The Pentagon & Hollywood’s Successful & Deadly Propaganda Alliance

Authored by Michael McCaffrey,

The Pentagon helps Hollywood to make money and, in turn, Hollywood churns out effective propaganda for the brutal American war machine…

The US has the largest military budget in the world, spending over $611 billion – far larger than any other nation on Earth. The US military also has at their disposal the most successful propaganda apparatus the world has ever known… Hollywood.

Since their collaboration on the first Best Picture winner ‘Wings’ in 1927, the US military has used Hollywood to manufacture and shape its public image in over 1,800 films and TV shows. Hollywood has, in turn, used military hardware in their films and TV shows to make gobs and gobs of money. A plethora of movies like ‘Lone Survivor,’ ‘Captain Philips,’ and even blockbuster franchises like ‘Transformers’ and Marvel, DC and X-Men superhero movies have agreed to cede creative control in exchange for use of US military hardware over the years.

In order to obtain cooperation from the Department of Defense (DoD), producers must sign contracts that guarantee a military approved version of the script makes it to the big screen. In return for signing away creative control, Hollywood producers save tens of millions of dollars from their budgets on military equipment, service members to operate the equipment, and expensive location fees.

Capt. Russell Coons, director of the Navy Office of Information West, told Al Jazeera what the military expects for their cooperation: “We’re not going to support a program that disgraces a uniform or presents us in a compromising way.”

Phil Strub, the DOD chief Hollywood liaison, says the guidelines are clear. “If the filmmakers are willing to negotiate with us to resolve our script concerns, usually we’ll reach an agreement. If not, filmmakers are free to press on without military assistance.

In other words, the Department of Defense is using taxpayer money to pick favorites. The DOD has no interest in nuance, truth or – God forbid – artistic expression; only in insidious jingoism that manipulates public opinion to their favor. This is chilling when you consider that the DOD is able to use its financial leverage to quash dissenting films it deems insufficiently pro-military or pro-American in any way.

The danger of the DOD-Hollywood alliance is that Hollywood is incredibly skilled at making entertaining, pro-war propaganda. The DOD isn’t getting involved in films like ‘Iron Man,’ ‘X-Men,’ ‘Transformers’ or ‘Jurassic Park III’ for fun. They are doing so because it’s an effective way to psychologically program Americans, particularly young Americans, not just to adore the military, but to worship militarism. This ingrained love of militarism has devastating real-world effects.

Lawrence Suid, author of ‘Guts and Glory: The Making of the American Military Image in Film’told Al Jazeera, “I was teaching the history of the Vietnam War, and I couldn’t explain how we got into Vietnam. I could give the facts, the dates, but I couldn’t explain why. And when I was getting my film degrees, it suddenly occurred to me that the people in the US had never seen the US lose a war, and when President Johnson said we can go into Vietnam and win, they believed him because they’d seen 50 years of war movies that were positive.

As Suid points out, generations of Americans had been raised watching John Wayne valiantly storm the beaches of Normandy in films like ‘The Longest Day,’ and thus were primed to be easily manipulated into supporting any US military adventure because they were conditioned to believe that the US is always the benevolent hero and inoculated against doubt.

This indoctrinated adoration of a belligerent militarism, conjured by Hollywood blockbusters, also resulted in Americans being willfully misled into supporting a farce like the 2003 Iraq War. The psychological conditioning for Iraq War support was built upon hugely successful films like ‘Saving Private Ryan’ (1998), directed by Steven Spielberg, and ‘Black Hawk Down’ (2001), produced by Jerry Bruckheimer, that emphasized altruistic American militarism. Spielberg and Bruckheimer are two Hollywood heavyweights considered by the DoD to be their most reliable collaborators.

Another example of the success of the DoD propaganda program was the pulse-pounding agitprop of the Tom Cruise blockbuster ‘Top Gun’ (1986). The movie, produced by Bruckheimer, was a turning point in the DoD-Hollywood relationship, as it came amid a string of artistically successful, DoD-opposed, ‘anti-war’ films, like ‘Apocalypse Now,’ ‘Platoon’ and ‘Full Metal Jacket,’ which gave voice to America’s post-Vietnam crisis of confidence.Top Gun’ was the visual representation of Reagan’s flag-waving optimism, and was the Cold War cinematic antidote to the “Vietnam Syndrome”.

Top Gun,’ which could not have been made without massive assistance from the DoD, was a slick, two-hour recruiting commercial that coincided with a major leap in public approval ratings for the military. With a nadir of 50 percent in 1980, by the time the Gulf War started in 1991, public support for the military had spiked to 85 percent.

Since Top Gun, the DoD propaganda machine has resulted in a  current public approval for the military of 72 percent, with Congress at 12 percent, the media at 24 percent, and even Churches at only 40 percent. The military is far and away the most popular institution in American life. Other institutions would no doubt have better approval ratings if they too could manage and control their image in the public sphere.

It isn’t just the DoD that uses the formidable Hollywood propaganda apparatus to its own end… the CIA does as well, working with films to enhance its reputation and distort history.

For example, as the ‘War on Terror’ raged, the CIA deftly used ‘Charlie Wilson’s War’ (2007) as a disinformation vehicle to revise their sordid history with the Mujahideen in Afghanistan and to portray themselves as heroic and not nefarious.

The CIA also surreptitiously aided the film ‘Zero Dark Thirty’ (2012), and used it as a propaganda tool to alter history and convince Americans that torture works.

The case for torture presented in ‘Zero Dark Thirty’ was originally made from 2001 to 2010 on the hit TV show ‘24,’ which had support from the CIA as well. That pro-CIA and pro-torture narrative continued in 2011 with the Emmy-winning show ‘Homeland,’ created by the same producers as ‘24,’ Howard Gordon and Alex Gansa.

A huge CIA-Hollywood success story was Best Picture winner ‘Argo’ (2012), which ironically is the story of the CIA teaming up with Hollywood. The CIA collaborated with the makers of ‘Argo’ in order to pervert the historical record and elevate their image.

The fact that this propaganda devil’s bargain between the DoD/CIA and Hollywood takes place in the self-declared Greatest Democracy on Earth™ is an irony seemingly lost on those in power who benefit from it, and also among those targeted to be indoctrinated by it, entertainment consumers, who are for the most part entirely oblivious to it.

If America is the Greatest Democracy in the World™, why are its military and intelligence agencies so intent on covertly misleading its citizens, stifling artistic dissent, and obfuscating the truth? The answer is obvious… because in order to convince Americans that their country is The Greatest Democracy on Earth™, they must be misled, artistic dissent must be stifled and the truth must be obfuscated.

In the wake of the American defeat in the Vietnam war, cinema flourished by introspectively investigating the deeper uncomfortable truths of that fiasco in Oscar-nominated films like ‘Apocalypse Now,’ ‘Coming Home,’ ‘The Deer Hunter,’ ‘Platoon,’ ‘Full Metal Jacket’ and ‘Born on the Fourth of July,’ all made without assistance from the DoD.

The stultifying bureaucracy of America’s jingoistic military agitprop machine is now becoming more successful at suffocating artistic endeavors in their crib. With filmmaking becoming ever more corporatized, it is an uphill battle for directors to maintain their artistic integrity in the face of cost-cutting budgetary concerns from studios.

In contrast to post-Vietnam cinema, after the unmitigated disaster of the US invasion of Iraq and the continuing quagmire in Afghanistan, there has been no cinematic renaissance, only a steady diet of mendaciously patriotic, DoD-approved, pro-war drivel like ‘American Sniper’ and ‘Lone Survivor.’

Best Picture winner ‘The Hurt Locker’ (2008), shot with no assistance from the DoD, was the lone exception that successfully dared to portray some of the ugly truths of America’s Mesopotamian misadventure.

President Eisenhower once warned Americans to “guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex.

Eisenhower’s prescient warning should have extended to the military industrial entertainment complex of the DoD/CIA-Hollywood alliance, which has succeeded in turning Americans into a group of uniformly incurious and militaristic zealots.

America is now stuck in a perpetual pro-war propaganda cycle, where the DoD/CIA and Hollywood conspire to indoctrinate Americans to be warmongers and, in turn, Americans now demand more militarism from their entertainment and government. Wash. Rinse. Repeat.

The DoD/CIA-Hollywood propaganda alliance guarantees Americans will blindly support more future failed wars and will be willing accomplices in the deaths of millions more people across the globe.

U.S. Navy Medics Prepare For Combat By Treating Gunshot Victims In Chicago

The U.S. Navy is taking advantage of Chicago’s sky-high murder rate by sending new medics to treat gunshot victims at Stroger hospital on the city’s West Side as part of a pilot program which is currently in its third year. 

In 2017, 3,561 people were shot in Chicago; one every 2 hours and 27 minutes, while there were 679 total homicides – down from 2016’s total of 808. Of the 679 homicides last year, 92.4% were from gunshots.

In fact, one-third of the 2016 spike in U.S. homicides came from just five Chicago neighborhoods

The steady flow of shooting victims (which social justice warriors seem to have overlooked for some reason) has proven extremely useful in training combat medics for the battlefield. 

The experience here can’t be replicated elsewhere, unless you have a major land invasion,” said Dr. Faran Bokhari, chair of Stroger’s trauma & burn surgery unit.

The pilot program is set to be expanded under a Department of Defense effort to prioritize civilian and military partnerships. Newly enlisted combat medics rotate into hospital shifts, along with those who need a refresher while home from deployment. The hospital’s 14-bed unit treats more than 6,000 trauma patient a year – with many of the victims suffering penetrating, life threatening wounds similar to those found on the battlefield. 

In many front-line Marine units, immediate medical care for gunshots, explosions or shrapnel comes from these corpsmen who mostly are young, new to the service and new to seeing up close the wounds they train to treat. The Navy medics, known as hospital corpsmen, typically receive 14 weeks of training in first aid and patient care in Fort Sam Houston in Texas after initial boot camp, and then have the option for additional training. –WSJ

[T]he first time a corpsman got any trauma experience was when they were deployed, and some would just freeze up,” said Navy Surgeon, Captain Paul Roach, who heads the program in the Great Lakes region. “We don’t want that to happen anymore.”

Corpsmen in the program learn skills such as how to scrub in before entering an operating theater, how to operate various machinery in the treatment of gunshot wounds, and how to assist doctors and surgeons with more advanced medical procedures during the trauma unit’s 3 p.m. to 3 a.m. shift. 

“Corpsmen are not routinely exposed to trauma or critically injured patients during their first assignments,” said DoD spokeswoman Maj. Carla Gleason. The “realistic, hands-on trauma training will allow them to hone their skills and increase their readiness.

As the Wall Street Journal notes, Navy corpsmen often find themselves operating alone in combat zones. Operating in the hospital environment helps them learn protocol and procedures which they can replicate in the field. 

A lot of it is here’s your training, you learn, it gets drilled in into your head—then it’s just go,” said Andrew Swain, a 26-year old corpsman who has served as a medic in Iraq. During that deployment, in his first “mass-casualty incident,” he and just a handful of other medics had to treat about eight injured at the same time, all with traumatic injuries. –WSJ

Approximately 30% of patients admitted to Stroger have suffered gunshot wounds – compared to the national average of 4.2% for similar level 1 trauma centers. 

Corpsman Konrad Poplawski, whose first experience seeing anyone with a gunshot wound was during rotation in the training program at Stroger hospital, says that the program “has prepared me to deal with worse things out in the field,” he said. “I’ll be the only one out there, so I’ll have to learn from this.”

What the hell is going on?

Chicago – which has been run by Democrats for 64 of the last 68 years, has been in an economic death spiral for years. The Windy City run by Rahm Emanuel is currently drowning in debt and pension liabilities, along with an education system that’s in shambles. 

In 2015, IBD noted “(Chicago’s) financial woes have mounted despite Emanuel’s efforts to rein them in. Years, perhaps even decades, of past financial sins all seem to be coming home to roost now. … Moody’s Investors Service estimated in a 2013 report that fixed costs, like pension contributions and debt service, could soon eat up more than half the city’s operating budget, up from about 15 percent of the 2015 budget.”

As President Trump asked last December, “what the hell is going on in Chicago?”

We can’t possibly imagine – as Chicago has some of the toughest gun laws in the country. 

As Trump Moves Toward War, “The Resistance” Refuses To Resist

Authored by Mike Krieger via Liberty Blitzkrieg blog,

Tuesday’s post, It’s Impossible to Overstate How Terrible Mike Pompeo Is, laid out the view that Trump’s firing of Rex Tillerson represents a major shift toward war footing for the Trump administration, with Iran the specific target. This pivot was easily predictable, and I wrote numerous articles doing just that during 2017. Nevertheless, forecasting it and then seeing the disastrous pieces being moved into place are two different things.

Trump’s push to install Mike Pompeo as U.S. Secretary of State is a crystal clear indication that he’s begun the process of building his war cabinet. The next steps, likely to begin over the course of 2018, is to walk away from the Iran deal. I suspect relentless war propaganda to be unleashed simultaneously as the neocon/neoliberal/mass media war-monger alliance plays its well established role in selling the American public on another pointless and destructive war.

My prior post discussed Pompeo in detail, so I don’t want to be repetitive, but to revisit: Pompeo has contempt for the First Amendment, referred to torturers as patriots, wants Edward Snowden executed and is an extreme warhawk when it comes to Iran. In other words, he’s your typical neocon lunatic who’s just a bit more rough around the edges publicly. He represents the exact opposite sort of foreign policy to what so many Trump voters thought they were getting.

Switching gears a bit, today’s piece will zero in on Trump’s other desired appointment, Gina Haspel to head the CIA. Gina’s famous for running a CIA black site in Thailand where detainees were tortured. In fact, she performed her role with such gusto she was nicknamed “Bloody Gina” by colleagues, and also played a key role in destroying videotape evidence of the torture. Her promotion represents a bizarre way to “drain the swamp,” but I digress.

What’s most interesting and extremely disturbing about the Pompeo and Haspel appointments, is the lack of resistance from “the resistance.” If you’ve been paying attention, this won’t be surprising since the resistance has always been an unholy alliance of neocon/neoliberal war hawks, intelligence agencies and the mass media.

They don’t want to “resist” any of Trump’s genuinely bad policies, the entire purpose of this psyops of a movement is to ensure Trump continues with the insane imperial policies of his predecessors. Trump’s about to deliver in spades, and you can thank “the resistance” for paving the way for this administration’s upcoming belligerence.

Here’s what I mean. From The Hill:

This puts Democrats in a potentially powerful position to swing Haspel’s confirmation.

Yet early signs suggest that the minority is prepared to offer support, despite her controversial record, fierce opposition from human rights activists and the fact that she is a Trump nominee.

The top Democrat on the Senate Intelligence Committee, Sen. Mark Warner (D-Va.), on Wednesday cited a “very good working relationship” with Haspel, currently the agency’s deputy director. Sen. Joe Manchin (W.Va.), a red-state Democrat who also sits on the Intelligence panel, said he was “very much open-minded.”

Even one of the Senate’s harshest critics of “enhanced interrogation techniques” and the architect of the so-called torture report, Sen. Dianne Feinstein (D-Calif.), signaled a surprisingly open reception to Haspel that could pull others off the fence.

“We’ve had dinner together. We have talked. Everything I know is she has been a good deputy director,” Feinstein said on Tuesday, adding, “I think, hopefully, the entire organization learned something from the so-called enhanced interrogation program.”

Feinstein in 2013 blocked Haspel’s promotion to run clandestine operations at the agency over her role in interrogations at a CIA “black site” prison and the destruction of videotapes documenting the waterboarding sessions of an al Qaeda suspect there.

Did you catch that? Feinstein blocked Haspel in 2013, but now, under Trump, she’s open to an even bigger promotion.

A few lawmakers have come out in opposition to Haspel – most prominently Paul and Sens. Ron Wyden (D-Ore.) and Elizabeth Warren  (D-Mass.) – but it’s unclear how much influence they will wield. Senate Minority Leader Charles Schumer (D-N.Y.) said Tuesday that he is not whipping votes to oppose Haspel.

Ladies and gentlemen, meet “the resistance.”

It’d be funny if it wasn’t so sad.

To be fair, Schumer does have some concerns with regard to Pompeo. He might not be belligerent enough toward Russia.

But Democrats stressed on Tuesday that their previous support for Pompeo did not automatically mean they would support him to be secretary of State.

Schumer noted he wants to know if the former House member will be tougher on Russia if he’s confirmed to be the country’s top diplomat.

You seriously can’t make this stuff up. Also, don’t forget that 14 Democrats supported Pompeo for CIA director back in 2016, and Democrats also supported increased surveillance state spying powers late last year. I find it fascinating that when it comes to mass surveillance and torture, suddenly the Democrats don’t want to “resist.”

Meanwhile, across the Washington D.C. cesspool hordes of “respected leaders” are vigorously defending Gina Haspel using the same defense used by actual Nazi war criminals after WWII.

From The Intercept:

During the Nuremberg Trials after World War II, several Nazis, including top German generals Alfred Jodl and Wilhelm Keitel, claimed they were not guilty of the tribunal’s charges because they had been acting at the directive of their superiors.

Ever since, this justification has been popularly known as the “Nuremberg defense,” in which the accused states they were “only following orders.”

The Nuremberg judges rejected the Nuremberg defense, and both Jodl and Keitel were hanged. The United Nations International Law Commission later codified the underlying principle from Nuremberg as “the fact that a person acted pursuant to order of his Government or of a superior does not relieve him from responsibility under international law, provided a moral choice was in fact possible to him.”

This is likely the most famous declaration in the history of international law and is as settled as anything possibly can be.

However, many members of the Washington, D.C. elite are now stating that it, in fact, is a legitimate defense for American officials who violate international law to claim they were just following orders…

Haspel oversaw a secret “black site” in Thailand, at which prisoners were waterboarded and subjected to other severe forms of abuse. Haspel later participated in the destruction of the CIA’s videotapes of some of its torture sessions. There is informed speculation that part of the CIA’s motivation for destroying these records may have been that they showed operatives employing torture to generate false “intelligence” used to justify the invasion of Iraq.

John Kiriakou, a former CIA operative who helped capture many Al Qaeda prisoners, recently said that Haspel was known to some at the agency as “Bloody Gina” and that “Gina and people like Gina did it, I think, because they enjoyed doing it. They tortured just for the sake of torture, not for the sake of gathering information.” (In 2012, in a convoluted case, Kiriakou pleaded guilty to leaking the identity of a covert CIA officer to the press and spent a year in prison.)

One who paraphrased it is Michael Hayden, former director of both the CIA and the National Security Agency. In a Wednesday op-ed, Hayden endorsed Haspel as head of the CIA, writing that “Haspel did nothing more and nothing less than what the nation and the agency asked her to do, and she did it well.”

John Brennan, who ran the CIA under President Barack Obama, made similar remarks on Tuesday when asked about Haspel. The Bush administration had decided that its torture program was legal, said Brennan, and Haspel “tried to carry out her duties at CIA to the best of her ability, even when the CIA was asked to do some very difficult things.”

Texas Republican Rep. Will Hurd used the precise language of the Nuremberg defense during a Tuesday appearance on CNN when Wolf Blitzer asked him to respond to a statement from Sen. John McCain, R-Ariz.: “The Senate must do its job in scrutinizing the record and involvement of Gina Haspel in this disgraceful program.”

Hurd, a member of the House Intelligence Committee and a former CIA operative as well, told Blitzer that “this wasn’t Gina’s idea. She was following orders. … She implemented orders and was doing her job.”

Bipartisan support of torture using a literal Nazi defense. Unfortunately, I’m not even surprised.

Now here’s the best part…

Notably, Blitzer did not have any follow-up questions for Hurd about his jarring comments.

Gotta love CNN.

Fortunately, there’s a small flicker of actual resistance to Trump’s shameless neocon pivot. It just happens to be coming from Rand Paul.

He held a press conference on the matter, which I suggest everyone watch in full.

As if all of this isn’t concerning enough, something Jeremy Scahill said in a recent Democracy Now interview really shook me. I discussed it on Twitter earlier today.

See how this works? We lose either way.

In fact, I find Cotton so dangerous, I specially singled him out in last year’s post, Expect Desperate and Insane Behavior From Government in 2018 – Part 3 (War):

While I’m already sufficiently concerned about the likelihood of another stupid escalation in the Middle East by Trump, there are milestones I’m looking out for to let me know it’s about to get really bad. At the core of any major disaster will be Senator Tom Cotton, a rabid neocon who I unequivocally believe is the most dangerous, anti-freedom person in the U.S. Congress. He reminds me of an American Mohamed bin Salman, and his elevated prominence around Trump earlier this year is what got me increasingly concerned in the first place.

If Cotton takes on a more senior role in the Trump administration, such as a rumored position as CIA director, you can bet the farm that U.S. foreign policy is about to take the most dangerous turn since George W. Bush. Tom Cotton is a neocon on steroids, and seems to genuinely love conflict and authoritarianism. To get a better sense of what sort of person he is, take a look at him taking Twitter legal counsel to task. He believes U.S. companies act as an active arm of state intelligence.

What’s going on here is crystal clear. Trump’s setting up a war cabinet because he wants to go to war, and his administration will soon be dominated by the exact same neocon lunatics his populist supporters wanted to get away from in the first place.

As the saying goes, “if voting made a difference, they’d make it illegal.”

Brace yourselves, the war sales job is imminent and it’s going to be relentless.

*  *  *

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Disillusionment Is Deepening: Most Students See College Campuses Opposing Free Speech

Self-proclaimed “idealists” on college campuses across the country are growing increasingly intolerant of political views that challenge the liberal establishment or conservative values on topics ranging from homosexuality to immigration.

Of course, the suppression of conservative views isn’t an officially sanctioned policy (at least, not at most schools, though that is slowly beginning to change). But one thing to remember is that this militant adherence to political correctness is enforced by a tiny minority of students. And the outsize influence that they exert on school administrators, and on school policies, is stoking resentment among more conservative students.

Students

A recent Gallup poll measuring attitudes about intellectual freedom on university campuses showed that students are increasingly aware that it’s not acceptable for some students to speak their mind in class or elsewhere on campus. But instead of this trend leading to a backlash, the study showed that a growing number of students have come to accept this strictures.

Even Democrats Have Their Doubts

Contrary to what one might expect, students who identify as Democrats (63%) and are even more likely than Republicans (53%) to acknowledge that students can’t speak their minds on their respective college campuses. independents (62%), meanwhile, are about as skeptical as Democrats.

Gallup

Per Gallup, these results were gleaned from its 2017 Gallup/Knight Foundation survey of 3,014 randomly sampled US college students about First Amendment issues. The survey is an update of a nationally representative 2016 Knight Foundation/Newseum Institute/Gallup survey on the same topic.

Disillusionment Is Deepening

In addition to Republicans, most key subgroups are more inclined now than in 2016 to agree that climate on their campus can inhibit expression. Independents and blacks show slightly greater increases, 13% and 14%, respectively, than other subgroups.

Gallup

Fewer Students Prefer Campus That Allows All Types of Speech

While more students now agree that their campus climate stifles free speech, fewer students now (70%) than in 2016 (78%) favor allowing unfettered free speech, even that which is offensive. In contrast, 29% of students now, up from 22% in 2016, would rather campuses be “positive learning environments for all students” by prohibiting certain speech that is offensive or biased.

With these findings in mind, we’d like to direct your attention to a report we published early this year showing six things college students were offended about last year.

Remembering Bear Stearns & Co

Authored by Chris Whalen via TheInstitutionalRiskAnalyst.com,

The failure of Bear Stearns & Co a decade ago illustrates the key lesson of financial markets, namely that non-banks are dependent upon 1) banks and 2) clients, for liquidity.  And no amount of capital will save a non-bank that has a deficit in terms of confidence.  In times of market stress, credibility and character are far more important than capital.

Like the Crisis of 1907, when JPMorgan had to rescue the trust banks at the behest of President Teddy Roosevelt, the investment banks in 2008 were abandoned by the markets. Lacking stable funding in the form of core deposits, the non-banks failed in droves, starting in 2007 with New Century Financial, once among the largest issuers of subprime mortgages.

And it can happen again.  Mark Adelson wrote in the Journal of Structured Finance:

“By the summer of 2007, the prices of subprime mortgage-backed bonds already had begun to plunge. New Century, once a major lender, had declared bankruptcy; two hedge funds run by Bear Stearns were collapsing; and as emails obtained via lawsuits and investigations would later show, the rating agencies were well aware of the problems. In April 2007, one S&P analyst told another, ‘We rate every deal. It could be structured by cows and we would rate it.’”

We recall sitting in a conference room with a group of investors early in March 2008, listening to people congratulate themselves for not “facing” Bear.  Little did they suspect that the whole non-bank sector was toast and that Lehman Brothers would be next. While JPM took down Bear without a default, Lehman eventually failed and filed bankruptcy because nobody could get comfortable with the firm’s financials.

The markets today are just as vulnerable to a “run on liquidity,” with Goldman Sachs now the smallest of the universal banks followed by Morgan Stanley. Since 2008, non-banks have grown in residential mortgages and other areas that are totally dependent upon bank financing.  The changes made by the Securities and Exchange Commission in 1998 to Rule 2a-7, which prevents non-banks from issuing their own paper for purchase by money market funds, gave the big banks a monopoly on short-term warehouse credit, thus making the 2008 crisis inevitable. 

Bear was the smallest and least beloved of the bulge bracket Wall Street securities firms, having figuratively pissed on the floor by not agreeing to help rescue Long Term Capital Management in 1998.  Nobody on the Street forgot that slight.  Governance at Bear was at a minimum.  The firm was run like a bridge tournament in a high school auditorium, with each table representing a different business unit and no overall enterprise management.

Regulators and members of the academic community like to say that non-banks caused the financial crisis in 2007, but the reality is that banks as well as non-banks failed when liquidity disappeared.  Regulators correctly point to issuers such as New Century, Lehman Brothers and Bear, Stearns as examples of wayward non-banks, but key players in the banking sector such as Wachovia, Washington Mutual and Countrywide also were culpable and vulnerable to runs.

Jonathan Rose (2014) notes that during the subprime panic in 2007-2009, many large depositories such as Wachovia were subject to runs by institutional investors, both in terms of institutional deposits and even debt. WaMu, for example, lost significant deposits during 2008 leading up to its resolution by the FDIC and subsequent sale to JPMorgan.

By March of 2008, in another example, Wachovia was seeing a significant outflow of deposits and demands from bond investors for early redemption which led to the bank being acquired by Wells Fargo later that year.  Only the fact of “too big to fail” protected larger names such as Wells Fargo (NYSE:WFC), JPMorgan, Bank America and Citigroup from the contagion.

The funding support provided to the non-banks and second tier banks by the large depositories, as well as the market demand provided by the mortgage securities issuance of the GSEs and large banks, are important factors that drove the overall demand for subprime mortgages. The eventual collapse of demand led to the failure of both banks and non-banks alike.

Countrywide’s warehouse was largely financed by Bank of America, which was forced eventually to acquire the crippled institution. Washington Mutual and Bear Stearns were likewise funded by the large banks and money market funding, and were eventually acquired by JPMorgan with support from the Federal Reserve Bank of New York. Moreover, substantial parts of the balance sheet funding of “banks” such as WaMu and Countrywide were sourced from non-core deposits in institutional money markets.

Many observers fret about the risk presented by nonbanks, yet the dependence of these institutions on bank financing means that the credit and market risk remains “in the bank.” In the event that a large nonbank financial firm in future experiences liquidity or solvency problems, the lender banks would almost certainly be compelled to acquire the nonbank.  Non-banks, at the end of the day, are the customers of the big banks.  That is the key lesson of the failure of Bear Stearns.

“They’ll Only Get Bigger” – China Sends A Message With Record $900M Market-Manipulation Fine

China’s sweeping overhaul aimed at closing regulatory loopholes and cracking down on manipulation (manipulation that isn’t directed by some central authority, that is) continued apace on Thursday when the country’s securities regulator unveiled fines against a Chinese logistics company, charging it 5.5 billion yuan ($870 million) for manipulating the local stock market. The fine is the largest-ever handed out for market manipulation, and is nearly six times the sum the regulator alleges was earned by the illicit behavior.

The decision isn’t altogether unexpected: Liu Shiyu, chairman of the China Securities Regulatory Commission, warned investors back in February 2017 that Chinese securities regulators would be cracking down on fraud and manipulation…

Here’s Bloomberg:

Xiamen Beibadao Group was charged with manipulating the share prices of three Shenzhen-listed companies, Jiangsu Zhangjiagang Rural Commercial Bank Co., Jiangsu Jiangyin Rural Commercial Bank Co. and Guangdong Hoshion Aluminium Co., China’s securities regulator said in a briefing in Beijing on Wednesday. It later clarified that the unit’s parent, Shanghai-based Beibadao Group, was the manipulator.

The penalty is almost six times what Beibadao earned by its actions, the watchdog said. Chinese authorities have been mounting a campaign to stamp out illicit behavior in the world’s second-biggest equity market, which is dominated by individual, often first-time investors. Liu Shiyu, chairman of the China Securities Regulatory Commission, said in February 2017 that he would pursue market malpractice and wrongdoing no matter whether it’s “historical or current.”

The crackdown comes at a crucial time for Chinese markets. President Xi Jinping cemented his grip on power this week after China’s National People’s Congress overwhelmingly passed a constitutional amendment to eliminate term limits. This established Xi as the most powerful Chinese leader since Mao Zedong. Maintaining financial stability is paramount to Xi, and to help him maintain his iron grip on domestic markets, rumor has it that Xi intends to dramatically expand the role of Liu He, a Politburo member and leader of the Leading Group for Financial and Economic Affairs. It’s been reported that He, one of the country’s top securities regulators, will soon add Chairman of the People’s Bank of China to his long list of responsibilities.

CSRC

And with the US threatening to pull the rug out from under the global free-trade order (a paradigm that has greatly benefited the Chinese economy) safeguarding the country’s massive debt pile is of paramount importance to the regime.

And bank strategists who spoke with Bloomberg appear to be toeing the party line.

Bank strategists who spoke with Bloomberg parroted the party’s line: The crackdown, which comes as CSRC’s boss, Liu He, prepares to expand his regulatory role purportedly to include running the People’s Bank of China. Combating manipulation and corruption

“The fines will only get bigger and bigger as regulators step up the crackdown on market irregularities, and it’s likely we’ll begin to see similar cases being exposed more frequently in the future,” said Yin Ming, vice president of Shanghai-based Baptized Capital. “It’s a signal to market participants that violent share moves and speculative trades are prohibited, and it’s always the authorities’ priority to maintain a stable market.”

In the past, when there was illegal activity in the capital market, the fine was just hundreds of thousands. The cost to violate the rules was so low,” said Hong Hao, Hong Kong-based strategist at Bocom International Holdings Co. “Going forward, as long as there is a similar case, I think the regulators will continue to charge huge fines.”

Readers may remember late last year when a bout of unprecedentedly low volatility (which just happened to coincide with the Communist Party’s National Congress) did more to ward off small-time investors than any individual trader or (or corporate trading desk) ever could, as we pointed out late last year.

Chart

“I’m out of the game,” said Gu Yuan, 34, an information-technology worker in Shanghai who sold almost 70% of a portfolio worth 600,000 yuan ($87,336) after the 2015 market slump and pared down some more this year. “It is more difficult to identify strong tech companies or convincing investment themes since the crash.”

Hopefully, the target of these penalties can at least appreciate the irony: The CSRC late last year essentially declared that the local market had become more efficient as a result of regulators’ manipulation.

Which only reinforces the notion that market manipulation will no longer be tolerated…

…unless, of course, it’s perpetrated by China’s National Team…

Rand Paul: It’s Time For A New American Foreign Policy

Authored by Rand Paul via The Strategic Culture Foundation,

Americans have also been increasingly clear that they are tired of constant war

What kind of job can you have where you are consistently wrong, yet get to still go on TV talking endlessly and making more wild predictions that will no doubt lead to the same failed result?

If you guessed “TV Weatherman” you’re close…but the job I’m referring to is “Neocon Foreign Policy Expert”.

Being a neocon means never having to say you’re sorry, even trillions of dollars and decades into doomed wars.

Iraq

Famously, the neocons have told us that we would be greeted as liberators in Iraq. The thousands of American soldiers killed or wounded might argue otherwise. The architects of the Iraq war forgot to tell us that it would embolden Iran and give Iran a new ally in the ‘liberated’ Shia majority in Iraq. They forgot to tell us that it would tip the balance of power in the Middle East and encourage Saudi Arabia to go on a military buying spree and become the third largest purchasers of weapons in the world.

Libya

The neocons told us that the Arab Spring would bring Western-style democracy to the Middle East. They told us toppling Muammar el-Qaddafi would bring freedom and stability. They were wrong and instead of stability the overthrow of Qaddafi brought chaos. They failed to understand that the chaos of Libya would become a breeding ground for terrorism.

Syria

The neocons loudly announced that regime change in Syria was their goal. Yet, even Hillary Clinton realized the problem when our arms, as well as Saudi and Qatari arms, were getting delivered in the hands of ISIS. In one of the Wikileaks emails, Hillary warned Podesta: “the governments of Qatar and Saudi Arabia . . . are providing clandestine financial and logistic support to ISIS and other radical groups in the region.”

And yet, the deliveries of Western arms to jihadists went on and on for years.

Despite the evidence that many of the fighters opposing Assad were jihadists with an equal hatred for Israel and the United States, the weapons kept flowing.

Remember their call to arm the “moderate fighters?” Who can forget the $260 million spent to train sixty fighters, ten of whom were captured only minutes after they were sent into battle.

The neocons vociferously argued that Assad must go. Senators McCain and Graham argued that you couldn’t defeat ISIS without also defeating Assad. John Bolton went so far as to pontificate that “defeating the Islamic State” is “neither feasible nor desirable” if Assad remains in power. Actually, the opposite was true. Only when the mission changed from removing Assad to attacking ISIS did the tide finally turn.

Max Abrahms and John Glaser wrote in the LA Times late last year that contrary to neocon dogma, ISIS “imploded right after external support for the ‘moderate’ rebels dried up.”

So, the neocons who argued that ISIS couldn’t or shouldn’t be defeated without first defeating Assad were wrong again.

In the 2016 presidential primary two candidates—myself and Donald Trump—declared that the Iraq War was a mistake, that we should not arm our enemies and that America didn’t have a dog in every fight.

I campaigned against the folly of recent neocon wars, the futility of nation building, and the bankruptcy, moral and literal, of the idea of policing the world. So did Donald Trump—for the most part.

So where do we go from here? Congress is still dominated by neocons. The Trump administration shows no sign of ending the Afghan war. If anything, President Trump has doubled down on our support for Saudi Arabia in the Yemeni civil war. Candidate Trump, who consistently voiced his displeasure with the Iraq War, has surrounded himself with generals still intent on finding military solutions where none exist.

Neocon critics believe the world is black and white. You’re either Churchill or Chamberlain. You’re either with us or against us. You’re either a patriot or an isolationist.

The irony is that the neocons are the TRUE isolationists. The neocons wish to isolate and forbid trade with regimes that they disapprove of. The neocon policy toward Cuba is the very definition of isolationism.

For over half a century, we’ve had an embargo with Cuba. Not only did the Castros survive it, but they milked it for everything it was worth. The Cuban government stoked the flames of nationalism in Cuba and blamed America for anything that went wrong, rather than the true culprit—their own dogmatic socialism.

The isolationist neocons want to continue this embargo. They want to peel back the small diplomatic gains that have been made. They want to pare back cultural exchange and dialogue.

The opposite, free travel and trade, is what is needed.

Our founders understood the perils of perpetual war.

John Quincy Adams echoed and summed the spirit of the foreign policy of our founders when he said:

America goes not abroad in search of monsters to destroy. She is the well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own.

Far from being isolationist, the foreign policy of our Founders is the true engagement. To seek honest friendship, free commerce, open dialogue and peaceful engagement with all who are willing.

Libertarian realists agree.

We do not seek to retreat within our borders—nor do we seek to expand them.

We do not seek a wall to keep everyone out, nor to keep anyone in.

Too often the United States has attempted to till the soil in foreign lands with our bombs and plow it with our tanks.

Instead, we should seek to help others till their land with our tractors and reap their harvest with our combines.

The neocons argue that Americans want a more robust foreign policy. Maybe, but at the same time, Americans have also been increasingly clear that they are tired of constant war.

Reagan had it right when he said “our reluctance for conflict should not be misjudged as a failure of will.”

In fact, restraint is a triumph of will.

After the debacles of Iraq and Libya, after becoming weary of a drawn-out mission in Afghanistan, the American people are looking for a new path for foreign policy.

America should steer clear of other countries civil wars, such as Yemen.

We should not be in wars where the best outcome is stalemate, as we are in Afghanistan.

And America shouldn’t fight wars that are not authorized by Congress.

Admittedly, the War on Terror is not over, but any military action must be judged by this question: will this use of force kill more terrorists than it creates?

Refueling Saudi bombers mid-air and supplying them with bombs that are dropped on a funeral procession is exactly the kind of misguided policy that creates more terrorists than it kills.

To defend our country properly, we must understand that while there are those that hate our values, military interventions aimed at changing that at the point of a gun—or the blast radius of a bomb—may well exacerbate this hatred rather than end it.

We need a foreign policy that recognizes its own limits, a common sense realism of strength, limited action, full diplomatic engagement and free trade.

Here’s how I see the most important principles of this foreign policy.

First, the use of force must always be on the table, but rarely used. War should be the last resort, not the first.

War is necessary when America is attacked or directly and clearly threatened, and when we have exhausted all measures short of war.

The second principle is that Congress, the people’s representative, must authorize the decision to intervene.

The most serious decision we make as a nation is to send our sons or daughters to war. We should make it together, and we should vote on it.

Finally, how do we solve non-military challenges in places like Asia and Eastern Europe?

That’s where the third principle comes in – a firm, full commitment to diplomacy and leadership.

Hysteria over election-meddling threatens to reignite the Cold War.

Russia, at times, is our adversary, but it need not be our permanent enemy.

Whether it is the threat of ISIS, or the situations in Iran and Syria, it would be in our interest to work together with Russia where possible, yet this opportunity is slipping by. Obsession with Russian “collusion” or other conspiracies involving the Kremlin and the administration have frozen the narrative and hampered what I believe to be the president’s good instincts on the proper relationship with Russia.

Before I close, let me talk about the last piece of the puzzle for a strong foreign policy—our own economic strength.

Adm. Mike Mullen properly noted that the biggest threat to our national security is our debt.

A bankrupt nation does not project power, but weakness.

Our national debt now exceeds $20 trillion. Trillion dollar annual deficits have returned.

Our overseas adventures are causing us to be stretched thin, and Republicans have pushed for, and received, a massive military spending increase.

Despite Congressional hostility, I have asked the question: is our military budget too small or is our mission too big?

I believe, without question, it is the latter. Our mission has become too large. Years after completing our mission in Afghanistan, America remains—spending $50 billion a year nation-building. We are adding debt at nearly $2 million per minute.

If we’re not careful, we will spend our way into second-tier nation status quickly.

If the long war is to ever end, we must understand what must take its place.

It isn’t just religion, nor even abject poverty, that motivates those seeking a better life. It is often the simple idea of freedom that we in the west take for granted.

Mohammed Bousazizi, the Tunisian street merchant who set himself on fire and began the Arab Spring, was an aspiring entrepreneur foiled by an overbearing government.

He had a dream. He’d save for a truck, and he’d sell his wares on the streets to build a life.

Cronyism and overbearing government stifled his dream. He set himself on fire, and the flames are still burning.

My great grandfather came to America with a dream not unlike Bousazizi’s. He peddled vegetables until he saved enough to purchase a truck, to become what was then logically called a truck-farmer. Over time he was able to purchase a home, then a small bit of land.

My grandfather didn’t need a permit or a license. No government hindered his success.

Peruvian economist De Soto spoke to Bousazazi’s father and asked him if he left a legacy. He replied, “Of course, he believed even the poor had a right to buy and sell.”

To own one’s labor and the products of one’s labor is a fundamental human right.

To trade one’s labor and products is also a fundamental right.

Strangely, neocons and libertarians likely agree that government should largely leave us free to pursue our dreams. Neocons, however, feel some universal calling to liberate humanity. Libertarians want the same liberty for individuals across the globe but think that ‘spreading liberty’ through perpetual war can only occur with a big government that tramples individual liberty.

When you boil it all down, the dilemma is whether liberty spreads best by persuasion or force.

And going one step further, one must ask if the government can maintain its character as a defender of individual liberty if the government must large enough to support perpetual war.

This was the great battle fought between William F. Buckley and Murray Rothbard in the early 1960’s. Everyone thinks Buckley’s National Review won hands down. And yet, Buckley himself ended up doubting the wisdom of the Iraq War.

The schism that divides neocons and libertarian realists will heal when the neoconservatives finally acknowledge that a government big enough to “make the world safe for democracy” is inconsistent with individual liberty.

When neoconservatives accept that a government large enough to fight perpetual war requires taxes and debt so extensive as to be to inconsistent with individual liberty – then will the schism heal.

When that time comes, libertarians and neoconservatives will gather in Williamsburg and raise a pint to our common heroes: Jefferson, Paine, Madison, and yes, even John Adams. That will be a glorious time, a time when liberty is no longer divided and we can all celebrate the great American experiment in Liberty.