The Failure of European Economic Integration

Economic integration--intertwining the economies of nations--was supposed to promote economic efficiency, prosperity and ultimately peace.  The idea was that if nations need each other to keep their economies humming, they wouldn't start a shooting war.  Continental Europeans, having suffered tens of millions of deaths in two world wars, were particularly impassioned with this idea.  Who can blame them?  Arms races and wars hadn't solved their problems.  The League of Nations didn't solved their problems.  Why not give mutual dependence on each other for cheese, wine, sardines, sausage, and pasta a chance?

At first the idea seemed to work.  The EU prospered in its early years.  We now know those salad days resulted to a large degree from inexpensive borrowing by poorer EU nations, who snarfed up too much easy money and now struggle to avoid the death of a thousand budget cuts.  But optimism held sway in the early days of the EU, and economic kumbaya was extended to the nations of the former Soviet Union, including the big brown bear itself.

Economic integration provides leverage.  The proponents of the EU thought that the leverage would be used to restrain aggression. But leverage by itself is morally neutral, and can be used for good or evil.  Give leverage to a son of a ditch (sp), and he'll use it for evil.  This is what we see in Ukraine today, where Vlad the Invader has seized Crimea, and is sponsoring a "rebellion" in eastern Ukraine against the Kiev government, a war that is increasingly being conducted by Russian soldiers and Russian operatives.  As Russian personnel take over the fighting, the war is morphing into a clash between nations.  This is exactly what economic integration was supposed to prevent. 

Europe's response to Vlad's invasions has hardly gone beyond a tepid wrist slap, and talk of stronger sanctions is matched by behind the scenes maneuvering to prevent any economic consequences from the sanctions.  The horror of the shoot down of Malaysia Airlines Flight MH 17 was quickly followed by France reaffirming its intention to deliver a Mistral class helicopter carrier to Russia, a substantial warship that Russia apparently could not itself build.  Economic integration, it would appear, trumps moral rectitude.

Putin is using economic integration as a weapon, and in his insidious hands, it's devilishly effective.  Europe is dependent on Russia for gas and oil, and can't easily substitute other suppliers for Russia.  Putin has apparently increased his support for the rebels in Ukraine since the Flight MH 17 atrocity. He has much to gain by doubling down.  His increased aggressiveness forces the U.S. and Europe to struggle to respond, and this struggle heightens the divisions between the New World and the Old. He renders NATO a hollow shell, something the Poles have publicly admitted.  Putin doesn't have to conquer Ukraine, or even eastern Ukraine.  All he has to do is keep stirring the pot, and in so doing highlights Europe's dependence on Russia and America's weakness.

Economic integration doesn't turn a monster into a nice kitty.  When done with a dastard (sp), he remains dastardly, and will look for opportunities to slip the knife between the ribs of his trading partners.  The Europeans have, through economic integration, delivered themselves unto evil, and they are now paying the price.

Malaysia Airlines Flight MH 17: Putin's Money Problem

Inevitably, lawsuits will be filed over the shoot down of Malaysia Airlines Flight MH17 in eastern Ukraine.  Typically, the plaintiffs' attorneys will name as defendants just about everyone who had any connection with the shoot down and his uncle.  The airline itself will surely be a defendant.  But we know that.  What's interesting is that Vladimir Putin might, depending on circumstances, be a defendant.

In a civil lawsuit, such as those that will be filed, legal liability does not necessarily depend on proving that the defendant deliberately pulled the trigger or ordered the downing.  A person who was negligent or reckless with respect to supporting and arming the rebels in eastern Ukraine (assuming they're the ones who actually fired the missile) might have civil liability.  Information reported indicates that Flight MH 17 was following a well-established international route at a cruising altitude of 33,000 feet, which is typical of commercial airliners.  Just what do you think might happen if you give a bunch of Ukrainian rebels under air attack from the Ukrainian air force a missile system capable of reaching that high?

Since the Ukrainian separatists might not have the expertise to operate a missile system such as the one that evidently downed Flight MH 17, Russian personnel may have had their eyes on the radar screen and fingers on the trigger.  If so, the link to Putin may be strengthened, and his potential for personal liability increased.

If Vlad faces potential personal liability to the Flight MH 17 plaintiffs, he could have a serious money problem.  Although he denies having money stashed in the West, news reports have suggested he may control tens of billions of dollars of assets, maybe as much as $50 billion.  The plaintiffs' attorneys and the insurance companies that make payouts to MH 17 claimants have a powerful incentive to hunt down that money, if it exists.  And who knows?  Maybe they'll succeed.  In that case, Vlad could lose some or all of his hell or high water fund.

The nation of Russia, too, might be liable if it is shown to have provided the missile system.  And it's potential for liability would be heightened if Russian personnel actually operated the missile system.

There is historical precedent for holding bad actors on the international scene liable for civil liabilities.  In 1988, Libyan agents bombed Pan American Airlines Flight 103.  The next year, Libyan agents bombed a commercial airliner flown by UTA, a French airline (UTA Flight 772).  In both cases, the nation of Libya ultimately paid substantial sums of money (totaling billions of dollars) to settle civil claims. 

One big problem for Vlad is that the toothpaste is out of the tube and he can't put it back.  With the plane already shot down, all he can do is scramble to cover his butt.  Current news reports indicate that heavily armed men of uncertain identity are blocking international investigators from getting to the crash site.  Perhaps other men of uncertain identity have recovered the black box and . . . well, maybe the black box will be another victim in this tragedy.  Possibly, many bankers in Western nations are working day and night to shift assets of shadowy Russian entities to new and more obscure locations that are likely to entangle the curious in a briar patch of banking secrecy laws.  But Russia itself can't disappear, nor can it conceal all of its assets. 

The Obama administration has been accused of taking a tepid tack on sanctions over the Russian invasion of Ukraine.  European nations have been criticized for being even more equivocal.  But, to make a living as a plaintiff's attorney, you have to be as shy as a great white shark.  And, unless they have accidents with poison-tipped umbrellas, plaintiffs' counsel for Flight MH 17 claimants may be relentlessly pursuing Vlad and Russia for years.

The EU Bubble

Today's kerfluffle in the stock markets over the debt default of an entity affiliated with Portugal's largest bank reminds us that if there is a financial bubble anywhere, it's in EU sovereign and bank debt.  EU sovereign debt and the debt of EU banks have become almost synonymous.  That's because they are linked by a problematic circularity.  EU banks have invested heavily in EU sovereign debt.  EU nations, in turn, have pretty much become the guarantors of the debts of their banks.  Thus, the banks borrow to invest in sovereign debt, and the sovereigns in turn guarantee the banks' debt that funds the sovereigns.  It's rather clever, as long as nothing goes wrong.

However, one could note that EU banks and sovereign nations appear to be burdened with each others' liabilities, and that the guarantees of EU nations accordingly have limited efficacy.  Given that the EU and its banks, in toto, can be reasonably described as overleveraged, this circularity can become a circular firing squad if there is a run on a major EU bank or an EU sovereign member nation.  This is particularly so since no EU nation can issue its own currency and pay its or its banks' debts with printed money.

Of course, the European Central Bank has in recent years made a show of pointing to shining armor it could don and white horses it could mount to ride to the rescue if there is another European financial crisis.  And it has adopted accommodative, money printing-like maneuvers when the going got tough (like letting EU banks use sovereign debt as collateral for borrowings at the ECB without any discounting of their face value).  If the dustup across the pond is limited to Portugal, the ECB should be able to find one way or another to keep the cookie from crumbling.  But if other EU nations, particularly larger ones like France, begin to waver, the EU financial bubble could burst in a nasty way.  The economic consequences could be bad.  Given the growing extremism in Europe, the political consequences could be worse.

There are some asset classes in the U.S. that may be getting bubbly.  Many Internet stocks are suspect. Housing except for the $1 million and up price range seems to be struggling.  In addition, small cap stocks haven't been doing well recently and may turn out to be a bubble bursting.  But it's unlikely that the frothiness of these asset classes could re-trigger the Great Recession.   On the other hand, if the EU sovereign nations can't keep their banking systems on an even keel, then all bets are off. 

Guinea Pigs On Facebook

There's a bunch of guinea pigs on Facebook, around 689,000 of them.  You wouldn't recognize them as rodents if you just looked at their Facebook pages.  Instead, you'd probably think they were people, some younger than the age of 18.  But guinea pigs they are, used by Facebook in an experiment to manipulate users' emotions by making the news feeds these users received either more negative or positive, and then measuring the effect on posts written by the g-pigs.  Evidently, g-pigs' emotions could be changed positively or negatively by the content of the posts they received.  In other words, emotion manipulation by Facebook seems possible.

Facebook claims that its terms of service allow this kind of experimentation.  If you didn't read the terms of service, then bear in mind that the possibility of this kind of horseship (sp) is exactly is the reason why you should read them.  But it may also be the case that Facebook's terms of service were kind of general, and written in that uniquely obtuse and obstructive language called legalese.   We would guess they didn't include a guinea pig clause, which explicitly informed users that they might be selected to be subjects in experiments in emotional manipulation where they wouldn't be informed of their selection and the emotional manipulation would be conducted in quite a non-obvious way.  So even if you were among the assiduous 0.01% who actually read the terms of service, you still might not have realized that you had just registered for the guinea pig draft and could be called up for service at any time.

Of course, one suspects that Facebook might not have wanted to let the g-pigs know what was going on.  Unknowing g-pigs would likely produce more meaningful experimental results than users who knew what was going on.  And if one considers Facebook's corporate interests to be more important than the interests and dignity of its users, then all this might make sense.  But if users are thought to be deserving of fair treatment--radical notion, that--then you'd have to conclude that Facebook really stinks for having done this.

The world is full of emotional manipulation: advertisements, political campaigning, editorials, op-ed pages, robo-calls from every manner of charity you never heard of, etc.  And when it's clear that the game is to manipulate your emotions, that's okay (at least when it's directed at adults).  But when emotions are manipulated sneakily, and your participation isn't made known to you, then that's a reason to avoid Facebook and any other social networking websites that pull similar carp (sp). 

You have to wonder if the emotion manipulation experiment signals that Facebook has reached its zenith and is in decline.  Has Facebook run out of bona fide, valuable services to provide to users?  Is it now stooping to emotional manipulation to keep existing users and bring in new ones?  Do we really need Facebook, or have we been manipulated into thinking we need Facebook?