Sunday, April 19, 2015

Wall Street’s War On Americans: First Scapegoat, Then Rob

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Richard Wolff explains how scapegoat economics works: http://www.truth-out.org/news/item/30032-scapegoat-economics-2015 [1] The economic dissolution of the West is the story I document in The Failure of Laissez Faire Capitalism.

Michael Hudson explains that having looted everything else, Wall Street is now eating our pension funds with Social Security also on the menu. Wall Street has the US government under its control and is using the federal government to subsidize Wall Street profits at the expense of Americans’ old age security:

The Coming War on Pensions

by MICHAEL HUDSON

On the Senate’s last day in session in December [2014], it approved the government’s $1.1 trillion budget for coming fiscal year.

Few people realize how radical the new U.S. budget law was. Budget laws are supposed to decide simply what to fund and what to cut. A budget is not supposed to make new law, or to rewrite the law. But that is what happened, and it was radical.

Wall Street’s representatives in Congress – the Democratic leadership as well as Republicans – took the opportunity to create an artificial crisis. The press called this “holding the government hostage.” The House – backed by the Senate – said that it would shut the government down at some future date if two basic laws were not changed.

Most of the attention has been paid to Elizabeth Warren’s eloquent attack on the government guaranteeing bank trades in derivatives. Written by Citigroup lobbyists, this puts taxpayer funds behind future bank bailouts if banks make more bad bets on complex financial derivatives, such as packaged junk mortgage loans.

Critics have focused on how there must be a loser for every winner in a derivatives contract. The problem is that if banks lose, the government will bail them out just as it did in 2008.

Less attention has been paid to what happens if banks win. They will win largely in making bets against pension funds. Indeed, pension funds have not been treated well by Wall Street in recent years.

They are in a bind. Pension funds will fall further and further behind what they need to pay retirees if they do not make the impossibly high returns of 8.5%. The guiding philosophy of pension funds has been that instead of making employers pay enough to cover the pensions they have promised, funds can make money purely financially – by Wall Street sharpies.

The problem is that safe interest rates today are less than 1% for Treasury bonds. Everyithing else – stocks, corporate bonds, and hedge fund derivatives – are much more risky. And when Goldman Sachs, or JPMorgan Chase draw up a derivative for a client, their aim is to make money for themselves, not for the client.

So pension funds have been at the losing end. Most funds would have done better simply to turn their money over to Vanguard in an indexed fund, and saved management fees.

At the state and local levels, pension funds in New Jersey and other states threaten to go the way of Detroit pension funds – to be cut back so that bondholders can be paid.

Many corporate pension funds also are behind, because companies are using their record profits to pay higher dividends and to buy back their stocks to create price gains for speculators.

But the funds most under attack are union pension funds. These are the funds that Congress has gone after. The fight is not merely to scale back pension funds – and avoid the government’s Pension Benefit Guarantee Corp (PBGC) being bailed out – but to break the power of unions to attract members or to defend them.

The Congressional budget act states that pension funds with more than one employer – such s construction industry funds, teamster funds for truckers and public service workers funds – can be scaled back in order to pay Wall Street creditors.

Labor now is told to go to the back of the line behind Wall Street. If the economy is too debt strapped to pay everyone what is owed, then the new motto is Big Fish Eat Little Fish.

Wall Street is eating the pension funds.

This goes hand in hand with Obama’s fight to scale back Social Security and, ultimately, to privatize it. Now that Republicans are in a majority of both the House and Senate, the Democrats will be able to take an anti-labor position and then try to blame it on Republicans.

Yet Democrats themselves were the leading advocates of the anti-labor, anti-pension fund policy. This special “rider” to the budget bill was known last spring to the House Budget Committee. Yet something tricky happened: While the committee approved the anti-labor pension rule, no record was taken of which members and which party voted for the radical change, and who opposed it.

For instance, Marcy Kaptur, who replaced Dennis Kucinich from Cleveland after the Democrats helped the Republicans gerrymander his district, said that she should remember who voted which way on the House Appropriations Committee she served on.

So this is the problem: the supposedly liberal Democrats are in the lead for scaling back pension funding, Social Security and labor protection in general.

Here’s an indication of how bad the situation is. Pension funds – union pension funds as well as corporate pension funds – are supposed to be backed up by the PBGC. But that agency has been headed by a former Lazard Freres investment banker, Joshua Gotbaum. He’s now at the Democratic Party’s pro-Wall Street think tank to refine their anti-pension policies. He has explained to the press that he wants to “save” pensions – by scaling them back.

This is the new Orwellian anti-labor rhetoric. “Saving” pensions means reducing what workers were promised – back when they negotiated lower wage gains in exchange for greater retirement security.

The new law permits pension plan trustees – often Wall Street financiers – to cut benefits without having to ask the PBGC to take over the plan. This “balances the federal budget” by saving the bailout funds for Wall Street, not for labor.

The problem is that the Employee Retirement Income Security Act (ERISA) of 1974 — vastly underpriced the contributions that employers would have to make in order to pay retirees. The problem was designed to fail from the beginning, because Wall Street and corporate lobbyists fought to underfund the program. They knew from the very beginning that pensions would fail in the end.

Yet at the same time, the law stated that benefits already earned by workers cannot be cut back. But last December’s Congressional budgetary coup d’état ruled that now, employee retirement benefits can indeed be cut back. Retiree claims are not treated on the same level as financial debts to Wall Street investors. They are sent to the bottom of the line of claimants.

Their strategy is basically Malthusian: to blame the pension problem on the fact that America is de-industrializing, leaving not enough new union members to pay the dues that are necessary to pay retirees. This is because the pensions were designed to be a Ponzi scheme from the outset – needing new contributors to pay the early entrants.

This is of course the argument that President Obama is making regarding the need to cut back Social Security too.

This turns out to be the big picture at work for the next two years. Outside of Wall Street, the economy is not really growing. Obama is escalating military spending in his heating-up confrontation with Russia and China, and that will take a large part of the budget. More bailouts and subsidies for Wall Street over their derivatives bets – the rule that Senator Warren criticized – will eat up more government revenue.

So something must give – and the PBGC is one of the designated victims. The aim is to avoid government help for pension funds in arrears – and nearly all funds are in arrears, because of the basically malstructured idea of making money financially instead of helping the economy actually grow by investing to produce more goods and services and raise living standards.

Congress has just legislated the right to scale back pension funds if they’re managed by labor unions, e.g. on multi-employer contributors. This will hit blue collar labor the hardest, especially unionized building superintendents, and service workers.

Once this is done, the idea of rolling back pensions can spread to other kinds of pension funds besides union funds. State and local pensions, corporate pensions and even insurance company annuities can be cut back.

And the great aim at the end is to privatize Social Security. Scaling back labor union and corporate pension funds will enable Wall Street propagandists to come out and say, “See, the only way you can be safe is to have your own private accounts, and manage your own money.”

The problem with this approach is that “managing our own money” turns out to be deciding which Wall Street firm is going to manage it – and of course, they manage it in their own interest first and foremost. They do this by raking high management fees that keep most of the returns for their own salaries and bonuses. In the end, the place their clients funds in bad bets.

The great argument for having Wall Street manage pension funds instead of labor union economists or their own people is that the mafia is strong in many unions. That’s indeed the case. In 1982 a federal consent degree stripped the Teamsters of its power to control its investments. The assumption was that if labor unions are crooked, then Wall Street must be more honest, is absurd. It’s basically one set of financial predators against another set.

Here’s how Prudential Insurance became notorious for ripping off the funds of clients it managed, for instance. It might make two bets on a given day: one, that a stock or bond would go up, and two that it would go down. At the end of the day it would put the winning bet in its own account, and the losing bet in the account of its clients.

This is how crooked commodity traders have worked for many decades. In Ghana, for instance, the cocoa commission traders would place two bets: one, that cocoa prices would rise, and two, that they would fall. They kept the winning bet for themselves or their family members; the losing bet would be placed on the government’s balance sheet.

In a nutshell, this is how Wall Street has been treating pension funds. This is why Orange County, California, sued Wall Street, and why other cities have sued Wall Street firms over mismanagement that have led to huge losses for their funds – and super gains for Wall Street at the other end of these trades. The idea of “fiduciary responsibility” is no longer enforced, now that Obama’ Justice Department has made it clear that it is not going to charge large Wall Street banks and their brokerage arms with criminal fraud. The gates are now wide open for such fraud.

With this in mind, now let’s go back to the new Congressional budget law. It gives priority to debts owed to Wall Street; debts to labor now will go to the back of the line, and be scaled down so as to pay corporate raiders and banks.

The first great test case is expected to be the Teamsters’ Central States Fund. The rationale for cutting back pensions for drivers is that in 1980 it had four employees for every retiree. Today, it has just one driver for every five retirees. How can such a plan succeed?

The normal answer would be, by turning to the PBGC.

But let’s look more closely at the alleged source of the problem. It’s not just that there are so many fewer employees per retiree. The Teamsters Central States Fund is a prime example of Wall Street mismanagement. Goldman Sachs, Northern Trust and other firms make the decisions, not the Fund’s own board. A recent report has found that “Roughly a third of the pension system’s shortfalls — or almost $9 billion – can be traced to investment losses accrued during the financial industry’s 2008 collapse. These losses were in addition to more than $250 million in fees paid by the plan to financial firms in just the last 5 years.”

Obviously there is as much conflict of interest at work in letting Wall Street sharpies manage pension funds as there is in letting Mafiosi rip them off.

The important thing is that the PBGC has been as lax in oversight as the Federal Reserve has been lax in overseeing the banking system. But whereas the Fed then bailed out the banks in 2008 on the ground that they were systemically necessary for the economy to function, no such assumption is being made with regard to labor’s pensions.

It seems part of a long-term strategy to cut back pensions, privatize them into individual accounts managed by Wall Street investment banks and insurance companies, and then to privatize Social Security.

This is part of the strategy to use the demand for budgetary balance to privatize the nations’ infrastructure too as it falls apart – on the ground that the government is broke, and cannot raise taxes on the rich or simply print the money itself to fuel economic growth.

It looks like Greece may be the test case for where the American economy is heading.

The Coming War On Pensions was originally published in CounterPunch: http://www.counterpunch.org/2015/01/05/the-coming-war-on-pensions/ [2]

URLs in this post:

[1] http://www.truth-out.org/news/item/30032-scapegoat-economics-2015 : http://www.truth-out.org/news/item/30032-scapegoat-economics-2015
[2] CounterPunch: http://www.counterpunch.org/2015/01/05/the-coming-war-on-pensions/ :http://www.counterpunch.org/2015/01/05/the-coming-war-on-pensions/

Scapegoat Economics 2015

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As economic crises, declines and dislocations increasingly hurt or threaten people around the globe, they provoke questions. How are we to understand the forces that produced the 2008 crisis, the crisis itself, with its quick bailouts and stimulus programs, and now the debts, austerity policies and deepening economic inequalities that do not go away? Economies this troubled force people to think and react. Some resign themselves to "hard times" as if they were natural events. Some pursue individual strategies trying to escape the troubles. Some mobilize to fight whoever they blame for it all. Many are drawn to scapegoating, usually encouraged by politicians and parties seeking electoral advantages.
For example, Germany's recent history has featured reduced wages (especially via increasing part-time jobs), fewer social welfare protections, major bank bailouts in the crisis of 2008, rising inequality of income and wealth, austerity policies and so on. Its leaders around Merkel have responded by carefully rescripting their recent financial maneuvers as "Europe's bailout of Greece" in a classic exercise in scapegoat economics. Three institutions (the "troika" of the European Central Bank, the European Commission and the International Monetary Fund) lent the Greek government money since 2010. Those loans were used chiefly to pay off the Greek government's accumulated debts to private European banks (including especially German, French and Greek banks). The "bailout of Greece" was thus really an indirect bailout of those private banks.
Without that indirect bailout, those private banks would have suffered the usual losses that come when banks make loans that cannot be repaid. Those losses would have been costly for shareholders in those banks. The major shareholders among them include some of Germany's richest and biggest capitalists. With their usual political power, they might have gotten the German government to bail them out directly again (since the German government had already done that directly a few years earlier in the 2008/2009 crisis). But such a second direct bank bailout would have been wildly unpopular with German voters and therefore politically dangerous for Germany's top politicians.
Leading German politicians saw the "bailout of Greece" as an opportunity to serve their big-bank supporters with a second but indirect bailout that was disguised as "for Greece." This gambit protected their political careers from voters' wrath while getting all of Europe to share the cost of loans to Greece. German leaders then took the lead in insisting loudly that Greeks pay dearly for Europe's loans. Merkel imposed a crushing austerity regime - with the cooperation of Greece's two mainstream political parties - that shifted massive resources away from Greece's public services for use instead to secure interest on and repayment of the troika's loans.
The opportunism of German leaders was also an exercise in scapegoat economics. German bankers and political leaders - supported by many other European leaders - distracted and deflected their own people's resentments over growing economic problems. Instead of popular anger turning against German, French and other European bankers, capitalists, their political servant and the capitalist system itself, it was redirected against Greece and Greeks. German media dutifully led the way in recasting the European loans to Greece (that ended up mostly in private European big banks) as supports for "lazy, overpaid and over-pensioned" Greeks that were unfair and costly burdens for hardworking German and other European taxpayers.
By means of this heavily staged public "Greek" drama, Germany added international economic scapegoating to the domestic scapegoating already widespread in Europe. It had repeatedly targeted communities of immigrants. Typically, the immigrants first arrived to provide employers (who often encouraged immigration) with lower-paid workers and thus higher profits. Then when the inevitable next capitalist business-cycle downturn arrived, the resulting discontent of unemployed and recession-burdened people was deflected and turned against immigrants. They were blamed as if they "took away jobs" from nonimmigrants rather than unemployment being the periodic burden, for immigrants and nonimmigrants alike, imposed by the profit-driven, fundamentally unstable capitalist system.
The United States has repeatedly displayed the same blame game with immigrants and with ethnic minorities. In the wake of the crisis since 2007, it is extending domestic scapegoating to still others. Governors in the US now increasingly attack state employees, their unions and pensions as if they, rather than the crisis, had suddenly become the economic problem. Mayors across the country do the same to municipal workers. Of course, both state and municipal budget problems since 2007 are primarily the results of high unemployment and reduced consumer spending. In short, it was and remains the crisis since 2007 that played and plays the key role in cutting governments' tax revenues and hurting government budgets. Growing and more effective tax-evasion strategies of business and the rich have had the same effect. Responding to lowered tax collections, politicians fearful of damage to their careers refuse to raise tax rates. Instead they embrace spending cuts that they justify by means of scapegoat economics.
Thus they demonize public employees as lazy, greedy, overpaid, underworked, over-pensioned, etc. - all remarkably similar to German depictions of Greeks. Governors practice scapegoat economics by promising to protect "the public" from tax increases by "not pandering to" public employees and their unions, by "reining in" their pensions, etc. Those politicians act as if public employees and their pensions were suddenly the problem rather than a dysfunctional economic system. They similarly miss the stark reality of the dysfunctional political system they operate: It cuts government help to people in economic crises just when they need it most. Instead, US political leaders, like their German counterparts, use scapegoat economics to justify their selective spending cuts.
Scapegoat economics this time also serves capitalism's global relocation. For decades, existing factories, offices and stores have been moving from old capitalist growth centers (western Europe, north America, and Japan) to new centers (China, India, Brazil, etc.). Similarly, enterprises are growing more in the new rather than the old centers. Headquarters sometimes remain in the old centers even as enterprise facilities locate elsewhere. Jet travel, computers and telecommunications make all this manageable. The capitalist competition that impels this relocation also means that the old centers lose many well-paid occupations with ample benefits and job security. Workers in places like Germany and the US are increasingly forced to settle for lower-paid, insecure jobs with fewer benefits. While jobs and wages grow more quickly in the new centers, wages there remain so low that huge profits reinforce capitalism's global relocation.
As capitalists relocate, populations everywhere must adjust to and accommodate all the usually attendant frictions, sufferings and costs. In the old centers, unemployment and lower-paid jobs undermine governments' tax revenues. Given resistance to tax increases, governments turn increasingly to expenditure cuts in their accommodation to capitalism's relocation. This often worsens unemployment and wage rates. More importantly it further depresses mass standards of living. Consumption, household finances and relationships, marriage and career decisions: All are caught up painfully in the adjustment process. The same applies, likely more traumatically, to capitalism's new centers. There, formerly agricultural and rural people are transformed quickly into industrial and urban populations living in extremely overcrowded and poorly provisioned slums.
Capitalism's relocation is socially disruptive in yet another basic way. It deepens economic inequality at both poles. Profits rise and wages stagnate in the old centers. Employers distribute the rising profits chiefly to shareholders and top executives and secondarily to upper management and professionals helping them operate corporations. An often spectacular growth in income and wealth inequalities afflicts the old centers. In the new centers, arriving capital needs and makes partnerships with local capitalists and government officials. The latter become extremely wealthy more quickly than local wages rise, and so inequalities of wealth and income deepen in the new centers too.
The gains and losses of relocating capitalism are very unequally distributed in both its old and new centers. This only aggravates the social tensions already emerging from the many adjustments and accommodations people are forced to make. Suffering from personal, financial and community losses, individuals and groups often feel betrayed by "their" political and economic organizations. In the US, for example, many working people believe that the Democratic Party and labor unions had promised to "protect" them but failed to do so, especially in the crisis and debt-funded bailouts since 2007. They have come to fear that now they will be required to absorb the costs of dealing with those debts by being subjected to austerity policies while "others" get protected from those policies. Feeling betrayed or abandoned by their traditional political representatives, many become susceptible to a new politics organized around scapegoat economics.
As exemplified by new Republican governors in the upper mid-West sensing electoral opportunity, this politics appeals to voters by promising to "protect" them from austerity policies (in the US, unlike Europe, "austerity" is not the name used). This means, first and foremost, that voters will be spared tax increases. These are demonized as always and necessarily "bad" economics for everyone. But the Republican Governors now go further and promise to protect voters also from spending cuts by making sure that those cuts focus on "others." Enter scapegoat economics. The governors find "others" to be scapegoated in response to crisis-driven and capitalist relocation-driven declines in tax revenues. First of all, those others are - you guessed it - the traditional targets: those on welfare, in inner cities, immigrants, etc. The often-racist overtones of such appeals are only too well known. Nowadays, the second set of those "others" has come to include public employees, their unions, salaries, pensions, etc. To secure their careers, politicians promise voters to protect them by cutting government spending on both sets of scapegoated others.
When it works, such politics sets one part of the population suffering from capitalist relocation, crisis and austerity policy against another part. This permits big banks, large corporations and the rich, who own and direct them - those with the most responsibility for causing the crisis - to escape paying for it. They escape in part because their wealth and power made sure that they benefited first and most from the government bailouts in 2008 to 2010. They also escape because scapegoat economics enables them and their political friends to shift the burden of paying for the crisis onto certain of its victims while "protecting" other victims from further victimization. Perhaps capitalism inherited scapegoat economics from prior economic systems, but capitalism's crises keep renewing that ugly injustice.

Containing Fukushima Is “Beyond Current Technology”. Worldwide Radiation is the Unspoken Consequence

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We reported in 2012 that top nuclear experts say that the technology doesn’t yet even exist to clean up Fukushima.
Now, the head of the Fukushima nuclear plant and the head of decommissioning at Fukushima both say that the technology doesn’t exist to clean up Fukushima, and it may not exist for hundreds of years … if ever.
The Times of London reported last month:
The chief of the Fukushima nuclear power station has admitted that the technology needed to decommission three melted-down reactors does not exist, and he has no idea how it will be developed.
In a stark reminder of the challenge facing the Japanese authorities, Akira Ono conceded that the stated goal of decommissioning the plant by 2051 may be impossible without a giant technological leap. “There are so many uncertainties involved. We need to develop many, many technologies,” Mr. Ono said.
EneNews notes:
NHK ‘Nuclear Watch’ transcript, Mar 31, 2015 (emphasis added):
  • NHK: The people trying to decommission the Fukushima Daiichi nuclear plant have been hit by setback after setback… and faced accusations of misconduct. It’s lost them a lot of public trust… [Naohiro Masuda, president of Tepco’s decommissioning company] revealed he’s not sure if he can comply with the government set plan [for] removing the fuel
  • Naohiro Masuda, president of Tepco’s Fukushima Daiichi Decommissioning Company: We have no idea about the debris. We don’t know its shape or strength. We have to remove it remotely from 30 meters above, but we don’t have that kind of technologyit simply doesn’t exist… We still don’t know whether it’s possible to fill the reactor containers with water.We’ve found some cracks and holesin the three damaged container vessels, but we don’t know if we found them all. If it turns out there are other holes, we might have to look for some other way to remove the debris.
  • NHK: Asked [about the gov’t target to begin by 2020], his answer was surprisingly candid.
  • Masuda: It’s a very big challenge. Honestly speaking, I cannot say it’s possible.
  • Richard Lloyd Parry, The Times: I was at the plant last week on the tour and we talked Mr. Ono, the boss. He made no bones about the fact that the technology… to remove the molten or semi-molten fuel doesn’t exist yet… I asked him how can you be sure that it will be, and he said, “Well, 200 years ago people would never have dreamed of bullet trains or mobile phones, but they exist.” That seems to be the scale of the leap… that’s going to be required. So there must be immense uncertainties around that… There must surely be a chance that it won’t work out, and that the eventual solution will be something like the Chernobyl solution… a sarcophagus of some kind sealing in the 3 plants
  • Klein: This is something that has never been done… Units 1, 2, and 3… molten fuel penetrated the bottom of the vessel… We don’t know… how much and where it moved. ***
Akira Ono, chief of Fukushima Daiichi, Mar 28, 2015: “There are so many uncertainties… For removal of the debris, we don’t have accurate information… or any viable methodology… I believe human beings have the capability to develop technologies… It may take 200 years.”
In related news, Fukushima radiation just arrived on the West Coast of North America.
We explained in 2012:
[Airborne] radiation from Japan’s nuclear accident has turned up in seaweed on the coasts of CaliforniaWashington and other parts of the West Coast of North America.
***
A 1955 U.S. government report concluded that the ocean may not adequately dilute radiation from nuclear accidents.
MIT says that seawater which is itself radioactive may begin hitting the West Coast within 5 years.

Will Congress Be Duped Again on Offshore Taxes?

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Like a savvy bargainer on a used car lot, big multinational corporations have mastered the art of feigning indifference and walking away.
What they walk away with is their profits, stockpiling them abroad where they legally remain untaxed until returned to the United States. Then these corporations threaten to keep the cash offshore permanently unless Uncle Sam gives them a deep discount on their tax rates.
It’s a timeworn, but effective, trick. While the rest of us are stuck paying the sticker price, Congress is considering a special deluxe tax rate for these giant corporations.
Congress last fell for the old “walk away” in 2004. And the American people got burned.
That year, legislators gave 843 giant firms an 85-percent discount on offshore profits they “repatriated.” This reduced their long-term tax bills by about $100 billion.
Legislators opted for this one-off revenue bump in part because they believed, naively, that the companies would create U.S. jobs with the repatriated funds. They even called the tax break legislation the “American Job Creation Act.”
Like new owners of a bargain basement Beemer, though, the companies basically squealed their tires and sped away. Rather than hiring more workers, many simplyused the money to boost shareholder dividends and executive pay.
Meanwhile, the profit-shifting revved up again, as firms maneuvered to create leverage for further discounts.
Big pharmaceutical companies, which are particularly good at tax-dodging tactics like registering their patents in tax haven countries, were some of the biggest abusers of the 2004 tax break.
Pfizer, for example, repatriated $40 billion to take advantage of the discount. Instead of boosting jobs, the drug company laid off more than 58,000 employees over the next six years.
Legislators appear to have learned little from the 2004 boondoggle. Pending bills in both the House and Senate would once again offer deeply discounted rates on repatriated profits.
President Barack Obama has a slightly stronger proposal: All overseas stockpilers would pay a mandatory 14-percent rate on offshore profits they currently hold, and then 19 percent thereafter. But that’s still a huge reduction over the ordinary 35-percent corporate tax rate, giving companies a powerful incentive to continue to shift profits overseas.
A handful of corporate giants stand to reap the vast majority of benefits from this trick.
According to a new report I co-authored for the Institute for Policy Studies and the Center for Effective Government, just 26 companies account for more than half of the $2.1 trillion in untaxed profits U.S. corporations currently hold offshore. Since 2004, these 26 firms’ overseas stashes have grown more than five-fold.
Lawmakers claim that short-term revenue from a discount tax on offshore profits is needed to pay for urgent investments in public infrastructure. But if we’re serious about fixing our crumbling bridges, roads, and dams, we should start by fixing our broken corporate tax system.
The taxes Pfizer and six other drug companies currently owe on their offshore profits, for example, would be enough to fix the 1 out of every 9 U.S. bridges in disrepair. We need to insist that all U.S. businesses pay their fair share of infrastructure and other public services.
Otherwise, we’ll just be taken for a ride.

How Wall Street Used Swaps to Get Rich at the Expense of Cities

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A recent report by Saqib Bhatti of the Roosevelt Institute describes a number of financial deals between Wall Street and municipalities as predatory. Bhatti asserts that these dirty transactions have forced cities and states to cut essential services to pay off the financial sector. On Tuesday, Bhatti's ReFund America project issued a new report specifically directed at the financial problems of Chicago and calling on the city to fight back in the courts and elsewhere against these deals.
One of the main problems arises from the use of interest rate swaps to create synthetic fixed rate municipal bonds. You'll get great rates, cities were told, and these interest rate swaps will protect you against interest rate hikes. Risks were downplayed, if they were mentioned at all. The chief of these is the risk of downgrades in credit rating. In those cases, the swap could be cancelled, inflicting massive termination penalties on the city. Other risks include the inability to refinance into a lower interest rate, because the swap runs for a very long term, and payments would eat up any gains. Bhatti says the City of Oakland refinanced one of its bonds, and continues to pay for the swap; he says it's "like paying for insurance on a car that was sold years ago".
Another trap was the pension obligation bond. The idea is to borrow the money needed to make up a shortfall in pension payments, with the idea that the pension plan would invest the funds at a higher rate of return than the bond after expenses.
A third trap was Auction Rate Securities. These are short-term securities that have to roll over every month or two. If an investor in ARS wants out, but the city can't roll the ARS over, the city is stuck with huge interest rate bills. This happened to the Port Authority of New York and New Jersey, which saw interest rates jump from 4.3% to 20% in one week.
The Capital Appreciation Bond works just like a negative amortization home loan. The city doesn't pay interest or principal for a few years, then starts paying the debt off, with interest on interest. Chicago and the Chicago Public Schools have a bunch of these, with lifetime interest rates ranging from 141% to 459%.
Municipal borrowings have traditionally been paid in full. Even so, far too many cities and school districts have been forced to pay for "credit enhancements" which are just the same as higher interest for no reason related to actual market conditions. On top of that, the two big municipal bond insurers were downgraded because of their exposure to toxic real estate mortgage-backed securities, and in order to avoid getting hammered by accelerated payment provisions in their bonds, cities were forced to find alternatives that were much more expensive.
Finally, the fees paid by municipalities are unusually high. There is no relationship between the services rendered and the fees, according to Bhatti.
The impact of these transactions on cities is horrifying.
For example, the Detroit Water and Sewerage Department (DWSD) paid $547 million in termination fees to banks on its interest rate swaps in FY 2012. It has been estimated that more than 40 percent of Detroiters' water bills now go toward paying down these termination fees. Fn. omitted.
In fiscal year 2013, Los Angeles paid $290 million in publicly-disclosed financial fees, while it cut services, including road repairs, by 19%. Other cities have similar horror stories.
The Obama Administration has completely ignored the plight of the citizens of these towns. From the outset Obama decided to help banks and creditors, the people who caused the Great Crash, and to ignore the staggering problems facing debtors. This became certain when the administration refused to support bankruptcy cramdown, one of the few steps that would have actually helped debtors, while inflicting losses on the lenders who made bad loans.
One crucial question is why more of these cities aren't demanding better treatment. After all, they are run by politicians, who should be able to influence other politicians and other governmental agencies to help with the problems. But there was no pushback in Congress, and the administration did nothing to force financial industry regulators to help or even to investigate, despite reports of rampant fraud in the entire financial sector. Mayors and other local officials have simply refused to take action against the mistreatment of their towns and schools.
Thankfully, cities and school districts, like all parties to contracts, have a number of defenses to such contracts, despite the best efforts of the lawyers who wrote them for their clients in the financial sector. Bhatti mentions Rule G-17 of the Municipal Securities Rulemaking Board, which requires banks and others suggesting transactions with public officials to "deal fairly" with them.
According to the MSRB, this means that they "must not misrepresent or omit the facts, risks, potential benefits, or other material information about municipal securities activities undertaken with the municipal issuer."25 This means that they must ensure that public officials truly understand the risks of the deals they enter into and may not downplay the risks associated with those deals or mislead public officials about the likelihood of such risks materializing.
This suggests a plausible legal approach, either through enforcement actions by the SEC or litigation by cities and other governmental entities.
There are also contractural defenses at the state level. This is from a law journal article by Nancy Kim, Mistakes, Changed Circumstances and Intent.
The most common contract defenses are duress, unconscionability, incapacity, fraud, and the "basic assumption" defenses of mutual mistake, unilateral mistake, impossibility, frustration of purpose and commercial impracticability. Fn omitted.
The latter group is so named because in each case there has been "… a failure of a basic assumption material to the contract." Let's see how that would work with swaps. The City of Chicago recently terminated two swaps, after receiving this memorandum analyzing the situation from Swap Financial Group of New Jersey. Chicago entered swaps in 2002 with JPMorgan Chase Bank and Bank of America. The city sold variable interest rate bonds and entered the swaps to create a synthetic fixed rate combination of bond and swaps. The memo says that the combination was expected to deliver a lower interest rate than could have been achieved with a fixed rate bond by an estimated 1.145%. The costs to Chicago included something called a bank enhancement, which was estimated to cost 25 basis points.
As it turned out, the bank enhancement became expensive in the wake of the Great Crash, and the estimated savings over the fixed rate were about $1.4 million per year. Simultaneously, interest rates fell, and the swaps had a negative value of $35.5 million, representing the cost to terminate them. Meanwhile, the bond rating of the city dropped, at least partly due to the Great Crash, which makes it more expensive to refinance than it would have been years ago. The memo goes on to explain that it seems best for the city to terminate the swaps, and Chicago did. That wiped out all gains from the deal, without even taking into account the possibility that it could have refinanced the bonds at the very low fixed rates which have prevailed since the Great Crash.
The parties to the swaps, JPM, BAC and Chicago, almost certainly shared the idea that interest rates would act in some historically normal way. That is, they might go up, they might go down, and there is some risk of a significant spike. Here's a chart showing interest rate trends for the previous 15 years, for Treasuries and Baa rated corporate bonds.
2015 0407cha 1

Interest rates are closely tied to the Fed Funds rate, and to people’s expectations about the interest rate policies of the Fed. Here’s a chart showing the Fed Funds rate since 1954.
2015 0407cha 2
That low rate beginning with the Great Crash hadn't been seen in 40 years, and there are no periods when it was even constant for such an extended period. This qualifies as a stark variation from the historical pattern. This isn't the place for a full legal analysis, but certainly a good case can be made that there has been a mistake in the deep assumptions of the agreements, or that there has been a frustration of purpose by the actions of the Fed in keeping interest rates so low for so long.
Kim cites an article by Richard Posner and Andrew Rosenfield, Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 J. Legal Stud. 83, 1977. Posner discusses the application of the doctrine of law and economics to the same kinds of cases. One of his examples is a coal mining company that also makes coal-burning furnaces. It sells the furnaces with a contract to deliver coal at a stated price adjusted by the CPI. The price of coal quadruples, and the company defaults on delivery of the coal. Neither party could have contemplated such a sudden rise in price.
As Posner analyzes the case, the question should be which party is better equipped to deal with such a risk. He concludes that the coal company is best able to deal with the risk by hedging against big changes in the price of coal, because it knows its position in the coal markets. Therefore it should bear the loss. Whatever you think of the theory of law and economics, this seems like good analysis, because the sole purpose of the doctrine, like the facts of a swaps case, is economic efficiency. Kim's more complex and more traditional analysis seems to support this result.
In the swaps case, it's obvious that the banks were in the best position to protect against losses on these swaps. They are regular traders in these complex instruments, and have deeper insights into the interest rate markets and the various potential outcomes. Equally important, the banks bear heavy responsibility for the Great Crash. They were in the best position to prevent it. Chicago had no ability to do so.
For a somewhat different take, this paper, dealing with Canadian law, suggests that the appropriate considerations should include the doctrine of unjust enrichment, which is a principle of equity rather than contract law. Put simply, it means that a contract should not be allowed to inflict unreasonable harm "where the contract does not allocate the rick of the mistake to the party who suffers by it." That certainly seems applicable here.
In each case, besides damages, a plausible remedy would be termination of the swaps without a termination fee. The Fed's zero-interest rate policy increased the flow of money to the Banks at the expense of taxpayers, which is not a proper purpose and might not have even been considered or intended. The two banks benefited from payments for years, while taking no significant risk, because the Fed has forcibly kept interest rates down. At the same time, Chicago has has suffered revenue losses because of the Great Crash, and has been forced to cut services to its residents. Denying the termination fee prevents unjust enrichment, and results in at least a partial sharing of the risk of a zero-interest rate policy.
Bhatti and others are calling for the City of Chicago to take legal action. It certainly looks like there are grounds for a lawsuit, and if Chicago won't do it, maybe your mayor should.

Presidents, Prime Ministers, Congressmen, Generals, Spooks, Soldiers and Police ADMIT to False Flag Terror

Go To Original

The age-old saying is true:
If we don’t learn history, we’re doomed to repeat it.
The single biggest historical secret which people haven’t yet learned is false flag terrorism.
There are many documented false flag attacks, where a government carries out a terror attack … and then falsely blames its enemy for political purposes.
False flag terror has changed the course of history over and over again … all over the world.   Unless people learn about false flags, governments will carry them out to start more and more disastrous wars.   (That’s why we continuously scour documents and sources to look for new admissions of false terror … and post updated lists when we find them.)
In the following instances, officials in the government which carried out the attack (or seriously proposed an attack) admit to it, either orally or in writing:
(1) Japanese troops set off a small explosion on a train track in 1931, and falsely blamed it on China in order to justify an invasion of Manchuria. This is known as the “Mukden Incident” or the “Manchurian Incident”. The Tokyo International Military Tribunal found: “Several of the participators in the plan, including Hashimoto [a high-ranking Japanese army officer], have on various occasions admitted their part in the plot and have stated that the object of the ‘Incident’ was to afford an excuse for the occupation of Manchuria by the Kwantung Army ….” And see this.
(2) A major with the Nazi SS admitted at the Nuremberg trials that – under orders from the chief of the Gestapo – he and some other Nazi operatives faked attacks on their own people and resources which they blamed on the Poles, to justify the invasion of Poland.
(3) Nazi general Franz Halder also testified at the Nuremberg trials that Nazi leader Hermann Goeringadmitted to setting fire to the German parliament building in 1933, and then falsely blaming the communists for the arson.
(4) Soviet leader Nikita Khrushchev admitted in writing that the Soviet Union’s Red Army shelled the Russian village of Mainila in 1939 – while blaming the attack on Finland – as a basis for launching the “Winter War” against Finland. Russian president Boris Yeltsin agreed that Russia had been the aggressor in the Winter War.
(5) The Russian Parliament, current Russian president Putin and former Soviet leader Gorbachev alladmit that Soviet leader Joseph Stalin ordered his secret police to execute 22,000 Polish army officers and civilians in 1940, and then falsely blamed it on the Nazis.
(6) The British government admits that – between 1946 and 1948 – it bombed 5 ships carrying Jews attempting to flee the Holocaust to seek safety in Palestine, set up a fake group called “Defenders of Arab Palestine”, and then had the psuedo-group falsely claim responsibility for the bombings (and see this,this and this).
(7) Israel admits that in 1954, an Israeli terrorist cell operating in Egypt planted bombs in several buildings, including U.S. diplomatic facilities, then left behind “evidence” implicating the Arabs as the culprits (one of the bombs detonated prematurely, allowing the Egyptians to identify the bombers, and several of the Israelis later confessed) (and see this and this).
(8) The CIA admits that it hired Iranians in the 1950′s to pose as Communists and stage bombings in Iran in order to turn the country against its democratically-elected prime minister.
(9) The Turkish Prime Minister admitted that the Turkish government carried out the 1955 bombing on a Turkish consulate in Greece – also damaging the nearby birthplace of the founder of modern Turkey – and blamed it on Greece, for the purpose of inciting and justifying anti-Greek violence.
(10) The British Prime Minister admitted to his defense secretary that he and American president Dwight Eisenhower approved a plan in 1957 to carry out attacks in Syria and blame it on the Syrian government as a way to effect regime change.
(11) The former Italian Prime Minister, an Italian judge, and the former head of Italian counterintelligence admit that NATO, with the help of the Pentagon and CIA, carried out terror bombings in Italy and other European countries in the 1950s and blamed the communists, in order to rally people’s support for their governments in Europe in their fight against communism. As one participant in this formerly-secret program stated: “You had to attack civilians, people, women, children, innocent people, unknown people far removed from any political game. The reason was quite simple. They were supposed to force these people, the Italian public, to turn to the state to ask for greater security” (and see this) (Italy and other European countries subject to the terror campaign had joined NATO before the bombings occurred). And watch this BBC special. They also allegedly carried out terror attacks in France, Belgium, Denmark, Germany, Greece, the Netherlands, Norway, Portugal, the UK, and other countries.
False flag attacks carried out pursuant tho this program include – by way of example only:
(12) In 1960, American Senator George Smathers suggested that the U.S. launch “a false attack made on Guantanamo Bay which would give us the excuse of actually fomenting a fight which would then give us the excuse to go in and [overthrow Castro]“.
(13) Official State Department documents show that, in 1961, the head of the Joint Chiefs and other high-level officials discussed blowing up a consulate in the Dominican Republic in order to justify an invasion of that country. The plans were not carried out, but they were all discussed as serious proposals.
(14) As admitted by the U.S. government, recently declassified documents show that in 1962, the American Joint Chiefs of Staff signed off on a plan to blow up AMERICAN airplanes (using an elaborate plan involving the switching of airplanes), and also to commit terrorist acts on American soil, and then to blame it on the Cubans in order to justify an invasion of Cuba. See the following ABC news report; the official documents; and watch this interview with the former Washington Investigative Producer for ABC’s World News Tonight with Peter Jennings.
(15) In 1963, the U.S. Department of Defense wrote a paper promoting attacks on nations within the Organization of American States – such as Trinidad-Tobago or Jamaica – and then falsely blaming them on Cuba.
(16) The U.S. Department of Defense even suggested covertly paying a person in the Castro government to attack the United States: “The only area remaining for consideration then would be to bribe one of Castro’s subordinate commanders to initiate an attack on Guantanamo.”
(17) The NSA admits that it lied about what really happened in the Gulf of Tonkin incident in 1964 … manipulating data to make it look like North Vietnamese boats fired on a U.S. ship so as to create a false justification for the Vietnam war.
(18) A U.S. Congressional committee admitted that – as part of its “Cointelpro” campaign – the FBI had used many provocateurs in the 1950s through 1970s to carry out violent acts and falsely blame them on political activists.
(19) A top Turkish general admitted that Turkish forces burned down a mosque on Cyprus in the 1970s and blamed it on their enemy. He explained: “In Special War, certain acts of sabotage are staged and blamed on the enemy to increase public resistance. We did this on Cyprus; we even burnt down a mosque.” In response to the surprised correspondent’s incredulous look the general said, “I am giving an example”.
(20) A declassified 1973 CIA document reveals a program to train foreign police and troops on how to make booby traps, pretending that they were training them on how to investigate terrorist acts:
The Agency maintains liaison in varying degrees with foreign police/security organizations through its field stations  ….
[CIA provides training sessions as follows:]
a. Providing trainees with basic knowledge in the uses of commercial and military demolitions and incendiaries as they may be applied in terrorism and industrial sabotage operations.
b. Introducing the trainees to commercially available materials and home laboratory techniques, likely to he used in the manufacture of explosives and incendiaries by terrorists or saboteurs.
c. Familiarizing the trainees with the concept of target analysis and operational planning that a saboteur or terrorist must employ.
d. Introducing the trainees to booby trapping devices and techniques giving practicalexperience with both manufactured and improvised devices through actualfabrication.
***
The program provides the trainees with ample opportunity to develop basic familiarity and use proficiently through handling, preparing and applyingthe various explosive charges, incendiary agents, terrorist devices andsabotage techniques.
(21) The German government admitted (and see this) that, in 1978, the German secret service detonated a bomb in the outer wall of a prison and planted “escape tools” on a prisoner – a member of the Red Army Faction – which the secret service wished to frame the bombing on.
(22) A Mossad agent admits that, in 1984, Mossad planted a radio transmitter in Gaddaffi’s compound in Tripoli, Libya which broadcast fake terrorist trasmissions recorded by Mossad, in order to frame Gaddaffi as a terrorist supporter. Ronald Reagan bombed Libya immediately thereafter.
(23) The South African Truth and Reconciliation Council found that, in 1989, the Civil Cooperation Bureau (a covert branch of the South African Defense Force) approached an explosives expert and asked him “to participate in an operation aimed at discrediting the ANC [the African National Congress] by bombing the police vehicle of the investigating officer into the murder incident”, thus framing the ANC for the bombing.
(24) An Algerian diplomat and several officers in the Algerian army admit that, in the 1990s, the Algerian army frequently massacred Algerian civilians and then blamed Islamic militants for the killings (and see this video; and Agence France-Presse, 9/27/2002, French Court Dismisses Algerian Defamation Suit Against Author).
(25) The United States Army’s 1994 publication Special Forces Foreign Internal Defense Tactics Techniques and Procedures for Special Forces – updated in 2004 – recommends employing terrorists and using false flag operations to destabilize leftist regimes in Latin America. False flag terrorist attacks were carried out in Latin America and other regions as part of the CIA’s “Dirty Wars“. And see this.
(26) Similarly, a CIA “psychological operations” manual prepared by a CIA contractor for the Nicaraguan Contra rebels noted the value of assassinating someone on your own side to create a “martyr” for the cause. The manual was authenticated by the U.S. government. The manual received so much publicity from Associated Press, Washington Post and other news coverage that – during the 1984 presidential debate – President Reagan was confronted with the following question on national television:
At this moment, we are confronted with the extraordinary story of a CIA guerrilla manual for the anti-Sandinista contras whom we are backing, which advocates not only assassinations of Sandinistas but the hiring of criminals to assassinate the guerrillas we are supporting in order to create martyrs.
(27) An Indonesian fact-finding team investigated violent riots which occurred in 1998, and determined that “elements of the military had been involved in the riots, some of which were deliberately provoked”.
(28) Senior Russian Senior military and intelligence officers admit that the KGB blew up Russian apartment buildings in 1999 and falsely blamed it on Chechens, in order to justify an invasion of Chechnya (and see this report and this discussion).
(29) As reported by BBC, the New York Times, and Associated Press, Macedonian officials admit that the government murdered 7 innocent immigrants in cold blood and pretended that they were Al Qaeda soldiers attempting to assassinate Macedonian police, in order to join the “war on terror”.
(30) Senior police officials in Genoa, Italy admitted that – in July 2001, at the G8 summit in Genoa – planted two Molotov cocktails and faked the stabbing of a police officer, in order to justify a violent crackdown against protesters.
(31) The U.S. falsely blamed Iraq for playing a role in the 9/11 attacks – as shown by a memo from the defense secretary – as one of the main justifications for launching the Iraq war. Even after the 9/11 Commission admitted that there was no connection, Dick Cheney said that the evidence is “overwhelming” that al Qaeda had a relationship with Saddam Hussein’s regime, that Cheney “probably” had information unavailable to the Commission, and that the media was not ‘doing their homework’ in reporting such ties. Top U.S. government officials now admit that the Iraq war was really launched for oil … not 9/11 or weapons of mass destruction. Despite previous “lone wolf” claims, many U.S. government officials now say that 9/11 was state-sponsored terror; but Iraq was not the state which backed the hijackers. (Many U.S. officials have alleged that 9/11 was a false flag operation by rogue elements of the U.S. government; but such a claim is beyond the scope of this discussion. The key point is that the U.S. falsely blamed it on Iraq, when it knew Iraq had nothing to do with it.). 
(32) Although the FBI now admits that the 2001 anthrax attacks were carried out by one or more U.S. government scientists, a senior FBI official says that the FBI was actually told to blame the Anthrax attacks on Al Qaeda by White House officials (remember what the anthrax letters looked like). Government officials also confirm that the white House tried to link the anthrax to Iraq as a justification for regime change in that country.
(33) According to the Washington Post, Indonesian police admit that the Indonesian military killed American teachers in Papua in 2002 and blamed the murders on a Papuan separatist group in order to get that group listed as a terrorist organization.
(34) The well-respected former Indonesian president also admits that the government probably had a role in the Bali bombings.
(35) Police outside of a 2003 European Union summit in Greece were filmed planting Molotov cocktails on a peaceful protester
(36) Former Department of Justice lawyer John Yoo suggested in 2005 that the US should go on the offensive against al-Qaeda, having “our intelligence agencies create a false terrorist organization. It could have its own websites, recruitment centers, training camps, and fundraising operations. It couldlaunch fake terrorist operations and claim credit for real terrorist strikes, helping to sow confusion within al-Qaeda’s ranks, causing operatives to doubt others’ identities and to question the validity of communications.”
(37)  Similarly, in 2005, Professor John Arquilla of the Naval Postgraduate School – a renowned US defense analyst credited with developing the concept of ‘netwar’ – called for western intelligence services to create new “pseudo gang” terrorist groups, as a way of undermining “real” terror networks.  According to Pulitzer-Prize winning journalist Seymour Hersh, Arquilla’s ‘pseudo-gang’ strategy was, Hersh reported, already being implemented by the Pentagon:
“Under Rumsfeld’s new approach, I was told, US military operatives would be permitted to pose abroad as corrupt foreign businessmen seeking to buy contraband items that could be used in nuclear-weapons systems. In some cases, according to the Pentagon advisers, local citizens could be recruited and asked to join up with guerrillas or terrorists
The new rules will enable the Special Forces community to set up what it calls ‘action teams’ in the target countries overseas which can be used to find and eliminate terrorist organizations. ‘Do you remember the right-wing execution squads in El Salvador?’ the former high-level intelligence official asked me, referring to the military-led gangs that committed atrocities in the early nineteen-eighties. ‘We founded them and we financed them,’ he said. ‘The objective now is to recruit locals in any area we want. And we aren’t going to tellCongress about it.’ A former military officer, who has knowledge of the Pentagon’s commando capabilities, said, ‘We’re going to be riding with thebad boys.’”
(38) United Press International reported in June 2005:
U.S. intelligence officers are reporting that some of the insurgents in Iraq are using recent-model Beretta 92 pistols, but the pistols seem to have had their serial numbers erased. The numbers do not appear to have been physically removed; the pistols seem to have come off a production line without any serial numbers. Analysts suggest the lack of serial numbers indicates that the weapons were intended for intelligence operations or terrorist cells with substantial government backing. Analysts speculate that these guns are probably from either Mossad or the CIA. Analysts speculate that agent provocateurs may be using the untraceable weapons even as U.S. authorities use insurgent attacks against civilians as evidence of the illegitimacy of the resistance.
(39) Undercover Israeli soldiers admitted in 2005 to throwing stones at other Israeli soldiers so they could blame it on Palestinians, as an excuse to crack down on peaceful protests by the Palestinians.
(40) Quebec police admitted that, in 2007, thugs carrying rocks to a peaceful protest were actually undercover Quebec police officers (and see this).
(41)  A 2008 US Army special operations field manual recommends that the U.S. military use surrogate non-state groups such as “paramilitary forces, individuals, businesses, foreign political organizations, resistant or insurgent organizations, expatriates, transnational terrorism adversaries, disillusioned transnational terrorism members, black marketers, and other social or political ‘undesirables.’” The manual specifically acknowledged that U.S. special operations can involve both counterterrorism and “Terrorism” (as well as “transnational criminal activities, including narco-trafficking, illicit arms-dealing, and illegal financial transactions.”)
(42) At the G20 protests in London in 2009, a British member of parliament saw plain clothes police officers attempting to incite the crowd to violence.
(43) Egyptian politicians admitted (and see this) that government employees looted priceless museum artifacts in 2011 to try to discredit the protesters.
(44) A Colombian army colonel has admitted that his unit murdered 57 civilians, then dressed them in uniforms and claimed they were rebels killed in combat.
(45) The highly-respected writer for the Telegraph Ambrose Evans-Pritchard says that the head of Saudi intelligence – Prince Bandar – recently admitted that the Saudi government controls “Chechen” terrorists.
(46) High-level American sources admitted that the Turkish government – a fellow NATO country – carried out the chemical weapons attacks blamed on the Syrian government; and high-ranking Turkish government admitted on tape plans to carry out attacks and blame it on the Syrian government.
(47) The Ukrainian security chief admits that the sniper attacks which started the Ukrainian coup were carried out in order to frame others. Ukrainian officials admit that the Ukrainian snipers fired on both sides, to create maximum chaos.
(48) Britain’s spy agency has admitted (and see this) that it carries out “digital false flag” attacks on targets, framing people by writing offensive or unlawful material … and blaming it on the target.
(49) U.S. soldiers have admitted that if they kill innocent Iraqis and Afghanis, they then “drop” automatic weapons near their body so they can pretend they were militants
(50) Similarly, police frame innocent people for crimes they didn’t commit. The practice is so well-known that the New York Times noted in 1981:
In police jargon, a throwdown is a weapon planted on a victim.
Newsweek reported in 1999:
Perez, himself a former [Los Angeles Police Department] cop, was caught stealing eight pounds of cocaine from police evidence lockers. After pleading guilty in September, he bargained for a lighter sentence by telling an appalling story of attempted murder and a“throwdown”–police slang for a weapon planted by cops to make a shooting legally justifiable. Perez said he and his partner, Officer Nino Durden, shot an unarmed 18th Street Gang member named Javier Ovando, then planted a semiautomatic rifle on the unconscious suspect and claimed that Ovando had tried to shoot them during a stakeout.
Wikipedia notes:
As part of his plea bargain, Pérez implicated scores of officers from the Rampart Division’s anti-gang unit, describing routinely beating gang members, planting evidence on suspects, falsifying reports and covering up unprovoked shootings.
(As a side note – and while not technically false flag attacks – police have been busted framing innocent people in many other ways, as well.)

So Common … There’s a Name for It

A former U.S. intelligence officer recently alleged:
Most terrorists are false flag terrorists or are created by our own security services.
This might be an exaggeration (and – as shown above – the U.S. isn’t the only one to play this terrible game). The point is that it is a very widespread strategy.
Indeed, this form of deceit is so common that it was given a name hundreds of years ago.
“False flag terrorism” is defined as a government attacking its own people, then blaming others in order to justify going to war against the people it blames. Or as Wikipedia defines it:
False flag operations are covert operations conducted by governments, corporations, or other organizations, which are designed to appear as if they are being carried out by other entities. The name is derived from the military concept of flying false colors; that is, flying the flag of a country other than one’s own. False flag operations are not limited to war and counter-insurgency operations, and have been used in peace-time; for example, during Italy’s strategy of tension.
The term comes from the old days of wooden ships, when one ship would hang the flag of its enemy before attacking another ship. Because the enemy’s flag, instead of the flag of the real country of the attacking ship, was hung, it was called a “false flag” attack.
Indeed, this concept is so well-accepted that rules of engagement for naval, air and land warfare all prohibit false flag attacks. Specifically, the rules of engagement state that a military force can fly the enemy’s flag, imitate their markings, or dress in an enemy’s clothes … but that the ruse has to be discarded before attacking.
Why are the rules of engagement so specific? Obviously, because nations have been using false flag attacks for many centuries. And the rules of engagement are at least trying to limit false flag attacks so that they aren’t used as a false justification for war.
In other words, the rules of engagement themselves are an admission that false flag terrorism is a very common practice.

Leaders Throughout History Have Acknowledged False Flags

Leaders throughout history have acknowledged the danger of false flags:
“Terrorism is the best political weapon for nothing drives people harder than a fear of sudden death”.
– Adolph Hitler
“Why of course the people don’t want war … But after all it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship … Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.”
– Hermann Goering, Nazi leader.
“The easiest way to gain control of a population is to carry out acts of terror. [The public] will clamor for such laws if their personal security is threatened”.
– Josef Stalin
Are you going to stay silent as your government implements the evil tactics of Hitler, Goering and Stalin? Or are you going to spread the word, and educate others as to history’s crucial missing puzzle piece … false flag terror?