Tuesday, December 28, 2010

Wikileaks and American 'Rare Earths' Policy: The Case for Spy vs. Spy

News that China is further restricting exports of so-called "rare earths" metals - not so rare, in fact, as their name comes from where they are located on the Periodic Table of elements - illustrates the hypocricy of the knee-jerk reaction to the infamous Wikileaks data dump by politicians across the political spectrum.

The New York Times reports today that China is poised to further tighten the limits on the amount of  'rare earth' metals its mines may export in 2011. 'Rare earth' metals are essential in a wide array of high tech manufacturing processes, from producing advanced car batteries and smart phones, to making solar panels and computer chips.

China's move to further restrict its export quotas, "threatens to cause further difficulties for manufacturers already struggling with short supplies and soaring prices,"the Times reports. "The reduction in quotas for the early months of 2011 — a 35 percent drop in tonnage from the first half of this year — is the latest in a series of measures by Beijing that has gradually curtailed much of the world’s supply of rare earths."

The hypocrisy of lawmakers reactions to the Wikileaks disclosures is that the very document that was most-widely criticized as a threat to U.S. security - a cable to Hilary Clinton setting out a list of the "most critical" overseas infrastructure sites and resources - clearly identifies China's 'rare earths' mines as being vital to U.S. interests. Small wonder, as 'rare metals' are also key used in manufacturing key components of many advanced military hardware systems.

A beggar for punishment, I read the entire critical infrastructures cable that was summarized on the New York Times front page when the Wikileaks scandal first broke. The cable itself is a very boring laundry list of foreign infrastructure sites - mostly ports and the very numerous "landing sites" of the network of undersea cables that interconnects a very connected planet. It also lists Saudi Arabian oil fields and oil export terminals as critical overseas resources and structures. (Crap! That "top secret" information would certainly imperil U.S. interests if Al Qaeda - founded and largely funded by Osama bin Laden, a Saudi Arabian . . . for Pete's sake! - were ever to figure out how important Saudi oil exports are to the American economy.)

The three interesting takeaways I got from reading the secret cable's laundry list of the blatantly obvious were (a) how paranoid diplomats are about their ability to send secret diplomatic cables via underwater cables, (b) how many vital pharmaceuticals (including even rabies shots???) are manufactured in Western Europe, the home of (gasp!) socialized medicine, and (c) that China's 'rare earths' metals are, in fact, viewed by U.S. diplomats as a resource critical to U.S. interests.

And yet, the importance of 'rare metals' to U.S. interests (which I was aware of just from casually following CNN) would not have stood out had it not been for an article that I'd read in The Economist, published when China temporarily cut off 'rare earths' exports to Japan, in retaliation for Japan busting a Chinese fishing boat captain caught poaching in 'disputed' Japanese waters.

The article, published September 30th of 2010 - more than a year-and-a-half after the February 18th, 2009 diplomatic cable was sent - was one of the first of many such articles highlighting the dependency of the United States and its allies on Chinese 'rare earth' exports; exports that we now learn are being even further restricted by Chinese officials.

The kicker is, as The Economist points out, that the sole operating U.S. 'rare earth' mine (remember, 'rare earths' are not, in fact, rare) was shuttered in 2002, which was . . . oh, . . . about the time that off shoring American jobs to India and China really took off.

One has to ask: In whose interest was it to keep America's reliance on Chinese 'rare earths' exports a secret? Wouldn't have some lawmakers or consumer groups benefited from the information that for purely private economic reasons the U.S. had become almost wholly reliant on China on resources critical to its defense industries, its cell phone industries, its computer and high tech manufacturing industries?

Oh, right! Just about all of those industries (except perhaps, for the few companies manufacturing really critical defense hardware) have already been exported from the U.S. to China. Which just goes to show . . . "all politics are local, but some politics are just plain loco!"

As Wired Magazine's Evan Hansen ("Why Wikileaks Is Good for America") so eloquently wrote in highlighting the overblown and hypocritical political reaction to the Wikileaks disclosure:

"The greatest threat we face right now from WikiLeaks is not the information it has spilled and may spill in the future, but the reactionary response to it that’s building in the United States that promises to repudiate the rule of law and our free speech traditions, if left unchecked.

Secrecy is routinely posited as a critical component for effective governance, a premise that’s so widely accepted that even some journalists, whose job is to reveal the secret workings of governments, have declared WikiLeaks’ efforts to be out of bounds."
The reactionary, 'wrap yourself around the flag' responses of U.S. politicos to the publication of the leaked documents - some of whom have gone so far as to call for the execution of Wikileaks founder Julian Assange - are not only inimical to democratic traditions guarded by a free press, they give cover to government officials who hide or misrepresent issues of vital importance to the country on the pretext of guarding its security.

I am firmly in agreement with Daniel Ellsberg - he of "Pentagon Papers" fame, who blew the whistle on what the military-industrial complex (that Ike warned us of) was up to in Vietnam. Mr. Ellsberg has called for more leaks and disclosure from an overly secretive government, rather than reactionary calls for more secretiveness, censorship and prosecutions.

Saturday, December 25, 2010

"What happens on Wall Street . . .er, in Vegas . . . stays in Vegas!"

Wall Street Bond Traders Set Up a Bookmaking Shop in Las Vegas
What a Christmas! Optically-challenged Wall Street bankers are truly the "gift that keeps on giving" to political humorists. The December 25th issue of the New York Times reports that blue-chip bonds trader, Cantor Fitzgerald, is opening a Nevada branch arm to trade in (i.e., make book on). . . drumroll, please . . . Sports Betting!!!

You just cannot make this stuff up, folks.

 Cantor Fitzgerald opens a new sports gambling operation, even though the reputed 'market-makers' obviously lack an effective marketing department? How profoundly 'tone-deaf' can these suspender-clad financial 'quants' be? Out of touch in their lofty Manhattan offices, or locked away in their homes within exclusive gated communities (purchased, no doubt, with their massive bonuses for well or ill-placed bets) have these obtuse bond bookies not heard politicians and commentators of all stripes railing about "closing the casinos on Wall Street" for the past two-and-a-half years?

It was on Wall Street, after all, that traders, such as those at Cantor Fitzgerald, crippled the world economy with huge bets on a market replete with "rigged" mortgage securitizations, exotic derivatives products and still ill-understood financial instruments like collateral debt obligations. Trying to play the "house" on a Wall Street caught up in a housing bubble, firms like Cantor Fitzgerald nearly "lost the house."

And nowWall Street trader want to "diversify" their operations by becoming legal bookies for the action on college and pro sports? (As NFL analyst, Chris Berman, would no doubt roar, "C'mon, Man!")

"Cantor’s push into Vegas," according to the Times, is being led by 61-year-old Lee Amaitis, "whose past includes a conviction in his 20s for dealing cocaine."

“There’s big money in this, especially now that we are moving onto the Strip,” Amaitis, dressed in character, wearing a gray pinstripe suit with the top two buttons of his white shirt undone, told the Times.  "Cantor Gaming," he points out, "mitigates its risk through volume." Sounds like its a classic "numbers racket" to me. Buggsy Siegel, another financial rogue who sought refuge on the wide open Vegas strip would - no doubt - be proud.

"Wall Street executives usually protest when their business is compared to a casino," the Times observes.  However, they note that gaming industry analysts (unsurprisingly) see the logic in Cantor's new gaming subsidiary. “Guys who trade Treasuries are doing it for basis points, and sports betting is not much different,” Jeffrey B. Logsdon, an entertainment and gaming analyst for BMO Capital Markets, told the Times. “Trading a million dollars in Treasuries is different than trading a billion. Sports betting is the same. You want the spread, volume and you see yourself as a match maker.”

Unlike the autumn 2008 break up of Wall Street's epic game of 3-Card 'Housing' Monte that led to the Great Recession and the ensuing financial crises that continue to rock world markets, a subject that will be picked apart and studied by economists and regulators for decades to come, "what happens in Vegas, stays in Vegas."

As noted, you just can't make up such folly. No one would believe you. But no matter how cynical and ironic this move is by one of Wall Street's highest rollers, at least they are being more upfront and intellectually honest about how they made (and will make) their billions: they hedge their bets and make book on the greed and gullibility of the gaming public.

My only question is how the ever-amenable bonds rating agencies, Moody's and Standards & Poor, might be leveraged to continue to shill for Cantor in its newest gambling venture?

But, enough already. . . . My Christmas humor stocking overfloweth!