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 on: Today at 06:04 AM 
Started by Steve - Last post by Rad
10/23/2014 04:51 PM

The Zombie System: How Capitalism Has Gone Off the Rails

By Michael Sauga

Six years after the Lehman disaster, the industrialized world is suffering from Japan Syndrome. Growth is minimal, another crash may be brewing and the gulf between rich and poor continues to widen. Can the global economy reinvent itself?

A new buzzword is circulating in the world's convention centers and auditoriums. It can be heard at the World Economic Forum in Davos, Switzerland, and at the annual meeting of the International Monetary Fund. Bankers sprinkle it into the presentations; politicians use it leave an impression on discussion panels.

The buzzword is "inclusion" and it refers to a trait that Western industrialized nations seem to be on the verge of losing: the ability to allow as many layers of society as possible to benefit from economic advancement and participate in political life.

The term is now even being used at meetings of a more exclusive character, as was the case in London in May. Some 250 wealthy and extremely wealthy individuals, from Google Chairman Eric Schmidt to Unilever CEO Paul Polman, gathered in a venerable castle on the Thames River to lament the fact that in today's capitalism, there is too little left over for the lower income classes. Former US President Bill Clinton found fault with the "uneven distribution of opportunity," while IMF Managing Director Christine Lagarde was critical of the numerous financial scandals. The hostess of the meeting, investor and bank heir Lynn Forester de Rothschild, said she was concerned about social cohesion, noting that citizens had "lost confidence in their governments."

It isn't necessary, of course, to attend the London conference on "inclusive capitalism" to realize that industrialized countries have a problem. When the Berlin Wall came down 25 years ago, the West's liberal economic and social order seemed on the verge of an unstoppable march of triumph. Communism had failed, politicians worldwide were singing the praises of deregulated markets and US political scientist Francis Fukuyama was invoking the "end of history."

Today, no one talks anymore about the beneficial effects of unimpeded capital movement. Today's issue is "secular stagnation," as former US Treasury Secretary Larry Summers puts it. The American economy isn't growing even half as quickly as did in the 1990s. Japan has become the sick man of Asia. And Europe is sinking into a recession that has begun to slow down the German export machine and threaten prosperity.

Capitalism in the 21st century is a capitalism of uncertainty, as became evident once again last week. All it took were a few disappointing US trade figures and suddenly markets plunged worldwide, from the American bond market to crude oil trading. It seemed only fitting that the turbulence also affected the bonds of the country that has long been seen as an indicator of jitters: Greece. The financial papers called it a "flash crash."

Running Out of Ammunition

Politicians and business leaders everywhere are now calling for new growth initiatives, but the governments' arsenals are empty. The billions spent on economic stimulus packages following the financial crisis have created mountains of debt in most industrialized countries and they now lack funds for new spending programs.

Central banks are also running out of ammunition. They have pushed interest rates close to zero and have spent hundreds of billions to buy government bonds. Yet the vast amounts of money they are pumping into the financial sector isn't making its way into the economy.

Be it in Japan, Europe or the United States, companies are hardly investing in new machinery or factories anymore. Instead, prices are exploding on the global stock, real estate and bond markets, a dangerous boom driven by cheap money, not by sustainable growth. Experts with the Bank for International Settlements have already identified "worrisome signs" of an impending crash in many areas. In addition to creating new risks, the West's crisis policy is also exacerbating conflicts in the industrialized nations themselves. While workers' wages are stagnating and traditional savings accounts are yielding almost nothing, the wealthier classes -- those that derive most of their income by allowing their money to work for them -- are profiting handsomely.

According to the latest Global Wealth Report by the Boston Consulting Group, worldwide private wealth grew by about 15 percent last year, almost twice as fast as in the 12 months previous.

The data expose a dangerous malfunction in capitalism's engine room. Banks, mutual funds and investment firms used to ensure that citizens' savings were transformed into technical advances, growth and new jobs. Today they organize the redistribution of social wealth from the bottom to the top. The middle class has also been negatively affected: For years, many average earners have seen their prosperity shrinking instead of growing.

Harvard economist Larry Katz rails that US society has come to resemble a deformed and unstable apartment building: The penthouse at the top is getting bigger and bigger, the lower levels are overcrowded, the middle levels are full of empty apartments and the elevator has stopped working.

'Wider and Wider'

It's no wonder, then, that people can no longer get much out of the system. According to polls by the Allensbach Institute, only one in five Germans believes economic conditions in Germany are "fair." Almost 90 percent feel that the gap between rich and poor is "getting wider and wider."

In this sense, the crisis of capitalism has turned into a crisis of democracy. Many feel that their countries are no longer being governed by parliaments and legislatures, but by bank lobbyists, which apply the logic of suicide bombers to secure their privileges: Either they are rescued or they drag the entire sector to its death.

It isn't surprising that this situation reinforces the arguments of leftist economists like distribution critic Thomas Piketty. But even market liberals have begun using terms like the "one-percent society" and "plutocracy." The chief commentator of the Financial Times, Martin Wolf, calls the unleashing of the capital markets a "pact with the devil."

They aren't alone. Even the system's insiders are filled with doubt. There is the bank analyst in New York who has become exasperated with banks; the business owner in Switzerland who is calling for higher taxes; the conservative Washington politician who has lost faith in the conservatives; and the private banker in Frankfurt who is at odds with Europe's supreme monetary authority.

They all convey a deep sense of unease, and some even show a touch of rebellion.

If there is a rock star among global bank analysts, it's Mike Mayo. The wiry financial expert loves loud ties and tightly cut suits, he can do 35 pull-ups at a time, and he likes it when people call him the "CEO killer."

The weapons Mayo takes into battle are neatly lined up in his small office on the 15th floor of a New York skyscraper: number-heavy studies about the US banking industry, some as thick as a shoebox and often so revealing that they have enraged industry giants like former Citigroup CEO Sandy Weill, or Stan O'Neal in his days as the head of Merrill Lynch. Words of praise from Mayo are met with cheers on the exchanges, but when he says sell, it can send prices tumbling.

Mayo isn't interested in a particular sector but rather the core of the Western economic system. Karl Marx called banks "the most artificial and most developed product turned out by the capitalist mode of production." For Austrian economist Joseph Schumpeter, they were guarantors of progress, which he described as "creative destruction."

But financial institutions haven't performed this function in a long time. Before the financial crisis, they were the drivers of the untenable expansion of debt that caused the crash. Now, focused as they are on repairing the damage done, they are inhibiting the recovery. The amount of credit ought to be "six times faster than it has been," says Mayo. "Banks now aren't the engines of growth anymore."

Mayo's words reflect the experience of his 25 years in the industry, a career that sometimes sounds like a plot thought up by John Grisham: the young hero faces off against a mafia-like system.

He was in his late 20s when he arrived on Wall Street, a place he saw as symbolic of both the economic and the moral superiority of capitalism. "I always had this impression," says Mayo, "that the head of a bank would be the most ethical person and upstanding citizen possible."

The Blackest of Boxes
But when Mayo, a lending expert, worked for well-known players like UBS and Prudential Securities, he quickly learned that the glittering facades of the American financial industry concealed an abyss of lies and corruption. Mayo met people who recommended buying shares in technology companies in which they themselves held stakes. He saw how top executives diverted funds into their own pockets during mergers. And he met a bank director who only merged his bank with a lender in Florida because he liked boating in the Keys.

What bothered Mayo most of all was that his employers penalized him for doing his job: writing critical analyses of banks. He lost his job at Lehman Brothers because he had downgraded a financial institution with which the Lehman investment department wanted to do business. Credit Suisse fired him because he recommended selling most US bank stocks.

Only when the real estate bubble burst did the industry remember the defiant banking analyst, who already saw the approaching disaster even as then-Deutsche Bank CEO Josef Ackermann issued a yield projection of 25 percent. Fortune called him "one of eight people who saw the crisis coming." The US Congress called on him to testify about the crisis.

Today Mayo writes his analyses for the Asian brokerage group CLSA and they still read like reports from a crisis zone. Central banks have kept lenders alive with low interest rates, and governments have forced them to take up additional capital and comply with thousands of pages of new regulations. Nevertheless, Mayo is convinced that "the incentives that drove the problems … are still in place today."

Top bank executives are once again making as much as they did before the crisis, even though the government had to bail out a large share of banks. The biggest major banks did not shrink, as was intended, but instead have become even larger.

Incalculable Risks

New accounting rules were passed, but financial managers can still hide the value of their receivables and collateral behind nebulous terms like "transaction" or "customer order." Bank balance sheets, British central banker Andrew Haldane said caustically, are still "the blackest of boxes."

Before the crash, investment banks gambled with derivatives known by acronyms like CDO and CDS. Today Wall Street institutions try to get the upper hand with high-frequency trading, with their Dark Pools and millisecond algorithms. Regulators fear that high-frequency trading, also known as flash trading, could create incalculable risks for the global financial system.

When analyst Mayo thinks about the modern banking world, he imagines a character in the Roman Polanski film "Chinatown," California detective Jake Gittes. The man solves one corruption case after another, and yet the crime level in Los Angeles doesn't go down. "Why is that?" he finally asks another character, who merely replies: "Forget it, Jake. It's Chinatown."

It's the same with the banking industry, says the analyst. Individual institutions aren't the problem, he explains. The problem is the system. "The banks are Chinatown," says Mayo, "and it is still the situation today."

The little village of Wimmis lies in an area of Switzerland that still looks quintessentially Swiss, the Bernese Oberland, or Highlands, where Swiss flags flutter in front yards. The local tanning salon is called the "Sunne Stübli" (little sun room) and under "item five" of the latest edition of the town's "Placard Ordinance," posted outside the town administration building, organizations must secure their public notices "with thumbtacks" and "not with staples." Everything has its place in Wimmis, as it does in Markus Wenger's window factory. The business owner, with his thinning hair and crafty eyes, is the embodiment of the old saying, "time is money." He walks briskly through his production building, the size of a football field, passing energy-saving transom windows, energy-saving patio doors and energy-saving skylights, which can be installed between solar panels, also to save energy, a system Wenger developed. "We constantly have to think of new things," he says, "otherwise the Czechs will overtake us."

Wenger could pass for a model businessman from the regional chamber of commerce were it not for his support for a political initiative that's about as un-Swiss as banning cheese production in the Emmental region. Wenger advocates raising the inheritance tax.

For decades, Switzerland was based on a unique form of popular capitalism, which promised small craftsmen as many benefits as those who worked in high finance. Switzerland was the discreet tax haven for the world's rich, while simultaneously laying claim to Europe's highest wage levels -- a Rolex model of the social welfare state.

But the country's established class consensus was shattered by the excesses of the financial crisis -- the $60 billion bailout of its biggest bank, UBS, and the millions in golden parachutes paid out to executives so that they wouldn't go to the competition after being jettisoned by their companies.

Since then, a hint of class struggle pervades Swiss Alpine valleys. A series of popular initiatives have been launched, initiatives the financial newspapers have labeled "anti-business." To begin with, the Swiss voted on and approved a cap on so-called "rip-off salaries." Another referendum sought to impose a ceiling on executive compensation, but it failed. A proposal by Social Democrats, Greens and the socially conservative EVP, to support government pensions with a new tax on large inheritances, will be put to a referendum soon.

'The Wealth of Medieval Princes'

Income isn't the problem in Switzerland, where the gap between rich and poor is no wider than in Germany or France. The problem is assets. No other country has as many major shareholders, financiers and investors, and in no country is as much capital concentrated in so few hands. The assets of the 100 wealthiest Swiss citizens have increased almost fivefold in the last 25 years. In the Canton of Zürich, the 10 richest residents own as much as the poorest 500,000. When a Swiss business owner died recently, his two heirs inherited an estate worth as much as all single-family homes and owner-occupied flats in the Canton of Appenzell Innerrhoden. Wealth has become so concentrated in Switzerland, says the former head of the Zürich statistics office, that it "rivals the wealth of medieval princes."

The government benefits hardly at all from this wealth. The Swiss tax authorities recently collected all of 864 million Swiss francs (€715 million) in inheritance tax, and this revenue source is unlikely to increase anytime soon. To attract wealthy individuals, the cantons have reduced their tax rates to such low levels that even estates worth billions can be left to the next generation without being subject to any taxation at all.

In the past, the Swiss were fond of their quirky high society, whose lives of luxury in places like Lugano were as spectacular as their bankruptcies. But now, a large share of the super-rich comes from the financial industry, and even an upright window manufacturer like Markus Wenger is often unsure what to make of the demands coming from his high-end customers.

A homeowner recently asked Wenger if he could gold-plate his window fittings. And when he was standing in an older couple's 500-square-meter (5,380-square-foot) apartment not long ago, he found himself wondering: How do they heat this?

A Dangerous Path

Wenger is no revolutionary. He likes the market economy and says: "Performance must be rewarded." His support for a higher inheritance tax is not as much the result of his sense of justice, but rather a cost calculation that he explains as soberly as the installation plan for his windows.

This is how Wenger's calculation works: Today he pays about €8,000 a year in social security contributions for a carpenter who makes 65,000 Swiss francs (€54,000). But the Swiss population is aging, so contributions to pension insurance threaten to increase drastically soon. Doesn't it make sense, he asks, to exact an additional, small contribution from those Swiss citizens who hardly pay any taxes at all today on their rapidly growing fortunes?

For Wenger, the answer is obvious. But he also knows that most of his fellow business owners see things differently. They are worried about an "attack by the left" and prefer to support their supposed champion, Christoph Blocher, the billionaire spiritual head of the Swiss People's Party. Only recently, Blocher convinced the Swiss to limit immigration by workers from other European countries. Now Wenger expects Blocher to launch a new campaign under the motto: "Are you trying to drive our business owners out of the country?"

There is more at stake than a few million francs for the national pension fund. The real question is whether wealthy countries like Switzerland should become playthings for their elites. Wenger sees the industrialized countries embarking on a dangerous path, the path of greed and self-indulgence, and he believes Blocher's party is the most visible expression of that. Blocher is pursuing a "policy for high finance," says Wenger. "He is fighting on behalf of money."

The entrepreneur from the Bern Highlands has no illusions over his prospects in the upcoming conflict with the country's great scaremonger. The Swiss are likely to vote on the inheritance tax initiative next year. "In the end," Wenger predicts, "the vote will be 60 to 40 against us."

The Deformation of Capitalism
He was the face of the Reagan revolution, a young man with large, horn-rimmed glasses and thick hair, wearing a suit that was too big for him as he sat next to the hero of conservative America. As former President Ronald Reagan's budget director, David Stockman was the architect of the biggest tax cut in US history and the propagandist of the "trickle-down" theory, the Republican tenet whereby profits earned by the rich eventually benefit the poorer classes.

Thirty years later, Stockman is sitting on a Chesterfield sofa in his enormous mansion in Greenwich, Connecticut, an affluent suburb of New York, where the stars of the hedge fund industry conceal their tasteless mansions behind red brick walls and jeeps owned by private security companies are parked on every street corner.

Stockman is wearing a green baseball cap and a black T-shirt. It's a sunny early fall morning, but the mood in the brightly lit rooms is strangely somber. The rooms are empty, there are boxes stacked in the corners and a servant is wrapping the silverware in the dining room.

Stockman is moving to New York, into an apartment he has already rented in Manhattan. But it isn't entirely clear whether he is only moving to be closer to TV studios and newspaper editors, or if the move signifies a departure from his previous life. It was a life that took him through the executive suites of Washington politics and the US financial industry, a life that has placed Stockman in an almost unparalleled position to recount the aberrations of American capitalism in the last three decades. "We have a financialized, central-bank dominated casino," he says, "that is undermining the fundamentals of a healthy growing capitalist economy," he says.

Ironically, Stockman was the one who wanted to reshape that society, back in the 1980s, when Reagan made him the organizer of his shift to so-called supply-side economics. Like the actor-turned-president from California, Stockman believed in free markets, low taxes and reducing the role of government.

The First Mistake

But Stockman also believed in healthy finances, which placed him at odds with the California contingent on Reagan's team who saw themselves as lobbyists for industry and the military. When Reagan's chief of staff, Donald Regan, declared the phrase "tax increase" to be taboo after the 1984 election, Stockman knew that he had lost. But it was more than a personal defeat. It was a triumph of irrationality, one that led Stockman to permanently disassociate himself from his party's fiscal policies. "The Republican concept of starving the beast is the worst thing in terms of fiscal rectitude that you can imagine," Stockman says today. "It's even worse than the Keynesian models of the Democrats."

The debt policy of the Reagan years was the first mistake of America's conservative revolutionaries, but not the only one. There is another fallacy, one that Stockman also participated in when he went to work for the investment bank Salomon Brothers and later the private equity firm Blackstone after his ouster from the White House.

It was the time when it had become politically fashionable to unfetter the financial industry; a time when then-Fed Chairman Alan Greenspan, Stockman's old acquaintance from the Reagan team, was inventing a new monetary policy: Whenever the economy and the markets showed signs of weakness, he reduced interest rates, and when a large financial institution ran into trouble, it was bailed out with the help of the central bank.

Greenspan's policy of cheap money became a sweet poison for Wall Street, the chief ingredient of the dangerous debt cocktails brewed up by the wizards at London and New York investment banks, with Stockman front and center. The former politician became a virtuoso of the leveraged buyout, a complex financial deal in which in investor buys companies with borrowed money, restructures them or carves them up, and then sells them at a profit.

The deals made Stockman rich, but they also turned him into a junkie. His projects became increasingly risky and the towers of credit he constructed became taller and taller. "I was an addict," he says. "I got caught up in the process."

A Debt Republic

Disaster struck in 2007, when one of his highly leveraged companies went bankrupt. He was indicted on fraud charges, and the bankruptcy cost him millions and damaged his reputation. It became his "road to Damascus experience," as he calls it, when the financial crisis erupted a short time later. He concluded that the same mistakes that had destroyed his company also took the United States to the brink of an abyss: cheap credit, excessively high debt and a false sense of security that everything would ultimately work out for the best.

Stockman again became the rebel he had been at the beginning of his career. He gave up his position in the financial industry, started a blog in which he settled scores with both policymakers in Washington and the financial oligarchy on Wall Street and he wrote an almost 800-page analysis of the "Great Deformation" of US capitalism.

The conservative is furious over his country's transformation into a debt republic of the sort the Western world has never before seen in times of peace. A republic in which going to college is paid for with borrowed funds, as is the next military campaign. A country which hasn't actually dismantled its gigantic pile of debt since the crisis -- $60 trillion -- but has merely redistributed it. While the banks were allowed to pass on a large share of their bad loans to taxpayers, the government is in more debt than ever before.

The mountain of debt appears smaller than it is because the Fed keeps interest rates low. At the same time, though, all this cheap money is driving the United States into a risky race against time, one in which no one knows what will happen first: the hoped-for economic boom or the next crash. Experts, like former Treasury Secretary Robert Rubin, believe the current rally in the markets is in fact the precursor to the next crash.

The primary beneficiaries of the market rally seen in recent months are the 10 percent of top earners who own more than 90 percent of financial assets. But for average Americans, the policies instituted in response to the crisis have been poverty inducing. After the crash, millions of US citizens first lost their homes and then their jobs -- and now the social divide in the country is as big as it was in the 1920s. While wealth has grown at the top of the income scale, the median household, or the household that lies statistically at the exact middle of the scale, has become $50,000 poorer since 2007.

In the past, part of the promise of the American dream was that anyone who worked hard enough could eventually improve his or her situation. Today the wealthy enjoy most of the fruits of US capitalism and the most salient feature of the system is the fear of fear. No one knows what might happen if the Fed raises interest rates next year as planned. Will pressure from rising costs cause the government deficit to explode? Will the stock market bubble burst and will financial institutions collapse? Will the economy crash?

Only one thing is certain: In the seventh year of the financial crisis, the US economy is still addicted to debt and cheap money. Worst of all, the withdrawal phase hasn't even begun.

"There is no possibility of a soft landing (with the) markets as completely distorted and disabled as they are today," Stockman says in parting. "There will be some great conflagration. It's just the question of when."

Michael Klaus flips open his mobile phone, which he has been doing a lot of these days. He taps the screen with his finger to display the current yields on 10-year German government bonds. "Germany 10 Year: 0.80," the screen reads, using the abbreviated terminology of the Bloomberg market service. "You see," he says, "yields are down again. They were at 0.84 yesterday."

It's Wednesday of last week. The Frankfurt banker is walking down Friedrichstrasse in Berlin on his way to a meeting with fellow members of the Confederation of German Employers' Associations. The latest labor agreement is on the agenda, but Klaus is still thinking about the number on the screen of his mobile phone, yet another reaction to the most recent plans of Mario Draghi, the president of the European Central Bank (ECB).

Such rates are almost always a reaction to Draghi, at least they have been since the euro crisis got going. According to economics textbooks, security prices are determined by supply and demand. But in the reality of the monetary union, they usually follow the rates set by the top monetary watchdog in Frankfurt. In Klaus's assessment of the situation, "to put it in somewhat exaggerated terms, we live in a central-bank-administration economy."

The ECB's Contribution
For the last quarter of a century, Klaus, a management expert, has been working for Metzler, a traditional, private bank based in Frankfurt. He is now a partner and exudes the self-confident nonchalance of a man who knows that his customers need to show up with at least €3 million to become his clients. His biggest asset is reliability. Unlike the large, powerful banks, his bank would be unable to count on government assistance in a crisis. It is not big enough to be too big to fail.

Partly for that reason, Klaus is particularly bothered by the ECB's development in recent years. He sees it as a kind of hedge fund a kind of ministerial administration. Because Europe's major banks are ailing and national governments are at odds, the ECB has developed into the most powerful bureaucracy on the Continent. It controls interest rates and the money supply, drives prices on the exchanges and financial markets, supervises financial institutions and audits governments. According to Klaus, the European Central Bank has all but "replaced" the European bond market.

It made sense at the time, because it protected the monetary union from breaking apart. But now emergency aid has turned into long-term assistance. The effects of ECB measures are subsiding, and financial experts aren't the only ones to notice that their programs have recently done more harm than good.

That was the case with Draghi's latest package last month. To stimulate lending to small and mid-sized companies, the ECB announced its intention to begin large-scale buying of special debt instruments known as asset-backed securities, or ABS. The only problem is that far too few of these securities exist in Europe.

This leads many experts to worry that lenders will simply fill the gap by transforming bad debt from their portfolios into ABSs and pass them on to the ECB. The investment effect would be next to nothing.

Draghi's plan to provide long-term funds to banks if they can demonstrate that they passed it on in the form of loans to companies or households could also prove harmful. They must only offer proof in 2016, meaning they could first invest the money in government bonds, a surer bet these days than corporate bonds.

Achieving the Opposite

Another recent Draghi measure is particularly dangerous: the "negative deposit interest rate." It means that banks no longer earn anything when they park their money with the ECB. On the contrary, they are required to pay for the privilege.

This too is meant to encourage banks to lend. In reality, however, the measure makes the situation even more difficult for financial institutions like savings banks and cooperative banks, which are dependent on customer deposits. Because of the current low interest rates, these banks already earn almost nothing from the spread between savings and lending rates. If interest rates are pushed down even further, profits will continue to decline. "Ironically, this torpedoes the business model of savings banks and cooperative banks, which have thus far managed to survive the crisis in relatively good shape," says Klaus.

Many experts are worried that with measures like these, the ECB is achieving precisely the opposite of what it wants to achieve. Instead of being strengthened, the credit sector is weakened. Instead of reducing risks, new ones are being created. Instead of liquidating ailing banks, they are kept alive artificially.

The economy has had little experience thus far with the new crisis capitalism, with its miniature growth, miniature inflation and miniature interest rates. But economists learned one thing after large credit bubbles burst in recent years, in Japan and Scandinavia, for example: After a financial and banking crisis, the first order of business is to clean up the banks, and to do it quickly and radically. Institutions that are not viable need to be shut down while the others should be provided with capital.

'Substantial Turbulence'

In Europe, however, this process has dragged on for years, under pressure from the financial lobby. The condition of the industry is now so dismal that experts are using metaphors from the world of horror films to describe it. "Zombie banks" are those that are being kept alive artificially with government bailouts and, like the zombies in Hollywood films, are wreaking havoc throughout Europe. They are too sick to lend money to the real economy but healthy enough to speculate with financial investments. Many banks today, says Bonn economist Martin Hellwig, can only "survive in the market by speculating."

What distinguishes the current situation from the wild years before the financial crisis is that speculators were once driven by greed but have since turned into speculators motivated by need.

Private banker Klaus has seen enough on his market app. He closes the phone with a worried look on his face, and then he utters a sentence in the typically convoluted idiom of the financial industry: "If Europe slips into a recession, it could lead to substantial turbulence in the financial markets."

The man who introduced the concept of "inclusion" into the political debate is sitting in his office in Boston. There are mountains of papers on the round conference table: academic papers, pages of statistics from the International Monetary Fund, and the latest issue of the Anarcho-Syndicalist Review.

Daron Acemoglu is currently considered one of the 10 most influential economists in the world, but the native of Istanbul doesn't think much of titles and formalities. He prefers the relaxed look of the web community: a plaid shirt and jeans, and a Starbucks cup in his hand.

He became famous two years ago when he and colleague James Robinson published a deeply researched study on the rise of Western industrial societies. Their central thesis was that the key to their success was not climate or religion, but the development of social institutions that included as many citizens as possible: a market economy that encourages progress and entrepreneurship, and a parliamentary democracy that serves to balance interests.

The only problem is that such institutions do not arise automatically. They have to be promoted and defended, especially against those social classes and interest groups that use power to seal themselves off from competitors, secure their own benefits and seek to influence lawmakers accordingly.

Extremely well read, Acemoglu can cite dozens of such cases. One is 14th century Venice, where a small patrician caste monopolized maritime trade. Another is Egypt under former President Hosni Mubarak, whose officer friends divided up key economic posts among themselves but were complete failures as businessmen. These are what Acemoglu calls "extractive processes," which lead to economic and social decline.

A Process of Extraction?

The question today is: Are Western industrial societies currently undergoing a similar process of extraction?

Acemoglu leans back in his chair. He isn't one to make snap judgments, and he understands the contradictions of social trends, in the United States, for example. On the one hand, the US is more inclusive today than in the 1960s, because it has abolished racial segregation. On the other hand, says Acemoglu, he has noticed the growing influence of powerful interest groups: the pharmaceutical industry, insurance companies and, most of all, Wall Street. "The problem of money in politics," says Acemoglu, "is particularly acute in the case of the financial industry."

US politicians spend up to 70 percent of their time raising money for their campaigns, and Wall Street is one of their most important sources. Experts have calculated that Bill and Hillary Clinton alone have garnered at least $300 million in donations from the financial industry since the early 1990s.

In addition, money is no longer the only factor shaping the connections between Wall Street and Washington, as Acemoglu demonstrated in a recent study about former US Treasury Secretary Timothy Geithner. The stock prices of financial firms, with which he maintained close relationships, climbed significantly after his nomination. "The fact that some companies had the ear of the Secretary of the Treasury," Acemoglu concludes, "was, at least by the market view, very valuable."

It has nothing to do with bribery, Acemoglu clarifies. Still, the process highlights the dangerous closeness between the financial industry and the political world, a phenomenon which can be seen elsewhere in the world as well. In Germany, for example, Chancellor Angela Merkel took steps to prevent a Greek insolvency at least partly out of consideration for German banks invested there. The London financial industry, to cite another example, was instrumental in blocking EU plans for the introduction of a financial transaction tax. In Switzerland, billionaire Blocher finances referendum campaigns via his political party. "The rich are extremely powerful," Acemoglu says, "and that is a concern."

Not Enough

Limiting that influence is of the utmost importance, Acemoglu believes, so that today's upper-class, high-finance capitalism can once again revert to being a capitalism of the real economy and the societal center. The necessary economic reforms are not Acemoglu's primary focus, even if the relevant proposals have existed for a long time: a fiscal policy that doesn't just benefit the rich; a monetary policy that knows its limits; a reform of the financial and banking industry that separates the traditional savings and lending business from risky investment banking.

That won't be enough, Acemoglu believes. What is needed, he argues, is a new political alliance that takes a stand against the power of the financial industry and its lobby. He sees the anti-trust movement from the beginning of the last century in the United States as a model. It was a broad coalition from the center of society and finally achieved its great victory after decades of struggle: the breakup of major corporations like Standard Oil.

Will something comparable happen with the big international banks? Acemoglu doesn't know, but he is convinced of one thing: Elitist conferences, at which bankers and fiscal policy experts hold sophisticated conversations about "inclusion," will not bring about change.

The organizers of the World Economic Forum once again sent him an invitation to Davos recently. But Acemoglu declined, as he has done several times in the past. "Solutions to the world's problems are not produced in a meeting between Bill Gates and George Soros," he says. "Renewal has to come from below."

 on: Today at 06:03 AM 
Started by Steve - Last post by Rad
10/23/2014 04:48 PM

EU Banking Stress Tests: 'Far-Reaching Reforms Are Needed'

Interview Conducted by Martin Hesse

On Sunday, Europe will release the results of its banking stress tests. In an interview, former PIMCO head Mohamed El-Erian speaks with SPIEGEL about what to expect and how Europe's core countries are failing to adequately confront a flagging economy.

SPIEGEL: Mr. El-Erian, the results of the stress test on European banks will be published on Sunday. If you had a billion dollars to bet for or against European banks, what would you do?

El-Erian: Stock markets are altogether overvalued; people took risks in financial markets that were too high. Banking stocks often exaggerate the development: If stock markets rise, bank shares rise higher. If stock markets fall, they fall deeper. Therefore, I would buy neither stocks nor bank bonds prior to a correction. I would focus on highly secured banking bonds.

SPIEGEL: How poorly are Europe's banks doing?

El-Erian: Soon, banks will no longer be the biggest risk to the financial system and the economy. And five years from now, many credit institutions will be smaller than they are today, having discontinued some types of business, and will better support the real economy.

SPIEGEL: Why only then? What has to happen first?

El-Erian: Not all banks will pass the ECB comprehensive assessment with flying colors. Some need capital, others need to downsize. Many banks haven't yet solved their culture problems and legal disputes. Foul credits and securities need to be further reduced. This is even more of a problem as the economic environment is now getting worse again.

SPIEGEL: In Germany there is an expectation that banks from the periphery of the European Union will prove weaker than financial institutions in core EU countries. Do you share that view?

El-Erian: That is putting it too simply. Peripheral countries like Ireland and Greece are at different stages of mastering the crisis. There will be banks in core countries of the euro zone that won't look very good in the test and others that will pass with ease. But this is exactly the problem: So far investors have been badly informed and couldn't distinguish between healthy and less healthy banks -- and therefore had less trust in all of them.

SPIEGEL: Will this examination of their balance sheets change that?

El-Erian: The exercise will provide a good momentary assessment of the system's condition. I'm convinced that the test is serious and strict. Furthermore, the comprehensive, and henceforth better comparable, balance sheet data will allow investors and analysts to run their own tests, with their own assumptions, if they consider these more realistic than the ECB scenarios. That is why this test will drive away thecloud of uncertainty which is hovering over the European economy.

SPIEGEL: Was Europe's reaction to the financial crisis wrong?

El-Erian: Of course the euro zone could have done better. The high unemployment rate, particularly among the youth, is alarming. But the same applies for the US, UK or Japan -- there is too little investment overall, and reforms to labor and production markets are incomplete. With the exception of Germany, the highly developed economies slept through their opportunity to renew themselves.

SPIEGEL: Why is that?

El-Erian: The US, the UK, Ireland, Iceland, Greece and other countries fell in love with the wrong growth model. They believed that -- following the agrarian economy, industrialization and the service economy -- the primacy of financial industries represented the next step of capitalism. Financial service providers that supported the rest of the economy turned into banks serving only their own interests.

SPIEGEL: What has changed in that regard? Central banks in Europe are still mainly focused on supporting the banks.

El-Erian: No. Neither the Fed nor the ECB believe anymore that this model is sustainable on the long term. With their loose fiscal policy, they merely want to build a bridge until a system has been established in which banks play a serving role again.

SPIEGEL: They've been building this bridge for quite some time.

El-Erian: Correct. And I'm afraid that the malaise and the weak growth will be here for a long time. Some politicians still don't realize how serious the situation is. They believe it's only a cyclical problem, just as there have always been periods of economic downturn and periods of boom. But the long-term tendency points downwards; the capacity to grow is declining continuously.

SPIEGEL: The ECB has now begun buying securities from banks on a large scale. Will that help the economy?

El-Erian: The far-reaching reforms that are needed can only come from governments. They have every opportunity to avoid a new downward spiral. That's why this is so frustrating. It's merely a question of political will and lasting implementation.

SPIEGEL: Should Germany take on more leadership responsibility?

El-Erian: The three biggest economies of the euro zone -- Germany, France and Italy -- are facing headwinds. But instead of pulling together, the three insist on opposing positions. In the end, all sides will have to move. Structural reforms are required in almost all European countries. But it is good that Germany has now started to talk more about investments, such as into infrastructure, for example.

 on: Today at 06:01 AM 
Started by Rad - Last post by Rad
PETA’s Ingrid Newkirk explains her ‘unique’ will: BBQ me and send my eyeballs to the EPA

25 Oct 2014 at 01:43 ET     

People for the Ethical Treatment of Animals (PETA) president and co-founder Ingrid Newkirk is putting her life and death into activism—literally. On Wednesday afternoon, Newkirk published her “unique” last will and testament, where she has “divvied up the parts” of her own body to alleviate animal suffering in the afterlife.

This means that upon her death, Newkirk wants the “meat” of her body “to be used for a human barbecue,” her skin “to be removed and made into leather products, such as purses” and has instructed PETA to remove, mount and deliver one of her eyes to the head honcho of the U.S. Environmental Protection Agency “as a reminder that PETA will continue to be watching the agency until it stops poisoning and torturing animals in useless and cruel experiments.”

Newkirk conceived the idea after a near-death experience rocked her in 2009. On a flight back to her home of Norfolk, Virginia from Minnesota, the aircraft got caught in a violent wind shear during a storm and was blown out to sea. “When things like this happen to you, you have thoughts,” she said in an interview with Newsweek. “What I was thinking was —'cause this was the end—Well, there goes my activism!”

She survived the experience, but as many who brush with death do, she began to think critically about her life. The next day, she had a thought.

“You get these funny flashbacks of like—‘I shouldn’t be here, I should be dead.’ And I thought about how lucky I was to continue arguing that people not be cruel to animals,” she says. “If your body had pulled through and [you] gave it PETA, they could use bits of your body to continue your activism through death.”

Newkirk called her mother for her blessing, then drafted the will with the help of a pathologist and an attorney who assured her she wasn’t breaking any laws.

But Newkirk wants the will to be a collaborative, evolving document, and is encouraging animal lovers to send her their wildest ideas about what to do with her body “because I won’t have any use for it when I’m gone,” she says. “I’ve got all sorts of things—kidneys, a lot of my heart left, my toes, my ribs.”

Her heart, several fingers and liver are already spoken for: One of her thumbs, pointed in an upward motion, is to be mounted and given to someone who has done the most to promote PETA-approved alternatives to animal abuse, while the downward-facing thumb will be mounted and given to someone who has “frightened and hurt animals in some egregious manner.” Her liver is to be vacuum-sealed and shipped to France, in punishment for the nation eating tons of foie gras. Part 2j of the document instructs that “a little part of her heart” is to be buried close by the Ferrari pits where German Formula One racer Michael Schumacher won the German Grand Prix. Why? Newkirk is a diehard F1 junkie.

As for that human barbecue, Newkirk isn’t reaching out to cannibals just yet. She said the barbecue’s location depends on what’s going on at the time of her death and is at the discretion of PETA. “It could be at the National Pork Convention Rally” or “to protest the transport of animals along a highway,” or she says it “might even be good to serve at a political event to say it’s time to put vegetarian and vegan meals in the schools.” The plan is to lure people to the barbecue with an old cooking trick: sizzling onions on the grill.

Since writing the will, it seems Newkirk has been mired in the macabre: We speak about funeral plans and the possible music she might want played at her service. An obvious choice, she says, would be her friend Morrissey’s 1985 album Meat Is Murder; the morose former Smiths frontman is a famed vegan and currently is taking PETA on the road to table at his concerts. At her service, she is requesting that attendees do something commemorating the organization’s work, such as eating a vegan meal or walking the dog at the local shelter that day.

Since its inception in 1980, PETA has become notorious for their unusual marketing campaigns including advertisements comparing women to slabs of meat. This desire to shock is a conscious choice for the cause, Newkirk says. “We try to have fun and we try to be provocative just to get people talking about what happens.”

Drawing from her childhood in India, she has proclaimed that her feet be used as an umbrella stand, like elephants used to be. The umbrella-foot stand is the first idea that Newkirk wrote, and she speaks about it excitedly. “It will be so ridiculously outrageously, stupidly wrong,” she says. “I wish that was the reaction people had when they see other parts of animals being made into something as frivolous as this.

 on: Today at 05:58 AM 
Started by Steve - Last post by Rad
Plants can tell when they’re being eaten, and they don’t like it

Travis Gettys
24 Oct 2014 at 14:30 ET                   

Plants can sense when a predator is eating their leaves, and they take steps to stop it.

Researchers at the University of Missouri conducted a study using thale cress, which is closely related to broccoli, kale, mustard greens, and cabbage, reported Modern Farmer.

The plant, which is known by the Latin name Arabidopsis, is the most popular plant for experimentation because it was the first to have its genome sequenced.

The scientists made an audio version of the vibrations made by caterpillars when they eat leaves, based on their theory that plants can feel or hear these.

They also created vibrations that resembled other natural phenomena, such as wind or insect songs, that plants might sense.

The study found that when plants felt (or heard) the caterpillar-like vibrations, they sent out mustard oils — which are mildly toxic when ingested — through their leaves to chase away the predators, although the response takes hours or even days.

The plants did not react when they sensed the other vibrations.

“There are maybe 400,000 species of plants, and what are the chances that we just happened to pick the one species that has this ability to detect vibration?” said Rex Cocroft, a Missouri researcher. “The ability for plants to pick up sound is pretty clear, but the advance from this study is unique.”

The researchers haven’t determined exactly how plants distinguish the vibrations, but their cells have proteins called mechanoreceptors embedded in the membranes that send signals when moved in certain ways, which may sense the vibrations.

Additional studies are planned to determine how perception and detection works in plants.

Scientists cautioned that more research must be done to determine what the findings mean, but the study opens some fascinating possibilities – such as using sound waves to encourage crop growth or production of pest-resistant oils.

 on: Today at 05:55 AM 
Started by Steve - Last post by Rad
10/22/2014 08:27 PM

Eve of Election: A Fractured Ukraine, United in Uncertainty

By Christian Neef

As the Ukrainian election approaches, citizens are both hopeful and skeptical about their country's future. But their biggest concern isn't the war in the east or Russian interference -- it's the country's need for a working state.

There are exactly 34,915 seats in the Lviv Arena, the football stadium in the Western Ukrainian city of Lviv. On the last evening of September, it was filled to capacity. The guest team that night was FC Porto, from Portugal. But they weren't here to play the local club, Karpaty Lviv -- their opponents, instead, were Shakhtar Donetsk, the black-and-orange-clad team from the eastern Ukrainian separatist-held city.

Since hostilities erupted, Donetskian billionaire Rinat Akhmetov has had his squad play in Lviv -- a city that many in the east see as a nest of fascists. On that night in September, the Shakhtar fans sat in the northern stands and waved their team's flag, having traveled 1,200 kilometers (750 miles) by bus to attend the game. The fans from Lviv were waving Ukrainian flags, but had also brought along a large banner that read: "Donetsk - we're with you."

After the kick-off, it quickly became clear that the Portuguese weren't just playing against Shakhtar - they were playing against Ukraine. "Shakhtar, Shakhtar," the spectators shouted, and in the 43rd minute, when the Donetskians launched a counterattack against the Portuguese, they all stood up and sang the national anthem: "Ukraine has not yet died (...) we'll stand, brothers, in bloody battle, from the San to the Don." The game ended in a 2-2 draw.

This display of unity between fans from eastern and western Ukraine was, on one hand, a sign of hope for the country. But it was also a sign that the situation in Ukraine is not as simple as one might assume.

It's been nearly a year since the protests erupted on Kiev's Maidan Nezalezhnosti, or Independence Square. Since then, a president and a government have been toppled, Russia has annexed the Crimean Peninsula, war has erupted in the east and Ukraine has drifted toward bankruptcy. All of this has fueled speculation that the country could be on the verge of being torn apart.

On Sunday, October 26, a new parliament will be elected. Following his victory in the May 2014 presidential election, President Petro Poroshenko now stands a good chance of finally cementing his power by winning a majority in the Verkhovna Rada, the Ukrainian parliament. But it remains unclear whether he will use this power to end the war, combat corruption and stop the country's decline, or if Ukraine will continue to disintegrate, as many Russian nationalists and leading European politicians believe.

As the election approaches, SPIEGEL traveled to four different cities -- Lviv, Odessa, Kharkiv and Zaporizhia -- spread across a distance of 3,500 kilometers to find out what Ukrainians think about the current state of their country and its hopes for the future.

Lviv: 'Thank you God I'm not a Russian'

In Lviv -- a city that once belonged to Austria, then to Poland and then to the Soviet Union -- time looks like it's stood still. The streets are still paved with cobblestones from the days of the Austro-Hungarian Empire, and the central market square is flanked by many finely preserved Renaissance buildings. The ringing of the bells from the Catholic churches can be heard throughout the town.

Politically speaking, the people of Lviv can be relatively happy with recent events. After all, the protests on Maidan Square were entirely in their interests. Here, only Yulia Tymoshenko's party has hung up campaign posters -- with the slogan: "Ukraine will win" -- for the upcoming election. The city's notorious Ukrainian nationalism is hardly anywhere to be seen, aside from a handful of items for sale at the flea market in front of the theater, like toilet paper printed with Putin's image and T-shirts bearing the phrase: "Thank you God that I'm not a Russian."

On Freedom Boulevard, donations are being collected for the Ukrainian army -- a sign of the war in the eastern part of the country that is, despite an official ceasefire, ongoing. Another sign of the conflict: the increased amount of Russian now heard in Lviv, as thousands of refugees have sought shelter in the Ukrainian-speaking city.

"The mood at the beginning of the war went like this: We don't need eastern Ukraine. Without it, we would have been part of Europe long ago," says author Natalka Sniadanko. She is 41, has translated Kafka and Gunter Grass and tries to explain post-Soviet Ukraine in her own books. "We didn't know the people there, and I've only been to Donetsk once," she admits. "Now our soldiers are there and the refugees from there are here -- the war has brought us closer together. And we suddenly have this feeling that this is also our country. I believe that a united Ukraine is now more realistic than just a few months ago."

The only problem is, as her writer colleagues in Donetsk have told her: Western Ukraine may have sparked the Maidan protests, but it is living in peace. The east, on the other hand, is engulfed by war.

But life in Lviv is also attuned to the war. "It's amazing what's happening here," says Sniadanko. "People are pulling together, organizing themselves via Facebook and doing what the state is no longer capable of doing: helping our own troops. Without being asked, without any guidance, and with their own money." She talks about friends who went to Switzerland, used not quite legal channels to acquire military software for artillery, and then installed the programs on laptops in eastern Ukraine. Civil society has evolved much further than many people realize, says Sniadanko, who adds that the state now has to pay closer attention to the needs of its citizens for fear of a new Maidan.

Declining Nationalists

In Russia the city of Lviv is often portrayed as a stronghold for right-wing extremists. The speaker of the regional parliament is a member of the ultra-nationalist Svoboda party, which garnered 38 percent of the vote here in the 2012 parliamentary elections. This result also swept them into the Verkhovna Rada for the first time.

Lviv has a memorial to the Ukrainian nationalist Stepan Bandera, who once fought against the Red Army, Poland and Jews -- and, for a while, allied himself with Hitler. He is revered by Svoboda supporters. Not surprisingly, Ukrainians from the eastern part of the country see Lviv as the city of Nazi collaborators and, since a photo of Bandera was brandished at the Maidan, many pro-Russian Ukrainians have seen the revolt in Kiev as a putsch by the "Banderevtsi."

But Svoboda's opinion poll ratings have dropped dramatically since then and the party may fail to clear the five percent hurdle this Sunday. "We no longer believe in the patriotic rhetoric of the Svoboda party," says Sniadanko, who notes that the party has been discredited here following reports that Svoboda members pressured the media and abused their political power to line their own pockets. It has also emerged that one of the party's major donors was a Lviv millionaire with close connections to organized crime.

"The image that Svoboda people have of what it means to be Ukrainian is anti-modernist, and there is no longer a future for their ideal of Ukrainian villagers who are disdainful of mainstream culture," says Sniadanko.

Odessa: Open Future

Unlike Lviv, Odessa is plastered with campaign posters -- the future remains open here. This Russian-speaking city of over 1 million inhabitants on the Black Sea -- with its ornate architecture, plane trees and famous Jewish humor -- seems poorer and more Soviet than other Ukrainian cities, almost if the last 20 years had left no mark on the town. The airport doesn't even have a baggage conveyor belt: Suitcases are simply stacked on a table.

"We don't live here; we try to survive on an average monthly wage of $200 (€157)," says the usher at the opera, where they are showing "Rigoletto" tonight. "The higher the dollar rises and the lower the Ukrainian hryvnia falls, the more expensive things become," she says, adding that the most expensive seats at the opera cost the equivalent of €9, and are state subsidized, otherwise no one could afford them.

Odessa still has a reputation for tolerance, even after the Maidan protests. But the disaster of May 2 still hangs over the city: After a street battle with pro-Ukrainian football fans, a number of pro-Russian activists fled into the city's trade union building. Someone started a fire and 38 people burned to death, suffocated or died after jumping in desperation out of windows. Police merely stood by as it happened.

The incident has not yet been cleared up. The interior minister maintains that the guilty parties have been arrested, but has revealed no details, fueling intense speculation on Internet forums: Was this merely the violent climax of a random street battle? Or did nationalists purposely set fire to the trade union building? Was it their way of showing, once and for all, that Odessa remains Ukrainian?

"A frighteningly large number of people died on May 2," says a businessman who asks that his name not be divulged. "But who knows: If that hadn't happened, we might now have a second Donetsk here, and thus another protectorate of Moscow." The disaster in the trade union building has made people in Odessa unwilling to talk openly about politics -- creating an eerie silence. Russian TV channels have been switched off and broadcasts from Moscow can now only be received via satellite dish.

The memorial to Catherine the Great still stands above the Potemkin Stairs. It commemorates the empress and Prince Grigory Potemkin as the founders of Odessa and modern Russia -- which, at least according to Putin, makes this city part of the Russian world. But there are rumors the statue will be hauled away soon.

A Lawless Zone

It's unclear who controls Odessa: There are no signs of state authority and people merely seem to be waiting to see what happens, even as the city declines around them. This even applies to the over-100-year-old famous Odessa Film Studio, down by the seashore. The studio is responsible for productions like the five-part cult TV mini-series "The Meeting Place Cannot Be Changed" and "Déjà Vu," a comedy-thriller about the criminal milieu of Odessa in the 1920s.

The studio hasn't produced any full-length feature films for a long time now. These days, only the Ukrainian TV series "Vitalka" is still shot there. "Now that there is war in Ukraine, no European comes here, although Donetsk is 200 kilometers away," says Andrei Zverev, who runs the studio. The Russians have also canceled six planned productions, preferring to shoot in Kazakhstan or Belarus. At times like this, who wants to travel to Odessa?

Zverev, 49, seems composed, but it's an act. He has the tough job of reviving the studio's flagging fortunes during this period of turmoil. They have to, he says, at least produce a few short films. The studio manager has informed his staff that they are "to leave politics out of the company," the only problem being that politics has long since come to it.

Odessa is now a lawless zone. Since the police don't know on which side of the political fence they should stand, they have gone into hiding. Now, men from the Ukrainian nationalist Right Sector party maintain order in the city. There are perhaps 100 of these ultra-nationalists in the city, but the fact that no one restrains them has encouraged them to take justice into their own hands.

In late September, they severely beat a Verkhovna Rada MP after he had extolled the virtues of the Donetsk People's Republic. They have seized drug dealers, painted them with red paint and tied them to street poles as a deterrent.

But the Right Sector apparently works at the behest of powerful men, who use the group to intimidate their enemies. The ultras recently showed up at the film studio: Fifty men, seeking to occupy the premises, drove up in cars with tinted windows. Zverev rallied his staff. They stood together and linked arms to prevent the group from entering.

The men seem to have been trying to take over the company by force. Complaints about this kind of activity can be heard everywhere in Odessa. In the confusion that followed the coup, the ownership of businesses and properties is being redefined -- and not always by legal means. These actions often seem to be plotted by warring oligarchs.

Half of the film studio belongs to the state, the other half to the oligarch Sergiy Taruta, who until recently was the governor of Donetsk. But now the governor of Odessa is the right-hand man of another oligarch: Ihor Kolomoyskyi, the most powerful man in Dnipropetrovsk, who is reportedly using the turmoil of the war to strip the Donetsk oligarch of his power. He may have also set his sights on Taruta's wealth -- and likewise on the studio in Odessa.

There's an atmosphere of fear, says Aleksander Orlov, deputy chief of staff of the Opposition Bloc party, which unites politicians from the former regime. "People know that their company could perhaps be taken from them outright. Or they are simply killed, as was common in the 1990s," he says. "We see Odessa as a permanent part of Ukraine," says Orlov, "but if the state continues to lose control, its citizens will increasingly favor separation."

Kharkhiv: 'Prepared for Aggression'
On the second Sunday of October, at 8 a.m., in the eastern Ukrainian city of Kharkiv, Vyacheslav Tseluyko is on his way to the trenches with 20 volunteers. The group is called Help the Army. There are dozens of such citizens' initiatives in the city -- spontaneously formed groups that look after refugees or bring food with private cars to the front.

Tseluyko and his people are driving to Ztrilecha, a village 35 kilometers from Kharkiv, where there is a now-closed border crossing to Russia. Blocks of concrete and antitank obstacles block the road, but pedestrians are still allowed through. There is a view of the Kharkiv River down below.

Tseluyko and his friends dig trenches here every Sunday. Kharkiv -- with 1.4 million inhabitants, the second largest city in the country -- lies almost on the border to Russia. "If we've learned anything this spring, it's that Kharkiv has to be prepared for aggression," says Tseluyko.

Until recently, the border between Russia and Ukraine was unmarked. The border crossings were staffed by civil servants working for the Interior Ministry and there were no fortifications. On the Ukrainian side of the border, there is now an air defense post behind a field of sunflowers and tractors from a nearby farm plowing lines for defense.

Tseluyko's volunteers enlarge these trenches: One meter (3.25 feet) wide at the top, 50 to 80 centimeters (20 to 30 inches) at the bottom. They also dig shelters and build bulwarks to protect against shrapnel -- they acquired their knowledge from old textbooks about the world wars.

Tseluyko is a slender 34-year-old man with glasses and jeans. He studied physics, finished his PhD, and is now a university lecturer in political science. But he has always had an interest in military matters -- he's read a great deal about the Russian military, and these days he gives presentations to border guards about the structure of Putin's army.

"Our army is only of a symbolic nature," he says, "and it has never looked toward Russia. Now it feels like the army has been betrayed by the Russians -- and it is terrified of Russia's military might."

No one in Kharkiv has forgotten that after the Donetsk People's Republic was proclaimed this past spring, the city seemed to be Ukraine's greatest Achilles' heel. The separatists announced their intentions to install a people's republic in Kharkiv. This would have given them control of not only the east's mining center, but Kharkiv's defense industry.

'They Are Driving Us Apart'

Back then, busloads of Russians crossed the border, and the regional administrative building was occupied twice. For a long time, it was unclear which side would win. "Putin's course of action in the east, and the 200,000 refugees who later fled to the city, helped swing the mood in our favor," says Tseluyko.

The struggle between the two camps seemingly concluded three weeks ago, when the 20-meter (65-foot) statue of Lenin was pulled down on Freedom Square. It was a sign that the new rulers were allowing the streets to be taken over by the radicals -- in the case of the statue incident, by ultra-nationalists from the local Metallist football club.

No politician personally took part in toppling the monument, but the Kiev-appointed governor signed a decree a few minutes beforehand that removed the Lenin statue from the list of cultural monuments and removed any reason for the police to intervene. Government officials could then just lean back and watch other people do what they weren't willing to do themselves.

"What is the purpose behind this now?", asks Alla Aleksandrovskaya, the 65-year-old chairperson of the Kharkiv chapter of the Communist Party. "They want to intimidate us. They are in the process of driving us further apart."

Aleksandrovskaya is a highly educated woman who worked as an engineer for the Soviet space program, and later served as a representative in the parliament in Kiev. The offices of her party are located on the ground floor of a building in the old part of the city, and its blinds are kept down, even during the day. "We are afraid of attacks," she says.

She says that 65 of her activists have been in police custody since April, and speaks of the "growing legal nihilism" pursued by the state. "Unfortunately it seems to me that Ukraine, in its current form, and under its current leadership, cannot continue to exist." Then she reflects for a while and says: "People want calm and stability. This is not possible together with the aggressive western Ukraine. In that sense, the new Russia model seems to me to be a possible rescue plan." To achieve that, Aleksandrovskaya would need Moscow's help. But the Russians appear to have given up on Kharkiv.

Zaporizhia: Searching for New Markets

The city of Zaporizhia, 300 km west of Kharkiv, still has its Lenin. It stands in front of what was once the world's largest hydroelectric plant on the Dnieper River. But someone has clad the statue in a traditional Ukrainian shirt -- a bit of ironic wit in Ukraine's heated political climate.

It takes the train from Kharkiv five hours to reach the industrial city's smokestacks. The train ticket costs the equivalent of €2.50. In Zaporizhia -- population 765,000 and the cradle of Ukrainian Cossackdom -- only one out of every four inhabitants is a Russian, but the industry here has always been largely dependent on Russia. Now that connection has officially been severed.

The fact that cities like Zaporizhia are faced with the potential layoff of tens of thousands of workers makes the debate over the significance of an independent Ukraine seem rather academic. The gross domestic product of Ukraine may drop by 10 percent this year. The country may face a winter without Russian natural gas -- in Lviv they are already repairing the old tiled stoves from the Austrian era.

Valeriy Baranov, 57, the Kiev-appointed governor in Zaporizhia, is a man who likes to get straight to the point and doesn't mince his words. If someone wants to meet with him, they have to show up at his office on Lenin Avenue at 7:30 a.m., when he appears for a few minutes with his bodyguards. The rest of the day he's out traveling around his region.

What about the car plant that produced 124,000 vehicles a year during its heyday, and reduced its workforce from 21,000 to 6,000? "It hasn't been operating all summer. Deliveries to Russia have been discontinued. We are looking for new markets, Kazakhstan or Egypt."

And what about the Motor Sich company, with its 27,000 employees, which has been supplying Russia's helicopters with engines? "We are in contact with South America. They need helicopters there for the Andes region."

When asked whether he was respecting the ban on weapons deliveries to Russia, Baranov remains evasive -- and with good reason. Motor Sich has a contract with Russia obligating it to deliver $1.2 billion worth of helicopter and aircraft engines -- and the company is in fact continuing to export to the country. A top executive at Motor Sich says that the leaders in Kiev think that national interests are more important than the economy. "But then they should also talk with the workers who are losing their jobs. We are patriots, too, but we are dependent upon Russia."

The plant doesn't want to end up like the rocket manufacturer Yuzhmash, in the neighboring town of Dnipropetrovsk. It engineered the Russian SS-18 intercontinental missile and has continued to provide maintenance services for the rockets. Yuzhmash has already reduced its work week to three days.

"Things here could have been different," says Governor Baranov. "We were a nuclear power, but international pressure made us hand over our missiles 20 years ago. The US, Russia and Germany have deceived us. We want our weapons back."

Then the governor returns to a more pressing issue: Ukraine's survival. Baranov is a fierce opponent of Putin's vision of a new Russia that includes Zaporizhia. But there is no doubt in his mind that Kiev must grant a greater degree of independence to Ukraine's regions: "Until now, only 15 percent of the money that we earn stays in the region."

When asked if he is optimistic, he replies: "A government that was appointed on the Maidan doesn't have a clue about reality. It's about time we had some professionals," says Baranov.

Confidence and Skepticism

The message is the same all over the country, and Zaporizhia is no exception: People feel left in the lurch after the Maidan protests; they're afraid that the economy could completely collapse over the coming months. If that happens, it would send people out onto the streets all over again.

It has already been seven months since the rebellion on the Maidan shook the country's power structure, and the majority of the population seems to believe that the country can remain in one piece. But comparisons with Russia's fateful year of 1917, specifically the period between February and the October Revolution, are being made everywhere. The Czar was toppled in February 1917, but Russia's failure to introduce reforms led the radicals to seize power in the ensuing power vacuum.

Ukraine's biggest problem isn't the loss of Crimea or the war in the east -- it's people's skepticism that the new leadership in Kiev can turn things around domestically, and finally give the country a functioning state.

Translated from the German by Paul Cohen


NATO Calls on Russia to Withdraw Troops ahead of Ukraine Poll

by Naharnet Newsdesk
24 October 2014, 17:50

NATO head Jens Stoltenberg called on Russia Friday to withdraw its troops from Ukraine as the country prepares for key national elections which pro-Moscow rebels plan to prevent in areas they control.

Stoltenberg, who took office last month with the crisis top of his agenda, said Russia's continued presence and support for the rebels violated international law, as well as  Ukraine's sovereignty and territorial integrity.

Moscow denies that it has any military presence in Ukraine or that it supplies pro-Russian rebels there with weapons.

Kiev and the rebels agreed a ceasefire on September 5, which has been frequently breached.

The accord was subsequently widened to include a military pull-back but many of the provisions remain to be implemented as the death toll in the conflict tops 3,700.

Stoltenberg said Russia should use all its influence with the rebels to get them to respect the ceasefire and that it withdraw its forces from Ukraine and the border region as well.

Doing so would "contribute to deescalate the tension and create a more stable framework for a political solution," he said during a visit to SHAPE military headquarters near the west Belgian town of Mons.

Stoltenberg said it was "of great importance" that all sides respect the result of Sunday's elections, a key step for Ukraine to become a stable democracy.

NATO Supreme Commander General Philip Breedlove said Russia continued to have a significant force on the border with Ukraine.

Some units were preparing to pull back, Breedlove said, but this would still leave a very capable force in place on the border.

Earlier this month, Russian President Vladimir Putin said some 18,000 troops were being withdrawn from the border area in an apparent gesture ahead of talks with Ukraine and European Union leaders on the crisis.


The new generation running for parliament in Ukraine

Despite not being a party member and with an unusual route into politics, Alex Ryabchyn is in line to be one of the country’s newest MPs

Nabeelah Shabbir, Saturday 25 October 2014 05.00 BST   

Last summer Alex Ryabchyn was completing a masters in international development at Sussex University. When he graduated he moved back to his native Donetsk, planning to enjoy a quiet life there with his wife and three-year-old daughter.

But events in Ukraine took over and things didn’t quite go as planned. By Monday morning the 31-year-old economist and professor at Donetsk National university is expected to be elected as one of the country’s newest, and youngest, members of parliament in a snap election taking place on Sunday.

Unusually, he became a candidate by entering a competition run by pro-European parties hoping to attract young professionals to their ranks – despite not being a party member. More than 30 activists and journalists passed several rounds of interviews to get on to the party lists this way.
Alex Ryabchyn Alex Ryabchyn with fellow activist, former Eurovision winner Ruslana (right), at the Ukraine Crisis Media Centre. Photograph: Alex Ryabchyn/Official Facebook page

“I’m completely surprised,” Ryabchyn said, at the launch of a Global Friends of Ukraine event at the House of Commons, hosted by John Whittingdale, an MP and chair of the British-Ukraine All-Party Parliamentary group. Some protesters who often gather outside the Russian embassy in Notting Hill are amongst the small crowd in the Churchill Room, as well as lawyers and journalists.

Ryabchyn, whose mother is Russian, is just one of a generation of young, western-minded individuals who are part of an emerging new political class in Ukraine. His fellow party list member is a 26-year-old woman who graduated from Harvard and the Sorbonne. “We’re part of this community of about 3,000 people in Ukraine called the professional government,” says Ryabchyn.

Unlike others, Ryabchyn was not part of the Euromaidan protests which led to the collapse of former president Viktor Yanukovych’s government in February. He maintains a distance between the ideals of that movement and his regional organisation, known as Donetsk is Ukraine.

“Maidan was inspired by European values, but some of us in Donetsk didn’t like what happened in the capital’s main square and beyond, how it unfolded. We had questions for Kiev, but we were not pro-Russian either.”

Ryabchyn joined the Ukrainian media crisis centre, which was set up by local experts with the international community in mind. He campaigned locally and internationally to raise awareness about the industrial region of Donbass, which is occupied by separatists.

“Things got worse. I could not stand it. I feel that I really became a politician on 1 March, when the Russian senate allowed Putin to send troops into Ukraine. Donetsk, where I was, is 500 metres away from the Russian border. I was really afraid, shocked.”

In May, he moved to Kiev because he felt it was becoming dangerous. “It’s surreal; by day, Donetsk looks like any other place, people strolling around with their babies, going to cafes, but when it gets dark, it becomes awful. There’s no one around. The suburbs have been completely shelled by different groups.”
Alex Ryabchyn Alex Ryabchyn during his election campaign for the Fatherland party of Yulia Tymoschenko (right). Photograph: Alex Ryabchyn/Official Facebook page

Ryabchyn is number nine on a list of the all-Ukrainian Union Fatherland, a centre-right party headed by former prime minister Yulia Tymoschenko. “It’s the second biggest party, it’s affiliated to a European party, it’s pro-European, pro-Atlantic... In research you have to trust in a lot of people; in politics, you should expect a knife in the back, and that’s why I joined a strong party.”

He says the new generation in Ukraine also wants to change existing parties, not further the status quo. “I have the technical skills. I know how innovation works in South Korea or Brazil. I know how to link science, business and government. But there’s a lot of corruption. I don’t feel like five years in parliament will be enough for me.

“We’re like small viruses. Everyone’s looking at us, but we haven’t got any other agenda except the development of Ukraine,” he says. His partner, meanwhile, is not too pleased. “She said ‘I lost my husband’, but this is our country, our destiny.”

 on: Today at 05:49 AM 
Started by Steve - Last post by Rad
Vladimir Putin blames US for Islamist terrorism and Ukraine conflict

President denies Russia has been aggressive in Ukraine and has encroached on the sovereignty of its neighbours

Shaun Walker in Moscow
The Guardian, Friday 24 October 2014 19.06 BST   
Vladimir Putin used a meeting with foreign journalists and Russia experts to rail against the United States and the current world order, blaming Washington for many current global problems, including unrest in Ukraine and Islamic terrorism.

Putin said that over the past two decades, the US had behaved as if it were someone “nouveau riche who had suddenly received a lot of wealth – in this case, global leadership”. Instead of using its powers wisely, said Putin, the US had created a unilateral and unfair system.

The Russian president’s sentiments were nothing new, but appeared to be a more concise and concentrated version of his grievances at a time when relations between Russia and the west are more strained than at any period since the cold war.

In a terse opening statement before taking questions for nearly three hours, Putin said: “The exceptionalism of the United States, the way they implement their leadership, is it really a benefit? And their worldwide intervention brings peace and stability, progress and peak of democracy? Maybe we should relax and enjoy this splendour? No!”

Putin was speaking at the final session of the Valdai Club, a loose group of foreign analysts and Russia experts that meets annually. This year, the session took place in the Black Sea resort of Sochi. “Unilateral dictatorship and obtrusion of the patterns leads to opposite result. Instead of conflicts settlement – their escalation. Instead of sovereign, stable states – growing chaos. Instead of democracy – support for very dubious people, such as neo-Nazis and Islamic extremists,” he said.

Putin did not face many tough questions from the assembled audience. Peter Lavelle, a presenter on the Kremlin’s Russia Today television channel took the opportunity to tell the president that he is “the most popular man in modern history” and in much of the world is “looked upon as a saviour of sorts”.

The president denied claims that Russia’s behaviour in Ukraine had been aggressive: “Statements that Russia is trying to reinstate some sort of empire, that it is encroaching on the sovereignty of its neighbours, are groundless,” he said.

However, when one British newspaper reporter asked him specifically about the repeated reports of Russian army troops operating in east Ukraine, Putin chose to ignore the question completely.

There was no opportunity for follow-up questions. Instead, he focused on violence by Ukrainian forces in eastern Ukraine, where Kiev has been battling pro-Russian separatists aided by Russian troops the Kremlin has repeatedly denied are there. “We don’t see a desire from our partners in Kiev... to solve the problem of relations with the south-east of the country through a political process, with talks,” said Putin. “We always see one and the same thing in different manifestations: to suppress by force.”

Putin was also asked about a remark by a top aide on the previous day of the forum that “if there is no Putin there is no Russia”. Vyacheslav Volodin said any attack on the Russian president should be considered to be an attack on Russia itself. Putin said he believed Russia could survive without him, but said he did not think he could survive without Russia: “Russia is everything to me, that is definitely a fact. I could not imagine myself separated from Russia for a single second.”


Merkel Urges Putin to Support Solution to Ukraine Gas Dispute

by Naharnet Newsdesk
24 October 2014, 16:35

German Chancellor Angela Merkel urged Russian President Vladimir Putin in a telephone call Friday to throw his weight behind a quick resolution of an ongoing gas dispute with Ukraine as winter looms.

In the latest talks between the two leaders on the crisis in Ukraine, Merkel also underlined that upcoming elections in areas of eastern Ukraine controlled by Russian-backed separatists must respect national law.

On the EU-brokered crunch talks to resolve a bitter gas price dispute between Russia and Ukraine, Merkel called on Putin "to firmly support the search for a swift solution before the approaching winter", a statement from her office said.

A new meeting is set for next week amid fears Moscow could in the coming months halt crucial energy supplies to Europe, which gets about a third of its gas from Russia of which about a half transits via Ukraine.

Meanwhile insurgent leaders are boycotting a parliamentary snap poll Sunday in Ukraine and holding their own election in the Lugansk and Donetsk regions, home to nearly three million people.

Merkel said this poll "must be conducted according to Ukrainian law".

She also repeated her call for "full implementation" of a peace deal reached last month in the Belarussian capital Minsk between Kiev, Moscow and the pro-Russian separatists in east Ukraine.

The two leaders agreed, according to the German statement, that the so-called "contact group" including representatives of Russia, Ukraine the separatists and the Organisation for Security and Cooperation in Europe must meet soon to discuss "the elections but also the economic situation in the region".

Source: Agence France Presse

 on: Today at 05:48 AM 
Started by Rad - Last post by Rad

Vladimir Putin blames US for Islamist terrorism and Ukraine conflict

President denies Russia has been aggressive in Ukraine and has encroached on the sovereignty of its neighbours

Shaun Walker in Moscow
The Guardian, Friday 24 October 2014 19.06 BST   
Vladimir Putin used a meeting with foreign journalists and Russia experts to rail against the United States and the current world order, blaming Washington for many current global problems, including unrest in Ukraine and Islamic terrorism.

Putin said that over the past two decades, the US had behaved as if it were someone “nouveau riche who had suddenly received a lot of wealth – in this case, global leadership”. Instead of using its powers wisely, said Putin, the US had created a unilateral and unfair system.

The Russian president’s sentiments were nothing new, but appeared to be a more concise and concentrated version of his grievances at a time when relations between Russia and the west are more strained than at any period since the cold war.

In a terse opening statement before taking questions for nearly three hours, Putin said: “The exceptionalism of the United States, the way they implement their leadership, is it really a benefit? And their worldwide intervention brings peace and stability, progress and peak of democracy? Maybe we should relax and enjoy this splendour? No!”

Putin was speaking at the final session of the Valdai Club, a loose group of foreign analysts and Russia experts that meets annually. This year, the session took place in the Black Sea resort of Sochi. “Unilateral dictatorship and obtrusion of the patterns leads to opposite result. Instead of conflicts settlement – their escalation. Instead of sovereign, stable states – growing chaos. Instead of democracy – support for very dubious people, such as neo-Nazis and Islamic extremists,” he said.

Putin did not face many tough questions from the assembled audience. Peter Lavelle, a presenter on the Kremlin’s Russia Today television channel took the opportunity to tell the president that he is “the most popular man in modern history” and in much of the world is “looked upon as a saviour of sorts”.

The president denied claims that Russia’s behaviour in Ukraine had been aggressive: “Statements that Russia is trying to reinstate some sort of empire, that it is encroaching on the sovereignty of its neighbours, are groundless,” he said.

However, when one British newspaper reporter asked him specifically about the repeated reports of Russian army troops operating in east Ukraine, Putin chose to ignore the question completely.

There was no opportunity for follow-up questions. Instead, he focused on violence by Ukrainian forces in eastern Ukraine, where Kiev has been battling pro-Russian separatists aided by Russian troops the Kremlin has repeatedly denied are there. “We don’t see a desire from our partners in Kiev... to solve the problem of relations with the south-east of the country through a political process, with talks,” said Putin. “We always see one and the same thing in different manifestations: to suppress by force.”

Putin was also asked about a remark by a top aide on the previous day of the forum that “if there is no Putin there is no Russia”. Vyacheslav Volodin said any attack on the Russian president should be considered to be an attack on Russia itself. Putin said he believed Russia could survive without him, but said he did not think he could survive without Russia: “Russia is everything to me, that is definitely a fact. I could not imagine myself separated from Russia for a single second.”

 on: Oct 23, 2014, 02:57 PM 
Started by Rad - Last post by Linda
Dear Rad,

I'm sorry about your medical issues.
I wish you speedy relief.
Sending lots of Love and healing vibes.



 on: Oct 23, 2014, 08:32 AM 
Started by Rad - Last post by cat777
Hi Rad,

Hoping all goes well for you and you have a speedy recovery. Rest up and take good care of yourself.


 on: Oct 23, 2014, 08:09 AM 
Started by Rad - Last post by Rad

George Soros: Russia poses existential threat to Europe

Investor says Vladimir Putin’s aggressive nationalism challenges values and principles on which the EU was founded

Julian Borger   
The Guardian, Thursday 23 October 2014 08.55 BST    

George Soros has warned that Russia’s expansionism poses an existential threat to the EU and called for greater material support for Ukraine.

The investor and philanthropist argues that Vladimir Putin’s mix of authoritarianism and aggressive nationalism represents an alternative model to western liberal democracies, referring to the admiration for the Russian president expressed by the Ukip leader, Nigel Farage, the president of France’s Front National, Marine Le Pen, and Hungary’s prime minister, Viktor Orbán.

“Europe is facing a challenge from Russia to its very existence. Neither the European leaders nor their citizens are fully aware of this challenge or know how best to deal with it,” Soros writes in an article published in the New York Review of Books.

“Now Russia is presenting an alternative that poses a fundamental challenge to the values and principles on which the European Union was originally founded. It is based on the use of force that manifests itself in repression at home and aggression abroad, as opposed to the rule of law.”

Soros told the Guardian: “There is a general dissatisfaction with the EU as a result of the euro crisis, which has perverted the initial impetus for forming a union of like-minded democratic states. The euro crisis was mishandled and lasted a long time, and it turned a voluntary union of equals into something quite different.”

Soros said the EU had become a dysfunctional relationship between creditor and debtor nations, resulting in widespread resentment. “Putin has established good relations with those agitating against Europe,” he said. “The failure of Europe as an experiment in supranational government would make Russia a potent threat … The collapse of Ukraine would be a tremendous loss for Nato, the European Union and the United States. A victorious Russia would become much more influential within the EU and pose a potent threat to the Baltic states with large ethnic Russian populations.”

George Soros, says Putin has established good relations with those agitating against Europe. George Soros, says Putin has established good relations with those agitating against Europe.

Soros, founder and chairman of the Open Society network of pro-democracy foundations, predicts that after the elections in Ukraine on Sunday, the Russian president will offer his Ukrainian counterpart, Petro Poroshenko, a gas supply deal on condition he appoint a prime minister acceptable to Putin. If that is refused, Putin “may then revert to the smaller victory that would still be within his reach: he could open by force a land route from Russia to Crimea and Transnistria [a pro-Moscow breakaway statelet in Moldova] before winter”.

Soros calls for radically boosted western support of Ukraine with an “immediate cash injection of at least $20bn with a promise of more when needed” to help write off public debt, and help to reform the country’s energy sector to make it less dependent on Russia. By assisting Ukrainian reformers, he argues that the EU would be rediscovering its founding principles. “The European Union would save itself by saving Ukraine,” Soros said.


Note the vertical pupil in Putin's left eye.

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