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Category: Wall Street Journal

Via The Wall Street Journal's Editorial Board,

Congress needs to learn how the FBI meddled in the 2016 campaign.

When Donald Trump claimed in March that he’d had his “wires tapped” prior to the election, the press and Obama officials dismissed the accusation as a fantasy. We were among the skeptics, but with former director James Comey’s politicized FBI the story is getting more complicated.

CNN reported Monday that the FBI obtained a warrant last year to eavesdrop on Paul Manafort, Mr. Trump’s campaign manager from May to August in 2016. The story claims the FBI first wiretapped Mr. Manafort in 2014 while investigating his work as a lobbyist for Ukraine’s ruling party. That warrant lapsed, but the FBI convinced the court that administers the Foreign Intelligence Surveillance Act (FISA) to issue a second order as part of its probe into Russian meddling in the election.

Guess who has lived in a condo in Trump Tower since 2006? Paul Manafort.

The story suggests the monitoring started in the summer or fall, and extended into early this year.

While Mr. Manafort resigned from the campaign in August, he continued to speak with Candidate Trump.

It is thus highly likely that the FBI was listening to the political and election-related conversations of a leading contender for the White House.

That’s extraordinary - and worrisome.

Mr. Comey told Congress in late March that he “had no information that supports those [Trump] tweets.”

 

Former Director of National Intelligence James Clapper was even more specific that “there was no such wiretap activity mounted against—the President-elect at the time, or as a candidate, or against his campaign.”

 

He denied that any such FISA order existed.

Were they lying?

The warrant’s timing may also shed light on the FBI’s relationship to the infamous “ Steele dossier.” That widely discredited dossier claiming ties between Russians and the Trump campaign was commissioned by left-leaning research firm Fusion GPS and developed by former British spy Christopher Steele—who relied on Russian sources. But the Washington Post and others have reported that Mr. Steele was familiar to the FBI, had reached out to the agency about his work, and had even arranged a deal in 2016 to get paid by the FBI to continue his research.

The FISA court sets a high bar for warrants on U.S. citizens, and presumably even higher for wiretapping a presidential campaign. Did Mr. Comey’s FBI marshal the Steele dossier to persuade the court?

All of this is reason for House and Senate investigators to keep exploring how Mr. Comey’s FBI was investigating both presidential campaigns.

Russian meddling is a threat to democracy but so was the FBI if it relied on Russian disinformation to eavesdrop on a presidential campaign. The Justice Department and FBI have stonewalled Congressional requests for documents and interviews, citing the “integrity” of Special Counsel Robert Mueller’s investigation.

But Mr. Mueller is not investigating the FBI, and in any event his ties to the bureau and Mr. Comey make him too conflicted for such a job. Congress is charged with providing oversight of law enforcement and the FISA courts, and it has an obligation to investigate their role in 2016. The intelligence committees have subpoena authority and the ability to hold those who don’t cooperate in contempt.

Mr. Comey investigated both leading presidential campaigns in an election year, playing the role of supposedly impartial legal authority. But his maneuvering to get Mr. Mueller appointed, and his leaks to the press, have shown that Mr. Comey is as political and self-serving as anyone in Washington.

No investigation into Russia’s role in the 2016 campaign will be credible or complete without the facts about all Mr. Comey’s wiretaps.

Are we seeing early signs of an "Arab Spring" coming to Saudi Arabia, or will the next king emerge stronger than ever? The kingdom is now in the midst of an unprecedented crackdown of both dissidents and even loyalists perceived as less than enthusiastic about Crown Prince Mohammed bin Salman's consolidation of power as he prepares to ascend the throne of his aging and increasingly senile father. It was only last June that King Salman shocked the world by suddenly and unexpectedly removing next in line for the crown Muhammad bin Nayef, which made Mohammed bin Salman heir apparent to the throne.

In a rare front page story airing sharp criticism of the kingdom, The Wall Street Journal assessed the scope of the crackdown today:

In the past week, Saudi authorities have detained more than 30 people, roughly half of them clerics, according to activists and people close to those who have been detained. The campaign goes beyond many of the government’s past clampdowns, both in the scope of those targeted and the intense monitoring of social media posts by prominent figures. It is not known if any charges have been filed.

WSJ further mentions that several senior princes have been essentially under house arrest as they are barred from traveling abroad, which even includes a brother of King Salman. The kingdom has been tight lipped amidst the crackdown, refusing to engage with the media since as the story began breaking early this week.


Current Defense Minister and Crown Prince Mohammed bin Salman. Image source: Alayham News

King Salman himself has at times appeared barely able to function or speak coherently in public or government addresses, and aides have had to closely assist when he does make such rare appearances. Prince Mohammed has become the de facto ruler on a day-to-day level.

As the WSJ explains, preparations are underway for the king's early abdication:

“Mohammed bin Salman is definitely preparing to become king,” said a Saudi adviser to the government. “He wants to tackle the internal debate about him becoming the king and focus on consolidating his power, rather than doing that while being distracted by dissidents.”

 

The government has denied an abdication is planned, but several people close to the royal family say preparations have already started. The transfer of power, which several people close to the royal family had expected to occur this month, is likely to take place late this year or early next year, these people say.

Analysts point to the fact that most of the detained in the latest crackdown have large social media followings and have expressed criticism of Saudi Arabia's diplomatic and economic war with Qatar, if not expressing outright support for Qatar. The crown prince is considered a hawk when it comes to the Qatar crisis, and himself had a huge role in the kingdom's policy of strong arm tactics targeting its small oil and gas rich neighbor. Saudi law further makes membership in the Muslim Brotherhood a punishable offense, and has accused many of those detained with ties with the group.

The Muslim Brotherhood has been the favored political proxy backed by Qatar for much of the "Arab Spring" movements in Egypt, Syria, and throughout the region. The Brotherhood has also historically been active in short-lived protests within Saudi Arabia, such as the so-called Islamic Awakening anti-government protests which occurred in the wake of the first Gulf War as the US military was allowed to assemble in Saudi territory. But the Brotherhood now carries the double stigma of being seen as an arm of Qatari foreign subversion. Saudi state media has lately warned of “intelligence activities for the benefit of foreign parties” within the country.

Last weekend Saudi authorities detained prominent clerics which had previously taught and preached from within the heart of the country's Wahhabi establishment, including Salman al-Awdah, Awad al-Qarni and Ali al-Omary. Though such recently detained clerics hold religious views which do not depart from the state Wahhabi religion, religiously driven criticisms of the royal family tend to focus on impurity, excess, and compromising relations with Western democracies. And lately it appears that the crown prince may even be quietly opening up to Israel, which we predicted could create dissent and instability among the Saudi domestic population. Various reports hint at calls for protests to take place both within and outside the country this weekend. Al-Qaeda itself called for the overthrow of the ruling monarchy with the message, "How can the grandsons of the Prophet and his Companions become slaves of the Family of Saud and its fool headed tyrants?".

Though most international reporting is playing up the current crackdown as targeting figures that are loosely "oppositionist", it appears the nature of the move is more nuanced. According to Middle East history professor and expert on Saudi affairs, As'ad AbuKhalil, the crackdown is primarily aimed at regime insiders and prominent voices who threaten push-back against the crown prince's vision for Saudi foreign policy:

Unlike what some in the media are writing on social media, this crackdown is not directed against dissidents.  Many of those arrested are loyal propagandists for the Saudi regime.  They are being punished not for what they say but for what they are not saying: they are being punished for not being vocal against Qatar and against the Muslim Brotherhood. 

AbuKhalil, who authored a book which examined internal Saudi regime fault lines called The Battle for Saudi Arabia: Royalty, Fundamentalism, and Global Power, provides a somewhat comical example of how regime insiders are being publicly humiliated should they not fall in line. In the below case, two pro-Saudi writers with connections to the monarchy battled it out on Tuesday:

AbuKhalil translates and describes the Twitter exchange between the two highly visible pundits as follows: Nasir Salih As-Sirami (above) is commenting on the latest tweet by Jamal Khashoggi who wrote - "You arrest Isam Az-Zamil!! Isam was here in DC serving his country accompanying an official delegation. Those are the best of the sons of my country. What is happening?"  So As-Sirami says: "Don't worry, brother Jamal.  Enjoy America and your spacious home which was bought to you by Saudi Arabia as an adviser to its embassy then.  And don't forget the London home too."

Ironically, Isam Az-Zamil is actually close to the Saudi regime as a prominent economic analyst. His recent arrest did much to increase the general climate of fear now descending on those who previously felt themselves safe as firmly within the loyalist camp. As AbuKhalil notes even those with close government ties are now being accused of harboring sympathies for the kingdom's enemies: "The arrests seem to target those who were accused of Islamist Ikhwan sympathies or Qatar sympathies or Turkish sympathies."

So it seems Prince Mohammed bin Salman's rule may be faltering before it really even begins. Or alternately, his aggressive stance against dissent will induce enough paranoia for everyone to fall in line the moment his father abdicates. Regardless, once imperceptible cracks in the "stable" kingdom are now beginning to show as external geopolitical pressures (such as the Qatar and Iran rivalries) are being brought to bear.

Dozens have left the paper in the past year and interviews with current and ex-staffers show outrage over pressure from management to normalize Trump

On Monday 13 February, just over three weeks after Donald Trump’s inauguration, the Wall Street Journal’s editor-in-chief Gerry Baker held a town-hall style meeting in the paper’s midtown Manhattan newsroom amid mounting concern about the WSJ’s coverage of the new president, which many staffers felt was too soft and too quick to downplay controversies.

Related: Donald Trump and Rupert Murdoch: inside the billionaire bromance

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A recent poll by the Wall Street Journal/NBC News confirmed what many Americans probably suspected: The US was a country rife with political, economic and cultural divisions long before President Trump rode down that escalator at Trump Tower in June 2015.

And while politics isn't the only factor driving the divide, as WSJ explains, it's probably the most obvious. People who identify with either party increasingly disagree not just on policy, but on fundamental social and economic values...

“The wide gulf is visible in an array of issues and attitudes: Democrats are twice as likely to say they never go to church as are Republicans, and they are eight times as likely to favor action on climate change. One-third of Republicans say they support the National Rifle Association, while just 4% of Democrats do. More than three-quarters of Democrats, but less than one-third of Republicans, said they felt comfortable with societal changes that have made the U.S. more diverse.”

For example, Americans' views on the economy and the country’s future are often correlated with their feelings about one man: President Donald Trump.

“Our political compass is totally dominating our economic and world views about the country,” said GOP pollster Bill McInturff, who conducted the survey with Democratic pollster Fred Yang. “Political polarization is not a new thing.

 

The level under Trump is the logical outcome of a generation-long trend.”

Some of the starkest attitudinal divides were between people with a four-year college degree, and those who had only a high school education.  

“Rural Americans and people without a four-year college degree are notably more pessimistic about the economy and more conservative on social issues. Those groups make up an increasingly large share of the GOP.”

According to WSJ, peoples’ views about the president’s job performance are much more polarized than they were a decade ago.

“Eight months into the 1950s presidency of Republican Dwight Eisenhower, 60% of Democrats approved of the job he was doing. That level of cross-party support for a new president remained above 40% until Bill Clinton, when only 20% of Republicans approved of his performance after eight months in 1993. For Barack Obama, Republican support dropped to 16% at this point in his presidency in 2009.”

That trend has only accelerated under Trump…

“His job-approval rating among Americans overall has remained in recent months at about 40%, but just 8% of Democrats approve of the job he is doing, the survey found. By contrast, 80% of Republicans approve.”

Notably, Republicans’ outlook for the future improved remarkably after Trump triumphed over Hillary Clinton in November’s election.

“Mr. Trump’s election has brought a sharp mood swing among Republicans. In August 2014, 88% of Republicans said they weren’t confident that life for their children’s generation would be better than their own, a gloomy view of a central element of the American dream. Eight months into the Trump presidency, just 46% of Republicans say they lack confidence in their children’s future - a 42-point swing that is more dramatic than improvements in the economy would seem to justify.”

The survey showed that gun control, immigration and globalization – some of the most divisive issues facing the American public – were all key issues of Trump’s campaign.  

Surprisingly, views about gun control were once less partisan. Asked if they were concerned that the government would go too far in restricting gun-ownership rights or, alternatively, that the government wouldn’t do enough,

Republicans in 1995 were about evenly split. Democrats were divided 26% to 67%. Now, 77% of Republicans say they worry the government could go too far, while 71% of Democrats worry the government won’t go far enough.

The public’s views on immigration have also become pretty lopsided:

“Views of immigration have also become more partisan. In an April 2005 poll that asked whether immigration strengthened or weakened the U.S., a plurality of 48% said it weakened the nation, with 41% saying immigration strengthened the country. Now, a substantial majority of 64% view immigration as strengthening the country, while 28% say it weakens the U.S. The change is due almost entirely to a sharp shift in Democrats’ views. In 2005, just 45% of Democrats said the country was strengthened by immigration; now the share is 81%.”

Rural Americans and those without a college degree have particularly pessimistic views on the economy.

“Some 43% of rural residents gave a high rating to their local economy’s health, compared with 57% of urban dwellers. Among people without a four-year college degree, only 47% viewed the economy in their area as good or excellent, compared with two-thirds of people with a degree.

 

Both groups have been moving from the Democratic Party to the GOP.”

To be sure, most Americans say they're aware of the growing polarization in the US: 80% of those surveyed saw the country as mainly or totally divided. However, in an ironic twist, they couldn’t agree on why. Democrats and independents tended to see the division as rooted in economics, while Republicans saw it as mainly a political divide.

To sum it up...

“It’s as if everyone agrees that it’s too divisive and we can’t get along, but also that everyone else is wrong,” said Mr. Yang.

Regardless of what’s driving it, one thing seems likely: It’ll likely get worse before it gets better.
 

Little more than a day after Dara Khosrowshahi decided to accept the Uber board’s offer to become the embattled ride-share company’s new CEO – after the company’s top two candidates dropped out of the running - he received a welcome-aboard present that was just so…Uber.

Namely, a report in the Wall Street Journal claiming that the DOJ is in the “preliminary stages” of an investigation into whether Uber executives violated the Foreign Corrupt Practices Act by allegedly paying bribes to government officials. Based on what it finds, the Justice Department may or may not decide to open a full-fledged FCPA investigation into Uber.

According to WSJ, it’s unclear whether US authorities are focused on one country or examining activities in multiple countries where the company operates. But if we had to guess, we’d bet that any alleged wrongdoing probably happened in China, where bribery and corruption proliferate. Uber’s foray into the world’s No. 2 economy famously ended in defeat one year ago when it sold its China division to local rival Didi Chuxing in exchange for a stake in the combined company.

In his first public remarks since accepting the job, Khosowshahi described the chance to run the ride-hailing startup as a “once in a lifetime opportunity.” But like they say: be careful what you wish for. Because, as Khosrowshahi absorbs his first blows in the unceasing media assault on Uber, he’s probably thinking to himself that he didn’t realize just how good he had it at Expedia – where his 12-year tenure was unblemished by scandal.

To add another layer of irony: He hasn’t even left yet.

Here’s WSJ:

“Even before he takes the job as Uber Technologies Inc.’s new chief executive, fresh challenges confront Expedia Inc. CEO Dara Khosrowshahi, with news of a federal bribery probe into Uber and public disagreement over how the board’s decision to hire him unfolded.

 

News of the probe, reported by The Wall Street Journal on Tuesday, came after Mr. Khosrowshahi made his first public comments since being voted in as CEO by Uber directors on Sunday. He would succeed Travis Kalanick, the Uber co-founder who was pressured to resign in June following a series of scandals and amid infighting on the board. Mr. Khosrowshahi was selected over two more seasoned executives in Jeff Immelt, chairman of General Electric Co. and Meg Whitman, chief of Hewlett Packard Enterprise Co.”

Khosrowshahi played up his relationship with former CEO and Uber co-founder Travis Kalanick, telling WSJ that “there’s mutual respect” between the two tech titans. We hope, for Khosrowshahi’s sake, that he’s being polite, not naïve. Because anybody who’s been following the Uber saga probably suspects that Kalanick would drive a knife into his successor’s back in a heartbeat if it would hasten his return as CEO.

“Speaking with the Journal at Expedia’s headquarters Tuesday morning, Mr. Khosrowshahi said his contract with Uber still needs to be finalized, but indicated he would take the job. He said Mr. Kalanick would remain involved with Uber and described as “budding” his relationship with the ex-CEO. “I think there’s mutual respect there,” he said.

 

‘He’s the founder of the company, he’s an incredible visionary, so he will be involved with the company going forward,’ Mr. Khosrowshahi said. ‘Exactly how, exactly when, is something that’s really up to Travis and the board.’"

When asked about the controversy surrounding his selection as CEO – he was chosen after two more-experienced candidates, HP Enterprise’s Meg Whitman and recently retired former GE CEO Jeff Immelt, publicly withdrew their candidacies - Khosrowshahi defended his selection.

“Mr. Khosrowshahi declined to discuss the controversy around the CEO search, saying ‘there has been too much obsession with the process.’

 

Despite the drama at Uber, Mr. Khosrowshahi said the offer to run it was too good to pass up. ‘It took a couple of pokes to get me interested,’ he said, ‘but the opportunity at Uber is once in a lifetime.’”

He added that his “first priority” at Uber would be focusing on the company’s employees, who’ve been without a leader for nine weeks.

“That part of the business maybe hasn’t been focused on as much,” he said, “and that comes first for me.”

But as much as Khosrowshahi would like to shoot the breeze by the water cooler, we imagine he’ll soon be busy putting out fires as the federal government is in the middle of multiple investigations into the company’s alleged misdeeds.

As WSJ notes, Uber faces growing pressure from U.S. authorities. In addition to the preliminary bribery probe, the Justice Department is separately pursuing a criminal investigation into “Greyball,” a software tool employees used to evade law-enforcement officials. And earlier this month, Uber settled Federal Trade Commission charges that it didn’t offer sufficient privacy protections for its users. The company didn’t admit nor deny the allegations as part of the settlement.

Good luck with the new job, Dara. You’re going to need it.
 

While the concept of 'independence' among the unelected central bank cognoscenti is as cute as the tooth fairy or santa claus, it is nevertheless defended by those on high as sacrosanct to our very democracy. That is until The Wall Street Journal's editorial board finally had enough of Fed officials joining the 'resistance' against financial reform...

Via WSJ,

Janet Yellen didn’t run for President, but you wouldn’t know it from her policy démarche Friday at the Federal Reserve’s annual Jackson Hole retreat. The Fed Chair unleashed a defense of post-crisis financial regulation that shows how political the world’s central bankers have become.

“Already, for some, memories of this experience may be fading—memories of just how costly the financial crisis was and of why certain steps were taken in response,” Ms. Yellen said.

 

She added that regulatory changes “should be modest” and retain the superstructure built under Dodd-Frank.

Ms. Yellen’s comments followed a blunter recent warning from Fed Vice Chair Stanley Fischer, who told the Financial Times that “one can understand the political dynamics of this thing, but one cannot understand why grown, intelligent people” would “reach the conclusion that” you should “get rid of all the things you have put in place in the last 10 years.” Thank you, Senator Warren, er, Fischer.

***

This is extraordinary. Fed officials are launching a political campaign to retain their vast discretionary control over the American financial system. The brazenness of the effort shows how far afield central bankers have roamed from their traditional remit of monetary policy, which Ms. Yellen barely mentioned. You’d think she’d focus on that duty given that the Fed faces a watershed as soon as next month as it decides whether to begin rolling back the $4.5 trillion balance sheet it has amassed since the 2008 financial panic.

The size and scope of that balance sheet is itself a political intrusion because the Fed’s bond purchases are a form of credit allocation. The purchase of mortgage securities favors housing, while the Fed’s focus on long-duration bonds has been a deliberate attempt to push investors into riskier assets.

These decisions haven’t done much for the real economy, which has grown at a historically slow pace since the recession ended in June 2009. But the Fed has succeeded in lifting some asset prices, and no one knows what will happen to those prices once the Fed begins unwinding its portfolio. Perhaps it will all unfold without a hitch, but some very smart people aren’t as sanguine.

As for the stability of the financial system, Ms. Yellen and Mr. Fischer are at pains to assure us that, due to their efforts, all is well. “Banks are safer,” she says, thanks to capital and liquidity mandates and the wisdom of financial regulators. Oh, and “credit is available on good terms.”

But Ms. Yellen wasn’t nearly as optimistic about lending in the later Obama years. She often fretted that tight credit conditions were limiting growth, and the facts bear out that concern. Bank lending in the current expansion has trailed that of seven previous recoveries, and lending for small business has been especially slow. None of this is cause for Fed triumphalism.

Banks are safer, but they should be after eight years of modest expansion. The real test of financial stability comes in times of economic stress, when interest rates rise or investors get nervous and rush to safer assets. The system has already had one liquidity panic, in October 2014, when the yield on U.S. Treasurys moved some 40-basis points in a day.

You have to ignore history to believe that regulators are suddenly so wise that they know the current regulatory regime will prevent the next crisis. The Fed misjudged the economy in the mid-2000s and kept feeding easy credit that produced the housing bubble. Fed officials Ben Bernanke and Tim Geithner then underestimated the financial risks in early 2008 when the stresses were already apparent.

That’s one reason to support a financial regime with high levels of capital to defend against potential losses but with less regulatory micro-managing. This is the trade-off that House Financial Services Chairman Jeb Hensarling has proposed, which contrasts with the lower capital and lower regulatory barriers that the Trump Administration seems to prefer.

This is the debate we should be having, but the Fed wants Americans to believe that Dodd-Frank is gospel and the only alternative is to return to pre-crisis policies. The irony is that Ms. Yellen is thus associating the Fed with the post-crisis status quo that has been splendid for Goldman Sachs and giant banks that have gained market share and can afford higher regulatory costs.

Ms. Yellen did concede that “there may be benefits to simplifying aspects of the Volcker rule” that limits propriety trading, which is the least she can do since the rule as written is more than 950 pages of text and explanation. But until she runs for public office, she and the Fed ought to stick to executing regulatory policy rather than trying to dictate it.

Ms. Yellen’s term as Fed chair expires early next year, and her Jackson Hole foray is a signal to President Trump about what he can expect if he reappoints her.

The Fed needs a leader who won’t bend to political pressure. But it also needs a leader who understands the limits of the Fed’s political role.


Dance with the one that brung ya. Fox News and Wall Street Journal boss Rupert Murdoch has reportedly "repeatedly urged” President Donald Trump to kick White House Chief Strategist Steve Bannon to the curb.

For the first time in four years, the credit market sees more risk of a South Korean sovereign default/devaluation than China.

After months of hit money flows in EM stocks sending KOSPI to record highs in the face of rising nuclear tensions with its neighbor, this week saw investors crack as Daiwa analysts warned "Kim looks to have chosen a path of no return."

As a North Korea war potential approaches, with the regime said to have attack ready nuclear missiles, Daiwa analysts Kevin Lai and Olivia Xai note the awkward position the US military and diplomatic corps finds itself.

“It seems the US has miscalculated the possibility and time needed for North Korea to make a program deliverable,” they wrote, and there is a sense the point of no return is passing.

 

“The window for the US to ‘denuclearise’ the North has almost shut.”

Escalating tensions over North Korea have also sent the dollar surging against the won to test a critical downtrend line resistance in a triangle formation.

 

The situation looks tenuous, Daiwa notes:

By making such a promise, Kim looks to have chosen a path of no return. If he delivers the plan, the US will almost certainly respond aggressively with a range of military options — and the situation will escalate to a major military conflict involving several more parties, including South Korea and Japan. There would be little room for either side to step back. If Kim doesn’t deliver, he risks creating a political crisis for himself and permanently weakening his regime. He is now in a position similar to the one Saddam Hussein was in before Desert Storm. His primary goal is regime survival. Giving up nuclear weapons would mean abandoning that goal; bending to US pressure would leave him politically vulnerable at home.

While a nuclear war appears a distinct possibility, stock markets are acting rather benign.

“Korean assets have seen a modest ‘risk off’ over the past two weeks, but this most likely reflects a modest cooling in global growth data,” observed Goldman Sachs analysts Charles Himmelberg, Goohoon Kwon and James Weldon in an August 9 report.

 

 

The South Korean KOSPI stock exchange, while trading lower since July 24, remains near all-time highs.

They think too little geopolitical risk has been priced into the market.

“We still suspect that investors are more concerned than markets reveal,” the Goldman report mused.

 

“Even though tensions continue to mount and North Korea’s nuclear program continues to advance, it appears markets have yet to see enough evidence that this time is different.”

As The Wall Street Journal notes, so far, markets have shown a muted impact.

“The small size of the moves (on a historic basis) is reflective of the extreme difficulty the market faces in pricing in the ramifications of a nuclear confrontation,” said analysts at Rabobank in a note Friday.

 

In recent years repeated flareups between the U.S. and North Korea have been resolved, or at least not escalated, and market reactions have reversed relatively quickly.

 

“For decades, complacency has been the ‘right trade,’ when it comes to North Korea,” said global markets analysts at Goldman Sachs in a note this week. “More often than not, market participants have been rewarded for fading negative price moves rather than hedging them.”

 

“The market’s view is likely too sanguine in short term,” according to analysts at Citi. “This reflects investors’ experience that geopolitical rhetoric can quieten as quickly as it escalates, and a pervasive belief that the true risk of military confrontation is minimal.”

There are different endgames, with the US simply tolerating North Korea possessing nuclear weapons and moving forward a distinct probability path. Regardless of the outcomes, the markets may be mispricing the situation, particularly if it turns negative.

“Financial markets aren’t good at thinking about geopolitical risks,” the Daiwa report noted. “If this crisis escalates further, markets could well find themselves in a state of shock.”

Paying taxes is just about as much fun as a root canal.  As such, apparently more and more people are just deciding not to do it.  As the Wall Street Journal points out today, the IRS saw a 40% surge in returns that owe tax penalties between 2010 and 2015.

For reasons that aren’t clear, a growing number of people who pay taxes quarterly are getting their payments wrong and incurring penalties as a result. These taxpayers often owe estimated taxes because they have income that’s not subject to the same withholding as wages earned by employees.

 

According to Internal Revenue Service data, the number of filers penalized for underpaying estimated taxes rose nearly 40% between 2010 and 2015—to 10 million from 7.2 million.

 

In 2015, the total number of filers owing penalties may have exceeded the number filing estimated taxes, although final results aren’t out yet. This is possible because some who paid quarterly taxes may have made mistakes, and others who didn’t pay them should have.

 

“The data suggest that millions of people don’t understand they need to pay quarterly taxes, or at least increase their withholding to avoid penalties,” says Eric Smith, an IRS spokesman.

 

Estimated tax payments are Congress’s way of keeping non-wage earners from having an advantage over wage earners. More than 80% of taxpayers have wages that are typically subject to withholding, and most people pay most of their income tax this way. Thus the law requires people with other types of income to make quarterly payments based on amounts received during each period.

Taxpayers with a mixture of wage and non-wage income must either pay tax quarterly or raise their withholding to cover the non-wage income. If total payments don’t meet certain thresholds, then the taxpayer owes a penalty on the underpayment based on interest rates charged by the IRS. Currently the rate is 4%.

Of course, there's any number of reasons why people may be underpaying their tax bills.  Some people, you know...those who count themselves among the 95 million 'discouraged' workers who have left the work force completely, have been forced to take on random contract work to make ends meet and simply don't understand that they have to make quarterly estimated tax payments.

That said, others understand the tax system perfectly well and are all too happy to take a 4% loan from the federal government courtesy of the Janet Yellen's accommodative interest rate policies.

Tax preparers suspect several factors are at work. For most of the period penalties grew, the interest rate was 3%—the lowest in decades, making the pain of paying them lower as well.

 

“Some people don’t mind paying the toll, especially if their income bunches in the last quarter, and they just owe it for a few months,” says Don Williamson, noting the decision also could explain why average penalties have declined. Mr. Williamson is a certified public accountant who heads the Kogod Tax Policy Center at American University and has a private practice.

To that end, and while unclear if it's true, Floyd Mayweather’s tax attorney, Jeffrey Morse, recently said that he was simply taking advantage of Yellen's low rates by 'deferring' his $22 million tax bill from 2015.  Of course, we suspect this could be just a clever way to avoid fessing up to blowing through nearly $1 billion in career prize winnings...because that would just be embarrassing.

"If he is investing money and getting a rate of return that far exceeds what he has to pay the IRS in interest, then any smart business person is going to take advantage of that deferral."

 

Then again, maybe it's all much more simple and people aren't paying their taxes because they need the money to fund that $500 monthly BMW lease payment they could never afford but finance companies were all too willing to underwrite...just a thought.


Wednesday on Laura Ingraham’s nationally syndicated radio show, conservative commentator Pat Buchanan warned that if White House chief strategist Steve Bannon were to depart the Trump administration, it would mean the end of economic nationalism, one of the elements of Trump’s 2016 campaign. After Buchanan had expressed his concern over National Security Advisor H.R. McMaster foreign policy “ideas,” Ingraham asked Buchanan to react to a Wall Street Journal editorial that criticized Bannon for his reported policy differences with McMaster. Buchanan warned that if Bannon were to depart the Trump administration, which the Journal editorial seemed to suggest should happen, it would have consequences. “The economic nationalism – I think that would go pretty much out the window,” Buchanan said. “Trump is pretty committed to border control. I think he realizes that is indispensable to his political survival and reelection. But I would be concerned about the foreign policy interventionism, quite frankly, if Bannon were thrown out. But the fact – I haven’t read The Wall Street Journal today, I got up a little late. But I think it also a sign that Bannon must be influential if The Wall Street Journal is clawing the walls.” Buchanan urged Trump to be loyal to

Authored by Mike Shedlock via MishTalk.com,

Yesterday, I commented on “transitory” factors holding down inflation.

Today, the Wall Street Journal reports Global Inflation Hits Lowest Level Since 2009.

The Organization for Economic Cooperation and Development said Thursday that consumer prices across the G-20—the countries that account for most of the world’s economic activity—were 2% higher than a year earlier. The last time inflation was lower was in October 2009, when it stood at 1.7%, as the world started to emerge from the sharp economic downturn that followed the global financial crisis.

 

The contrast between then and now highlights the mystery facing central bankers in developed economies as they attempt to raise inflation to their targets, which they have persistently undershot in recent years.

 

According to central bankers, inflation is generated by the gap between the demand for goods and services and the economy’s ability to supply them. As the economy grows and demand strengthens, that output gap should narrow and prices should rise.

 

Right now, the reverse appears to be happening. Across the G-20, economic growth firmed in the final three months of 2016 and stayed at that faster pace in the first three months of 2017.

 

Growth figures for the second quarter are incomplete, but those available for the U.S., the eurozone and China don’t point to a slowdown. Indeed, Capital Economics estimates that on an annualized basis, global economic growth picked up to 3.7% in the three months to June from 3.2% in the first quarter.

 

Central bankers in developed economies are puzzled by the sluggish pace of pay rises, given continuing declines in jobless rates. However, they believe that economic growth will ultimately eliminate the gap between what their economies can produce and what they are now producing, supporting wages and prices.

No Puzzle

Central banks are puzzled because they do not know what inflation is, or how to measure it.

For example, instead of using home prices in the CPI, they now use Owners’ Equivalent Rent.

In general, asset prices do not count. Bubbles in stocks and bonds do not count.

The massive global QE liquidity went someone, as money always does. The liquidity did not go where the central bankers wanted. It went into asset bubbles.

Mystery Solved

It’s no mystery why central bankers are mystified: Collectively, they are economically illiterate fools engaged in Keynesian and Monetarist group think.

On deck is another round of destructive asset price deflation, brought about by Central banks who cannot see the obvious.

 

  • July’s U.S. Labor-Market Numbers Will Probably Look Familiar (BBG)
  • Paul Singer Says Passive Investing Is ‘Devouring Capitalism’ (BBG)
  • Beyond Bankruptcy: How Failed Stores Come Back Online (WSJ)
  • Tesla short sellers lose almost $800 million as stock rallies after earnings (MW)
  • Toyota, Mazda to Invest in Each Other (WSJ)
  • EU to impose more Russia sanctions over Siemens case on Friday (Reuters)
  • Trouble Comes in Threes for Germany’s DAX Losing European Crown (BBG)
  • Credit Card Rewards Are Playing Harder to Get (BBG)
  • China regulators plan to crack down further on overseas deals (Reuters)
  • BOE Finds Error Behind Spike in U.K. Mortgage Arrears (BBG)
  • China's Fear of Japan-Style Economic Bust Drives Crackdown on Deals, Says Source (BBG)
  • RBS Investment Bank Income Jumps, Amsterdam Picked as EU Hub (BBG)
  • Watch Out China, India Has a Deadly new Submarine (BBG)
  • Islamic State behind Australians' foiled Etihad meat-mincer bomb plot: police (Reuters)
  • That Drone Hovering Over Your Home? It’s the Insurance Inspector (WSJ)
  • Duterte Approves Free State College Fees Opposed by Budget Chief (BBG)
  • Insurers Think They’ve Found the Perfect Patients for Profits (BBG)
  • U.S. Heroin Trade Rooted in Mexico’s ‘Corridor of Death’ (WSJ)
  • Keystone XL Foes Don’t Mention Climate in Red State Pipeline Battle (BBG)
  • Uber Knowingly Leased Unsafe Cars to Singapore Drivers (WSJ)
  • How America Dug a $375 Billion Pension Hole (BBG)

 

Overnight Media Digest

WSJ

- Uber Technologies Inc managers in Singapore were aware of the Honda Motor Co recall when they bought more than 1,000 defective Vezels and rented them to drivers without the needed repairs, according to internal Uber emails and documents reviewed by The Wall Street Journal. on.wsj.com/2vnvpnN

- Special Counsel Robert Mueller has impaneled a grand jury in Washington to investigate Russia's interference in the 2016 elections, a sign that his inquiry is growing in intensity and entering a new phase, according to people familiar with the matter. on.wsj.com/2vn76X8

- Andrew Hall, a legendary trader who made billions betting on oil's rise, confirmed that he is closing the main fund at the firm he founded, Astenbeck Capital Management LLC, after he misjudged the impact of a boom in U.S. production that upended the market. on.wsj.com/2vobwwO

- Avon Products Inc pushed out Chief Executive Sheri McCoy after a disappointing five-year tenure during which she oversaw an overhaul of the storied cosmetics seller but ultimately failed to stop its years-long downward spiral. on.wsj.com/2vnoviw

- Toyota Motor Corp and Mazda Motor Corp are expected to announce plans to build a $1.6 billion assembly plant in the United States, which would create 4,000 new jobs and be up and running by 2021, according to a person briefed on the plans. on.wsj.com/2vnkydu

- West Virginia's Democratic Governor Jim Justice announced at a rally with U.S. President Donald Trump that he was switching parties to join the Republicans. on.wsj.com/2vns0Wb

 

FT

Bank of England Governor Mark Carney warned that persistent uncertainty over the UK's future relationship with the EU is holding back business investment and household spending, as the central bank cut its growth forecasts and left interest rates unchanged.

Britain's environment secretary, Michael Gove, faced accusations of giving mixed messages about the future of UK fisheries after he spoke positively about the future potential for foreign vessels to fish in British waters.

British Gas said that the cost of the British government's energy policies is now a bigger share of household electricity bills than wholesale prices.

Georgia Gould, leader of Camden council in north London, has cast doubt on the usefulness of a new batch of fire safety tests ordered by the government, saying they have revealed nothing new.

 

NYT

- Federal prosecutors are investigating Kushner Companies, the real estate firm owned by the family of Jared Kushner over its use of a program that grants visas to wealthy overseas investors. The authorities are also looking into the role of Kushner's sister, Nicole Meyer. nyti.ms/2vnlIpm

- Avon Products Inc said its chief executive, Sherilyn McCoy, would step down at the end of March as the door-to-door seller of beauty products has faced pressure from activist investors to reshape its management and speed up its turnaround. nyti.ms/2vnYUGa

-The Trump administration said it would not delay an Obama-era regulation on smog-forming pollutants from smokestacks and tailpipes, reversing a decision that the EPA administrator, Scott Pruitt made in June, to put off an Oct. 1 deadline for designating which areas of the country met new ozone standards. nyti.ms/2vnQj6g

-Alibaba Group Holding Ltd and Kering SA, the owner of brands Gucci and Saint Laurent, said they had resolved their differences. Kering would withdraw a 2015 lawsuit charging that counterfeit goods had been sold from the Chinese e-commerce giant's website. nyti.ms/2vnogDW

 

Canada

THE GLOBE AND MAIL

** The number of asylum claims in Quebec tripled in recent weeks from an average of 50 a day to 150, according to the province's Immigration Minister Kathleen Weil. The recent spike in claims has clogged short-term housing for new arrivals in Montreal, leading the province to open up to 600 beds in the Olympic Stadium. tgam.ca/2v5dDDr

** A Canadian deal to finance a Bombardier Inc jet for the controversial Gupta family of South Africa has cast a fresh spotlight on secrecy policies at the federal government's export credit agency. tgam.ca/2v4LNHk

** Toronto is considering fast-tracking the opening of three supervised drug-use sites and will ask some police officers to carry a life-saving antidote to fentanyl after a spate of deaths linked to tainted street drugs over the past week. tgam.ca/2v4SXLt
NATIONAL POST

** BCE Inc's wireless division once more outshone its traditional wired business in financial results released on Thursday, but CEO George Cope said the company's most critical play this quarter was launching a new television product targeted at cord cutters and 'cord nevers.' bit.ly/2v5bUxF

 

Britain

The Times

The Financial Conduct Authority has been warned that it is failing to give financial firms a clear idea of how to prepare for Brexit with fewer than a fifth of respondents to a survey saying it was doing a good job. bit.ly/2fcLcPK

Bob Mackenzie, the former chairman of the AA Plc who was sacked for "gross misconduct", is funding the cost of his own hospital stay after the roadside assistance group cancelled his private medical coverage. bit.ly/2fcX5oU

The Guardian

Bank of England Governor Mark Carney has predicted that the financial sector could double in size to be 20 times as big as GDP within the next 25 years, but warned that the government must hold its nerve and resist pressure to water down regulation after Brexit. bit.ly/2uoqJJD

Julius Baer Gruppe AG, a Swiss bank that accepts only customers with at least 2 million pounds ($2.63 million) of assets, is defying Brexit with plans to expand in the United Kingdom through new offices in Manchester, Leeds, and Glasgow. bit.ly/2v1BoOl

The Telegraph

The government must set out a detailed vision for a Brexit "transitional" period or risk losing the confidence of business that it can successfully manage to move to a new relationship with the European Union, the Institute of Directors warns Friday. bit.ly/2u92ZxX

Aviva Plz's boss has batted off the suggestion that he might relinquish the chief executive job anytime soon as the insurer he once compared to a "couch potato" continues to spring back to life. bit.ly/2vxlPiH

Sky News

OnTheMarket, the online property portal fighting a fierce battle with rivals Zoopla and Rightmove Plc, is to lift the veil on secret plans to demutualise and list its shares in a bumper stock market flotation. bit.ly/2wbi3IS

Investor Forum, a shareholder body whose members manage assets worth 14 trillion pounds, has waded into the multi-billion pound takeover of Worldpay Group Plc, the FTSE-100 payments group.

The Independent

The Unite union has announced a further two-week strike by British Airways staff working for the Mixed Fleet operation at Heathrow. It will begin on Aug. 16, immediately after the current stoppage ends, and continue to Aug. 30. ind.pn/2u7ekyy

Putin Clinton Trump dolls (Kirill Kudryavstev / AFP / Getty)
The Russia conspiracy theory so beloved by the media and the Democratic Party fell apart this week -- though it was easy to miss, amidst the chaos at the White House and the collapse of Congress's effort to repeal Obamacare.

Authored by Patrick Buchanan via Buchanan.org,

“One knowledgeable official estimates that the CIA-backed fighters may have killed or wounded 100,000 Syrian soldiers and their allies,” writes columnist David Ignatius.

Given that Syria’s prewar population was not 10 percent of ours, this is the equivalent of a million dead and wounded Americans. What justifies America’s participation in this slaughter?

Columnist Eric Margolis summarizes the successes of the six-year civil war to overthrow President Bashar Assad.

“The result of the western-engendered carnage in Syria was horrendous: at least 475,000 dead, 5 million Syrian refugees driven into exile in neighboring states (Turkey alone hosts three million), and another 6 million internally displaced. … 11 million Syrians … driven from their homes into wretched living conditions and near famine.

 

“Two of Syria’s greatest and oldest cities, Damascus and Aleppo, have been pounded into ruins. Jihadist massacres and Russian and American air strikes have ravaged once beautiful, relatively prosperous Syria. Its ancient Christian peoples are fleeing for their lives before US and Saudi takfiri religious fanatics.”

Realizing the futility of U.S. policy, President Trump is cutting aid to the rebels. And the War Party is beside itself. Says The Wall Street Journal:

“The only way to reach an acceptable diplomatic solution is if Iran and Russia feel they are paying too high a price for their Syria sojourn. This means more support for Mr. Assad’s enemies, not cutting them off without notice. And it means building up a Middle East coalition willing to fight Islamic State and resist Iran. The U.S. should also consider enforcing ‘safe zones’ in Syria for anti-Assad forces.”

Yet, fighting ISIS and al-Qaida in Syria, while bleeding the Assad-Iran-Russia-Hezbollah victors, is a formula for endless war and unending terrors visited upon the Syrian people.

What injury did the Assad regime, in power for half a century and having never attacked us, inflict to justify what we have helped to do to that country?

Is this war moral by our own standards?

We overthrew Saddam Hussein in 2003 and Moammar Gadhafi in 2012. Yet, the fighting, killing and dying in both countries have not ceased. Estimates of the Iraq civilian and military dead run into the hundreds of thousands.

Still, the worst humanitarian disaster may be unfolding in Yemen.

After the Houthis overthrew the Saudi-backed regime and took over the country, the Saudis in 2015 persuaded the United States to support its air strikes, invasion and blockade.

By January 2016, the U.N. estimated a Yemeni civilian death toll of 10,000, with 40,000 wounded. However, the blockade of Yemen, which imports 90 percent of its food, has caused a crisis of malnutrition and impending famine that threatens millions of the poorest people in the Arab world with starvation.

No matter how objectionable we found these dictators, what vital interests of ours were so imperiled by the continued rule of Saddam, Assad, Gadhafi and the Houthis that they would justify what we have done to the peoples of those countries?

“They make a desert and call it peace,” Calgacus said of the Romans he fought in the first century. Will that be our epitaph?

Among the principles for a just war, it must be waged as a last resort, to address a wrong suffered, and by a legitimate authority. Deaths of civilians are justified only if they are unavoidable victims of a deliberate attack on a military target.

The wars in Syria, Libya and Yemen were never authorized by Congress. The civilian dead, wounded and uprooted in Syria, and the malnourished millions in Yemen, represent a moral cost that seems far beyond any proportional moral gain from those conflicts.

In which of the countries we have attacked or invaded in this century — Afghanistan, Iraq, Syria, Libya, Yemen — are the people better off than they were before we came?

And we wonder why they hate us.

“Those to whom evil is done/Do evil in return,” wrote W. H. Auden in “September 1, 1939.” As the peoples of Syria and the other broken and bleeding countries of the Middle East flee to Europe and America, will not some come with revenge on their minds and hatred in their hearts?

Meanwhile, as the Americans bomb across the Middle East, China rises. She began the century with a GDP smaller than Italy’s and now has an economy that rivals our own.

She has become the world’s first manufacturing power, laid claim to the islands of the East and South China seas, and told America to keep her warships out of the Taiwan Strait.

Xi Jinping has launched a “One Belt, One Road” policy to finance trade ports and depots alongside the military and naval bases being established in Central and South Asia.

Meanwhile, the Americans, $20 trillion in debt, running $800 billion trade deficits, unable to fix their health care system, reform their tax code, or fund an infrastructure program, prepare to fight new Middle East war.

Whom the Gods would destroy…

Authored by Lee Smith via TabletMag.com,

Donald Trump, Jr. appears to be the latest figure in President Donald Trump’s inner circle to be caught in the giant web of the Great Kremlin Conspiracy. Trump the younger said he was promised dirt on Hillary Clinton, but that all he got in his June 2016 meeting with a Russian lawyer was an earful about dropping the Magnitzky Act, which sanctions Russian officials involved in the death of a Russian lawyer who was killed in detention.

If the Trump, Jr. meeting is just another chapter in the Beltway telenovela about Trump selling out America to the Russians through an ever-changing cast of supposed intermediaries - come back, Mike Flynn and Carter Page, we hardly knew ye - it sheds valuable light on the ways and means by which the news that fills our iPhone screens and Facebook feeds is now produced.

You see, the Russian lawyer - often carelessly presented as a “Russian government lawyer” with “close ties to Putin” - Natalia Veselnitskaya, who met with Trump, also worked recently with a Washington, D.C. “commercial research and strategic intelligence firm” that is also believed to have lobbied against the Magnitzy Act. That firm, which also doubles as an opposition research shop, is called Fusion GPS - famous for producing the Russia dossier distributed under the byline of Christopher Steele, a former British intelligence agent for hire.

Steele’s report, a collection of anonymously-sourced allegations, many of which were said to come from “high-ranking former Russian government officials” - i.e. not exactly the kinds of people who seem likely to randomly shoot the shit with ex-British spooks - detailed Trump’s ties to Russian officials and strange sexual obsessions. Originally ordered up by one of Trump’s Republican challengers, the dossier circulated widely in D.C. in the months before the 2016 election, pushed by the Clinton campaign, but no credible press organization was able to verify its claims. After Clinton’s surprise loss, the dossier became public, and it’s claims - while still unverified - have shaped the American public sphere ever since.

Yet at the same time that Fusion GPS was fueling a campaign warning against a vast Russia-Trump conspiracy to destroy the integrity of American elections, the company was also working with Russia to influence American policy - by removing the same sanctions that Trump was supposedly going to remove as his quid pro quo for Putin’s help in defeating Hillary. Many observers, including the press, can’t quite figure out how the firm wound up on both sides of the fence. Sen. Chuck Grassley wants to know if Fusion GPS has violated the Foreign Agents Registration Act.

As the founders of Fusion GPS surely understand, flexibility is a key recipe for success - and the more room you can occupy in the news cycle, the bigger the brand. After all, they’re former journalists - and good ones. Fusion GPS is the story of a few journalists who decided to stop being suckers. They’re not buyers of information, they’re sellers.

***

Fusion GPS was founded in 2009—before the social media wave destroyed most of the remaining structures of 20th-century American journalism—by two Wall Street Journal reporters, Glenn Simpson and Peter Fritsch. They picked up former colleagues from the Journal, Tom Catan, and Neil King, Jr., who were also well-respected by their peers. When the social media wave hit two years later, print media’s last hopes for profitability vanished, and Facebook became the actual publisher of most of the news that Americans consumed. Opposition research and comms shops like Fusion GPS became the news-rooms—with investigative teams and foreign bureaus—that newspapers could no longer afford.

As top reporters themselves, the principals of Fusion GPS knew exactly what their former colleagues needed in order to package and sell stories to their editors and bosses. “Simpson was one of the top terror-finance investigative reporters in the field,” says one Washington-based journalist, who knows Simpson professionally and personally, and who asked for anonymity in discussing a former reporter. “He got disillusioned when Rupert Murdoch took over the Journal because there was less room for the kind of long-form investigative journalism he thrived on.”

And now, says the journalist, “they’re guns for hire. They were hired to dig up dirt on donors to Mitt Romney’s campaign, they were hired by Planned Parenthood after a video exposing some of the organization’s controversial practices.”

Besides Russia, Fusion GPS has also worked with other foreign countries, organizing campaigns and creating news that furthers the aims of the people who pay for their services—using the fractured playing field of “news” to extend old-fashioned lobbying efforts in a way that news consumers have been slow to understand.

Fusion GPS, according to the company’s website, offers “a cross-disciplinary approach with expertise in media, politics, regulation, national security, and global markets.” What does that mean, exactly? “They were hired by a sheikh in the UAE after he was toppled in a coup and waged an information war against his brother,” one well-respected reporter who has had dealings with the company told me. “I believe they seeded the New Yorker story about the Trump Hotel in Azerbaijan with alleged connections to the IRGC. They may have been hired to look into Carlos Slim. It’s amazing how much copy they generate. They’re really effective.”

Yet it is rare to read stories about comms shops like Fusion GPS because traditional news organizations are reluctant to bite the hands that feed them. But they are the news behind the news—well known to every D.C. beat reporter as the sources who set the table and provide the sources for their big “scoops.” The ongoing transformation of foundering, profitless news organizations into dueling proxies for partisan comms operatives is bad news for American readers, and for our democracy. But it is having a particularly outsized effect on reporting in the area of foreign policy, where expert opinion is prized—and easily bought—and most reporters and readers are only shallowly informed.

***

For the past seven years, I’ve reported on and written about American foreign policy and what I saw as troubling trends in how we describe and debate our relationship to the rest of the world. What I’ve concluded during that period is that the fractious nature of those arguments—over the Iran Deal, for instance, or the war in Syria, or Russia’s growing role in the Middle East and elsewhere—is a symptom of a problem here at home. The issue is not about this or that foreign policy. Rather, the problem is that the mediating institutions that enabled Americans to debate and decide our politics and policies, here and abroad, are deeply damaged, likely beyond repair.

The shape of the debate over the Joint Comprehensive Plan of Action illustrated this most clearly. The Obama White House turned the press into an instrument used not only to promote its initiatives, but also to drown out and threaten and shame critics and potential opponents, even within the president’s own party. Given the financial exigencies of a media whose business model had been broken by the internet, mismanagement, and the rise of social media as the dominant information platform, the prestige press sacrificed its independence for access to power. If for instance, your beat was national security, it was difficult at best to cross the very few sources of power in Washington that controlled access to information. Your job depended on it. And there are increasingly fewer jobs in the press.

Ironically, the seeds of the moral and physical collapse of the American press were planted at the moment of its greatest popular triumph - All the President’s Men. Not the book by Bob Woodward and Carl Bernstein, but the 1976 film lionizing the work of journalists whose big story about the Watergate break-in and cover-up was based on information provided by a government official, who steered their reporting until he brought down the President of the United States. Oh sure, have it your way, Mark Felt—aka “Deep Throat”—was a whistleblower, a man of conscience serving the people he protected for decades as a federal agent. But he was also a man who wanted to become Director of the FBI, and became furious at Nixon for snubbing him for the top job. In other words, the hero of this epic tale was an embittered law enforcement official who instead of going public with what he knew about a crime, manipulated a vital American institution, the free press, to pay back his boss, while the reporters manfully withheld that information from their readers.

This is to take nothing away from the sedulous and detailed reporting of Bob Woodward and Carl Bernstein. But the lesson of Watergate has been imprinted on two generations of journalists, and it was only a matter of time before it was raised to the level of a virtue in the Obama years—if you want to break real news, you need to ingratiate yourself with the mid to high-level officials who are in position to leak it to you. And then, the bottom fell out of the news business.

Try to imagine what it’s like for recent graduates from the country’s top journalism schools when they first hit the Washington happy hour scene. It’s their first time out with their senior colleagues, their mentors—whoever still has a job. Everyone is three drinks into the evening and bragging about who’s closer to some deputy assistant secretary at the Pentagon, or the scheduler for the vice president’s chief of staff.

Gee, the apprentice reporter thinks to herself, in my “Sociology of the Fourth Estate” seminar at Medill, my favorite professor told me that as journalists, those who help provide the free flow of information necessary for the electorate to make choices about how we live at home and influence others abroad, we serve the American people. And now you’re saying that what we’re really doing is advancing the interests of certain bureaucrats against their rivals in other bureaucracies. So we’re political operatives—except we get paid less. Much much less.

The news media is dead broke. Print advertising is washed up and all the digital advertising that was supposed to replace lost revenue from print ads and subscribers has been swallowed up by Facebook and Google. But the good news is that people will still pay for stories, and it’s an awful lot easier to bill one customer than invoicing the 1,500 readers of your blog. The top customers for these stories are political operations.

There is no accurate accounting of how many of the stories you read in the news are the fruit of opposition research, because no journalist wants to admit how many of their top “sources” are just information packagers—which is why the blinding success of Fusion GPS is the least-covered media story in America right now. There’s plenty of oppo research on the right, but most of it comes from the left. That’s not because Republicans are more virtuous than Democrats and look for dirt less than their rivals do. Nor conversely is it because Republicans make a richer subject for opposition research because they’re so much more corrupt. Nope, it’s simple arithmetic: Most journalists lean to the left, and so do the majority of career officials who staff the federal government. There are more sounding boards on the left, and more sources. It’s not ideological, it’s business.

Thus, most of Fusion GPS’s contracts seem to come from the left—except for its most famous project, the Russia dossier. Before it was passed on to the Democrats, it started on the right, when one Republican candidate—thought to be Jeb Bush but never confirmed—hired the outfit to amass damning material on Trump. From humble beginnings, it has taken on the shape of a modern-day legend.

Plugging in various members of the president’s circle as possible accomplices—including his former national security adviser Mike Flynn, Carter Page, Attorney General Jeff Sessions, Trump’s son-in-law Jared Kushner, and now Donald Trump, Jr.—the narrative has led the news, print and broadcast, nearly every day for seven months. The Great Kremlin Conspiracy has fueled the energies of the anti-Trump resistance and turned obscure twitter feeds into folk heroes. More importantly, it has helped obstruct the legislative and political agenda of an administration that has had no shortage of big problems of its own making without also being the target of what has turned out to be most innovative and successful campaign of political warfare in recent memory.

The Trump-Russia story has frequently been likened to Watergate, a specious comparison since the latter started with evidence of a crime and the former with publication of an anthology of fables, pornography, and Russian-sourced disinformation put together and distributed by partisan political operatives. The salient comparison is rather in the effect—it has the same feel as Watergate. And it’s taking up the same space as Watergate—and that’s because comms shops-for-hire like Fusion GPS have assumed the role that the American press used to occupy.

***

Brickbats and Bouquets

 

On Wednesday, three major news organization published variations of the same story - about the line of succession to the Saudi throne. It seems that in June the son of King Salman, Mohammed Bin Salman, muscled his cousin Mohammed Bin Nayef out of the way to become the Crown Prince and next in line.

It’s a juicy narrative with lots of insider-y details about Saudi power politics, drug addiction, and the ambitions of a large and very wealthy family, but the most salient fact is that the New York Times, Wall Street Journal, and Reuters published what was essentially the same story, with minor variations, on the same day—not a breaking news story, but an investigative feature.

In other words, these media organizations were used as part of an information campaign targeting Riyadh, for as yet unknown reasons. Who’s behind it? Maybe an opposition research shop like Fusion GPS, or a less formal gathering of interests, like Saudi opponents foreign and domestic, as well as American intelligence officials.

It’s certainly embarrassing to be played for the sucker and see what you likely assumed was a scoop break in two other outlets the very same day, and some of the bylines involved are capable and talented journalists. But it’s perhaps worst for the New York Times, which was compelled to run what amounted to an article-length correction the next day, under the headline,Saudi Official Who Was Thought to Be Under House Arrest Receives a Promotion.” On Wednesday, the Times reported that Gen. Abdulaziz al-Huwairini had been put under house arrest by a faction loyal to Mohammed Bin Salman. On Thursday, the Times reported that he was in fact named head of a government body overseeing domestic security and counterterrorism issues.

Still, the Times published what was far and away the best piece of foreign news reporting this week, Tim Arango’s July 15 feature, “Iran Dominates in Iraq After US ‘Handed the Country Over.’ ” It’s a terrifically well-reported and well-written piece explaining how the administrations of George W. Bush and Barack Obama are both to blame for bungling one of the costliest and most controversial foreign engagements in American history.


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