with capital regulation problem.  And those that think the effective repeal of the Glass-Steagall separation of commercial and investment banking in the Gramm-Leach-Bliley Act of 1999 was a central element of our latest meltdown would do well to look at Woods’ argument here.  It wasn’t the repeal of Glass-Steagall, for example, that allowed banks to invest so heavily in well-rated but disastrous mortgage-backed securities.  They were allowed to do so before the Glass-Steagall repeal, as well. 

Woods has harsh words for the financial regulators and their claims to expertise and foresight before our latest crisis.  In turn, more and better regulation, the argument goes, is not the solution for our financial system down the road.  Fewer public guarantees and government programs could be a better route.  Along these lines, Woods cites economist and historian Robert Higgs, who has said of the regulators: Read more È

Not a Failure to Regulate but a failure of Regulation

In 1987, Robert Higgs authored an important book called Crisis and Leviathan.  Higgs’ case shows that government can feast on crises, even crises of the government’s own making.  After a crisis, government programs gain a foothold they do not easily relinquish, with a ‘ratcheting’ effect helping to explain a long-term upward trend in government’s role in the economy.  Special interest group forces help drive government policy that actually helps cause a crisis.  And special interest groups don’t shrink away during a crisis; they can actually redouble in their intensity and manipulate public policy in their favor, at the expense of the rest of us.  

What light can this perspective shed on our most recent banking crisis?

Banks, like other firms, have three main elements to their balance sheets — assets, liabilities, and capital.  Like other firms, the more capital a bank has relative to assets, the greater the resilience of the enterprise to any fall in the value of its assets.  Banks have their own incentive to maintain adequate capital to retain confidence of depositors and other funding sources, at least, in a free market without bailouts.  But bank capital is regulated, as well, with the regulators asserting that the regulation is inspired by their determination to promote a stable banking system.

If banks have their own incentives to maintain sufficient capital, and bank capital is regulated by public-spirited regulators in the interest of maintaining financial stability, why did we have such a violent meltdown in recent years? Read more È

The GAO Fed Audit(s):  Some Missing Links?

The Dodd-Frank financial reform legislation passed in 2010 directed the Government Accountability Office (GAO) to conduct two audits of Federal Reserve operations.  The GAO issued a report in July on the first audit, which dealt with the Federal Reserve’s emergency lending facilities developed in the 2007-2010 financial crisis.  The second audit includes a broader examination of Federal Reserve Bank governance practices, and the GAO is expected to issue this report in October.

In calling for the GAO to audit the Fed’s emergency lending facilities, Dodd-Frank included provisions directing the GAO to assess, in part, ‘the effectiveness of the security and collateral policies established for the facility in mitigating risk to the relevant Federal Reserve bank and taxpayers,’ and ‘whether there were conflicts of interest with respect to the manner in which such facility was established or operated.’  The GAO produced a long and thoroughly-detailed report discussing these and other elements, but some questions remain.  The GAO’s report on its first audit is available here. 

Three topics relating to these two directives for GAO audits that could have benefited from more complete discussion include the identity of the borrowers under the Fed’s emergency lending programs, the role of credit ratings in the security and collateral policies for those programs, and how the Fed’s previous reliance on credit ratings and the Fed’s role in interbank payment systems mattered for the conflict of interest question.

Who Got the Funding? 

On pages 131-133 of their report, the GAO provided two tables listing the largest borrowing institutions under the emergency programs.  They are ranked in the first table by the total borrowed amount irrespective of maturity length, and in the second table adjusting for the term of the borrowing. Some loans were for relatively brief intervals, even overnight, and others for longer time frames.  Both perspectives are valuable, but the amounts adjusted for borrowing terms tend to do a better job of capturing a comparable read on the simple magnitude of lending.  Total borrowing on this basis totaled $1.1 trillion, according to the GAO’s “Table 9,� while two-thirds of the 15 largest institutions listed were from outside the United States.

On page 132, Table 9, titled “Institutions With the Largest Term-Adjusted Borrowing across Broad-Based Emergency Programs,â€� listed 20 specific ‘institutions,’ while the table continued on to page 133 with one more line item before the totals.  The largest single identified borrower was the Bank of America with $67 billion, ranging down to $15 billion for the smallest identified institution on the list of 20 (Norinchukin Bank, in Japan).   The 21^st line item may well be a matter of importance, however.  It was simply titled ‘All Other Borrowers,’ coming in at a total of $537 billion — over one-half a trillion dollars, and 8 times as much as the largest single institution. 

The table’s overall title referred to ‘Institutions,’ but the Fed’s emergency lending in the crisis was undertaken under Federal Reserve Act provisions that include authority for the Fed to lend to ‘individuals, partnerships, or corporations’ (e.g. nonbanks) in ‘exigent and unusual circumstances.’  Read more È