Bondpocalypse

If I were to single out what for me would be the biggest risk to global financial stability right now it would be a disorderly reversion in the yields of government bonds globally, for any one of a variety of reasons. We have seen shades of that over the last two or three weeks. Let’s be clear, we have intentionally blown the biggest government bond bubble in history. That is where we are, so we need to be vigilant to the consequences of that bubble deflating more quickly than we might otherwise have wanted. That is a risk.

-Andrew Haldane, Executive Director of Financial Stability at the Bank of England, June 2013

You know it’s serious when the central bankers start preparing the public for the inevitable bondpocalypse.  For Max Keiser acolytes the ideas explored in this post will be old news.  For the rest, the goal is to shed light on what is arguably the largest systemic risk to the global financial system that exists.  Indeed, the bond bubble that has been building over the last 30 years is arguably the largest bubble ever inflated and if it pops, which history indicates is inevitable, the financial carnage will be biblical.

Tale of Two Bond Bubbles

For reasons I’ll get to later, most major bond issuers have created bubbles.  Let’s look at a couple of example bubbles to get a feel for the magnitude of what we’re talking about:

First off, outstanding U.S. government debt (which exists as bonds) not adjusted for inflation:

usdebt_notinflationadjusted

And, adjusted for inflation, the picture is still scary:

usdebt_inflationadjusted

Next up, the outstanding U.K. government debt (also known as gilts):

uk_debt

Inflation adjusted, the picture doesn’t get prettier:

ukdebt_inflationadjusted

These examples show what has happened in two of the largest bond markets that exist: U.S. and U.K. sovereign debt.  In general, the markets for most other bonds have exhibited a similar explosive growth over the last few decades with marked acceleration in the last five years.

Clearly, the amount of total outstanding bonds has exploded.  On the surface these bond markets certainly look like bubbles.

A 30 Year Bull Market in Bonds

How did things get to this point?  For these bond markets to grow there needed to be two things: supply and demand.

Understanding the additional supply is easy.  Governments have been increasing in size for some time and are engaged in never ending and costly foreign entanglements (think Iraq, Afghanistan, Libya, soon to be Syria).  To finance all this while servicing the interest on the pre-existing debt, governments have turned to issuing bonds like crazy.  The financial crisis of 2008, which saw governments around the world take on huge debts to bail-out insolvent banks (signing up Joe Taxpayer to the banker’s gambling debts in the process), simply accelerated the growth of government debt.

Understanding the demand side requires a little more nuanced thinking.

First of all, the primary enabler for this explosion of debt has been the interest rate policies of the central banks.  That policy has been to gradually lower interest rates over the last 30 years.  These interest rate policies get reflected directly in the interest (or yield) on government bonds.  Here’s the U.S. 10 year bond yield from the 1960’s until today:

us10-Year_bondyield

As you can see interest rates (set by the Fed) have been steadily falling since 1980.  And, as bond yields fall, the price of bonds rise (see here for a good explanation of the inverse relationship between bond prices and yields).  What does this mean?  Basically, older bonds become more valuable and increase in price since they pay higher interest compared to new bonds being issued.

For the average investor holding a bond to maturity this change in price is irrelevant.  After all, the investor will still collect the same amount for the bond when it matures.  But large financial institutions, pension funds etc. often don’t hold their bonds to maturity.  Instead, these bonds are traded on the open market with older, higher interest bonds fetching a premium over newer, lower interest bonds.

Thus, in a climate of lowering interest rates one can earn a profit by simply buying a bond, waiting for interest rates to fall, and then selling the bond.  Indeed this is what the bankers have been doing over the last several decades.  As long as rates continue on a downward trend, you’ve got yourself a bonafide money-making machine.  The 30 year bull market in bonds has lead to a huge demand for bonds and allowed governments to get away with ever-larger debt bubbles.

But, at a certain point one of two things happen which stop the party:

  1. The market is leveraged as high as possible and not able to generate a further increase in demand.
  2. Interest rates reach zero and cannot be reduced any further.

If either of these conditions occur, the money-making machine stops working.  And, if either of these conditions reverse (interest rates rise or demand falls), bonds will enter a bear market of falling prices and increasing yields.  The bubble pops.

Central bankers and government are, understandably, desperate to keep the wheels on the wagon.  The problem is that, as it stands today, both of the above conditions have been breached.  It’s likely that the bond market is, at this point, fully saturated.  And, with the Federal Reserve already holding interest rates at less than 1%, there’s simply not room left to goose the markets with further interest rate cuts.

The Hail Mary Play: Monetize the Debt

But the central bankers have one last tool they are using to try and keep the bond market from collapsing: Debt monetization.

In general it’s frowned upon for central banks to simply outright purchase and hold government bonds.  The reason is simple: Such a monetization of the debt essentially gives the government a free-reign to raise all the funds it desires.  In our short-term, highly corrupt political system this is obviously a very dangerous tool.

But this kind of outright debt monetization is exactly what’s been happening for the last several years.  Various incarnations of Quantitative Easing (QE) have occurred which all basically boil down to the same thing: The Fed buying U.S. bonds and mortgage backed securities and holding them long-term on its balance sheet.  Here’s what the Fed’s holdings look like for the last 10 years:

fed_balance_sheet

As you can see, the Fed’s balance sheet has quadrupled in size in just five years.  And, the Fed is continuing with their QE3 (aka QE-Infinite) program of buying $85 billion a month of U.S. bonds and mortgage backed securities.  As a result, the scary looking QE3 slope can simply be extrapolated into the future.  It’s not hard to see where we’re going.  This represents the outright and long-term monetization of the debt not to mention the absorption of toxic mortgage backed securities left over from the subprime crisis.

What Happens If the Fed Stops

Clearly the Fed’s QE programs have injected huge amounts of artificial demand into the bond market.  This, coupled with near zero interest rates have allowed the party in the bond market to continue just a little while longer.  But the Fed is playing with fire and they know it.  The danger: Inflation.

The Fed can’t simply keep increasing the monetary base forever at this pace.  At some point all the digital money printing must show up as inflation.  Up until now the decelerating velocity of money as credit markets tighten has masked the underlying increase in the supply of money.  But at some point this will change.  And, if history tells us anything, it’s that once the inflation genie is out of the bottle it can be very difficult to put back in.  In the late 70’s and early 80’s Fed chairman Paul Volcker had to jack interest rates north of 20% to tame runaway inflation.

So what happens when the Fed stops QE3?  Or worse, what happens when the Fed starts to unload the assets on its balance sheet back into the open market (which it assures us it’s going to do)?

Simple: The bond bubble will burst.  There’s just no way around it.  Once the conditions that created the 30 year bull market in bonds are stopped, demand for bonds will fall.  At the same time governments are saddled with truly historic debt loads that must be serviced (requiring the creation of an ever larger supply of debt).  Increasing supply and decreasing demand for an asset will inevitably cause the price for that asset to plunge.  Pop goes the bubble.

To put an exclamation mark on this consider what’s happened since May 2013 when Fed chairman Ben Bernanke indicated that a tapering of QE3 might commence towards the end of 2013:

us10yearyields_2013

This drastic increase from around 1.7% to 2.7%, a more than 50% rise, resulted from just the mention of a possible future tapering.  And, during this period the Fed artificially goosing demand by buying $85 billion a month in assets.  Just imagine the carnage if the Fed actually does taper and unload all the treasuries sitting on their balance sheet back into the market.

And what about the real impact of these increased yields?  It’s not just that prices will plunge hitting bank capitalizations, pension funds and the like.  These bond yields represents the amount it costs for governments to borrow.  If the yields spike up sharply so too does the amount of interest required to service all that debt that’s accumulated in the last 30 years.  This will very quickly become unsustainable especially for countries already teetering on the brink of insolvency (Spain and Italy leap to mind).

Watch Out For Bank Failures

It’s not just governments that are highly exposed to increasing bond yields.  Banks hold large quantities of ‘safe’ government bonds on their balance sheets.  These bonds contribute to the reserve requirements (capitalization) of the banks.  But, if the price of these bonds fall, banks can very quickly find themselves under-capitalized and at risk of failure.

This is something I believe we are going to see once the bubble pops: Systemic bank failures.  God help us if the governments do what they did in 2008 and bailout these reckless and over-leveraged banks using debt guaranteed and owed by the tax-payer.  Of course, the flip-side, a Cyprus style bail-in in which depositors are forced to pay amounts to the same thing.

In either scenario the little guy is going to have to bend over and take it.  Individuals would be well advised to take steps to protect their investments against the threat of inflation and confiscation.

The Bondpocalypse Come’th

The 30 year bull market in bonds is coming to an end.  Attempts to keep the financial system from collapsing over the last five years have merely set the stage for a larger collapse.  Government debts have exploded.  Central banks have desperately lowered interest rates to near-zero and resorted to outright monetization of the debt.  Recent events show us that the mere suggestion of possible future tapering is enough to cause an immediate and violent reaction in bond yields.

There’s no way out.  The bondpocalypse come’th.  With it will come a one-two punch of a massive increase in the cost to service national debts coupled with massive losses in the financial system which could well lead to wide-spread bank failures.

Rather than let the system collapse or institute the deep structure reforms necessary, governments will likely resort to ever increasing debt monetization.  The result to these debt based policies must be inflation.

Protect yourself.  Prepare yourself.  Things are going to get ugly.

Interest Rate Setting: Welcome to the Managed Economy

Every time we go through a major economic upheaval the pundits appear on cue heaping scorn upon capitalism and the evil free market.  It is the greed and instability inherent in these systems, say the critics, that have caused the our current crisis.  We must prevent future instability with increased regulation and by placing shackles upon the evil free market!

This is complete nonsense.  The premise on which these critics are basing their arguments is completely wrong.  Free markets can’t be the problem since we, at a fundamental level, don’t have them.  In fact the opposite is true.  It’s precisely because we don’t have free markets that we’re living through a slow motion economic train-wreck.  Attempting to solve problems rooted in the bastardization of the free markets by further interfering with and regulating those markets is utter folly.

In my previous post I both defined free market capitalism and also showed how government interference with the price discovery mechanism necessarily leads to inefficient markets.  Today I want to apply that discussion to what’s arguably the most important price that exists in an economy (especially an economy that purports to be capitalist): Interest rates.

Interest Rates – The Price of Capital

Most non-economists don’t think of interest rates as a price.  They are.  In fact, interest rates are arguably the most fundamental price that exists in a capitalist system: The price of capital or money.

Like any other good or commodity money has a price.  That price is interest rates.  If an individual or company wants to obtain money to buy a house, invest in a new factory, etc., they need to borrow money or capital.  We all know that borrowing money is never done for free – the lender needs to be compensated both for any risk and also for forgoing access to their money for the duration of the loan.

In a free market interest rates are the quantitative expression of:

  1. The premium the borrower willing to pay in the future to have access to money today.
  2. The profit the lender demands in compensation for the lose of access to their money for the period of the loan (and any risk).

In a free market interest rates, just like any other good, should be set through the price discovery mechanism.  The more people save, the more supply of money exists and the lower the interest rate.  The more people spend, the lower the money supply and the higher the interest rates.  On the demand side, increasing demand yields increasing interest rates.  Referring back to the standard supply/demand chart the situation looks like this:

Supply and demand.

Supply and demand.

In this particular chart P* would represent the free market interest rate.  Any deviation from that optimal interest rate would cause either a shortage or excess of available capital (see my last post for a discussion of price fixing).  Both results, a shortage and an excess, have detrimental effects on the economy at large and, among other evils, are the primary causes of bubbles and the boom/bust cycle.

What Happens When Government Fixes Interest Rates

Let’s take it for granted that neither the government nor any other entity could possibly select prices as correctly and efficiently as the free market.  It directly follows that under our current system the government must be setting interest rates sub-optimally above or below the equilibrium price.  Let’s look at the effects of each of these cases.

Interest Rates Set Too Low

Current interests rates have clearly been set artificially low.  Indeed, the current Federal Reserve discount rate (the special rate the Fed will lend money to banks at) is less than 1%.  The Fed has also given indication that the rates will remain artificially low through 2015.

What is the impact of such a policy?  Well, apart from turning banks into gamblers (since banks can borrow money from the Fed to invest in a range of vehicles earning returns well in excess of the loan’s interest rate), the impacts of such a low rate are entirely predictable by looking at the supply/demand models: Demand soars.

For normal goods, such an artificially low price would result in shortages as suppliers would be less willing to produce at such low prices while at the same time demand would be high.  But money, especially fiat money in a fractional reserve system, is not a normal good.  I don’t want to go off on a tangent so, for the purposes of this discussion, since the Fed also controls the quantity of money in circulation, let’s assume that the Fed in conjunction with the banks will simply ensure that sufficient money supply exists in the system to satisfy demand.  Thus, the result of the artificially low interest rates is simply a surge in borrowing.

This surge in borrowing and the abundant availability of cheap capital first and foremost creates an artificial boom in the economy.  After all, people borrow money to spend it. The higher the aggregate borrowing in the economy, the higher GDP is pushed.  In the short term life is good.

But this short-term boom masks the underlying imbalances that have been created.  Depending on other policies in the economy, asset bubbles can be created.  Probably the best recent example of this is the U.S. housing bubble (which popped memorably in 2008) and the Canadian housing bubble (which is about to pop).  These bubbles where created exactly because of the availability of cheap mortgages.  This did no favour to the average person since it simply caused housing prices to shoot through the roof.  Houses doubled in price but salaries did not.  Although the low interest rates meant you could now get approved for a $500,000 mortgage due to the low interest rates, this made the outstanding debt as a percentage of income much higher than ever before for the standard person.  A whole middle class has literally become debt slaves.

So these are the first effects of artificially low interest rates: Asset bubbles and higher consumer debt.  Neither of these are healthy for the long term economy.

Another effect of low interest rates is to make people more likely to engage in suboptimal or high risk investments.  Since money is so cheap people are more willing to borrow for things that they would not have under normal (higher) free market interest rates.

Low interest rates can also delay or prevent inefficient businesses from going under.  One of the keys to the capitalist system is that the most efficient producers in any given market are selected for while less efficient producers are forced to improve or go out of business.  This leads to the best prices for consumers and the highest aggregate wealth in the economy.  Cheap and abundant credit provides less efficient producers with a way of circumventing this economic natural selection: Issue bonds, lots of bonds.  Thus, these companies can temporarily stay in business due to the over-supply of credit.

Finally low interest rates hurt savers.  Savers are supposed to be the keystone in the capitalist system since it’s their savings that are used as the basis for the economy.  People who used to be able to earn a return at or above inflation relatively risk free now must chose between returns lower than inflation (i.e. a lose in purchasing power year to year) or chasing returns in more risky investments, using precious metals etc.  The oft heard argument that the loss to savers is more than offset by the savings on interest payements for borrowers is nonsense.  As I’ve mentioned, low interest rates tend to get expressed in increased prices (so borrowers aren’t really saving and instead taking ever larger debt burdens).  At the same time pension funds and individuals are forced into riskier investments.  The end result is much higher debt for borrowers, much lower returns for investors and an increasingly risk based economy.

Interest Rates Set Too High

If the price of a good is fixed above the free market equilibrium price a surplus results. That is, there is more supply than needed to meet demand at the price.  Applied to interest rates the picture is again muddied due to central bank monetary policies.  High interest rates are often associated with tight monetary policy.  But regardless, the general result is still the same – the credit market dries up, investment opportunities dwindle and the economy slows.

In the real world it’s been a long time since we’ve seen above market interest rates.  Probably Paul Volcker’s stint as Fed Chairman in the late seventies and early eighties is the best recent example.  In order to reign in runaway inflation which had topped 13.5% in 1981, Volcker jacked interest rates north of 20%.  The plan worked but caused a spike in unemployment and slowed growth in the economy.

While I doubt we will see high interest rates at any point in the foreseeable future the lesson remains: Artificially high interest rates are also damaging to the economy.

Why Does Government Fix Interest Rates

Given the myriad of problems and inefficiencies caused by governments fixing interest rates, why do they do it?  Money.

You see, governments also undermine the free market when it comes to currency.  Legal tender laws, capital gains taxes required for any exchange of precious metals, and other laws all exist to ensure governments have a monopolies on their nations’ currencies.

While we can argue about motivations for why government has imposed such a currency monopoly on us, for the purposes of this discussion the why is irrelevant.  What is relevant is the fact that there does undeniably exist such a currency monopoly and that the value of the currency is being eroded continually by inflation.  This systematic debasement of the currency is intentional.  Central banks usually target around 2% annual inflation as being a good thing.  Using the U.S. as an example, even the official stats report the loss of over 95% in the purchasing value of the dollar since 1913.  Often inflation runs higher that the 2% target and in virtually all cases real inflation is under-reported due to the statistical games played in the way inflation is defined by the government.

Why is any of this important to a discussion about interest rates?  Simple.  You can’t have an inflationary currency and free-market interest rates without very quickly breaking the economy.

It all comes back to the definition of interest rates being the price of currency.  Assume there’s a free market in which there’s no currency depreciation and where interest rates, through the price discovery mechanism, are running at 5%.  Now introduce an expected 3% currency devaluation into this economy.  In a free market lenders would demand to be compensated the additional 3% in order to make a loan.  The lender understands that being paid back in devalued currency cuts into the premium they demand in compensation for risk and deferred payment on their loans.  The entire supply curve shifts up by 3% and interest rates in such a system rise to 8%.  At the new 8% interest rate there is less demand for borrowing and the economy slows.

This scenario shows that, in a true free market, currency inflation will slow the economy as lenders attempt to shift the burden of inflation onto borrowers.

The only way governments can reap the benefits of inflation without the detrimental impacts of such a policy being immediately visible in the economy is if the government also seizes control of interest rates.  Thus, currency and interest rates are the two necessary prerequisites to enable currency debasement.

Conclusion

Were governments to raise all funding through taxes the people would revolt.  Inflation provides a mechanism whereby people can be taxed without their knowledge or understanding.  This enables government to grow ever larger while the people, confused, grow ever poorer.  Conveniently, government also controls the education system and sees to it that a basic, common sense understanding of economics is not part of the curriculum; Instead we learn about magic multipliers, benefits of omnipotent government price regulation and the like.

But this currency debasement is only made possible due to the control of interest rates and the extent to which this is able to distort, obfuscate and manipulate the economy.  In the process a never ending cycle of booms and busts, crises and panics are created.  This is the inevitable result of a managed economy – an increasingly chaotic system that eventually implodes.  Just ask the Soviets.

And that, ultimately, is where our managed economies are heading – ruin and collapse.  We have allowed the State to eliminate the free market for the most important price that exists in a capitalist system: The price of money – interest rates.  In so doing we consigned ourselves to a permanently sub-optimal economy.

No, we don’t have free market capitalism.  Not even close.  Welcome to the managed economy.

Government Interference in Free Market Capitalism

Supply and Demand Theory

Basic economics is based largely on supply and demand.  Simply stated this theory says that the higher the price of a good, the less demand there will be for that good.  The lower the price of a good, the more demand there will be for that good.  This is easily visualized as follows:

Supply and demand.

Price Discovery

In a free market system this linkage between supply and demand leads to price discovery – the process by which the market automatically adjusts supply until the optimal price is reached.  This is often referred to as the ‘equilibrium’ price.

If the price for a good is above equilibrium there is excessive profit to be made by producers of that good.  This will cause additional producers to enter the market to take advantage of the high profits which in turn increases supply and drives down price.

And the reverse is also true.  A price below equilibrium lowers profits and causes some producers to stop producing the good.  This supply reduction raises the price.

In this way, any time a price deviates from the equilibrium price, there will automatically be correcting forces which will push the price back to equilibrium.  This price discovery mechanism is the bedrock of a free market system and always leads to optimal prices for goods.

Government Mucks It Up

Almost all government programs are started with good intentions, but when you look at what they actually achieve, there is a general rule. Almost every such program has results that are the opposite of the intentions of the well-meaning people who originally backed it. – Milton Friedman

Left to its own devices, the free market system has an amazing ability to respond to shortages or surpluses in an agile manner.  Further, since no oversight or intervention is needed, this system incurs no overhead costs and does not require a wealth sucking bureaucracy.

Unfortunately, government cannot resist the temptation to interfere with the free market through a variety of mechanisms.  Subsidizes, rent control, interest rate setting and many other schemes all accomplish the same thing: They fundamentally break the price discovery mechanism of the free market and, in all cases, necessarily lead to inefficiencies and exacerbate problems.

The remainder of this post will go through a few examples of government interference in the price discovery mechanism and demonstrate the sometimes subtle ways these interventions exacerbate the existing perceived problem or transfer the problem to another sector or group within the economy.

Hurricane Sandy and Gasoline Price Fixing

Last October the eastern seaboard of the United States, including New Jersey and New York, took the full wrath of Hurricane Sandy.  In its wake, with millions left without power and unprepared, gasoline (as well as other essentially commodities) underwent a surge in demand.  The result was entirely predictable by looking at the above supply/demand chart: Prices rose.  First to $5/gallon and then within days into the $10-$15/gallon range.

At this point prices started to stabilize and even fall slightly.  But the respite was brief as Governor Christie and other economically illiterate officials started jawboning about prosecuting price gougers and warning against any price increases above the state mandated 10% permitted during a state of emergency.  This immediately drove the black market price for gasoline up to $20/gallon and the shortages deepened.

This government response was completely predictable and, most people would argue, necessary.  But, by interfering in the free market system which was already working automatically to resolve the crisis, this government imposition of price controls actually prolonged the crisis.  After all, what good is $4 gas if there’s none to buy?  This was exactly the situation in the aftermath of Sandy – artificially low prices and chronic supply shortages.

But now consider what would have happened if the politicians had allowed the free market to work.  The initial phase of the crisis would have been the same: Increased demand leading to higher prices.  But these higher prices would have attracted an immediate increase in gasoline supply.  Think about it: If you’re a supplier in a neighbouring state with a tanker full of gasoline would you sell it locally for $4/gallon or send it to a market where you could sell it for $10 or $15/gallon?

Thus, under the free market system, within days there would have been a massive influx of gasoline into affected regions from unaffected regions as suppliers chased profits.  This influx in supply would have reduced both the prices and shortages of gasoline.

This is not to say that prices wouldn’t have settled at an elevated level.  After all, these out-of-state suppliers are incurring additional overhead to deliver their product to a more distant market and are also incurring risk sending capital assets (i.e. the trucks) into storm damaged regions.  But, certainly the premium would not have been more than a few dollars a gallon and any shortages would have been eliminated in short order.

Hurricane Sandy provides one great example of how, despite their best intentions, government interference with the price discovery system inevitably exacerbates problems.

Rent Control

Another great example of the unintended consequences of government interference in the free market is rent control.  When the government imposes rent control it suppresses the price such that it is below equilibrium.  Visually, it looks like this:

rent-control

Notice that this hard ceiling on price has resulted in the following:

  1. High demand due to the low price.
  2. Low supply due to the lack of profits.

These two forces act in opposite directions to force acute and chronic housing shortages.  In the above diagram we can quantify the shortage as Q2 – Q1.

Even worse, the establishment of a price ceiling below equilibrium has resulted in a situation where the profits for suppliers of housing (i.e. builders and landlords) is reduced. In this situation these suppliers have little incentive to build additional housing and thus the shortage becomes chronic.

Another unintended consequence is that because the cost per square foot is artificially low, individuals have less incentive to economize by taking less space.  Thus, the same aggregate square footage of available housing tends to be consumed by fewer and fewer people at lower and lower prices.  If the price was allowed to increase people would adjust by reducing their space needs, subletting, etc.

Notice that simply allowing the price to find the natural equilibrium would resolve the housing shortage.  Even if the equilibrium price is initially prohibitively high, this will simply cause a quick housing boom to occur as builders chase profits.  This housing boom will naturally solve the shortage and cause the price to drop.

Commodity “Stabilization”

But the government doesn’t just fix prices artificially low.  Often government intervenes to fix a price above the equilibrium price.  One example of this is for agricultural crops.  Let’s use corn as an example.

It’s inevitably argued that price fixing policies are required to ‘stabilize’ the price of corn.  This stabilization can be in response to certain market conditions or simply because at harvest time the price of the corn naturally falls for a period due to the increased supply.  It’s at these times, says the government, that the evil speculators step in and buy the corn at low prices to store it and sell later in the season once the price increases.

This evil speculator argument sounds good but, when analyzed rationally, is nonsensical.

First of all, the speculator is doing nothing that the farmer couldn’t do himself.  Nobody holds a gun to farmers’ heads and forces them to sell at harvest time.  Those farmers are free to store their corn in grain silos until the price goes up just as the speculators do.  The reason some farmers are willing to sell when the price is lowest at harvest time is because there are costs and risks to storing.  First of all there is clearly a capital investment required – you have to put all that corn somewhere.  Secondly, the farmers are deferring income which carries its own costs – namely risk (insurance, uncertain market conditions, etc.) and forgone investment potential on the money for the period of the delay.

The reason speculators are important is exactly because they are willing to incur these additional costs and risks for a future profit.  By doing so the speculators are performing an important function: They stabilize supply and with it price.  By buying during times of excess supply and selling during times of shortages the speculator is, in fact, stabilizing the market and reducing seasonal price fluctuations.

But alas, the government often doesn’t see the logic of this and, with the support of the agricultural lobby, enforces a price that during harvest time is less than the free market price.  The situation they create looks like this:

minimum-price

By setting the price of corn at an elevated level an oversupply is created.  This has a few effects:

  • Inefficient farmers are not forced out of business as they would otherwise have been.  The natural free market mechanism of perpetuating the most efficient producers and forcing inefficient producers to improve efficiency or go out of business is broken.
  • Consumers pay more and as a result they consume less (demand falls).
  • Imports of corn must have tariffs applied or be otherwise restricted to maintain the high price.
  • Unless production by domestic farmers is restricted, chronic and building oversupply will become a major problem.

Unless the government regulates all production to force supply to the Q1 level (i.e. production limits) something akin to an asset bubble in the corn market is created.  Unchecked, this, like all bubbles, must burst at some point leading to even greater price volatility.

The take away here is that, once again, government interference with the price discovery mechanism only serves to exacerbate problems that the free market is quite able to resolve in the most efficient manner possible.  In the case of setting artificially high prices the main result is that consumers get less of a good at a higher price.

Conclusion

The free market system always leads to optimal prices.  The price discovery mechanism will dynamically adjust to shortages, oversupplies or any other disruptions or changes in the market.  There is nothing government needs to do other than trust in the natural profit seeking behaviour of the individual and stay out of the way.

It is important to note that in most cases the government is attempting to act in our best interests with their free market manipulations.  But you can’t fix an optimal system.  Any attempt to regulate or control such a system will inevitably make the system less efficient.  That neither we as a citizenry nor our political leaders have internalized this fact and educated ourselves in basic common sense economic theory leads to misguided attempts to fix something which isn’t broken.

Finally, these ill-advised attempts at market rigging introduce additional overhead into the system in the form of the army of bureaucrats needed to draft and administer the regulations.  Government gets larger, the market gets less efficient, and the individual consumer pays the price.

Meet the Syrian Rebels: Who Are They And What Do They Fight For?

syrian_rebel

Syrian President Bashar al-Assad is not a nice guy.  His government is responsible for long term oppression and horrendous human rights abuses toward those that oppose his regime domestically.

That said, the Free Syrian Army (FSA) or ‘rebels’ are not the band of liberty loving freedom fighters Western media has been jamming down our throats.  Indeed, this fragmented umbrella of groups is dominated by the same radical Islamists that we’ve seen operating in Libya.  These groups are motivated by a hatred of Assad’s secular regime and by a burning desire to implement Sharia law in Syria.  Most of these fighters are not Syrian natives and the civilian population in Syria, for the most part, does not support the FSA in the civil war.

Let’s take a quick look at Syria over the last 10 or 15 years in the lead up to the ongoing civil war and then take a good hard look at which groups are represented within the FSA and some of the atrocities they’ve committed.

A Brief History of Recent Events in Syria

In 2000 Hajez Assad, then President of Syria died and his son, Bashar, took over as head of the Ba’ath party, the President and head of the military.  These positions were pretty much a package deal since the Syrian constitution at that time stipulated that only Ba’ath party leaders could ascend to the Presidency.

Under the younger Assad, the general authoritarian flavour of the Syrian government, though slightly relaxed, pretty much continued as it had in the past.  There was still a large secret police force (the mukhabaraat) and people had no expectation of privacy or basic rights to assembly or protest the government.  Dissenters continued to be disappeared or be otherwise intimidated into submission.  In short, Syria was run much like other dictatorships in the region.

But, for all its obvious flaws, there are a few things to recognize about Bashar Assad’s regime.  First, and entrenched in the Syrian constitution, is the fact that Syria’s government is secular.  This is very important because the 23 million people calling Syria home are not homogenous in any sense of the word.  Here’s a rough breakdown of the Syrian population:

  • Sunni: 64%
  • Shiite: 13% (vast majority Alawites)
  • Kurds: 10%
  • Christians: 12%
  • Jews and Other Small Groups: 1%

While the Sunnis are will represented in every aspect of Syrian government and industry, they do not have the same stranglehold on the reigns of power as has been seen in other Sunni dominated countries (Iraq being a good example).  Indeed, the Assad family itself is Alawite.  By and large religious discrimination was not the norm and, in keeping with the constitution, there were equal rights and opportunity for all including equal opportunity and pay for women.  Thus people of different religions were free to pursue whatever occupation or government positions they desired.

‘Arab Spring’ Comes to Syria

In March and April of 2011 the ‘Arab Spring’ movement that had whipped through the Middle East arrived in Syria in the form of popular protests calling for an end to Ba’ath party rule and the ouster of President Assad.  These protests, for the most part, cut across the religious boundaries and amounted to a true grass-roots movement for democracy.

Things quickly boiled over with Assad seeking to clamp down on protestors throughout the country.  Estimates vary but at least several hundred protestors were killed in the first few months of protest in addition to many thousands of arrests.  There’s no two ways about it: This was authoritarian rule at its worst.

In June 2011 Assad held out an olive branch to protestors by agreeing to reform Syria’s constitution ending the one-party Ba’ath rule and limiting Presidents to at most two seven year terms.  Additionally Assad promised amnesty for protestors and a national dialog toward greater freedoms.

But it was too little, too late.  As government atrocities continued to mount, members of Syria’s military started to defect and join the opposition.  By the end of July a group of defected officers announced the formation of the Free Syrian Army (FSA) dedicated to the removal of Assad through civil war.

A Movement Co-opted

Through the later part of 2011 the FSA was a largely popular, secular resistance force. That is not to say that atrocities weren’t being committed (by both sides) but, by and large, the conflict was a civil war in the traditional sense.

Then, starting in January 2012, the Islamic fundamentalists (jihadies) started to arrive.  At first it was dribs and drabs but then large numbers of well armed and seasoned veterans started to infiltrate the ranks of the FSA.  Large units of the original FSA, chronically short of weapons and ammunition, soon joined the ranks of the jihadies out of necessity.  The character of the rebel forces was altered – and not for the better.

Today, of the nine major groups operating under the umbrella of the FSA, seven are Islamic fundamentalist.  The Economist has a good chart showing the current breakdown of the FSA:

fsa_composition

Widely recognized as the most effective combat unit is Al-Nusra.  These are seriously hard-core Sunni fundamentalist who have publicly pledged allegiance to Al-Qaeda.  They strive to overthrow Assad and establish a pan-Islamic state under Sharia law.  Most of the other Islamic fundamentalist groups have similar aims – all wish to see Sharia law established in Syria.

Not only are these groups Islamic fundamentalist but additionally their members and leadership are hard-core jihadies – completely extremist and brutal in the worst possible sense of the word.

Direct From the Horses Mouth

But don’t take my word for it.  The rebel leaders are openly pledging their allegiance to Al-Qaeda.  Even the U.S. State Department was forced to designate the main Islamist group, Al-Nusra, as a terrorist organization with close ties to Al Qaeda.  Yet rebel groups across Syria have pledged their support for Al-Nusra and this organization continues to establish itself as the most effective military force under the FSA umbrella.

Then there’s this little gem of the FSA signing a heartwarming song which if you didn’t know the lyrics could be mistaken for the Islamic version of Kumbaya.  Here are the actual lyrics in english:

If they call me a ‘terrorist’, I would say: ‘It is an honor for me’ Our terror is praised, with a divine calling

Our leader, the Mullah (Omar), did not forsake his religion All the soldiers have sold their souls to Allah

Our leader bin Laden, America’s worst nightmare
With the power of faith and our weapons

We destroyed America with a civilian plane
The World Trade Centre was turned into a pile of rubble

Touching.

David Enders (who was subsequently kidnapped for a short time by Al-Nusra) wrote an interesting article in which he interviewed a local Al-Nusra leader in Syria, Iyad al Sheikh Mahmoud.  Apparently Mahmoud didn’t feel that once Assad was ousted there would be any need to elections since “Eighty percent of Syrians want Islamic law“.

Here are some of the many other instances of Syrian rebels exposing their true ideologies:

Actions Speak Louder Than Words

Actions do speak louder than words.  With that in mind allow me to call attention to a small fragment of the documented atrocities that have been committed by rebel forces.  A word of warning – some of this content is unbelievable graphic.  To be honest I had to stop building out this section of the blog post because it was too disturbing to troll through all these youtube videos.  Nevertheless it’s important for people to be aware of what’s really going on.

Independent Assessments

There are people with first hand knowledge of the situation in Syria who remain at arms length and have no obvious bias.  The observations of these people supports the idea that the rebellion in Syria has degenerated from a secular civil war to a jihad being waged by Islamic fundamentalists.

One great example is a French surgeon who worked at a hospital in Aleppo for Doctors Without Borders.  Jacques Bérès, when asked if the fighters he treated were extremists stated:

I would say at least half of them are Salafist Jihadists with the headband with Quranic verses, even the cars transporting them had Al-Qaeda flags on them, and the Salafist look with the mustache gone while keeping a beard.  …the goal of the militants is to impose sharia law and a global caliphate over Syria and the whole region.

You can see the entire interview here.

Persecution of Christians

Syria is home to some of the oldest Christian communities in the world – some going back as far as two millennium.  Or rather Syria used to be home to some of the oldest Christian communities in the world.

Estimates vary but according the U.N there are currently about 1.5 million Syrian refugees in addition to over 4 million internally displaced people.  Specific estimates for the number of Christians affected is hard to come by but it’s easily in the hundreds of thousands.  In just the town of Homs between sixty and seventy thousand Christians were forced to flee ahead of the rebel occupation.

And they flee with good reason.  There have been many documented instances of atrocities against Christians:

Persecution of Shiite Alawites

Like the Christians, the minority Alawites are a target of brutal atrocities that could be called genocide.  Indeed, FSA leaders have openly tied the loss of strategic cities to the wholesale slaughter of Alawites in areas they retain control of:

“I am telling them, if Al-Qusair falls, then Shia villages in Syria will be wiped off the map. The same applies to Alawite villages. We don’t wish this thing at all, but it will be something out of control.”

“Who would be able to control and restrain thousands of fighters full of spirit of revenge? Who would be able to control all those people?”

Even if one takes this in the most generous light possible this amounts to an admission by FSA commanders that they are not in the control of the jihadies comprising their main fighting force and further that these jihadies will initiate wholesale massacres as revenge for any defeats.

Then there’s this story which surfaced a few weeks ago of an influential FSA commander removing and taking a bite out of the heart of a fallen Syrian government soldier.  The commander goes on to issue a direct threat to do the same to all Alawites and infidels.

Use of Child Soldiers

New York based Human Rights Watch released a report late last year documenting the wide-spread use of child soldiers by FSA forces.  The rebels don’t try and hide this fact – indeed they seem proud of it.  Here’s Abdel Razzaq, a 38-year-old former regime army sergeant who defected to the opposition and now trains child soldiers at a rebel camp in the Syrian town of Tlaleen:

When they arrive here, they are children. By the time they leave, they are killing machines.  Children are the best soldiers I know. They obey every command. An adult asks questions and answers back. But the children, they question nothing.

There’s a myriad of additional evidence on the use of child soldiers (even their involvement in summary executions of government soldiers) which I won’t go into.  If you want to look into it further, this youtube video documenting child soldiers in Syria fighting with the FSA is a good jumping off point as well as the above linked Human Rights Watch report.

Conclusion

Bashar al-Assad is a brutal dictator whose forces are responsible for both long term oppression of the Syrian people and many egregious atrocities during the present civil war.

But the FSA is clearly the greater of two evils.  What began as a legitimate uprising by the people has been thoroughly co-opted and dominated by foreign Islamic extremists bent on imposing Sharia law and genocide for all infidels.

This being the case it’s simply unfathomable to me that the West has, by and large, decided to back and arm the FSA.  It is now U.S. policy to supply armaments to the FSA (they’ve been doing this covertly for a long time).

The outcome of this foreign entanglement is entirely predictable: Yet another failed state in the Middle East taken over by extremist elements.  It seems our political leaders are determined to leave a trail of destruction throughout the Middle East and will not rest until they’ve succeeded in destabilizing the entire region.

Citizens of governments supporting the FSA have a moral obligation to speak out against the use of their tax dollars to fund rebel forces in Syria.  As long as our governments continue to fund these extremists we’re all partially responsible for their actions.  I for one don’t want anything to do with these jihadies.

A final note of caution: We in the West will pay a high price for the recent campaigns which have destabilized Libya and Syria.  We have turned these countries into breeding grounds for exactly the kinds of terrorists our liberties are being systematically eroded to protect us against.  This will blow back on us.  We will reap what we sow.

Benghazi – The Mystery of the Missing Air Support

In my previous posts on Benghazi I’ve detailed:

Today I want to continue this investigation into the attacks on Benghazi by asking the question: Where was the air support?

Basis for the Question

The surprising lack air cover should, I hope, be a fairly obvious question for any critical thinker looking at the attack timeline.  After all, the attack unfolded over a period of eight hours and, in the midst of the events, there was no way of knowing precisely when the attacks would end.  Had the attackers been more determined it’s entirely possible that this attack could have dragged on for substantially longer than it did – even days.

Indeed, one must conclude that the Department of Defence (DOD) concurred with this assessment given that their response to the situation was the mobilization of three different teams none of which could even hope to arrive in Benghazi before the afternoon or evening of September 12th nearly 24 hours after the start of the attack.

So, given that the DOD’s own response implied an understanding that the attacks may continue for a protracted period, the question stands: Why was there never an attempt to bring air power to bear?  Why would DOD mobilize three fully equipped ground response teams (by air transport) and yet not mobilize available close air support assets?

This simply doesn’t make sense.

And It’s Not Just Me

No, it’s not just me asking this obvious question.  Importantly, some of the key people on the ground in Benghazi during the attack, notably the man in charge of security in Libya (Regional Security Officer Eric Nordstrom) and the man who became the lead State Department official in Libya upon Ambassador Steven’s death (Deputy Chief of Mission Gregory Hicks) have the same question.  When these men were asked during testimony before the House Oversight and Government Reform Committee about the lack of air cover, both questioned the reasons given by DOD officials.  I have included the relevant short excepts of this testimony in Appendix A – I highly recommend reading these excerpts.

The Official Story

The official word on this question is that it wasn’t possible to get air-cover in Benghazi due to a lack of tankers available to refuel F-16 from the nearest air base in Aviano, Italy.  And, since Benghazi was beyond the combat radius for an F-16, this became the limiting factor which prevented F-16s from being launched.

Again, I would refer you to Appendix A for the relevant House Oversight Committee testimony.

The Tactical Reality

Now that we’ve got the official story on record let’s take a look at the tactical reality of the situation (click for a sharper image):

aviano_benghazi_sigonella

The distance from Aviano Air Force Base (AFB) in Italy to Benghazi is 1044 miles.  Aviano AFB is home to the 510th and 555th fighter squadrons both of which fly F-16s.

The combat radius of an F-16 depends on its payload but, even with a standard payload of a couple of sidewinders and two 1000 pound bombs (and no external tank), 500 miles would be a conservative estimate for the combat radius of this aircraft.  Cruising speed for an F-16 is around 577 mph.

Then there’s the red mark on the above map: Naval Air Station (NAS) Sigonella – a scant 468 miles from Benghazi and 610 miles from Aviano AFB.  During the ‘liberation’ of Libya, almost 4000 combat sorties were flown out of NAS Sigonella.  While Sigonella does not have a permanent fighter presence, it is a well established air base and is in constant use as a hub in the Mediterranean for U.S. military aircraft.

The Obvious Solution – Pit-Stop Sigonella

Now that we have an understanding of the tactical constraints facing the DOD, there is a (hopefully) obvious solution that more alert readers probably picked up on.

  • Hour 0-1.  While the F-16s at Aviano are not on strip alert, given the genuine emergency it’s reasonable to expect that within an hour of the order being given a sober pilot or two could have been located, an aircraft fuelled and in the air with a minimal default loadout.  In this scenario the aircraft may have had only ammunition for its 20mm cannon and pilot would be given a simple briefing on the way to the plane: Get to NAS Sigonella.
  • Hour 1-2.  Given that the distance from AFB Aviano to NAS Sigonella is only 610 miles, the pilot would be able to quickly attain altitude and cruise at above the standard cruising speed of 577 mph.  The F-16 would be on the ground at NAS Sigonella within an hour of its departure from AFB Aviano.  During this one hour flight two important things would happen:
    1. Via radio the pilot receives a more detailed briefing.  The plan – a quick refuelling at NAS Sigonella and an immediate departure for Benghazi to fly a close air support (CAS) mission.
    2. NAS Sigonella is informed of the incoming F-16 and told to prepare for immediate refuelling of the aircraft upon its arrival.
  • Hour 2-2.5.  The F-16 arrives at NAS Sigonella and is immediately refuelled.  While it’s possible to refuel an F-16 without even stopping the engines (hot-pit refuelling), it’s also possible that NAS Sigonella didn’t have a refuelling team available that was trained for this.  Thus, let’s assume that the refuelling process takes a full 30 minutes before the F-16 is again airborne and enroute to Benghazi.
  • Hour 2.5-3.5.  Given it is only 468 miles from NAS Sigonella to Benghazi the F-16 is on station and providing close air support within 3.5 hours from the initial order.

And, of course, subsequent F-16s could follow the same route at intervals to ensure that continuous air coverage was provided from that time on.

What Difference Would This Have Made?

According to the people on the ground and knowledgable about such matters, the appearance of U.S. warplanes would have been a total game-changer (see their testimony in Appendix A).  Basically, the consensus is that a single low altitude pass by an F-16 at full afterburner would have put the fear of God into the attackers – these men had all seen U.S. airpower in action during the Libyan campaign and would have tucked-tail and run as soon as air support showed up.

So, By What Time Could the F-16s Have Arrived in Benghazi?

Going back to our timeline of the attack (which started at 21:42), we can see that by 21:59 DOD had already redirected a surveillance drone to Benghazi.  This quick response is important because is shows us how efficiently orders could get relayed through the DOD chain of command.  By 23:00 it was clear to DOD that the attack involved U.S. casualties and was ongoing.  In my mind, there is no reason not to have scrambled the F-16s at this point.  After all, the worst case would be that the situation resolved and the F-16s would turn around and go home.  There was simply no reason not to deploy the F-16s and, conversely, every reason to do so.

Using 23:00 as the departure time, this would have put an F-16 overhead by 02:30 on September 12 – nearly three hours before the attack on the Annex which killed two additional U.S. personnel.  Had these F-16s been scrambled it’s very likely that the fatal attack on the Annex would never have occurred.

Troubling Questions

All this lays out some really troubling questions:

  1. Why were the F-16s never given orders to move?  Nobody knew how long the situation would persist.  Why on earth would DOD not even attempt to get air assets into place and chose instead to mobilize ground forces from distant locations (including continental U.S.)?   
  2. Why has there been a conspicuous lack of testimony from DOD officials?  I’ve read virtually every official report I can get my hands on and the only thing provided by DOD is a two page timeline of events from DOD’s perspective.  Someone needs to directly ask the right people from within DOD why no attempt was made to put planes in the air.

Conclusion

The absence of tanker support did not prevent F-16s from being able to provide close air support to U.S. personnel in time to prevent the second attack.  Despite the DOD decision to send three teams of ground personnel, none of whom would be able to arrive until the evening of September 12th, no attempt was ever made to move available fighters.  This is completely nonsensical.

Clearly the official investigations into Benghazi need to take hard looks at these facts.  This hasn’t happened.  Either DOD was told to stand-down or there was supreme incompetence that resulted in the deaths of two Americans.

Appendix A – Testimony of Gregory Hicks and Eric Nordstrom Before House Oversight and Governmental Reform Committee

Testimony of Gregory Hicks to Congressman Cummings' Questions

Congressman Elijah Cummings: In the interview with the committee staff you stated, and I quote, “In my personal opinion a fast mover flying over Benghazi at some point, you know, as soon as possible might very well have prevented some of the bad things that happened that night”.  Is that right? Did you say that?

Deputy Chief of Mission Gregory Hicks: Yes, sir, I did.

Cummings: And you further stated, and I quote, “I believe that we had been able to scramble a fighter or aircraft or two over Benghazi as quickly as possible after the attack commenced, I believe there would not have been a mortar attack on the Annex in the morning because I believe the Libyans would have split”.  Is that right?

Hicks: Yes, sir.

Cummings: At a hearing in February before the Senate Armed Services Committee General Dempsey, Chairman of the Joint Chiefs of Staff, was asked whether we could have deployed F-16s from Aviano air base in Italy, and he explained why we could not, and these are his words.  We’re just trying to make sure we get the complete picture.  For a couple reasons, and I quote, “for a couple reasons, one is that in order to deploy them it requires this is the middle of the night now.  These are not aircraft on strip alert.  They’re there as a part of our commitment to NATO and Europe, and so as we looked at the timeline, it was pretty clear that it would take up to 20 hours or so to get them there”.  Mr. Hicks, I understand that you wanted planes to get to Benghazi faster.  If I were in your shoes, I would have wanted them to get there yesterday.  Yesterday.  And that is completely understandable, but the chairman of the Joint Chiefs of Staff said they simply could not get there quickly.  Mr. Hicks, do you have any reason to question General Dempsey’s testimony before the Senate?

Hicks: Again, I was speaking from my perspective.

Cummings: I understand.

Hicks: On the ground in Tripoli, based on what the Defense Attache told me.  And he said two to three hours.

Cummings: Ok.

Hicks: But there were no tankers.

Cummings: All right.

Hicks: And I also was speaking with reference to conversations I had had with veteran Libyan revolutionaries, and other personnel who had experienced the Libyan revolution and who had told me that the Libyan people were very well aware of — sorry, that American and NATO air power had been decisive in their victory and I was also speaking to their view, again, that Libyans would not stand if they were aware that American aircraft were in the vicinity.

Cummings: I understand.  So former Secretary of Defense Leon Panetta also testified in February, and he said this, and I quote – he says “Soon after the initial reports about the attack, the President ordered all available DOD assets to respond to the attack in Libya and to protect U.S. personnel and interests in the region.  Some have asked why other types of armed aircraft were not dispatched to Benghazi.  The reason is because armed UAVS, AC-130 gun ships or fixed wing fighters with associated tanking, armaments, targeting and support capabilities were not in the vicinity of Libya and because of the distance would have taken at least 9 to 12 hour if not, more to deploy.  This was pure and simple a problem of distance and time”.  Do you question his testimony?

Hicks: Sir, again, the Defense Attache said to me fighter aircraft in Aviano might be able to — would not be able to be over Benghazi before two to three hours.  That’s what I’m going on – what the Defense Attache told me.

Testimony of Gregory Hicks to Congressman Chaffetz's Questions

Congressman Jason Chaffetz: Mr. Hicks, we typically need permission of a host nation government to fly military aircraft over their territory?

Deputy Chief of Mission Gregory Hicks: Yes, we do.

Chaffetz: And to your knowledge did we ever ask the Libyans for permission to fly over their country?

Hicks: Frequently.

Chaffetz: Did we the night of the attack?

Hicks: The night of the attack?

Chaffetz: The night – once this incident started, did we seek permission from the Libyan government to do flyover?

Hicks: I think in the record there is a UAV was flying over Libya that night and it had permission to be there.

Chaffetz: Did we ever ask for permission to fly anything other than an unarmed drone over Libya during the attack?

Hicks: No.

Chaffetz: Would you have known that?

Hicks: Yes.

Chaffetz: Based on your extensive experience as a diplomat in dealing with the Libyan government, do you believe the Libyans would have grant the over flight rights if we had requested it?

Hicks: I believe they would have.

Chaffetz: Mr. Nordstrom, do you believe that would also be true?

Regional Security Officer Nordstrom: I think certainly in this situation.  They were fairly, yeah.

Chaffetz: I think one of the unanswered questions here is if it is a possibility, if there is any chance that we can get military over flight, if we can get a military flight there, then we would ask permission in advance.  My concern is there was never an intention, there was never an attempt to actually get these military aircraft over there.  I think one of the hard questions we have to ask is not only about the tankers but what was the NATO response?  We flew for months over Libya, months we conducted an air campaign, and we have assets.  We have NATO partners.  We worked for instance with the Italians.  It is stunning that our government, the power of the United States of America, couldn’t get a tanker in the air?  Mr. Hicks, when did you think that this was actually over?  It was done, we were safe?

Hicks: Not until our personnel landed in Tripoli on the C-130.

Chaffetz: And then even then Ansar Al-Sharia posted that, there is a reason why you had to leave the facility in Tripoli.

Hicks: That’s correct.

Chaffetz: When did you actually return to the embassy in Tripoli?

Hicks: We returned I believe on the 14th.

Chaffetz: When did the FAST team arrive to help secure the embassy.

Hicks:They arrived on the night of September 12th about 8 or so.

Chaffetz: And there still was a potential fly over and the government never asked for permission.  This is one of the deep concerns.

Benghazi – Attack Timeline

My last post detailed the deteriorating security situation in Libya in the lead-up to the September 2012 attack that resulting in the deaths of four Americans including the U.S. ambassador to Libya, Chris Stevens.

Today I want to present a consolidated timeline of the attack.  This timeline is taken from the various official sources detailed in Appendix I.  Subsequent posts will use the timeline to delve into specific aspects of the attack where there are questions (legitimate and otherwise) about the official story.

Benghazi Facilities and Resources

There are two facilities involved in the events of September 11th/12th, 2012:

  1. The U.S. Special Mission Compound/Consulate.  This facility is a walled compound about 100 yards wide and 300 yards long with a few buildings.  At the time of the attack there were seven Americans at the SMC: Ambassador Stevens, Information Management Officer Sean Smith and five diplomatic security (DS) agents.
  2. The CIA Annex.  Details of the facility and the operations run out of it are unclear.  All official reports simply indicate that it was owned by ‘another agency’.  It seems fairly likely that this was actually a CIA facility – many none-official sources indicate this to be the case.  It is also not clear exactly how many people were present at the Annex when the attack commenced but the general consensus seems to be around 20 people.  It also appears that the majority of these individuals were DOD or CIA trained assets.

These facilities are only one kilometer from each other as can be seen in this Google map screenshot (click here for the interactive map):

smcannex_map

Click for larger image.

Timeline of Attack (All times local Benghazi time)

  • September 10th, 2012.  Stevens arrives at the Special Mission Compound (SMC) in Benghazi.  There are five Diplomatic Security (DS) agents with him in addition to the four members of the February 17th Martyrs’ Brigade militia assigned to protect the SMC.  Information Management Officer Sean Smith is also at the SMC.
  • September 11th, 2012: 21:42.  Security video reveals dozens of armed individuals suddenly entering the SMC through the main gate.  The February 17th milita members have already fled.  The alarm is sounded  and the Annex and Embassy Tripoli are notified immediately of the attack.  The Annex is close enough that personnel there have heard the initial gunfire and are already preparing to respond.  Ambassador Stevens and Smith are secured in the main consulate building’s safe area with one of the DS agents.  Stevens immediately begins to use his cell phone to call local contacts and Embassy Tripoli for assistance.
  • 21:45.  Embassy Tripoli sets up a command center and notifies Washington.  A six person response team (including two military personnel) is dispatched from Embassy Tripoli to Benghazi.
  • 21:50.  The Deputy Chief of Mission (DCM) in Tripoli reaches Stevens who reports that the SMC is under attack before the call drops.
  • 21:45-22:00.  Armed intruders use fuel cans to start fires in several buildings including the main building where Stevens is located.
  • 21:59.  AFRICOM and DOD redirect an unarmed surveillance drone to Benghazi.
  • 22:00.  As the main building fills with smoke the DS agent tries to lead Stevens and Smith out of the building.  In the zero visibility environment they get separated.  After exiting the building (at which point he is taking fire) the DS agent realizes he has lost Stevens and Smith.  The DS agent reenters the building several times to try and locate them without success due to the smoke.
  • 22:05.  The Annex response team departs with 6 security personnel (DOD and CIA) and a translator in two vehicles for the SMC.  Along the way they attempt to obtain heavy weapons and assistance from local militias – these efforts are not successful.  The team takes heavy fire en-route.  At the same time three DS agents at the SMC have managed to reach the main building and begin searching for Stevens in the smoke filled building and are assisting the original DS who is vomiting and losing consciousness from smoke inhalation.  At this point the first group of attackers have receded.
  • 22:05.  An OPS ALERT is issued to inform senior State Department officials, the White House situation room etc. of the attack.
  • 22:25.  The Annex response team arrives at the SMC and engages in a 15 minute firefight.
  • 22:32.  Secretary of Defence Panetta and Chairman of Joint Chiefs of Staff Dempsey are informed of situation.  They are already at the White House for a previous scheduled meeting
  • 22:40.  Annex team arrives at the SMC’s main building and links up with the SMC DS agents.  Smith’s body is recovered from building (deceased due to smoke inhalation).
  • 23:00 Panetta and Dempsey meet with the President and discuss the situation and potential responses.
  • 23:10.  First surveillance drone arrives overhead.
  • 23:15  The original SMC personnel depart for the Annex in an armored car.  They take heavy fire on the way and need to detour.  They arrive at the Annex at 23:30.  The Annex team stays at the SMC to continue the search for Stevens and weathers a second assault wave of small arms and RPGs.  After several attempts to recover Stevens and on the verge of being overrun, they retreat back to the Annex.
  • September 12th, 2012.  00:00-01:01.  The Annex comes under attack with intermittent small arms fire and RPGs.
  • 00:00-02:00.  SecDef Panetta mets with senior DOD officials.  Directs a response of three actions authorized at 02:39:
    1. One Fleet Antiterrorism Security Team (FAST) platoon stationed in Rota, Spain to deploy to Benghazi and a second FAST platoon to prepare to deploy to Tripoli.  Only one FAST platoon will arrive in Libya and not until the evening of September 12th.
    2. U.S. European Command’s In-extermis Force (which happened to be training in Central Europe) to deploy to a staging base in Southern Europe.  Won’t arrive at the staging location in Sicily until the evening of September 12th.
    3. Special operations force in the U.S. to deploy to the staging base in Sicily.  This team arrives in Sicily the evening of the 12th
  • 00:06.  Second OP alert indicates an Al Qaeda linked group is claiming responsibility for attack.
  • 00:30.  Six person security team from Embassy Tripoli departs on a charter aircraft for Benghazi.
  • 01:15.  Six person security team from Embassy Tripoli arrives at Benghazi airport.  They are held at the airport for three hours while they negotiate with Libyan authorities about logistics.
  • 02:00.  Embassy Tripoli gets a call that Stevens’ body is at the Benghazi Medical Center (BMC) and is deceased.  His body is later reported to have arrived at BMC at 01:15.
  • 05:00.  A second surveillance drone directed to relieve first drone which is still overhead.
  • 05:04.  The six person security team from Embassy Tripoli arrives at the Annex.
  • 05:15 – 05:26.  A mortar and RPG attack on the Annex kills two and wounds two U.S. security personnel.
  • 06:00.  Libyan forces arrive at the Annex with about 50 vehicles to escort the Americans to the airport.
  • 06:30.  All U.S. personnel evacuate to Benghazi airport.
  • 07:30.  The wounded and some other U.S. personnel leave Benghazi airport on a chartered jet for Tripoli.
  • 08:25.  Stevens’ body is delivered to Benghazi airport by local ambulance.
  • 10:00.  A Libyan Air Force C-130 departs Benghazi airport with all remaining U.S. personnel and the four bodies.
  • 11:30.  The Libyan Air Force C-130 lands in Tripoli.

Appendix I – Resources

  1. The December 2012 Department of State Accountability Review Board (ARB) report that is the official word as far as the Department of State is concerned.
  2. The December 2012 Senate Committee on Homeland Security and Governmental Affairs report with 10 specific findings many of which directly contradict the ARB report.
  3. The April 2013 House Republican interim report which provides detailed timelines of the attack as well as describing the many security deficiencies and generally deteriorating security situation in Libya leading up to the attack.
  4. The May 2013 Department of Defence official timeline of the attack.
  5. The May 2013 testimony of Gregory Hicks, Eric Nordstrom and Mark Thompson before the House Oversight and Government Reform Committee.  This testimony from the people on the ground directly involved with the events that unfolded directly contradicts the ARB in many details.

Benghazi – Prelude to the Attack

This will be the first in a series of posts looking at various aspects of the attack on the U.S. Special Mission Compound (SMC) and ‘Annex’ facilities in Benghazi on September 11th and 12th, 2012.  My goal for the series is to provide an overview of the events that unfolded and then dig into a few specific aspects of the attack where the official story appears to be incomplete of outright false.

To start, today’s post will detail, without comment or interpretation, two timelines:

  1. The timeline of the deteriorating security situation in Benghazi (and Libya in general) in the year preceding the attack.
  2. The timeline of requests for additional security made by Department of State employees in Benghazi in the year preceding the attack.

These timelines were built by consolidating the data in the following four official reports:

  1. The December 2012 Department of State Accountability Review Board (ARB) report that is the official word as far as the Department of State is concerned.
  2. The December 2012 Senate Committee on Homeland Security and Governmental Affairs report with 10 specific findings many of which directly contradict the ARB report.
  3. The April 2013 House Republican interim report which provides detailed timelines of the attack as well as describing the many security deficiencies and generally deteriorating security situation in Libya leading up to the attack.
  4. The May 2013 Department of Defence official timeline of the attack.

Deteriorating Security Situation Timeline

  • April 5th, 2011.  Chris Stevens, then Special Envoy to the Libyan Transitional National Council (TNC) arrives in Benghazi.  With him is a protective detail comprised of 10 Diplomatic Security (DS) agents.  Stevens uses the Tibesti Hotel as his base of operations.
  • June 1st, 2011.  Car bomb outside Tibesti Hotel and additional credible threat to Stevens.  Stevens moves to Annex.
  • June 21st 2011.  Stevens moves to Special Mission Compound (SMC).  This is a walled compound on 13 acres.
  • July 15th, 2011.  U.S. officially recognizes the TNC as Libya’s legitimate government even though Qaddafi forces still control a large part of country.
  • November 17th, 2011.  Stevens departs Libya.
  • March 22nd, 2012.  Members of a militia searching for a suspect fire weapons near the SMC and attempt to enter.
  • April 2nd, 2012.  UK armoured diplomatic vehicle attacked and damaged after driving into local protest.
  • April 6th, 2012.  A gelatin bomb is thrown over the north wall of the SMC.
  • April 10th, 2012.  An IED is thrown at the UN Special Envoy to Libya’s motorcade in Benghazi.
  • April 27th, 2012.  Two South African nationals in Libya as part of U.S. demining team are detained at gunpoint by militia, questioned and released.
  • May 22nd, 2012.  Benghazi Red Cross building attacked with RPGs.  Omar Abdurrahman Group claims responsibility for the attacks and issues threats against U.S. representatives in Libya.
  • May 26th, 2012.  Stevens arrives in Libya to replace outgoing Ambassador Cretz.
  • June 6th, 2012.  IED attack on the SMC blows a large hole in the compound wall.  Omar Abdurrahman Group claims responsibility.
  • June 8th, 2012.  Parked UK diplomatic vehicle attacked with two hand grenades.
  • June 11th, 2012.  British Ambassador’s convey attacked in Benghazi.  RPG and AK-47s used.  Two UK security officers injured.
  • June 12th, 2012.  British mission in Benghazi closed.
  • June 12th, 2012.  RPG attack on Red Cross compound in Misrata (400 km west of Benghazi).
  • June 18th, 2012.  Tunisian consulate in Benghazi stormed by protestors.
  • July 29th, 2012.  IED found at Tibesti Hotel.
  • July 30th, 2012.  Sudanese Consul is carjacked and driver beaten.
  • July 31st, 2012.  Seven Red Cross workers abducted in Benghazi.
  • August 5th, 2012.  Red Cross in Misrata attacked with RPGs.  Red Cross withdraws from Misrata and Benghazi.
  • August 9th, 2012.  Spanish-American NGO worker abducted in Benghazi (released same day).
  • August 20th, 2012.  Bomb thrown at an Egyptian diplomatic vehicle in Benghazi.

Requests for Additional Security Timeline

  • March/April 2012.  Only one Diplomatic Security (DS) agent assigned to Benghazi due to “visa problems”.
  • March 2012.  Regional Security Officer (RSO) Nordstrom requests five full time DSs for Benghazi.  Request denied – Washington caps the number of DS agents in Benghazi at three.
  • March 28th, 2012.  Then ambassador Cretz sends formal request for additional security assets to Secretary of State Clinton.
  • April 19th, 2012.  State Department cable acknowledges but denies Cretz’s request.  Cable goes on to outline plan to further reduce security by recalling the two Department of State Mobile Security Detachment (MSD) teams stationed in Libya.  Each of these teams was comprised of six men,
  • May 2012.  Stevens requests the two MSD teams remain due to deteriorating security situation.  Denied by State Department.
  • June 7th, 2012.  Stevens sends another request to State Department asking to keep the MSD teams.  Request denied. 
  • July 2012.  Embassy Tripoli requests a minimum of 3 DS agents for Benghazi.
  • July 2012.  Nordstrom sends request via cable (approved by Stevens) for  a minimum 13 security personnel to support Tripoli.  No response received.
  • July 6th, 2012.  Deputy Assistant Secretary for Diplomatic Security Lamb strongly asserts that Embassy Tripoli should not make formal requests for extension of the 16 person Department of Defence site security teams (SSTs) or MSD teams.
  • July 9th, 2012.  Stevens responds to Lamb via cable stressing security conditions in Libya did not meet requisite State Department benchmarks.  Requests additional security personnel (regardless of whether DS, SST, MSD)
  • August 2012.  Last of MSD teams depart.  16-person DOD SST also departs from Tripoli.  Members of the SST team had occasionally augmented Benghazi security.  Nordstrom was told not to request an extension to their mission and that the political cost of making such a request would be high.
  • August 2nd, 2012.  Stevens sends a cable asking for “protective detail bodyguard postions” to “fill the vaccum of security personnel currently at post… who will be leaving with the next month and will not be replaced”.  In this cable Stevens warns that “the security condition in Libya … [is] unpredictable, volatile and violent”.
  • August 8th, 2012.  Stevens sends another cable to Washington warning that “a series of violent incidents has dominated the political landscape”.  He further characterizes these attacks as being “targeted and discriminate”.
  • August 27th, 2012.  The Department of State issues a travel warning for Libya citing the threat of assassinations and car bombings.
  • September 2012.  Diplomates in Benghazi approach their remaining security detail requesting firearms training.

Exposed

Exposed.  That’s the word that comes to mind reading these timelines.  At the time of the attack there was only a handful of men providing security for the Benghazi mission and Ambassador Stevens.  The bulk of the Department of State and regional DOD security teams and been systematically removed from Libya in the months preceding the attack.  This drawdown occurred despite persistent protests from Stevens and RSO Nordstrom about the unacceptable security situation.

2011 Canadian Election Fraud – Obstruction by the Conservative Party MPs

In my last post I detailed federal court judge Mosley’s recent ruling on the so-called robocall fraud that occurred during the 2011 Canadian federal election.  Mosley’s complete ruling can be found here.

As a follow-up, today I want to look at what Justice Mosley had to say in his ruling about the conduct of the defendants – namely the six Conservative Party of Canada MPs whose ridings were covered under the complaint.

Immediately in the introduction of his ruling, Justice Mosley has the following to say:

[16] That the applications are to be dealt with expeditiously did not prevent the parties, particularly the respondent MPs, from bringing a considerable number of interlocutory motions. It is, I think, helpful to provide an overview of the preliminary proceedings to explain why this case has taken so long to be completed and to provide some background to the issues dealt with in these reasons.

Mosley then proceeds to dedicate long sections of his ruling to some of these ‘interlocutory’ motions.  Let’s take a look at some of these motions filed by the respondent MPs.

Motion to Dismiss

In May, 2012, two months after the complaint was filed, the Conservative Party of Canada (CPC) filed a motion to dismiss the case as “frivolous and vexatious, an abuse of process and not brought within the time required under s 527 of the Act“.  In July 2012 this motion to dismiss was denied with the presiding judge (Milczynski) having the following to say:

Far from being frivolous or vexatious, or an obvious abuse, the applications raise serious issues about the integrity of the democratic process in Canada and identify practices that if proven, point to a campaign of activities that would seek to deny eligible voters their right to vote and/or manipulate or interfere with that right being exercised freely – all of which if permitted to escape even the prospect of judicial scrutiny, could shake public confidence and trust in the electoral process and in those who in good faith stand for public office.

In her ruling, Milczynski did maintain that the question of timeliness needed to be dealt with at the subsequent trial since clearly the applicants had not filed in the statutory limitation period after the election (30 days).  Mosley delves into this issue in his ruling and concludes that section 527 of the Canada Elections Act clearly requires only that the application be filed 30 days from “the day on which the applicant first knew or should have known of the occurrence of the alleged irregularity, fraud, corrupt practice or illegal practice“.  Mosley concludes that the applicants did indeed meet this requirement as it was only after substantial time had passed since the election and media coverage of the fraud commenced that the applicants realized they had been targeted intentionally by misleading calls.

Maintenance and Champerty

On the same day in May 2012 that the above detailed motion to dismiss was filed by the respondent MPs, those same MPs filed a second, completely separate motion to dismiss on the grounds of “maintenance and champerty”.

The principal of maintenance is basically the support of a legal action by a third party with no direct concern in the proceedings.  Champerty is simply a more serious form of maintenance whereby the third party profits from the arrangement in some way.

In this motion to dismiss an organization called the Council of Canadians (website here) was accused of enlisting the complainants to act as surrogates.  The MPs alleged that the Council of Canadians then benefitted from this arrangement through profits generated by fund-raising to cover legal expenses for the case.  The MPs further allege that the Council of Canadians was motivated by a specific animosity towards Prime Minister Harper and, as such, were acting maliciously in their funding of this case.

Justice Mosley found these allegations to be baseless and noted that the Council of Canadians has been critical of government regardless of which party was in power and, in this case, were clearly acting to assist the applicants to “assert their rights to a fair election as Canadian citizens and electors“.

Further, Mosley takes issue with the motion to dismiss as a tactic to derail the proceedings:

[115] … The motion was, in my view, an attempt to derail these applications before they could be heard and determined on the merits and was brought without justification.

 Motion to Increase Security for Cost

After the failure of their motion to dismiss the MPs next moved to have an increased security for costs.  The MPs requested that the applicants put forward $260,409.00 which would be held pending the outcome of the trial.  The idea here is that if the lawsuit was found to be frivolous, the defendants (in this case the MPs) could draw upon these funds to cover their legal expenses and any punitive damages.

The judge hearing the motion (Aronovitch) denied it saying the “respondent MPs have failed to raise grounds or bring to bear evidence that would justify any further payment of security for costs, let alone in the amount requested“.  Aronovitch also determined that:

[22] …the seven motions (one in each application) had unnecessarily delayed and encumbered the proceedings, she ordered that the costs of the motions be paid by the respondent MPs in any event of the cause.

Shenanigans

These are just a few of the shenanigans pulled by the MPs and their legal teams in an attempt to gum up the works and prevent a fair hearing of the evidence.  Their abuse of the system is nothing short of disgraceful.  Justice Mosley summed this up nicely in the conclusion of his findings:

[261] These proceedings have had partisan overtones from the outset. That was particularly evident in the submissions of the respondent MPs. In reviewing the procedural history and the evidence and considering the arguments advanced by the parties at the hearing, it has seemed to me that the applicants sought to achieve and hold the high ground of promoting the integrity of the electoral process while the respondent MPs engaged in trench warfare in an effort to prevent this case from coming to a hearing on the merits.

[262] Despite the obvious public interest in getting to the bottom of the allegations, the CPC made little effort to assist with the investigation at the outset despite early requests. I note that counsel for the CPC was informed while the election was taking place that the calls about polling station changes were improper. While it was begrudgingly conceded during oral argument that what occurred was “absolutely outrageous”, the record indicates that the stance taken by the respondent MPs from the outset was to block these proceedings by any means.

[263] The preliminary stages were marked by numerous objections to the evidence adduced by the applicants. The respondent MPs sought to strike the applications on the ground that they were frivolous and vexatious, to have them dismissed as champertous and to require excessive security for costs, in transparent attempts to derail this case.

This is the caliber of the people we elect in this country.

2011 Canadian Election Fraud – Federal Court Ruling

On May 23rd, 2013, the Federal Court of Canada filed a ruling concluding that election fraud had occurred during the 2011 Canadian election.

The goal of this post is to breakdown the court’s findings and callout the key evidence and conclusions included therein.  With the exception of my analysis at the end of this post, all information presented is pulled directly with minimal interpretation from Justice Mosley’s ruling on the matter which you can read for yourself here.

To briefly set the context for the federal case, it involves six applicants alleging voter manipulation in their respective ridings.  Parallel to this federal case, there is an ongoing Elections Canada investigation from which much of the evidence for the federal case was obtained.  The Elections Canada investigation is of a much broader scope and, at this point, has received complaints of voter manipulation from 247 of the 308 ridings in Canada.

Overview of the Complaint

In a nutshell, the complaint is as follows:

[149] The affidavit evidence of each of the applicants themselves is similar. In most cases, the applicants or their spouses received a telephone call prior to the election from someone purporting to be calling from the Conservative Party of Canada. They were asked whether the Conservative Party could rely on their support in the election. The applicants or their spouses told the callers that they would not be voting for the Conservative Party. Just before or on the election day, all but one of the applicants received a second telephone call, either live or recorded, purporting to be from Elections Canada, in which they were advised that their polling station had changed.

[150] The calls identified an incorrect polling station location…

The result of this misleading information was to prevent some voters, identified as not supporting the Conservative Party of Canada (CPC), from being able to vote.

The audio recording of one of these calls was filed by the Guelph applicant:

This is an automated message from Elections Canada. Due to a projected increase in poll turnout your voting location has been changed. Your new voting location is at the Old Quebec Street mall at 55 Wyndham Street North. Once again, your new poll location is at the Old Quebec Street mall at 55 Wyndham Street North. If you have any questions please call our hotline at 1-800-434-4456. We apologize for any inconvenience that this may cause.

Overview of Relevant Legislation

The specific legislation relevant to this case and used by Justice Mosley is the Canada Elections Act.  Section 524 of this Act lays out the grounds on which an election can be contested, and section 531 lays out the remedy the court may provide:

524. (1) Any elector who was eligible to vote in an electoral district, and any candidate in an electoral district, may, by application to a competent court, contest the election in that electoral district on the grounds that
(a) under section 65 the selected candidate was not eligible to be a candidate; or
(b) there were irregularities, fraud or corrupt or illegal practices that affected the result of the election.

531. (2) After hearing the application, the court may dismiss it if the grounds referred to in paragraph 524(1)(a) or (b), as the case may be, are not established and, where they are established, shall declare the election null and void or may annul the election, respectively.

In 531(2) the use of the word ‘respectively’ is key.  Justice Mosley interprets this as follows in paragraph 54 of his ruling:

  • Where 524(1)(a) applies (selected candidate not eligible) a court must annul the election.
  • Where 524(1)(b) applies (fraud etc.) a court may annul the election at the discretion of the judge.

The definition and standard of fraud used in this case is important given the extreme difficulty in establishing guilt on a specific individual.  This inability to establish the guilt of an individual precludes the criminal law standard of fraud being applied.  However, Mosley concludes, in agreement with the interpretation of the Chief Electoral Officer, that the civil standard (which requires only that fraud occurred) is the standard required by the Canada Elections Act:

[66] …Authorship of the fraud and the guilt of any person or persons are not material. What is relevant is the fact of the fraud and the effect it had on the outcome.

[67] …In particular, the fact that a breach of the statute might result in the invalidity of an election did not require the application of the criminal standard of proof.

[69] I agree with the submission of the Chief Electoral Officer that any action or instance meeting the dictionary definition of fraud would constitute electoral fraud where it was done in contravention of a provision of the Canada Elections Act or where it served to defeat a process provided for in that Act. It seems to me to be clear that deliberately misinforming electors about their polling location would thus be fraud within the meaning of s 524 and is provable on the civil standard.

Once fraud under section 524 of the Canada Elections Act has been established, whether to annul the election is at the sole discretion of the judge:

[79] The assessment of whether the impact of fraud affecting the result of the election is sufficient to warrant annulling the election result falls within the application of the judge’s discretion under s 531. If the number of suppressed votes is sufficient to cast doubt on the true winner, the Court has an easier task. Absent a clear finding to that effect, the more difficult question is whether the fraud, corrupt or illegal practice, if proven, was sufficiently serious to call the integrity of the election process into question.

Justice Mosley lays out a summary of his interpretation of the relevant legislation, as follows:

[83] In summary, there are three steps required to annul under the Act in the context of the vote suppression allegations before the Court. The applicants must first demonstrate one of the four circumstances in s 524(1)(b): irregularities, fraud, corrupt practices, or illegal practices.  Once the first step has been achieved, if even a single vote is shown to not have been cast due to one of the four above circumstances in a subject riding, the Court acquires the discretionary power to annul the results in that district under 531(2). The third step is for the Court to consider either the “magic number” test (explained in Opitz at paras 71-72) or another appropriate test (envisaged by Opitz at para 73) and decide whether to exercise its discretionary power.

The “magic number” test mentioned in the above paragraph is important to understand since it’s the key criteria Mosley proposes to use in determining whether the fraud affected the outcome of the elections in the given ridings.  This test assumes that every vote that was affected by the fraud would have been cast for the second place candidate had the fraud not occurred.  While this would not necessarily have been the case (since some of the affected votes would have been for the NDP, some for the Liberals, etc.) it is nonetheless the measure used by the court and, in my mind, an apt measure of the real impact of the fraud.

EKOS Survey

The main evidence presented to the court to quantify the extent and effect of the misleading phone calls was provided in the form of a survey conducted by leading independent survey firm EKOS Research Associates.  This survey was performed against a random sampling of residents in each of the six ridings covered under the complaint.  Respondents were asked whether they had received a telephone call asking them how they intended to vote and subsequently received a call informing them, incorrectly, that their polling station had changed.

The results of this survey (with a margin of error of +/-1.8%, 19 times out of 20) are as follows:

[216] …
Winnipeg South Centre:
There were no polling station changes in this riding. The margin of victory for the Conservative respondent was 722 votes (out of 40,093 cast for all candidates). The survey contacted 606 people in the riding. Of those, 5.3% said that they had been called and told that their polling station had been changed. Of those receiving such calls, 5.7% (i.e. 1.0 percent of the 606 or 6 persons) said that they then did not vote. Extrapolating that 1 % to the total 40,093 votes indicates that the reverse magic number (more votes presumed to oppose the winner than the margin of victory) would not have been reached.

Saskatoon-Rosetown-Biggar:
No polling station changes. The margin of victory was 538 votes out of 30,220 cast. The survey contacted 303 people. Of those, 4.0% (or 12 people) said that they had been called and told that their station had been changed. Of those, 8.1% (2% of the 303 or 6 people) said that they did not vote. Extrapolated to the total number of votes cast, 2% would exceed the reverse magic number required.

Elmwood-Transcona:
No polling station changes. A margin of victory of 300 votes of 33,085 total cast. The survey contacted 487 people in the riding. Of those, 4.9%, or 24 people, said that they had been contacted about a change in their polling station. Eight people (or 1.6% of the 487) said that they then did not vote. Calculated as a percentage of the total (1.6% of 33,085), this would indicate that 529 voters did not vote, well in excess of the magic number.

Nipissing-Timiskaming:
No polling station changes. Margin of victory for the Conservative candidate was just 18 votes out of 42,496 cast. The survey contacted 487 people in this riding. Of those, 1.8% (or 9 people) said that they had been called with the misleading information. 12.1% (i.e.,1.8% of the 487, 7 people) of those said they then did not vote. Extrapolated to the total votes cast, this would indicate that 595 voters did not vote, well in excess of the magic number.

Vancouver Island North:
One polling station location was changed in this riding. The margin of victory was 1,827 out of 59,190 votes cast. 523 people were contacted by the survey. Of those, 2.7 % said that they had been called and told that their polling station had been changed. Of those 14 people, 5.7% or 4 people (i.e., 0.8% of the 523) said that they then did not vote – this would translate to 473 votes. The magic number would not have been reached in this riding.

Yukon:
No polling station changes. The margin of victory was 132 votes out of 16,124 total cast.  The survey contacted 466 people, of whom 36% said that they had been called and told that their polling station had changed or 168 people. Of those, 10.7%, approximately 8 people or 1.7 % of the 466, said they then did not vote. As 1.7% of 16,124 is 274 voters, the magic number would have been reached.

As the above details, in all these ridings the margin of victory for the Conservatives was razor thin.  And, in four of the six ridings the magic number test concludes that the fraud did affect the outcome of the election.  In the Elmwood-Transcona and Nipissing-Timiskaming ridings the number of affected votes are such that, even assuming some vote splitting between the Liberals and NDP, the outcome was clearly affected.

EKOS themselves summarized the results as follows:

[208] …
a.   The evidence strongly suggests that there was a targeted program of voter suppression in place in the subject ridings. Based on the survey samples, it appears that tens of thousands of voters were targeted.

b.   These activities were clearly targeted at non-CPC voters in a manner that is highly improbable to have happened by chance. They included false reports of polling station changes and faux calls claiming to be from Elections Canada. In fact, Elections Canada made no such calls and there were virtually no voting station changes, yet many thousands of voters in the six ridings claim to have received these calls.

c.   Exposure to these calls clearly had a dampening effect on propensity for non-CPCsupporters to vote. EKOS estimated the effect in the range of 1.0%. Applying a margin of error to those estimates would produce a band of 0.8% to 1.8%. Inother words if these actions had not been in place, the CPC advantage would havebeen reduced by this amount on average in these six ridings.

Findings of the Court

Did Fraud Occur?

In a word, yes.  Justice Mosley summarizes his finding that fraud occurred during the 2011 Canadian federal election as follows:

[244] I am satisfied that is has been established that misleading calls about the locations of polling stations were made to electors in ridings across the country, including the subject ridings, and that the purpose of those calls was to suppress the votes of electors who had indicated their voting preference in response to earlier voter identification calls.

[245] In reaching this conclusion, I make no finding that the CPC, any CPC candidates, or RMG and RackNine Inc., were directly involved in the campaign to mislead voters. To require the applicants to identify the perpetrators of the misleading calls would impose an impossibly high standard of proof. I am satisfied, however, that the most likely source of the information used to make the misleading calls was the CIMS database maintained and controlled by the CPC, accessed for that purpose by a person or persons currently unknown to this Court. There is no evidence to indicate that the use of the CIMS database in this manner was approved or condoned by the CPC. Rather the evidence points to elaborate efforts to conceal the identity of those accessing the database and arranging for the calls to be made.

[246] I find that the threshold to establish that fraud occurred has been met by the applicants…

Did the Fraud Affect the Election Outcome?

Justice Mosley does not accept the survey evidence as sufficient to conclude that the fraud affected the election outcome:

[249] Apart from the survey, there is no evidence that the election results in the six ridings would have turned out differently. This is not a case of disappearing ballots or tampering with voting machines as in some of the American cases in which survey evidence has been accepted. Here, the survey is offered to establish that some voters, a sufficient number in each riding to overcome the margin of victory, would have voted but for the effect of a telephone call directing them to the wrong polling location. None of those voters have come forward to confirm the results. The survey evidence, in this case, does not provide firm ground on which the Court could have confidence in finding that the fraud affected the results in any of the six ridings. I am, therefore, not satisfied that the survey is a reliable evidentiary basis upon which to cast doubt on the winner in each contest even where the margin of victory was close.

Did the Fraud Call into Question the Integrity of the Election?

Justice Morsley concludes that the fraud did not have a major impact of the integrity of the election:

[253] … I don’t doubt that the confidence rightfully held by Canadians has been shaken by the disclosures of widespread fraudulent activities that have resulted from the Commissioner’s investigations and the complaints to Elections Canada.
[254] Had I found that any of the successful electoral candidates or their agents were implicated in any way in the fraudulent activity, I would not have hesitated to exercise my discretion to annul the result even if the reverse magic number had not been shown to have been reached in the riding in question. No such evidence was led.

[256] While they appear to have been targetted towards voters who had previously expressed a preference for an opposition party (or anyone other than the government party), the evidence in this proceeding does not support the conclusion that the voter suppression efforts had a major impact on the credibility of the vote.

Should the Election Be Annulled in Any of the Ridings?

Given his reluctance to rely on the survey data as conclusive, together with his conclusion that no major impact on the credibility of the election occurred, Mosley declines to exercise his discretion to annul:

[258] Having considered the matter very carefully and with a full appreciation for the concerns about the integrity of the electoral process that have motivated these applications, I am unable to conclude that I should exercise my discretion to annul the 2011 election results in any of the subject ridings because of the fraud that occurred.

Analysis

Before I get into my analysis of the court’s findings, let me make one thing clear: I don’t have a dog in this fight.  I do not support any of the major political parties in Canada and believe them all to be, roughly speaking, equally corrupt and inept.

When the electoral process is compromised in such a fundamental way as occurred in the 2011 election, all appearance of fair, just and representational government is lost.  Such corruption has a way of breeding and expanding amongst the ruling class.  If MPs are willing to commit fraud in elections do you really think they will act in the best interests of the people once they secure their election?

Staying atop my soapbox, I continue by disagreeing in the strongest possible terms with Mosley’s conclusion that the fraud did not affect the election outcome.  The Nipissing-Timiskaming was won by a margin of 18 votes.  The survey results for that riding indicated 595 affected votes.  How can one possibly conclude that the outcome of the election was not affected in this case?  Even if the survey data is not trusted clearly some votes were affected and, with a margin of victory of 18 votes, any number of votes calls into serious question the validity of the election in this riding.

And yet, Justice Mosley is somehow able to conclude that, not only has the outcome of the election not been affected, but also that the integrity of the election has also not been affected.  This conclusion does not follow the basic principals of logic or even common sense.  There was widespread fraud – how could the integrity not be affected?

As for the argument that the EKOS survey can not be trusted because none of the callers came forward to confirm the results, this is a completely ridiculous argument.  Respondents to the survey weren’t asked to come forward to confirm the survey results.  And, if they had been, in Mosley’s own words “call-backs to verify the information received would run counter to the concern expressed by the Supreme Court that efforts to establish causal effects must not breach ballot secrecy” ([223]).  Thus, we can see that Justice Mosley endeavours to have his cake, and eat it too.  The survey is unreliable because its results were not confirmed.  But, the survey can’t be confirmed because this would breach ballot secrecy.  Nice.

Mosley uses the lack of direct evidence of involvement by the Conservative Party as a reason he doesn’t feel obligated to annul the election of their MPs.  In his wordsHad I found that any of the successful electoral candidates or their agents were implicated in any way in the fraudulent activity, I would not have hesitated to exercise my discretion to annul the result…“.

And yet who had the motive to commit the fraud?  The Liberals?  The NDP?  Even if someone outside the CPC hacked into their database to commit the crime it was still the Conservatives who directly benefited from the fraud.  Thus, the obvious remedy is to remove the illicit gains.

And this punitive measure is important.  Fraud was committed.  It’s simply not good enough to merely recognize the fraud – it must be remedied.  For if it is not, if there is no punishment for the act, why would one not engage in it?

The election should have been annulled in at least some of these ridings.  Mosley amazingly argues that “annulling an election would disenfranchise every elector who voted in the riding“.  Guess what Mosley – you failing to annul in the face of clearly established election fraud is what disenfranchises me.  Voting in a by-election called in response to election fraud would have, if anything, given me faith that the system worked.

The CIA: Undermining Freedom and Democracy Since 1953

Throughout its history, if there’s one thing that’s been consistent about the CIA, it’s the manner in which it has undermined democratically elected governments.  This will be the first of many posts that will delve into the history of coups and false-flag operations brought to us courtesy of the CIA.

For today’s post let’s look at Operation AJAX (aka TPAJAX) in 1953 Iran.

What follows isn’t conspiracy theory.  All the information presented comes from the CIA’s own declassified report on the operation titled: ‘Overthrow of Premier Mossadeq of Iran’ covering November 1952 until August 1953.  I have linked up the entire report in Appendix I for those of you interested in reading the original source material in full.

Background

Before getting into the details of the declassified report, here’s a quick primer on Iran in 1953.

In 1941 Iran established a constitutional monarchy as its form of government.  Under this arrangement, much like in England, there was a democratically elected parliament (the Majlis) responsible for legislation which was overseen by a largely ceremonial monarch (the Shah).  This replaced the previous autocratic system whereby the Shah had ruled as a dictator.  The newly established constitutional monarchy was, however, short lived and ended with the CIA run coup against Mossadeq in 1953.

Back in 1901, when Iran was still run as a dictatorship under Shah Muzzaffar al-Din, an unbelievably stupid deal was made by the Shah with the British.  In this deal the oil and mineral rights to a large section of Iran were sold for £20,000 plus 16% of net profits.  This sowed the seeds for decades of rising discontent as the Iranian people watched the British reap enormous profits off Iranian oil while the Iranians themselves lived in poverty.

There are many interesting sidebars that highlight how the British further took advantage of an already extremely lucrative arrangement.  Iranian workers at refineries were treated as second class citizens to the extent that they were housed in separate accommodations (fabricated largely from used oil drums that had been pounded flat) and not permitted to use the white man’s water fountains or pools.  The British also refused to allow the Iranians any access to the financial records for the British run Anglo-Iranian Oil Company (AIOC) and used this lack of transparency to short-change the Iranians on their part of the profits from the oil industry.

In short, British colonialism/imperialism at its best was being used in Iran to suppress the people and rob the nation of its natural resources.  Throughout the early to mid 1900’s this lead to growing nationalism in Iran.  The British response was an outright refusal to renegotiate the 16% profit sharing deal or improve overall working conditions.

A leading voice for nationalization of the AIOC was the highly popular Mohammed Mossadeq.  On April 28th,1951 Mossadeq became the Prime Minister of Iran.  He immediately did exactly what he had promised the people: He nationalized the AIOC.

The Brits retaliated by imposing a crushing embargo on Iran and freezing all Iranian funds in British banks.  Then, using their intricate Secret Intelligence Service (SIS) network, the British sowed chaos in Iran running false-flag operations and organizing staged protests.  Next, they targeted Mossadeq directly by issuing brides to members of the Majlis in an attempt to undermine Mossadeq.  In 1952 Mossadeq kicked all British nationals out of Iran to stop the foreign manipulation.

Unable to effectively undermine Mossadeq after their expulsion, the British turned to the CIA for assistance.  The deal was simple: The British would hand their entire intelligence network in Iran over to the CIA on a silver platter if the CIA would help them stage a coup against Mossadeq and reinstate the Shah as autocratic ruler.

For the newly formed CIA under Allen Dulles (with his brother John Dulles serving as Secretary of State) this offer was too good to pass up.  Though the plan was rejected by President Truman repeatedly, the election of Eisenhower in late 1952 presented another opportunity for the Dulles brothers to get the plan approved.

Eisenhower, like Truman, initially rejected the proposal believing that the British were imposing their will unjustly on the Iranians.  But, a few months of the Dulles brothers passing incomplete intelligence and foreign service assessments to Eisenhower, coupled with some staged false-flag operations and protests, caused Eisenhower to relent and give the green light.  Operation AJAX was a go.

The remainder of this post will pull directly from the declassified CIA documents to provide an overview of AJAX and look at some of the key operational elements of the plan.

Summary

Here’s the summary of the Operation AJAX:

Summary - Pages iii and iv.

Summary – Pages iii and iv.

Manipulation of the Press

A cornerstone of AJAX (like most CIA operations) was the propaganda and psychological warfare aspects of the plan.  AJAX relied heavily both on bribery of the press and seeding agency assets directly into the Iranian media establishment.  Also leveraged was the already established CIA relationships with American, British, and international publications.  Specifically mentioned in the CIA field report are the Associated Press (AP), BBC, Newsweek, and a myriad of Iranian publications.

Here’s a sampling:

ss2

Summary – Page x

Appendix B - Pages 15 and 16.

Appendix B – Pages 15 and 16.

Overthrow of Premier Mossadeq of Iran - Pages 26 and 27.

Overthrow of Premier Mossadeq of Iran – Pages 26 and 27.

Overthrow of Premier Mossadeq of Iran - Page 29.

Overthrow of Premier Mossadeq of Iran – Page 29.

Overthrow of Premier Mossadeq of Iran - Page 36.

Overthrow of Premier Mossadeq of Iran – Page 36.

Overthrow of Premier Mossadeq of Iran - Page 45.

Overthrow of Premier Mossadeq of Iran – Page 45.

Overthrow of Premier Mossadeq of Iran - Page 86 and 87.

Overthrow of Premier Mossadeq of Iran – Page 86 and 87.

Overthrow of Premier Mossadeq of Iran - Page 91 and 92.

Overthrow of Premier Mossadeq of Iran – Pages 91 and 92.

That’s a summary of just some of the manipulation of the press that occurred in Operation AJAX.  It is important to note the manipulation of the Western press in addition to the Iranian press.  Further, it’s interesting to note the recommendation that further investment be made by the CIA in cultivating domestic (U.S.) media for use in future propaganda operations (see the second to last quote).

Bribery and Intimidation of the Majlis (Elected Parliament)

But, why even bother with public opinion if you can simply buy off the elected representatives to undermine the current government?

That’s exactly what another key aspect of AJAX’s operation plan did.  The goal was the systematic bribery of members of the Majlis to enable the government to be legally voted down.  Here’s an except from the CIA operational plan detailing this area of operations:

Appendix B - Pages 18 and 19.

Appendix B – Pages 18 and 19.

But, what about those pesky parliamentarians who can’t be bought?  Simple, you have one of the terrorist groups on your payroll threaten them:

Appendix B - Page 21.

Appendix B – Page 21.

 False-Flag Operations

Manipulation of the press?  Check.  Bribery and threats to elected officials?  Check.  Let’s see, what else is key to the CIA’s modus operadus for coups?

Ah yes, false-flag operations.  A true favorite of intelligence services the world over.  Do something really horrible and blame it on your adversaries to further your own agenda:

Appendix B - Page 23.

Appendix B – Page 23.

Overthrow of Premier Mossadeq of Iran - Page 37.

Overthrow of Premier Mossadeq of Iran – Page 37.

Conclusion

Operation AJAX is one of many operations in which the CIA has undermined a legitimately elected democracy in order to install a dictator willing to do the bidding of the Americans.  In the case of AJAX and Mossadeq, shameful methods of manipulation of the press, bribery of elected officials and false-flag terror were used to oust the populate leader and plunge Iran back into autocratic rule.

Imagine what might have been if this, the first real democracy in the Middle-East, had been allowed to flourish.  The road might not have been a smooth one but it’s entirely possible that the world would be a very different place than the mess we have today.  At the very least, the vehement anti-Americanism would not have become so prevalent in Iran and the 1979 Iranian revolution with all its consequences (which we’re still feeling to this day) would never have occurred.  This much was admitted by then Secretary of State Madeleine Albright in a March 2000 speech:

In 1953, the United States played a significant role in orchestrating the overthrow of Iran’s popular prime minister, Mohammed Mossadegh. The Eisenhower administration believed its actions were justified for strategic reasons, but the coup was clearly a setback for Iran’s political development and it is easy to see now why many Iranians continue to resent this intervention by America in their internal affairs.

Moreover, during the next quarter century, the United States and the West gave sustained backing to the shah’s regime. Although it did much to develop the country economically, the shah’s government also brutally repressed political dissent …

Even in more recent years, aspects of US policy toward Iraq during its conflict with Iran appear now to have been regrettably shortsighted, especially in light of our subsequent experiences with Saddam Hussein.

If you are interested in doing some more detailed reading on the coup in Iran I can’t recommend highly enough Stephen Kinzer’s book on the topic: ‘All the Shah’s Men – An American Coup and the Roots of Middle East Terror’.

Appendix I – Declassified CIA Report

The originally declassified CIA report on Operation Ajax is broken into parts.  Here’s the link to each part from that report: