High Stakes Poker (PSA’s)

Shortly after George W. Bush assumed the mantle of president, Vice President Cheney convened an “Energy Task Force,” now commonly referred to as the “Cheney Energy Task Force”. In a foreshadowing of what was to come with this Administration, the nearly forty meetings of CETF were cloaked in secrecy. Lawsuits have been filed, but the Administration has worked tirelessly to keep whatever happened behind those closed doors a state secret.

This much is known:Conoco, Exxon-Mobil, Royal Dutch Shell and British Petroleum were all involved in the meetings. They lied to congress about this, though they were not under oath.

The secrecy surrounding the meetings has led to speculation about what went on. My own suspicion is that these industry leaders were talking about Iraq’s oil fields. Iraq’s oil industry had been devastated by the 1991 U.S. attack, and by the ensuing years of economic sanctions. Iraq was ripe for plunder. The participants in the CETF were probably divvying up the spoils of the war they knew was coming. That’s my suspicion.

Judicial Watch and Sierra Club did win a small victory – they forced release of some documents and maps, which included this map of Iraq, its existing fields and, intriguingly, nine undeveloped blocks. During the intervening years since Gulf War I, Iraq’s oil had largely been kept off the world market, its promising fields left undeveloped. The nine blocks are areas of promise – places where new fields are likely to be found. In the old days they were called “concessions” – places where oil companies were given exclusive right to develop minerals in place.

In announcing the escalation of the war in January of this year (“The Surge”), President Bush set up benchmarks that Iraqis had to meet in order to judge its success. Among them was a brief sentence that foretells of a long domination of Iraq by international oil companies. Iraq was to enact a

hydrocarbons law to promote investment, national unity, and reconciliation.”

This passing reference is to Production Sharing Agreements (PSA’s). This may have been at the heart of the CETF agenda. We’ll never know.

PSA’s are a contractual device, a longstanding arrangement first used in Indonesia for handling risk in the oil business. When risk is high companies who develop prospects want higher compensation than normal. Typically they would get a very high percentage of oil revenue in the early phases of a project’s life, enough to pay back its investment. After that, they would be guaranteed a cash stream, smaller than in the early years, but substantial.

Such arrangements are common in high risk areas. Roughly 12% of world oil reserves are covered by PSA’s, though not in places like Saudi Arabia, Kuwait and Iran, which are low risk, high reward. Iraq is low risk. Projects are pretty well laid out, the geology is known (when the US invaded, it went to great lengths to protect the Oil Ministry in Baghdad while allowing looting of the rest of the country. Vital geological information on oil fields was saved).

PSA’s are a veil over a more basic maneuver. Iraq’s oil has been nationalized since the early 1970’s, and foreign companies have been prevented from sharing in the revenue. Proposed PSA’s would be 30 year contracts that guaranteed (mostly U.S.) oil companies 70% of Iraq’s revenue during the investment phase of development of its remaining reserves, and 20% thereafter. In addition, the Iraq arrangement could serve as a model for other countries in the region who have heretofore resisted the major oil companies – Iran, Saudi Arabia, and Kuwait, to name three.

Thomas Wälde, a specialist in oil and gas contracts at Dundee University in Scotland, and a consultant to The International Tax and Investment Center, a trade group that has been pushing PSA’s for Iraq, described PSA’s in the following way:

A convenient marriage between the politically useful symbolism of the production-sharing contract (appearance of a service contract to the state company acting as master) and the material equivalence of this contract model with concession/license regimes in all significant aspects…The government can be seen to be running the show – and the company can run it behind the camouflage of legal title symbolizing the assertion of national sovereignty.

It’s a ruse. Proposed PSA’s for Iraq will deliver effective title to the oil fields to the Exxon-Mobil, British Petroleum and the rest.

U.S. pressure on Iraq to approve PSA arrangements is intense – they wanted it this summer for sure. But the Iraqi parliament is resisting. This was likely part of the angst felt by the U.S. as Iraqis decided to take a summer break rather than keep parliament in session.

I don’t know the future in Iraq – I don’t know if the country will hold together, whether the U.S. will prevail in its effort to form the country into a subservient client state, or whether the resistance can force real independence. Should they break free and form a truly nationalist government, they would probably assume the right to void odious agreements entered into when parliament was under duress. I assume that even if PSA’s do carry the day, that Iraqi’s can trash them in the future. The U.S. would probably respond with more sanctions and military encirclement. It’s hard to see a way out of that mess for the Iraqis.

More likely, the U.S. will prevail, and PSA’s will be forced on Iraq, and it’s oil reserves turned over to the international oil companies. It will be one of the biggest bonanzas in history. The essence of colonialism is the direction in which resources flow – colony to mother country. PSA’s are colonialism reinstated on Iraq. They are part of the reason there is so much resistance over there, and why the U.S., no matter the fancy words to describe its own actions, is in it for keeps. The stakes are too high.

A Timely Outing

It’s not my habit to write about things that people are currently interested in – you know – to be topical. But the Larry Craig scandal has my attention for a couple of reasons.

One, the timing of release of the information. This has been going on since June – surely Alberto Gonzales and Karl Rove knew about it, if only by means of wiretap. That it comes out on the day Gonzales resigns is coincidental, I suppose, and not worthy of note except that this administration, with its terror scares and Mission Accomplished has proven masterful at managing the news. Craig knocked Gonzales off the front pages. With these guys, that may not be an accident.

Second, there is this notion of repressed sexuality. I can think of no worse situation for a man than to be gay and in denial. Craig claims to be straight, and if I am overreaching here, I mean no disrespect. But I don’t believe sexual orientation is a choice. Craig grew up during a time when to be gay was to be an outcast. Repression was not only encouraged, it was essential if a person wanted any kind of career. I have sympathy for the man.

Craig will probably have to step down – pity he could not be a Democrat, simply come out as Barney Frank did, and get on with his life. It’s no accident that a scandal like this happens to a Republican. They are the party that scorns gays – no one can be openly gay in that party and survive.

There is a group of people known as Log Cabin Republicans who are openly gay. As one comedian remarked, their slogan ought to be “We Hate Ourselves”.

Try Connections

Note to middle-aged readers – after exhaustive research, we settled on this format (called “Connections”) because of the readability of the comments section. I rejected another choice, “Kubrick”, because even though it had high readability, it looked like it was designed by the Committee on Prisons. The original format, “Simpla, which Steve selected last year, is beginning to have more appeal too.

Dog Abusers

The Michael Vick tragedy has us all in a tailspin. How could it happen – how could a man who can run so fast and also throw a football with mediocre accuracy also turn out to be a dog abuser? And, of course, there’s the overarching moral question – should be play football again?

I say yes! On the prison team. He could be the black man’s Burt Reynolds.

It reminded me of something I read a while back – an article in Nation Magazine titled “The Other War: Iraq Vets Bear Witness”. There’s massive abuse going on over there, but this is what I remember most – it’s an American soldier commenting on a raid they did on an Iraqi family home:

“And we were approaching this one house,” he said. “In this farming area, they’re, like, built up into little courtyards. So they have, like, the main house, common area. They have, like, a kitchen and then they have a storage shed-type deal. And we’re approaching, and they had a family dog. And it was barking ferociously, ’cause it’s doing its job. And my squad leader, just out of nowhere, just shoots it. And he didn’t–motherfucker–he shot it and it went in the jaw and exited out. So I see this dog–I’m a huge animal lover; I love animals–and this dog has, like, these eyes on it and he’s running around spraying blood all over the place. And like, you know, What the hell is going on? The family is sitting right there, with three little children and a mom and a dad, horrified. And I’m at a loss for words. And so, I yell at him. I’m, like, What the fuck are you doing? And so the dog’s yelping. It’s crying out without a jaw. And I’m looking at the family, and they’re just, you know, dead scared. And so I told them, I was like, Fucking shoot it, you know? At least kill it, because that can’t be fixed….

“And–I actually get tears from just saying this right now, but–and I had tears then, too–and I’m looking at the kids and they are so scared. So I got the interpreter over with me and, you know, I get my wallet out and I gave them twenty bucks, because that’s what I had. And, you know, I had him give it to them and told them that I’m so sorry that asshole did that.

“Was a report ever filed about it?” he asked. “Was anything ever done? Any punishment ever dished out? No, absolutely not.

Professional athletes, like basketball player Ron Artest, have been convicted of abusing their spouses, and the league steps back. (Artest got a five game suspension.)

There’s a double standard at work here – the Iraq war veteran who lives in human carnage and remembers most the abuse of a pet dog. Public outrage over Michael Vick’s abuse of animals while other athletes abuse human beings and walk away unscathed.

I don’t understand it – I’m part of it. Animal abuse sickens me too – perhaps more so than people abuse.

Anyone care to explain?

Anyone Can Do What Countrywide Did

Some advertisements are annoying, some fall just short of torture. There was a time when a person could not avoid Countrywide Financial advertisements. They were everywhere – in newspapers and magazines, on television and all over the radio. It had to be one of the largest marketing campaigns in history. It’s tag line: “No one can do what Countrywide does. No one”.

Bob, a regular commenter here and elsewhere, forwarded a newspaper article to me from the LA Daily News called “How It All Went Wrong For Countrywide Financial“. It’s a good piece and reassurance that journalism is still going on in this country. Thanks, Bob.

Countrywide was selling money for mortgages and encouraging people to take out second mortgages on the equity in their homes. Their come-on was that their loans had no closing costs, and were therefore cheaper. It was a lie, of course, but what is advertising if not merely professional lying. They got their closing costs back in many ways – higher interest rates, and use of teaser rates to lure people into expensive adjustable rate mortgages.

But the market rewards such behavior. Countrywide zoomed up the list of mortgage lenders, from a small company formed 38 years ago by a butcher’s son and a mortgage banker to a $500 billion enterprise with 62,000 employees, 900 offices and assets of $200 billion.

It’s all coming down now – Countrywide’s loans were not only misleading, they were risky. The company has fallen on hard times, and recently had to draw down on its $11.5 billion lines of credit with various banks. It’s stock is selling at around $19 from a high of $45.

Here’s the bottom line with Countrywide, and all the others who cashed in on the subprime mortgage market.

Regulatory filings show how much more profitable subprime loans are for Countrywide than higher-quality prime loans. Last year, for example, the profit margins it generated on subprime loans that it sold to investors were 1.84 percent, versus 1.07 percent on prime loans. A year earlier, when the subprime machine was really cranking, sales of these mortgages produced profits of 2 percent, versus 0.82 percent from prime mortgages. And in 2004, subprime loans produced gains of 3.64 percent, versus 0.93 percent for prime loans.

The message the market was sending was to loosen the requirements for getting a loan. There was seemingly no low bar to get a Countrywide loan – missed your payments? Had a recent bankruptcy? Want to buy a house with no money down? Do you mind if we eat up 90% of your household budget? No problem.

The problem is always, at its root, the people who fall for sucker advertising campaigns. There ought to be classes taught in our schools and colleges on advertising resistance. Basic financial common sense ought to be in the lesson plan too – housing equity is one of our best ways to save for retirement. Countrywide wanted those savings for itself.

We’re in a disaster now – it remains to be seen if the Federal Reserve system can bail the market out of it. A formal government bailout may be necessary, as with the Savings and Loan debacle of the Reagan era. Watching the stock market each day is like watching a high wire act at the circus. We are teetering on recession. We might all soon be paying for Countrywide’s business practices.

Angelo R. Mozilo, co-founder and CEO of Countrywide, has never bought a share of his company’s stock. He’s only sold. Over the years he has sold over $400 million. In the last twelve months, he’s unloaded another $129 million. There’s a lesson there – stock pros watch the insiders – when they are selling, it’s a good time to get out. Countrywide has been sending “sell!” signals for months now. But few people were heeding them.

What we need, of course, is regulation of mortgage lending practices. As with the S&L debacle, history has shown us that it takes government oversight to supply the reasonable restraint that the market lacks.

On Violent Militants

Notice that Iraqi Prime Minister Maliki is under heavy fire from both parties in the U.S. Part of the problem is illustrated by the following snippets from news reports:

“There are American officials who consider Iraq as if it were one of their villages, for example Hillary Clinton and Carl Levin. They should come to their senses”.

Concerning American raids on Shula (a northern Shiite neighborhood) and Sadr City (the Shiite slum enclave in east Baghdad). “There were big mistakes committed in these operations. The terrorist himself should be targeted not his family,” he said.

“We will not allow the detaining of innocent people”.

He’s getting uppity. That in essence is the problem. The Bush Administration and the mainstream Democrats are to democracy as Milli Vanilli was to music. They look good as they mouth the words. And “democracy” is a nice sounding word, but it carries no real meaning and conveys no information on what is actually going on over there. If we can decide who’s “effective” (carries out American objectives), who’s not, and even pressure that person out of office, then the Iraqis are not really in charge.

Of course they’re not in charge! Never were, won’t be until the violent militants comprising the foreign occupying army go home.

Baseball Trivia

Each of the following men either played or managed in the major leagues. Each is in the Hall of Fame. What else do they have in common?

Babe Ruth
Sparky Anderson
Tom Seaver

One Small Step Forward

The Wall Street Journal today has an opinion piece about taxes and revenue. It’s pretty standard stuff – they say the rich pay an ungodly percentage of total tax without telling us what percentage of total wealth belong to the rich. They talk only about the income tax, and ignore that other tax … you know, the one that ordinary people pay and the rich don’t, the one that most Americans pay more of than income tax itself … the payroll tax.

But wait – what’s this? In paragraph eight, just before they sign off, they say this:

The real bite on the middle class comes from payroll and state taxes; include them and their tax share rises relative to the wealthy. So yes, cut those taxes, too.

News Flash! The Wall Street Journal has acknowledged the existence of the payroll tax!

It’s small progress, but progress nonetheless.

The Memory Hole

I was disheartened by President Bush’s Vietnam analogy as he spoke to the Veterans of Foreign Wars this week. (Full text here.) I carry on my list of bookmarks a study called “Gulf War and the Media“. Unfortunately, if you click on that link, you’ll find as I did that it is no longer available. But I will never forget the results of the study done by University of Massachusetts/Amherst researchers on a randomly selected group in Denver. (Brief summary here.) It was this: The more people relied on television for their information, the less the knew about the first Gulf War.

But I turned to that study because of one result buried deep within it – they asked respondents how many Vietnamese people died in the Vietnam War. The actual number is not known, but estimates range from a conservative two million to as many as 5.2 million people. The mean survey response: 100,000.

The American public is deeply ignorant of the Vietnam War. President Bush played on that ignorance. He oughtta be ashamed, but he never is. His rambling view of recent American history was designed to convince us that a pullout from Iraq, which is not going to happen anyway, would be a disaster for the Iraqi people.

The truth is a little less flattering to Americans. The disaster for the Iraqi people is happening right now. We caused it, we continue to fuel it. If we pull out, there will be less bloodshed, and perhaps a standoff and stand down, less killing, and who knows – maybe even peace. But peace is not possible so long as Iraq is occupied by a militant and dominating foreign presence – one that has visited untold horrors on that population.

Americans perhaps know less of our history in Iraq than Vietnam. First, there was our support for their dictator, Saddam Hussein, in the 1980’s, even as he committed unspeakable horrors. Then there was the barbaric air attack in 1991 that destroyed their infrastructure:

It is vital to understand that the first “hot” Gulf War was waged as much against the people of Iraq as against the Republican Guard. The U.S. and its allies destroyed Iraq’s water, sewage and water-purification systems and its electrical grid. Nearly every bridge across the Tigris and Euphrates was demolished. They struck twenty-eight hospitals and destroyed thirty-eight schools. They hit all eight of Iraq’s large hydro power dams. They attacked grain silos and irrigation systems.
Farmlands near Basra were inundated with saltwater as a result of allied attacks. More than 95 per cent of Iraq’s poultry farms were destroyed, as were 3.3 million sheep and more than 2 million cows. The U.S. and its allies bombed textile plants, cement factories and oil refineries, pipelines and storage facilities, all of which contributed to an environmental and economic nightmare that continued nearly unabated over twelve years.
Alexander Cockburn and Jeffrey St. Clair, The Thirteen Years’ War (Imperial Crusades: Iraq, Afghanistan and Yugoslavia)

All war crimes, all done with impunity as a salivating TV media looked on. Then there were twelve years of sanctions on equipment, food and medicine that prevented rebuilding and killed hundreds of thousands of their peoples, mostly children.

We are conditioned to forget such things. They remember.

The problem in Iraq is the U.S. We made that mess, and we can make it better only by leaving.

So too with Vietnam. Here’s Bush:

In Cambodia, the Khmer Rouge began a murderous rule in which hundreds of thousands of Cambodians died by starvation and torture and execution. In Vietnam, former allies of the United States and government workers and intellectuals and businessmen were sent off to prison camps, where tens of thousands perished. Hundreds of thousands more fled the country on rickety boats, many of them going to their graves in the South China Sea.

Bush is, no doubt, among the millions of Americans who got is his Vietnam information from TV. If this speech is an example, he doesn’t know the actual death toll over there. And, he doesn’t know how U.S. bombing destroyed Cambodian society, killing as many as 700,000 civilians. THis human disaster is what paved the way for the Khmer Rouge and Pol Pot (who were covertly supported by the U.S via China anyway).

In short, he doesn’t know that when the U.S. left Vietnam, the killing slowed to a comparative trickle, and rebuilding began. It was made more difficult, of course, by the subsequent 20 year U.S. embargo on food, equipment and medicine. It that started right after the war, and lasted until 1995. It had brutal consequences – people were homeless and starving, but there was no outside aid to be found. This resulted in the ‘boat people’ phenomenon, which Bush also misunderstands. We caused that too.

We pretty much wrecked that country, just as we wrecked Iraq. It’s the self-aggrandizement, the utter ignorance that gets me. Some days are worse than others. Bush’s speech set it off.

It’s Friday, I’m frustrated. Bush carries the day with his ignorance; his speech writers scored a direct hit by clever and nonexistent parallels.

We have the largest and most sophisticated military in human history. We don’t use it in pursuit of peace – we make war. We mean to make war, and we kill people. We killed millions in Vietnam, hundreds of thousands in Iraq. But Bush thinks that maybe 30,000 Iraqis have died since we invaded.

He probably gets his information from TV. It never changes.

PS: The Vietnamese have responded to Bush’s speech. See if you can find it in the American media.

The Nuclear Option

News reports recently have China threatening to use their own ‘nuclear option’ should the U.S. congress take aggressive action against them in light of recent problems with toys, toothpaste and pet food. According to the London Daily Telegraph,

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

What would we do? Does China really have that kind of power over us? I think so, and yet I think the U.S. has a weapon to counterbalance the Chinese threat. It is one of my pet theories on why the U.S. invaded Iraq – to gain control of that oil as a lever over China, among others.

China is heavily dependent on imported oil to drive its thriving economy. They get this oil from a variety of sources, including a small portion from Iraq. But more importantly, under Saddam China had signed a lucrative deal for development of an Iraqi oil field. They have recently entered into new negotiations for revival of the deal.

But the U.S., as the only military power in Iraq, and with a stranglehold on that country, has effective veto power over any new oil deal with China. It may not be a trump card, but it is one in the hole. China currently gets its oil from Kazakhstan, Russia, Venezuela, Sudan, West Africa, Iran, Saudi Arabia and Canada. 58% comes from the Middle East. By 2015, this number will be 70%.

The U.S. sees the Middle East as a vital source of petroleum for most of the industrialized world in the coming decades, and invaded Iraq in large part to gain a leg up. For so long as we control the spigot, other countries will have to play by our rules.

So while China is threatening to unload its dollars, don’t look for it to happen. They need oil, and they have to go through the U.S. to get it.

Interesting article here.