Liquidity Matters - Retail Investors Are About To Learn A Valuable Lesson The Hard Way
One of the great challenges of financial markets is that certain important events only happen infrequently – which makes it all the easier to overlook them during intervening periods. One of those important situations is when it becomes extremely difficult, if not impossible, to sell an investment because too few people are both willing and able to buy it.
Through the course of a cycle the phenomenon of illiquidity occurs periodically but is normally contained to very specific situations and does not affect broader markets. Increasingly, however, there are signs that liquidity could be a problem in the foreseeable future, so it is a good time to review the risks.
To start with, there is nothing inherently wrong with illiquid investments. In fact, illiquid investments can produce higher returns for investors who don’t need immediate liquidity. As a result, they can make great sense for long term investors like pension funds and endowments. Indeed, David Swensen has made famously good use of this characteristic with the endowment at Yale.
Of course, many other investors who might need the liquidity are also attracted to those incremental returns, and especially so in an environment of exceptionally low yields. As a result, many investors have succumbed to the temptation by plowing into private equity, venture capital, real estate, structured credit, fixed income ETFs and all kinds of other investments for which liquidity can be a problem.
As investors pursue this course of action, however, a couple of things happen along the way. One is that the prices of illiquid investments get bid up and therefore the prospective returns come down. Another is that as progressively more money flows into investment vehicles that can be difficult to exit, systemic risk increases. I described these phenomena in “A formula for losing money“.
As the risk of systemic illiquidity increases it can challenge, and overtake, the risk of slowing economic growth as a key risk factor. This change manifests itself in a subtle way. Unlike in 2017 when markets rose in a climate remarkably devoid of volatility, this year there are a number of rumblings underneath the calm veneer of market index performance. The Financial Times reports:
“Yet, through all of this, the sanctity around the market price has remained. Most don’t question whether basic formation of market prices is faulty. What if market gyrations are less to do with shifts in expectations on the economy or company performance, and more to do with participants coming to terms with a less well-functioning market?”
“It is now time to add another worry to the list: the unravelling of the market liquidity illusion.“
The “unraveling of the market liquidity illusion” is both a worthy consideration, and increasingly, a timely one. Further, there is a growing body of evidence to support the hypothesis. As the FT spells out, increasing bond market volatility is a signal:
“’It’s impossible to know the catalyst, and this market is good at shrugging off bad news. [But] bond market volatility is a good sign of the fragility,’ Mr Croce said. ‘We’ve seen steadily rising bond volatility this autumn, and that will eventually have an impact on asset prices’.”
Auctions in fixed income markets have also been highlighted by Zerohedge:
“The number of high yield credits trading at spreads over a thousand basis points over treasuries has been rising all year long. Also, you’re seeing a lot more volatility in the leveraged lending space. Credit Investors increasingly are firing first, and ask questions later.”
Russell Clarke provided similar foreshadowing in a Realvision interview dated September 18, 2019:
“Like I said, the weird classic macro indicators are diverging radically from what equities are doing. That does happen sometimes. Usually, the macro indicators are right.”
In addition, another signal can come from broader market factors. Since the relationship of supply to demand for securities is relative, whenever sellers overwhelm prospective buyers, deficiencies in liquidity can arise. This phenomenon often occurs when investors chase a common theme, as the FT describes:
“But Marko Kolanovic, head of quantitative strategy at JPMorgan, says there is still ‘extreme crowding’ in the more defensive, bond-like parts of the stock market, as well as in stocks enjoying positive momentum. He said this was evidence of the ‘prence of groupthink … across investment strategies’.”
With several signs all pointing in the same direction, the chances of some kind of liquidity event appear to be increasing. Importantly, many of the warning signs are virtually invisible to investors and advisors who rely primarily on market indexes for information content.
Lest investors forget what happens when liquidity dries up, Russell Clarke provides a useful refresher:
Speaking of the Lehman bankruptcy in 2008, Clarke described: “Then suddenly, and it was very weird, didn’t make a lot of sense. Then suddenly, it broke in way. That’s typically how markets work. They force everyone into an asset at exactly the wrong time and then liquidity just disappears, and you are stuck in it.”
The notion of suddenly being “stuck in it” was also crystallized by the FT in a recent report. The UK Mexican restaurant chain Chilango issued mini-bonds and intentionally lured investors with an attractive yield: “Free food for four years! Plus 8 per cent APR!”
The only problem was, just months after its last mini-bond offering, the company’s solvency came into question and it was forced to hire restructuring advisers. While Chilango is reminiscent of WeWork’s bond offering to sophisticated investors, there was one major difference:
“While red-faced hedge fund managers can sell their WeWork bonds at a loss and move on, Chilango’s bonds are explicitly non-transferable. The doors are locked.”
“Unfortunately, retail investors are learning another lesson from institutional debt markets the hard way: liquidity matters.“
In simple terms, there is no way for investors to get their money out of Chilango’s mini-bonds. They are stuck. This is exactly what can happen when liquidity vanishes for whatever reason. Although there may be some recovery down the road, there will be no access to those funds for the indefinite future.
This leads to a few important lessons regarding liquidity risk. One is that it is an insidious risk. It gathers gradually, over time, without revealing at what point it might strike. Indeed, markets can be most alluring at the most dangerous times. As Clarke notes, “They [markets] force everyone into an asset at exactly the wrong time.”
Liquidity is also nonlinear – and this is very hard for many investors to fully appreciate. It is easily available for long periods of time and then suddenly vanishes. When investors start running for the proverbial exits, many end up getting trapped inside. While it is true that this happens only infrequently, it is also true that there are no do-overs – the damage can be permanent.
Finally, when liquidity shuts down, it can be contagious. When it becomes impossible to exit illiquid investments, investors have only one choice if they need cash – and that is to sell what they can – and that is usually more liquid assets. As a result, problems in a relatively small niche of illiquid investments can easily infect a much broader realm of assets. This was an important dynamic in the financial crisis of 2008 when problems with subprime mortgages started surfacing. It is a lesson that still applies today.
An important takeaway is that investors should not be unduly focused on a market crash as the worst possible outcome. Crashes happen but can be recovered from. However, if investors urgently need liquidity and cannot access it, they can suffer permanent harm. Indeed, insufficient access to cash, not a market crash itself, many be the greater risk for many investors.
The risk of losing liquidity is a real one for investors, but it is often underappreciated. B.B. King illustrates the same basic point in his classic song, “Ain’t nobody home”, in a way that is both personal and memorable.
He describes how he once fawned over a girl and followed her “wherever you’d [she’d] lead me” and in the process, endured some “pain and misery”. After he finally decides he’s had enough, she begs him to come back. By then, he is no longer in a forgiving mood and lets her know, “Ain’t nobody home.”
In a similar way, liquidity can seem so ample and forthcoming at times that it is easy to take for granted. When the tables turn, however, investors had better beware. Just when they need it most, there might not be anyone home.Tyler Durden Sat, 12/14/2019 - 15:30 Tags Business Finance
California Schools Sued Over Use Of "Culturally-Biased" Standardized Testing For Admissions
America was once a nation of meritocracy, that shamed the lazy and encouraged hard work; but now, as Millennials increasingly support a "we are all equal" socialist state with leftist politicians villifying the successful, a new wave of anti-meritocratic policies are sweeping across much of academia.
The latest incarnation of this is a much-anticipated lawsuit, filed by a group of students and community organizations, against the University of California, alleging that the university system discriminates against low-income students, racial minorities and others by requiring SAT or ACT admissions tests.
The Wall Street Journal reports that the suit was filed Tuesday in California state court on behalf of a high-school sophomore, two seniors, and a first-year student at Pasadena City College (several California social-justice nonprofits are also plaintiffs in the suit), all of whom it says would be strong candidates for more selective UC campuses except for their test scores.
Aside from this sounding like the standard parent unable to admit their child is not the next Einstein, the plaintiffs seek to bar the UC system from requiring applicants to submit SAT or ACT scores, and from using scores in admission decisions.
“These discriminatory tests irreparably taint UC’s ostensibly ‘holistic’ admissions process,” the lawsuit says, adding that the tests “act as a proxy for wealth and race and thus concentrate privilege on UC campuses.”
Earlier this year, under relentless pressure from the racial-preferences lobby, the Board caved to the anti-meritocratic ideology of “diversity.” Colleges, it was suggested, could use this adversity index to boost the admissions ranking of allegedly disadvantaged students who otherwise would score too poorly to be considered for admission.
But, as we reported previously, this gap has persisted for decades. It is not explained by socioeconomic disparities.
The Journal of Blacks in Higher Education reported in 1998 that white students from households with incomes of $10,000 or less score better on the SAT than black students from households with incomes of $80,000 to $100,000. In 2015, students with family incomes of $20,000 or less (a category that includes all racial groups) scored higher on average on the math SAT than the average math score of black students from all income levels. The University of California has calculated that race predicts SAT scores better than class.
Those who rail against “white privilege” as a determinant of academic achievement have a nagging problem: Asians.
Asian students outscore white students on the SAT by 100 points; they outscore blacks by 277 points. It is not Asian families’ economic capital that vaults them to the top of the academic totem pole; it is their emphasis on scholarly effort and self-discipline. Every year in New York City, Asian elementary school students vastly outperform every other racial and ethnic group on the admissions test for the city’s competitive public high schools, even though a disproportionate number of them come from poor immigrant families.
The 'adversity score' idea was eventually dismissed after significant backlash as defenders of the tests maintain that students with high scores tend to fare well in college and beyond. The standardized tests have been considered by many as an equalizer, allowing colleges to identify talent from high schools with which they are not familiar.
“The notion that the SAT is discriminatory is false,” said a spokesman for the College Board.
“Any objective measure of student achievement will shine a light on inequalities in our education system. Our focus, with our members and partners, is combating these longstanding inequalities.”
Furthermore, many on the left argue that the tests are elitist because 'only the wealthy can afford test preparation' but this is entirely false as there are many test-prep aids that are entirely free on the web, such as Khan Academy.
Quite frankly, given our own experience of seeing two young women through the SAT/ACT prep and admissions debacle that California schools now undertake - and having seen so many of their friends succeed by working hard - we would like to see a comprehensive analysis of average hours studied by each group, perhaps as a 'great equalizer' of this racist, elitists bias that supposedly exists.
"It’s important to acknowledge that yes, SAT results reflect inequalities in race and social class. Black and Hispanic students and poor students do not perform as well on these tests as their white and affluent counterparts."
But, he continued, “this reflects a symptom of larger inequality, not a biased test.”
DeBoer acknowledged the argument that affluent parents can invest in special training and can hire coaches to raise their children’s scores. But he pointed to a major 2013 study that showed that the “effect of coaching on a 1600 point scale was about 20 points.”
Furthermore, turning to high school grades instead of test results for college admission decisions poses similar problems, deBoer writes, as grade inflation has resulted in a huge increase in the number of applicants with perfect, 4.0, averages.
"But much of the folk wisdom about them and their deficiencies is wrong, and though critics mean well, they actually risk deepening inequality by attacking these tests."
“Students who labor under racial and economic disadvantage have very few ways to distinguish themselves from the rest of the pack,” deBoer continues.
“A stellar SAT score is potentially one of the most powerful. We should take care not to rob them of that tool in a misguided push for equality.”
All this constant confusion of correlation with causation (or results spun to fit a progressive narrative) is perhaps why Chinese students are 4 grade levels of US students in math.
As Michael Snyder raged recently, we were once a great light to the rest of the world, but today a large chunk of our population can barely read, write, speak or function in society. Just consider the following numbers…
#1 One recent survey found that 74 percent of Americans don’t even know how many amendments are in the Bill of Rights.
#2 An earlier survey discovered that 37 percent of Americans cannot name a single right protected by the First Amendment.
#3 Shockingly, only 26 percent of Americans can name all three branches of government.
#4 During the 2016 election, more than 40 percent of Americans did not know who was running for vice-president from either of the major parties.
#5 North Carolina is considering passing a law which would “mean only scores lower than 39 percent would qualify for an F grade” in North Carolina public schools.
#6 30 years ago, the United States awarded more high school diplomas than anyone in the world. Today, we have fallen to 36th place.
#7 According to the Pentagon, 71 percent of our young adults are ineligible to serve in the U.S. military because they are either too dumb, too fat or have a criminal background.
#8 For the very first time, Americans are more likely to die from an opioid overdose than they are in a car accident.
#9 One study discovered that one-third of all American teenagers haven’t read a single book in the past year.
#10 A recent survey found that 45 percent of U.S. teenagers are online “almost constantly”.
#11 Today, the average American spends 86 hours a month using a smartphone.
#12 Overall, the average U.S. adult “logs 6 hours, 43 minutes of total screen time daily”.
#13 In more than half of all U.S. states, the highest paid public employee in the state is a football coach.
#14 During one seven day period last summer, a total of 16,000 official complaints about human feces were submitted to the city of San Francisco. And apparently the problem is very real because one investigation found 300 piles of human feces on the streets of downtown San Francisco.
#15 Every 24 hours, more than a third of all Americans eat fast food.
#16 Less than half of all Americans know which country used atomic bombs at the end of World War II.
#17 Even though we fought a war in Iraq for eight long years, 6 out of 10 young adults cannot find Iraq on a map of the Middle East. And that same survey found that 75 percent of our young adults cannot locate Israel.
#18 Today, the average college freshman in the United States reads at a 7th grade level.
Educating our children properly is one of the most basic things that needs to be addressed, but unfortunately the left has total control of our public schools now, and that means that there is no hope of a major turnaround any time soon. However, of course, all of this will be dismissed as racist (or elitist) by the leftists as excuse after excuse is made for poor performance.Tyler Durden Sat, 12/14/2019 - 15:00 Tags Education Social Issues
The US Economy Is Being Japanified - Thanks To The Fed
Japan has not recovered fully from the lost decade of the 1990s. The Asian financial crisis was exacerbated by the dot-com crash and then a few years later the global economic collapse. Tokyo has tried everything to combat anemic growth and deflation, and resolve the zombification of the Japanese economy through an immense buildup of government debt and a dramatic loosening of monetary policy, including subzero interest rates. This has become known as Japanification. In recent years, Europe has seen its own Japanification, and now it looks like the United States could mirror it, too.
This past summer, Federal Reserve Chair Jerome Powell rejected unsound advice from some of the world’s top economists when he dismissed a proposal to raise the inflation target rate from the current 2 percent to 4 percent. Proponents of this policy say it would allow the central bank to cut interest rates before they slide to zero (which would create a whole new set of problems for the central bank and the overall economy). Powell conceded that it was not “a practical alternative” and wondered “how credible that would be.”
It looks like some Fed minds found a compromise: temporarily boosting the inflation target rate.
Since it listed 2 percent as the key rate to hit in 2012, the Fed has had a difficult time meeting that objective. Policymakers are getting fed up with the Fed’s inability to get inflation to reach their target, despite the unemployment rate hitting a fifty-year low.
As part of its annual review of monetary policy tools, the Fed is contemplating increasing its aim to grapple with its lackluster inflation, the Financial Times reported. Citing current and former Fed policymakers, the newspaper suggests that the Fed is thinking about temporarily raising its goal when it misses its inflation target. This would allow the Fed to make up for lost inflation and prevent prolonged low US price growth.
How are current and former Fed officials reacting?Reactions
Ex-Fed Chair Janet Yellen thinks it is “a worthwhile thing” to discuss, positing that it would be similar to its forward guidance used in the early post-recession days. At the time, the central bank informed markets that it planned to keep short-term rates low for a significant period. Before finishing her tenure at the Fed, she admitted that she was open to the possibility of raising the 2 percent range.
Former Fed Vice Chair Stanley Fischer conceded that he opposes a 4 percent target rate, because unions would want to tie their wages to inflation.
Lael Brainard, a member of the Fed Board of Governors, stated that she prefers something a bit more flexible, recommending that the range increase from 2 to 2.5 percent after several misses. As long as you are communicating to the public — financial markets, households, and businesses — about what you are doing, the rules could work effectively, she noted. But Brainard also believes that the subject is presently too complex to share with the public.
Fed Bank of Boston President Eric Rosengren says that it is important to let markets know that you cannot have readings only below 2 percent to meet the target inflation rate. He also believes that this formulaic approach would concern financial markets.
“This is why I prefer something that is a little bit more flexible, maybe not as constraining, but makes it a little clearer that we should be having over 2 percent,” Rosengren told the Times.Are Negative Rates Next?
Everything about the way governments and central banks report inflation is egregious. They usually underreport, so price inflation is likely higher than what is being touted. For the sake of analyzing what the Fed is doing, let us suppose that the inflation rate is what the establishment says it is.
A key argument against raising the inflation target rate is that the fed funds rate is already at historic lows. In the next recession, monetary policy would largely be ineffective unless it torches long-term sustainability by introducing subzero interest rates to spur growth. This would be the death knell of the world’s largest economy, since negative rates signify that the Fed has exhausted all tools at its disposal.
Others make the argument that inflation expectations would be lower under this scheme. Could the United States experience its own Japanification? Despite a myriad of monetary stimulus measures to reverse these trends, nearly everything employed has failed — it appears that negative rates will not stave off Japan’s upcoming recession. Instead, these efforts have sent bond yields lower, created bad bank loans, and increased debt levels.
Is the tank empty? As with the European Central Bank (ECB) and the Bank of Japan (BoJ), everything the Fed does will largely be ineffective during the next recession. During the boom phase of the business cycle, the central bank has cut rates, expanded the money supply, and relaunched quantitative easing (QE) by scooping up billions in treasuries and injecting credit markets with cash. What else can the Fed do? Negative rates seem the next logical step. What is clear is that the Fed is making up strategies as it goes along, sacrificing long-term gains for immediate survival and instant gratification.Tyler Durden Sat, 12/14/2019 - 14:30 Tags Business Finance
Viral 'Bloomberg Ad' Mocking Awkward Buttigeig Dance Revealed As Parody
A viral campaign ad for Mike Bloomberg mocking Democratic presidential candidate Pete Buttigeig's cringe-factory 'dance' phenomenon was revealed to be a hoax - but not before several prominent influencers took the bait.
On Thursday night, a pair of Los Angeles comedians uploaded a video purporting to be Bloomberg supporters performing an awkward dance routine to Maroon 5's "Moves Like Jagger."
Comedian Nick Ciarelli - who became internet famous for spoofing major brands with his buddy Brad Evans, changed his Twitter bio to "communications intern" for Bloomberg's 2020 campaign, before posting the video with the caption "Mike Bloomberg rally in Beverly Hills."
The video has over 5 million views less than 48 hours later.December 13, 2019
For comparison, here's Team Buttigeig's completely serious dance routine, complete with "Boot Edge Edge" pronunciation guide poster in the background so that people will stop calling him "Booty Judge."September 21, 2019 https://platform.twitter.com/widgets.js
The Bloomberg campaign took the parody in stride, tweeting "To clarify, @NickCiarelli is not an intern for our campaign. And he does not have moves like Bloomberg," before offering him a job.
Nick, still in character, tweets back "Wait are you firing me?"
Wait are you firing me?— Nick Ciarelli (@nickciarelli) December 13, 2019 https://platform.twitter.com/widgets.js
Given the lengths Democratic candidates have gone to emulate Trump's charisma and his social media team's command of meme magic, it's easy to see the genius behind Ciarelli and Evans' Bloomberg hoax; it's believable.
One can picture Bloomberg's team resorting to such a stunt to compete with Buttigeig's viral dance, or that Mayor killjoy would pay a bunch of idiots to film that. After all, the 77-year-old billionaire is trying desperately to appear 'regular' amid sagging polls."Is this how you hold an umbrella?" Tyler Durden Sat, 12/14/2019 - 14:00 Tags Human Interest Politics
IG Report On FBI Spying Exposes "Scandal Of Historic Magnitude" For US Media
Just as was true when the Mueller investigation closed without a single American being charged with criminally conspiring with Russia over the 2016 election, Wednesday’s issuance of the long-waited report from the Department of Justice’s Inspector General reveals that years of major claims and narratives from the U.S. media were utter frauds.
Before uating the media component of this scandal, the FBI’s gross abuse of its power – its serial deceit – is so grave and manifest that it requires little effort to demonstrate it. In sum, the IG Report documents multiple instances in which the FBI – in order to convince a FISA court to allow it spy on former Trump campaign operative Carter Page during the 2016 election – manipulated documents, concealed crucial exonerating evidence, and touted what it knew were unreliable if not outright false claims.
If you don’t consider FBI lying, concealment of evidence, and manipulation of documents in order to spy on a U.S. citizen in the middle of a presidential campaign to be a major scandal, what is? But none of this is aberrational: the FBI still has its headquarters in a building named after J. Edgar Hoover – who constantly blackmailed elected officials with dossiers and tried to blackmail Martin Luther King into killing himself – because that’s what these security state agencies are. They are out-of-control, virtually unlimited police state factions that lie, abuse their spying and law enforcement powers, and subvert democracy and civic and political freedoms as a matter of course.
In this case, no rational person should allow standard partisan bickering to distort or hide this severe FBI corruption. The IG Report leaves no doubt about it. It’s brimming with proof of FBI subterfuge and deceit, all in service of persuading a FISA court of something that was not true: that U.S. citizen and former Trump campaign official Carter Page was an agent of the Russian government and therefore needed to have his communications surveilled.
Just a few excerpts from the report should suffice to end any debate for rational persons about how damning it is. The focus of the first part of the IG Report was on the warrants obtained by the DOJ, at the behest of the FBI, to spy on Carter Page on the grounds that there was probable cause to believe he was an agent of the Russian government. That Page was a Kremlin agent was a widely disseminated media claim – typically asserted as fact even though it had no evidence. As a result of this media narrative, the Mueller investigation examined these widespread accusations yet concluded that “the investigation did not establish that Page coordinated with the Russian government in its efforts to interfere with the 2016 presidential election.”
The IG Report went much further, documenting a multitude of lies and misrepresentations by the FBI to deceive the FISA court into believing that probable cause existed to believe Page was a Kremlin agent. The first FISA warrant to spy on Page was obtained during the 2016 election, after Page had left the Trump campaign but weeks before the election was to be held.
About the warrant application submitted regarding Page, the IG Report, in its own words, “found that FBI personnel fell far short of the requirement in FBI policy that they ensure that all factual statements in a FISA application are ‘scrupulously accurate.'” Specifically, “we identified multiple instances in which factual assertions relied upon in the first FISA application were inaccurate, incomplete, or unsupported by appropriate documentation, based upon information the FBI had in its possession at the time the application was filed.”
It’s vital to reiterate this because of its gravity: we identified multiple instances in which factual assertions relied upon in the first FISA application were inaccurate, incomplete, or unsupported by appropriate documentation, based upon information the FBI had in its possession at the time the application was filed.
The specifics cited by the IG Report are even more damning. Specifically, “based upon the information known to the FBI in October 2016, the first application contained  seven significant inaccuracies and omissions.” Among those “significant inaccuracies and omissions”: the FBI concealed that Page had been working with the CIA in connection with his dealings with Russia and had notified CIA case managers of at least some of those contacts after he was “approved as an ‘operational contact'” with Russia; the FBI lied about both the timing and substance of Page’s relationship with the CIA; vastly overstated the value and corroboration of Steele’s prior work for the U.S. Government to make him appear more credible than he was; and concealed from the court serious reasons to doubt the reliability of Steele’s key source.
Moreover, the FBI’s heavy reliance on the Steele Dossier to obtain the FISA warrant – a fact that many leading national security reporters spent two years denying occurred – was particularly concerning because, as the IG Report put it, “we found that the FBI did not have information corroborating the specific allegations against Carter Page in Steele’s reporting when it relied upon his reports in the first FISA application or subsequent renewal applications.”
To spy on a U.S. citizen in the middle of an election, one who had just been working with one of the two major presidential campaigns, the FBI touted a gossipy, unverified, unreliable rag that it had no reason to believe and every reason to distrust, but it hid all of that from the FISA court, which it knew needed to believe that the Steele Dossier was something it was not if it were to give the FBI the spying authorization it wanted.
In 2017, the FBI decided to seek reauthorization of the FISA warrant to continue to spy on Page, and sought and obtained it three times: in January, April and June, 2017. Not only, according to the IG Report, did the FBI repeat all of those “seven significant inaccuracies and omission,” but added ten additional major inaccuracies. As the Report put it: “In addition to repeating the seven significant errors contained in the first FISA application and outlined above, we identified 10 additional significant errors in the three renewal applications, based upon information known to the FBI after the first application and before one or more of the renewals.”
Among the most significant new acts of deceit was that the FBI “omitted the fact that Steele’s Primary Subsource, who the FBI found credible, had made statements in January 2017 raising significant questions about the reliability of allegations included in the FISA applications, including, for example, that he/she did not recall any discussion with Person 1 concerning Wikileaks and there was ‘nothing bad’ about the communications between the Kremlin and the Trump team, and that he/she did not report to Steele in July 2016 that Page had met with Sechin.”
In other words, Steele’s own key source told the FBI that Steele was lying about what the source said: an obviously critical fact that the FBI simply concealed from the FISA court because it knew how devastating that would be to being able to continue to spy on Page. As the Report put it, “among the most serious of the 10 additional errors we found in the renewal applications was the FBI’s failure to advise [DOJ] or the court of the inconsistences, described in detail in Chapter Six, between Steele and his Primary Sub-source on the reporting relied upon in the FISA applications.”
The IG Report also found that the FBI hid key information from the court about Steele’s motives: for instance, it “omitted information obtained from [Bruce] Ohr about Steele and his election reporting, including that (1) Steele’s reporting was going to Clinton’s presidential campaign and others, (2) [Fusion GPS’s Glenn] Simpson was paying Steele to discuss his reporting with the media, and (3) Steele was “desperate that Donald Trump not get elected and was passionate about him not being the U.S. President.”
If it does not bother you to learn that the FBI repeatedly and deliberately deceived the FISA court into granting it permission to spy on a U.S. citizen in the middle of a presidential campaign, then it is virtually certain that you are either someone with no principles, someone who cares only about partisan advantage and nothing about basic civil liberties and the rule of law, or both. There is simply no way for anyone of good faith to read this IG Report and reach any conclusion other than that this is yet another instance of the FBI abusing its power in severe ways to subvert and undermine U.S. democracy. If you don’t care about that, what do you care about?
* * * * *
But the revelations of the IG Report are not merely a massive FBI scandal. They are also a massive media scandal, because they reveal that so much of what the U.S. media has authoritatively claimed about all of these matters for more than two years is completely false.
Ever since Trump’s inauguration, a handful of commentators and journalists – I’m included among them – have been sounding the alarm about the highly dangerous trend of news outlets not merely repeating the mistake of the Iraq War by blindly relying on the claims of security state agents but, far worse, now employing them in their newsrooms to shape the news. As Politico’s media writer Jack Shafer wrote in 2018, in an article entitled “The Spies Who Came Into the TV Studio”:
In the old days, America’s top spies would complete their tenures at the CIA or one of the other Washington puzzle palaces and segue to more ordinary pursuits. Some wrote their memoirs. One ran for president. Another died a few months after surrendering his post. But today’s national-security establishment retiree has a different game plan. After so many years of brawling in the shadows, he yearns for a second, lucrative career in the public eye. He takes a crash course in speaking in soundbites, refreshes his wardrobe and signs a TV news contract. Then, several times a week, waits for a network limousine to shuttle him to the broadcast news studios where, after a light dusting of foundation and a spritz of hairspray, he takes a supporting role in the anchors’ nighttime shows. . . .
[T]he downside of outsourcing national security coverage to the TV spies is obvious. They aren’t in the business of breaking news or uncovering secrets. Their first loyalty—and this is no slam—is to the agency from which they hail. Imagine a TV network covering the auto industry through the eyes of dozens of paid former auto executives and you begin to appreciate the current peculiarities.
In a perfect television world, the networks would retire the retired spooks from their payrolls and reallocate those sums to the hiring of independent reporters to cover the national security beat. Let the TV spies become unpaid anonymous sources because when you get down to it, TV spies don’t want to make news—they just want to talk about it.
It’s long been the case that CIA, FBI and NSA operatives tried to infiltrate and shape domestic news, but they at least had the decency to do it clandestinely. In 2008, the New York Times’ David Barstow won the Pulitzer Prize for exposing a secret Pentagon program in which retired Generals and other security state agents would get hired as commentators and analysts and then – unbeknownst to their networks – coordinate their messaging to ensure that domestic news was being shaped by the propaganda of the military and intelligence communities.
But now it’s all out in the open. It’s virtually impossible to turn on MSNBC or CNN without being bombarded with former Generals, CIA operatives, FBI agents and NSA officials who now work for those networks as commentators and, increasingly, as reporters.
Congrats to my friend @joshscampbell, CNN’s newest national Correspondent. His passion for going where the news is and covering important stories will continue to benefit viewers. pic.twitter.com/j49k0KOzNj— Sam Vinograd (@sam_vinograd) November 19, 2019 https://platform.twitter.com/widgets.js
The past three years of “Russiagate” reporting – for which U.S. journalists have lavished themselves with Pulitzers and other prizes despite a multitude of embarrassing and dangerous errors about the Grave Russian Threat – has relied almost exclusively on anonymous, uncorroborated claims from Deep State operatives (and yes, that’s a term that fully applies to the U.S.). The few exceptions are when these networks feature former high-level security state operatives on camera to spread their false propaganda, as in this enduringly humiliating instance:
John Brennan has a lot to answer for—going before the American public for months, cloaked with CIA authority and openly suggesting he’s got secret info, and repeatedly turning in performances like this. pic.twitter.com/EziCxy9FVQ— Terry Moran (@TerryMoran) March 25, 2019 https://platform.twitter.com/widgets.js
All of this has meant that U.S. discourse on these national security questions is shaped almost entirely by the very agencies that are trained to lie: the CIA, the NSA, the Pentagon, the FBI. And their lying has been highly effective.
For years, we were told by the nation’s leading national security reporters something that was blatantly false: that the FBI’s warrants to spy on Carter Page were not based on the Steele Dossier. GOP Congressman Devin Nunes was widely vilified and mocked by the super-smart DC national security reporters for issuing a report claiming that this was the case. The Nunes memo in essence claimed what the IG Report has corroborated: that embedded within the FBI’s efforts to obtain FISA court authorization to spy on Carter Page was a series of misrepresentations, falsehoods and concealment of key evidence:
As the Rolling Stone’s Matt Taibbi – one of the few left/liberal journalists with the courage and integrity to dissent from the DNC/MSNBC script on these issues – put it in a detailed article:
“Democrats are not going to want to hear this, since conventional wisdom says former House Intelligence chief Devin Nunes is a conspiratorial evildoer, but the Horowitz report ratifies the major claims of the infamous ‘Nunes memo.’”
That the Page warrant was based on the Steele Dossier was something that the media servants of the FBI and CIA rushed to deny. Did they have any evidence for those denials? That would be hard to believe, given that the FISA warrant applications are highly classified. It seems far more likely that – as usual – they were just repeating what the FBI and CIA (and the pathologically dishonest Rep. Adam Schiff) told them to say, like the good and loyal puppets that they are. But either way, what they kept telling the public – in highly definitive tones – was completely false, as we now know from the IG Report:
Yes. I am telling you the dossier was not used as the basis for a FISA warrant on Carter Page.— Shane Harris (@shaneharris) January 12, 2018 https://platform.twitter.com/widgets.js
New: Two Democratic members of House Intel tell me McCabe did not say dossier was basis of FISA warrant, disputing central claim of #NunesMemo— Jim Sciutto (@jimsciutto) February 2, 2018 https://platform.twitter.com/widgets.js
Over and over, the IG Report makes clear that, contrary to these denials, the Steele Dossier was indeed crucial to the Page eavesdropping warrant. “We determined that the Crossfire Hurricane team’s receipt of Steele’s election reporting on September 19, 2016 played a central and essential role in the FBI’s and Department’s decision to seek the FISA order,” the IG Report explained. A central and essential role.
Just compare the pompous denials from so many U.S. national security reporters at the nation’s leading news outlets – that the Page warrant was not based on the Steele Dossier – to the actual truth that we now know:
“in support of the fourth element in the FISA application-Carter Page’s alleged coordination with the Russian government on 2016 U.S. presidential election activities, the application relied entirely on the following information from Steele Reports 80, 94, 95, and 102″ (emphasis added).
Indeed, it was the Steele Dossier that led FBI leadership, including Director James Comey and Deputy Diretor Andrew McCabe, to approve the warrant application in the first place despite concerns raised by other agents that the information was unreliable. Explains the IG Report:
FBI leadership supported relying on Steele’s reporting to seek a FISA order on Page after being advised of, and giving consideration to, concerns expressed by Stuart Evans, then NSD’s Deputy Assistant Attorney General with oversight responsibility over QI, that Steele may have been hired by someone associated with presidential candidate Clinton or the DNC, and that the foreign intelligence to be collected through the FISA order would probably not be worth the ‘risk’ of being criticized later for collecting communications of someone (Carter Page) who was “politically sensitive.”
The narrative manufactured by the security state agencies and laundered by their reliable media servants about these critical matters was a sham, a fraud, a lie. Yet again, U.S. discourse was subsumed by propaganda because the U.S. media and key parts of the security state have decided that subverting the Trump presidency is of such a high priority – that their political judgment outweighs the results of the election – that everything, including outright lying even to courts let alone the public, is justified because the ends are so noble.
As Taibbi put it:
“No matter what people think the political meaning of the Horowitz report might be, reporters who read it will know: Anybody who touched this nonsense in print should be embarrassed.”
No matter how dangerous you believe the Trump presidency to be, this is a grave threat to the pillars of U.S. democracy, a free press, an informed citizenry and the rule of law.
* * * * *
Underlying all of this is another major lie spun over the last three years by the newly-minted media stars and liberal icons from the security state agencies. Ever since the Snowden reporting – indeed, prior to that, when the New York Times’ Eric Lichtblau and Jim Risen (now with the Intercept) revealed in 2005 that the Bush-era NSA was illegally spying on U.S. citizens without the warrants required by law – it was widely understood that the FISA process was a rubber-stamping joke, an illusory safeguard that, in reality, offered no real limits on the ability of the U.S. Government to spy on its own citizens. Back in 2013 at the Guardian, I wrote a long article, based on Snowden documents, revealing what an empty sham this process was.
But over the last three years, the strategy of Democrats and liberals – particularly their cable outlets and news sites – has been to venerate and elevate security state agents as the noble truth-tellers of U.S. democracy. Once-reviled-by-liberal sites such as Lawfare – composed of little more than pro-NSA and pro-FBI apparatchiks – gained mainstream visibility for the first time on the strength of a whole new group of liberals who decided that the salvation of U.S. democracy lies not with the political process but with the dark arts of the NSA, the FBI and the CIA.
Sites like Lawfare – led by Comey-friend Benjamin Wittes and ex-NSA lawyer Susan Hennessey – became Twitter and cable news stars and used their platform to resuscitate what had been a long-discredited lie: namely, that the FISA process is highly rigorous and that the potential for abuse is very low. Liberals, eager to believe that the security state agencies opposed to Trump should be trusted despite their decades of violent lawlessness and systemic lying, came to believe in the sanctity of the NSA and the FISA process.
The IG Report obliterates that carefully cultivated delusion. It lays bare what a sham the whole FISA process is, how easy it is for the NSA and the FBI to obtain from the FISA court whatever authorization it wants to spy on any Americans they want regardless of how flimsy is the justification. The ACLU and other civil libertarians had spent years finally getting people to realize this truth, but it was wiped out by the Trump-era veneration of these security state agencies.
In an excellent article on the fallout from the IG Report, the New York Times’ Charlie Savage, long one of the leading journalistic experts on these debates, makes clear how devastating these revelations are to this concocted narrative designed to lead Americans to trust the FBI and NSA’s eavesdropping authorities:
At more than 400 pages, the study amounted to the most searching look ever at the government’s secretive system for carrying out national-security surveillance on American soil. And what the report showed was not pretty.
The Justice Department’s independent inspector general, Michael E. Horowitz, and his team uncovered a staggeringly dysfunctional and error-ridden process in how the F.B.I. went about obtaining and renewing court permission under the Foreign Intelligence Surveillance Act, or FISA, to wiretap Carter Page, a former Trump campaign adviser.
“The litany of problems with the Carter Page surveillance applications demonstrates how the secrecy shrouding the government’s one-sided FISA approval process breeds abuse,” said Hina Shamsi, the director of the American Civil Liberties Union’s National Security Project. “The concerns the inspector general identifies apply to intrusive investigations of others, including especially Muslims, and far better safeguards against abuse are necessary.”…
His exposé left some former officials who generally defend government surveillance practices aghast.
“These errors are bad,” said David Kris, an expert in FISA who oversaw the Justice Department’s National Security Division in the Obama administration. “If the broader audit of FISA applications reveals a systematic pattern of errors of this sort that plagued this one, then I would expect very serious consequences and reforms”….
Civil libertarians for years have called the surveillance court a rubber stamp because it only rarely rejects wiretap applications. Out of 1,080 requests by the government in 2018, for example, government records showed that the court fully denied only one.
Defenders of the system have argued that the low rejection rate stems in part from how well the Justice Department self-polices and avoids presenting the court with requests that fall short of the legal standard. They have also stressed that officials obey a heightened duty to be candid and provide any mitigating evidence that might undercut their request. . . .
But the inspector general found major errors, material omissions and unsupported statements about Mr. Page in the materials that went to the court. F.B.I. agents cherry-picked the evidence, telling the Justice Department information that made Mr. Page look suspicious and omitting material that cut the other way, and the department passed that misleading portrait onto the court.
This system of unlimited domestic spying was built by both parties, which only rouse themselves to object when the power lies in the other side’s hands. Just last year, the vast majority of the GOP caucus joined with a minority of Democrats led by Nancy Pelosi and Adam Schiff to hand President Trump all-new domestic spying powers while blocking crucial reforms and safeguards to prevent abuse. The spying machinery that Edward Snowden risked his life and liberty to expose always has been, and still is, a bipartisan creation.
Perhaps these revelations will finally lead to a realization about how rogue, and dangerous, these police state agencies have become, and how urgently needed is serious reform. But if nothing else, it must serve as a tonic to the three years of unrelenting media propaganda that has deceived and misled millions of Americans into believing things that are simply untrue.
None of these journalists have acknowledged an iota of error in the wake of this report because they know that lying is not just permitted but encouraged as long as it pleases and vindicates the political beliefs of their audiences. Until that stops, credibility and faith in journalism will never be restored, and – despite how toxic it is to have a media that has no claim on credibility – that despised status will be fully deserved.
* * *
From the beginning, The Intercept has threatened those in power by exposing government secrets and investigating the dark underbelly of militarism, surveillance, and greed. As a result, our legal and security costs have grown far beyond those of other outlets of our size. To keep publishing - and to remain independent from corporate advertisers - we depend on readers' support.Tyler Durden Sat, 12/14/2019 - 13:30 Tags Politics
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