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Article Artículo

AP Further Documents Evidence of Honduran Police Death Squads; U.S. State Department Hits Back

A new investigative feature by award-winning Associated Press correspondent Alberto Arce probes deeper into recurring police death squad activity in Honduras. Following up on his reports in March, Arce details the cases of several gang suspects who have disappeared after being taken into police custody, as well as what witnesses have described as the gunning-down, in cold blood, of suspects in the streets. The article reveals that:

At least five times in the last few months, members of a Honduras street gang were killed or went missing just after run-ins with the U.S.-supported national police, The Associated Press has determined, feeding accusations that they were victims of federal death squads.
…

In March, two mothers discovered the bodies of their sons after the men had called in a panic to say they were surrounded by armed, masked police. The young men, both members of the 18th Street gang, had been shot in the head, their hands bound so tightly the cords cut to the bone.

That was shortly after three members of 18th Street were detained by armed, masked men and taken to a police station. Two men with no criminal history were released, but their friend disappeared without any record of his detention.

A month after the AP reported that an 18th Street gang leader and his girlfriend vanished from police custody, they are still missing.

As we have previously examined, Arce has noted that U.S. support for the Honduran National Police while some officers engage in death squad activity would seem to violate the Leahy Law. Rather than proceed with greater caution or reexamine ongoing policy, the U.S. State Department has responded defensively. Arce quotes Assistant Secretary for the Bureau of International Narcotics and Law Enforcement Affairs William Brownfield as saying

“The option is that if we don’t work with the police, we have to work with the armed forces, which almost everyone accepts to be worse than the police in terms of the mission of policing, or communities take matters in their own hands. In other words, the law of the jungle, in which there are no police and where every citizen is armed and ready to mete out justice,” U.S. Assistant Secretary of State William Brownfield said in Spanish during a March 28 video chat.*

CEPR / May 14, 2013

Article Artículo

Trade Deficits and the Dollar

In prior posts I have often referred to the run-up in the dollar engineered by the Clinton-Rubin-Summers team in the 1990s as being the root of all evils. The point is that their over-valued dollar policy led to a large trade deficit. The only way the demand lost as a result of the trade deficit (people spending their money overseas rather than here) could be offset was with asset bubbles.

To fill this demand gap, the Clinton crew gave us the stock bubble in the 1990s and the Bush team gave us the housing bubble in the last decade. In both cases the bubbles crashed with disastrous consequences, the latter more than the former. (It took us almost 4 years to replace the jobs lost in the 2001 recession, so that downturn was not trivial either.)

Anyhow, my take away from this story is that, using the advanced economics from Econ 101, we need to get the dollar down. I have made this point in the past and readers have often commented that trade does not appear to be responding as would be predicted from a falling dollar. I would argue otherwise. The graph below shows the non-oil trade deficit measured as a share of GDP against the real value of the dollar.

non-oil-trade-deficit-and-dollar

Source: Bureau of Economic Analysis and the Federal Reserve Board 

Dean Baker / May 14, 2013

Article Artículo

Credit Rating Agencies Likely to Evade Dodd-Frank Provision to End Conflict of Interest

One of the key issues in the financial crisis was the fact that mortgage backed securities (MBS), filled with subprime mortgages of questionable quality, managed to get Aaa ratings from the bond-rating agencies. While ignorance and stupidity may explain much of what happens on Wall Street, there were people at the rating agencies who did raise questions about the quality of these securities. In one e-mail at S&P an analyst complained that it would rate an MBS as investment grade if it were "structured by cows." The analyst's complaint was ignored for a simple reason, S&P was making lots of money rating MBS.

Senator Al Franken proposed a simple way to eliminate this obvious conflict of interest. He proposed having the issuer use the Securities and Exchange Commission (SEC) as an intermediary in the hiring process. Essentially, this means that the issuer would have to call the SEC when they wanted to have an issue rated and the SEC would then pick the rating agency. This would eliminate the incentive for the rating agency to issue an investment grade rating to get more business. The Franken Amendment passed the senate by a huge 65-34 majority, winning bi-partisan support. (Disclosure: I had written about this sort of reform and discussed it with Franken's staff.)

While this might have seemed like a victory for simple common sense, the amendment was largely eviscerated in a conference committee, apparently at the urging of then House Finance Committee Chair Barney Frank. Instead of implementing the amendment, the conference bill called for the SEC to study the issue and make a decision by the end of July, 2012.

The SEC is now almost a year late in this process, but apparently is prepared to ignore the rule, with an assist from the Washington Post. In an article discussing the SEC's plans, the Post dutifully repeated statements from the industry groups that were almost complete nonsense, without consulting any of the many experts who could have spoken in support of the Franken proposal.

Dean Baker / May 14, 2013

Article Artículo

Haiti's Former President Préval Has Credible Charges that UN Tried to Remove Him

Writing in the Toronto Star, Catherine Porter reports on revelations from former Haitian President René Préval in Raoul Peck’s documentary film Fatal Assistance that UN head Edmond Mulet tried to remove him from the country on election day in November 2010:

“I got a phone call from Mr. (Edmond) Mulet, who was head of MINUSTAH, saying: ‘Mr. President, this is a political problem. We need to get you on a plane and evacuate you,’” Préval says in the documentary, Fatal Assistance. “I said: ‘Bring your plane, collect me from the palace, handcuff me, everyone will see that it’s a kidnapping.’”       

The comments from Préval echo those made at the time by Organization of American States special representative Ricardo Seitenfus, who told BBC Brasil in January 2011 that Mulet and other representatives of the “core group” of donor countries, “suggested that President Rene Préval should leave the country and we should think of an airplane for that. I heard it and was appalled.” The forced departure of Préval wouldn’t have been the first time a Haitian president was spirited out of the country, as former President Jean-Bertrand Aristide was flown out of Haiti in 2004 on a U.S. airplane and taken to the Central African Republic in what he described as a “kidnapping” and “coup d’etat.” There is no doubt that it was a coup d’etat – the New York Times, among others, documented the U.S. role in bringing about the coup.  And Aristide’s charges that it was a kidnapping are credible and backed up by witnesses.

In response, Edmond Mulet told the Star, “I never said that, he [Préval] never answered that,” adding “I was worried if he didn’t stop the fraud and rioting, a revolution would force him to leave. I didn’t have the capability, the power or the interest of putting him on a plane.”

The first round of voting for president in November 2010 was plagued by irregularities. A CEPR statistical analysis found that some three-quarters of Haitians did not vote, over 12 percent of votes were never even received by the electoral authorities and that more than 8 percent of tally sheets contained irregularities. Perhaps most importantly, Haiti’s most popular political party, Fanmi Lavalas, was excluded from the election. At the time, 45 Democratic members of Congress wrote to then-Secretary of State Hillary Clinton warning that political party “exclusion[s] will undermine both Haitians' right to vote and the resulting government's ability to govern.” These warnings fell on deaf ears, but diplomatic cables released by Wikileaks reveal the international community’s thinking at the time. At an early December 2009 meeting, Haiti’s largest donors concluded that “the international community has too much invested in Haiti’s democracy to walk away from the upcoming elections, despite its imperfections.”

These imperfections proved even greater than anticipated. Based on the pervasiveness of the irregularities and the close results, we concluded at the time that “it is impossible to determine who should advance to a second round” and that if “there is a second round, it will be based on arbitrary assumptions and/or exclusions.”

Jake Johnston / May 13, 2013

Article Artículo

Reinhart-Rogoff One More Time: Why the 90 Percent Never Should Have Been Taken Seriously

As a general rule economists are not very good at economics. This is why almost none of them were able to recognize the $8 trillion housing bubble that sank the economy. (No, this isn't bragging, it only took simple arithmetic and basic logic.) Most economists are unable to conceptualize anything that someone with more standing in the profession did not already write about.

This is the only reason that the Reinhart-Rogoff 90 percent debt-to-GDP threshold was ever taken seriously to begin with. The point that I have tried to make in the past, apparently with little success, is that debt is an arbitrary number. It is not something that is relatively fixed, like the age composition of the population or the supply of land.

The country's debt is something that can and often is easily altered through simple steps. In this way the debt-to-GDP ratio can be thought of as something like the color of a house. Suppose Reinhart and Rogoff told us that people who lived in blue houses had 40 percent less income than people who lived in houses painted other colors. Presumably people would be skeptical of the results, but if their finding was really true, then we would probably want to encourage people in blue colored houses to paint them a different color.

In effect, Reinhart and Rogoff were making the same sort of claim about debt and GDP. Let me try to explain this in a way that even an economist can understand it.  

I have often pointed out that the value of long-term debt fluctuates with the interest rate. I didn't think this is a secret, but apparently few economists have followed what happens to bond prices when interest rates change. The point is that the value of our debt will plummet if interest rates rise, as the Congressional Budget Office and other forecasters expect. This means that we could buy back long-term debt issued today at interest rates of less than 2.0 percent for discounts of 30-40 percent. This would sharply reduce our debt-to-GDP ratio at zero cost.

Yes, this is really stupid, but if you believed the Reinhart-Rogoff 90 percent debt cliff, then you believe that we can sharply raise growth rates by buying back long-term bonds at a discount. It's logic folks, it's not a debatable point -- think it through until you understand it. 

Dean Baker / May 11, 2013