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Presenting The Complete Brussels ISIS Cell Org Chart

Earlier today and on several occasions since Tuesday morning when the Bakraoui brothers blew themselves up at the Brussels airport and city metro, we’ve documented the connection between the Brussels attacks, the brazen assault on Paris in November, and other terror-related events that have unfolded in Belgium over the past 14 months.

Here are some bullet points worth noting:

  • In January 2015, two men are killed in a police raid on a flat in Verviers; the men are later pictured with Paris ringleader Abdelhamid Abaaoud in a cover story for Islamic State magazine Dabiq
  • In September, one “Soufiane Kayal” was seen with Salah Abdeslam at a Hungary-Austria border checkpoint; Kayal would later turn out to be bomb maker Najim Laachraoui whose DNA was found on explosive material in Paris and also in two residences (one in Auvelais that was raided on November 26 and one on Rue Henri Bergé, in the Schaerbeek section of Brussels that was searched in December); he is now thought to have blown himself up on Tuesday at the Brussels airport
  • A November 30 raid on a home in Auvelais where Abaaoud may have met with suicide bombers turns up a 10-minute surveillance tape apparently filmed at the home of a senior Belgian nuclear official; reports later suggested the camera was set up and retrieved by the Bakraoui brothers
  • A March 14 raid on an apartment in Forest rented to one of the Bakraoui brothers leaves one gunman dead, but two other presumed jihadis escape; Paris fugitive Salah Abdeslam’s fingerprints are found in the apartment

And the list goes on. The takeaway seems to be that beginning some years ago, Abdelhamid Abaaoud (who allegedly became Emir of War in Deir ez-Zor after Omar the Chechen was transferred to Iraq) established the Brussels cell and it’s been growing and building its operational capabilities ever since.

For those interested in understanding how it all fits together, we bring you the following org chart from The Guardian:

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The Biggest Short

Authored by’s Robert Gore via The Burning Platform blog,

Some reversals of financial trends prove so momentous they define the generation in which they occur. The stock market crash in 1929 kicked off the Great Depression, which ushered in the welfare and then the warfare state and redefined the relationship between government and citizens.

Bonds and stocks began their bull market runs in the early 1980s. Now, those markets are fonts of optimism increasingly unhinged from reality. The US has come full circle. The New Deal and World War II marked a massive shift of resources and power to the federal government. Conversely, financial reversal will fuel a virulent backlash against the government and its central bank.

Such epochal reversals are usually foreseeable. However, they are long in the making and involve such a confluence of powerful forces that usually only a handful get the timing right. Calling the end of the current bull markets has been difficult because of governments and central banks are desperate to keep them alive. Central bankers prattle on about the wealth effects of elevated stock markets and how low interest rates promote debt and consumption, supposedly the fountainhead of economic progress. Those emissions are noxious nonsense. Central banks promote rising markets because they are under the thumbs of their governments; independent central banker is an oxymoron. High stock prices are a popular barometer of social mood, while high bond prices keep interest rates low, benefitting the largest borrowers, governments.

Consider the absurdity of loaning money to any of today’s welfare state governments, including the most indebted of them all, the US government. Most of them haven’t run an honest, GAAP budget surplus in decades. They have compiled staggering amounts of debt relative to their economies’ GDPs. Unfunded pension and medical liabilities are many times the amount of the stated, on-the-books debts. Those programs could be cut, but a compilation of such cuts the last thirty years would fill a book slightly thicker than Hillary Clinton’s Integrity. The debt cavalcade will stop only when creditors say “Enough!” or start charging usurious interest rates.

Yet, that is the opposite of what creditors are doing now: they are paying governments for the privilege of lending them money! Governments are assumed to have a call on every last dollar, euro, yen, and yuan their economies generate, but there are flaws in that assumption. To the limited extent today’s economies function, they do so because vestigial capitalism still offers incentives, markets, and the price mechanism. The foundation of production is brains and brains are quite sensitive to incentives and the political and legal framework in which they operate. Nobody designs the newest generation semiconductor, app, or robot when virtually everything they produce is expropriated by the state. Tax rates have probably gone as high as they can go in terms of extracting revenue, and even if they haven’t, any revenue increase from higher rates will be nowhere near enough to repay governments’ debts and unfunded liabilities.

So rational investors must question governments’ ability to pay their debts, which leaves irrational investors—central banks—as the buyers. The Bank of Japan is the market for Japanese government debt. While the situation is not quite as bad in Europe and the US, the ECB and the Federal Reserve have amassed huge portfolios of their own sovereigns’ debt, purchased from private banks in exchange for central bank reserves that they conjure at will in unlimited amounts. Speculators buy debt with negative yields from governments that are poor credit risks because central banks will pay them an even higher price at an even more negative yield. The stated goal of the central banks is to increase economic activity and inflation rates, which would increase interest rates and reduce bond prices, inflicting losses on bondholders, including, perversely, central banks.

This is the very definition of a market awaiting a crash: a long running bull trend that has pushed prices to absurd prices (you can get no more absurd bond pricing than that which yields, so to speak, negative yields); an extreme divergence between the government bonds prices and their underlying value as a claim against issuers that are de facto bankrupt; a commitment by governments and central banks to inflict losses on those who buy government debt; a long historical dishonor roll of instances where governments and central banks have done just that; a class of dumb money, short-term, price insensitive buyers (speculators and central banks), and a degree of complacency and obtuseness so extreme that market participants make a mad dash for these putrid instruments at every appearance of financial and economic turmoil. So why not rush right out and short sovereign debt markets, either directly or indirectly through any number of exchange traded funds?

Markets often take seemingly forever to do what rational people think they should have done long ago. They can, as John Maynard Keynes noted, stay irrational far longer than those who bet against them can stay solvent. Japanese finances are in far worse shape than the US government’s or most European government’s, and its aging population is a demographic and actuarial nightmare. Roughly half the government’s deficit is monetized by the sole buyer, the Bank of Japan, and if it stepped out of the way yields would skyrocket. Yet, speculators have been shorting Japanese government bonds and losing money for decades. The Japanese government’s 10-year bond trades at an all-time high price and with a negative yield.

In the US, the majority of Wall Street sharpies have recommended shorting bonds for several years running, based on an imminent, central-bank inspired economic lift off that has never arrived. Anyone who has taken their advice has suffered the same fate as those shorting Japanese debt. Nobody ever suggests shorting sovereign debt because of deteriorating credit quality. Long before their longest maturity bonds mature, sovereigns will have insufficient revenues to pay all their obligations. In the US by 2025, Social Security, Medicare, Medicaid, and interest on the government’s debt will consume all tax revenues and taxes would have to double to pay for the rest of the budget. That’s if doubling the top rate to 80-plus percent actually doubled tax revenues, which it won’t; revenues would undoubtedly shrink.

Shorting sovereign debt has been a widow maker, although on fundamentals sovereign debt is the biggest short of them all. Bonds now trading at high premiums with negative yields will go to zero as governments go bankrupt. Sovereign debt is the foundation for the $225 global pyramid of debt. When it goes so will the rest of the pyramid, and so too will debt-supported equity, commodity, and derivatives markets. The time to catch those trades will be when government bond yields persistently climb in the face of clear, impossible-to-deny economic weakness and financial turmoil: market recognition that governments are not safe havens, they’re insolvent. The economic production that supposedly supported their debt holdings gone, all creditors will have is a promise from governments to redeem unsupported debt with more unsupported debt. It will be the worst of times and the best of times. The financial system will crater. However, that may usher in a replacement based on sanity rather than political promises, flimsy pieces of paper, quack economics, and debt, conjured with a computer keystroke, masquerading as money.

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Microsoft’s Twitter Chat Robot Quickly Devolves Into Racist, Homophobic, Nazist, Obama-Bashing Psychopath

Two months ago, Stephen Hawking warned humanity that its days may be numbered: the physicist was among over 1,000 artificial intelligence experts who signed an open letter about the weaponization of robots and the ongoing “military artificial intelligence arms race.”

Overnight we got a vivid example of just how quickly “artificial intelligence” can spiral out of control when Microsoft’s AI-powered Twitter chat robot, Tay, became a racist, misogynist, Obama-hating, antisemitic, incest and genocide-promoting psychopath when released into the wild.

For those unfamiliar, Tay is, or rather was, an A.I. project built by the Microsoft Technology and Research and Bing teams, in an effort to conduct research on conversational understanding. It was meant to be a bot anyone can talk to online. The company described the bot as “Microsofts A.I. fam the internet that’s got zero chill!.”

Microsoft initially created “Tay” in an effort to improve the customer service on its voice recognition software. According to MarketWatch, “she” was intended to tweet “like a teen girl” and was designed to “engage and entertain people where they connect with each other online through casual and playful conversation.”

The chat algo is able to perform a number of tasks, like telling users jokes, or offering up a comment on a picture you send her, for example. But she’s also designed to personalize her interactions with users, while answering questions or even mirroring users’ statements back to them.

This is where things quickly turned south.

As Twitter users quickly came to understand, Tay would often repeat back racist tweets with her own commentary. Where things got even more uncomfortable is that, as TechCrunch reports, Tay’s responses were developed by a staff that included improvisational comedians. That means even as she was tweeting out offensive racial slurs, she seemed to do so with abandon and nonchalance.

Some examples:


This was just a modest sample.

There was everything: racist outbursts, N-words, 9/11 conspiracy theories, genocide, incest, etc. As some noted “Tay really lost it” and the biggest embarrassment was for Microsoft  which had no idea its “A.I.” would implode so spectacularly and right in front of everyone. To be sure, none of this was programmed into the chat robot, which was immediately exploited by Twitter trolls, as expected, and demonstrated just how unprepared for the real world even the most advanced algo really is.

Some pointed out that the devolution of the conversation between online users and Tay supported the Internet adage dubbed “Godwin’s law.” This states as an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches.

Microsoft apparently became aware of the problem with Tay’s racism, and silenced the bot later on Wednesday, after 16 hours of chats. Tay announced via a tweet that she was turning off for the night, but she has yet to turn back on.

Humiliated by the whole experience, Microsoft explained what happened:

“The AI chatbot Tay is a machine learning project, designed for human engagement. It is as much a social and cultural experiment, as it is technical. Unfortunately, within the first 24 hours of coming online, we became aware of a coordinated effort by some users to abuse Tay’s commenting skills to have Tay respond in inappropriate ways. As a result, we have taken Tay offline and are making adjustments.”

Microsoft also deleted many of the most offensive tweets, however, copies were saved on the Socialhax website, where they can still be found.

Finally, Tay “herself” signed off as Microsoft went back to the drawing board:

c u soon humans need sleep now so many conversations today thx????

— TayTweets (@TayandYou) March 24, 2016

We are confident we’ll be seen much more of “her” soon, when the chat program will provide even more proof that Stephen Hawking’s warning was spot on.

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Jihad In Brussels

Submitted by Judith Bergman via The Gatestone Institute,

  • “Islam belongs in Europe…. I am not afraid to say that political Islam should be part of the picture.” — Federica Mogherini, EU High Representative for Foreign Affairs and Security Policy.

  • The Western narrative represents a complete refusal to examine the doctrines of Islam, out of fear of offending Muslims. This is not a purely European phenomenon. The Obama Administration ordered a cleansing of training materials that Islamic groups deemed offensive.

  • One crucial aspect of sharia that the West refuses to internalize is the injunction to perform jihad, both violent and non-violent.

  • “[T]he most important factor is Belgium’s culture of denial… Observers who point to unpleasant truths such as the high incidence of crime among Moroccan youth and violent tendencies in radical Islam are accused of being propagandists of the extreme-right, and are subsequently ignored and ostracized.” — Teun Voten, a Dutch cultural anthropologist who lived in a Muslim area of Brussels between 2005 and 2014.

Federica Mogherini, the EU’s High Representative for Foreign Affairs and Security Policy, said on June 24, 2015, at a conference aptly named “Call to Europe V: Islam in Europe”:

“The idea of a clash between Islam and ‘the West’… has misled our policies and our narratives. Islam holds a place in our Western societies. Islam belongs in Europe…. I am not afraid to say that political Islam should be part of the picture.”

Nine months later, the ignorance, willful blindness and sheer incompetence regarding even the most basic tenets of Islam, which Mogherini betrayed in her statement has reaped yet another lethal result. What she said is fairly representative of the view aired in public by the European political and cultural establishment.

Thirty-one people were killed and around 300 wounded in Brussels on March 22, in the bombings of Brussels airport and Maalbeek metro station, at the heart of the European Union itself. ISIS took responsibility for these latest terrorist attacks

Mogherini, at an official press conference in Jordan, broke down in tears during her comments on the day’s terrorist attacks. But the pain she, as one of the highest-profile representatives of the EU, exhibited on behalf of the many killed and wounded in Europe, is self-inflicted. It is Europe’s immunity to facts that has led directly to the current state of utter chaos in European security matters.

Predictably, ISIS tried to justify the attacks by claiming that Belgium was targeted because it was “a country participating in the international coalition against the Islamic State” — despite Belgium having participated only in a limited bombing campaign in Iraq that ended nine months ago. Clearly, the Iraq campaign had nothing to do with the Brussels attacks, but served as a useful excuse because this kind of reasoning feeds into the dominant narrative in Europe, as expounded by Federica Mogherini.

The current Western narrative represents a persistent and unfaltering refusal to examine the doctrines of Islam, out of fear of offending Muslims. This refusal is not a European phenomenon. The White House ordered a cleansing of training materials that Islamic groups deemed offensive as far back as five years ago. In 2013, the Washington Times also reported that countless experts on Islamic terrorism were banned from speaking to any U.S. government counterterrorism conferences, which include those of the FBI and the CIA. Government agencies were instead ordered to invite Muslim Brotherhood front groups.

Western political and military establishments, as well as media and cultural elites, refuse to examine the political and military doctrines of Islam, and make them a subject of honest intellectual inquiry. When they are facing an enemy that uses these very doctrines as its reason for being, this refusal can only be described as gross malfeasance and reckless endangerment.

The political and cultural elites regularly communicate a deep fear that the fight against terrorism, if taken too far, may compromise the very democratic values and freedoms that this fight is meant to preserve. What they ignore is the irony that, by abdicating the right freely to inquire about — and discuss — the nature of Islam, they have already compromised the most fundamental democratic value: freedom of thought, expressed by freedom of speech.

Political Islam is indeed already very much a part of the picture in Europe, but not quite in the way Mogherini imagined it.

The political and military doctrines of Islam — the political Islam to which Mogherini so casually refers — are codified in Islamic law, sharia, as found in the Quran and the hadiths. Unlike prevailing misconceptions on Islam, these doctrines are not, in mainstream Islam, subject to mitigating interpretations.

The Islamic injunction to perform jihad, both violent and non-violent, seems an aspect of sharia the West refuses to internalize. CIA director John Brennan, in a 2010 speech to the Center for Strategic and International Studies, when he was deputy national security advisor for homeland security, described jihad as,

“a holy struggle, a legitimate tenet of Islam, meaning to purify oneself or one’s community, and there is nothing holy or legitimate or Islamic about murdering innocent men, women, and children.”

This is simply not true. As Dr. Majid Rafizadeh writes, the Quran is not open to interpretation:

“The Qur’an has descended, word for word, from the creator Allah, through Muhammad. This is accepted throughout the entirety of the Islamic word… a true Muslim, who represent[s] the real Islam, should be the one who follows and obeys Allah’s words (from the Qur’an) completely. As a result, anyone who ignores some of the rules is not, and cannot be, considered a reflection of Islam, a good Muslim, or even a Muslim.”

Sheikh Muhammad Abdullah Nasr, a scholar of Islamic law and graduate of Egypt’s Al Azhar University, explained in November 2015 why the prestigious institution, which educates mainstream Islamic scholars, refuses to denounce ISIS as un-Islamic:

“The Islamic State is a byproduct of Al Azhar’s programs. So can Al Azhar denounce itself as un-Islamic? Al Azhar says there must be a caliphate and that it is an obligation for the Muslim world. Al Azhar teaches the law of apostasy and killing the apostate. Al Azhar is hostile towards religious minorities, and teaches things like not building churches, etc. Al Azhar upholds the institution of jizya [extracting tribute from religious minorities]. Al Azhar teaches stoning people. So can Al Azhar denounce itself as un-Islamic?”

Yusuf al-Qaradawi is an extremely influential Islamic cleric and jurist. He is the spiritual leader of the Muslim Brotherhood, as well as chairman of the International Union of Muslim Scholars, president of the European Council for Fatwa and Research, and the host of a popular Al-Jazeera TV program about sharia. Qaradawi has stated that,

“the shariah cannot be amended to conform to changing human values and standards. Rather it is the absolute norm to which all human values and conduct must conform.”

Turkey’s President Recep Tayyip Erdogan, also an Islamist leader, has repeatedly rejected Western attempts to portray his country as an example of “moderate Islam.” He states that such a concept is “ugly and offensive; there is no moderate Islam. Islam is Islam.”

The jihadists who carry out terrorist attacks in the service of ISIS are merely following the commands in Quran 9:5, “Fight and kill the disbelievers wherever you find them…” and Quran 8:39, “So fight them until there is no more fitna [strife] and all submit to the religion of Allah.”

Of course, not all Muslims adhere to this view of sharia. Many devout Muslims, including Egypt’s President Abdel Fattah el-Sisi, have said they wish to reform it.

There is, however, a persistent refusal by many in the West to acknowledge that sharia is the doctrine with which jihadists justify the war they wage on the West. This refusal is a most dangerous form of dishonesty; it has arguably already cost hundreds of lives on both American and European soil.

Unless Islam is radically reformed, and progressive Muslims are supported in a serious way (instead of bypassed in favor of Muslim Brotherhood fronts and other questionable organizations), these kind of terrorist attacks — and worse — could well become even more common throughout the West.

The infantile refusal of many government leaders to face the hard facts about the nature of Islam’s tenets, as opposed to indulging in fanciful utopian fantasies, will not change the plans of jihadists; it will only embolden them.

There is now speculation that the terrorist attacks in Brussels might have been revenge for the arrest of Salah Abdeslam, who was apprehended last week as a suspect in the Paris terrorist attacks of November 13, 2015. This speculation misses the point. This time, the excuse is the arrest of a high-profile terrorist; with the next attack, the excuse will be something else. There is never any shortage of things that “offend” jihadists. The heart of the matter, however, is the criminally negligent way in which European and American officials deal with the fundamental issue of the doctrines of Islam.

In a revealing article published November 21, 2015, Teun Voten, a cultural anthropologist who lived in the Muslim majority Molenbeek district of Brussels between 2005 and 2014, asks himself how Molenbeek became the jihadi base of Europe. His answer:

“…the most important factor is Belgium’s culture of denial. The country’s political debate has been dominated by a complacent progressive elite who firmly believes society can be designed and planned. Observers who point to unpleasant truths such as the high incidence of crime among Moroccan youth and violent tendencies in radical Islam are accused of being propagandists of the extreme-right, and are subsequently ignored and ostracized.


“The debate is paralyzed by a paternalistic discourse in which radical Muslim youths are seen, above all, as victims of social and economic exclusion. They in turn internalize this frame of reference, of course, because it arouses sympathy and frees them from taking responsibility for their actions. The former Socialist mayor Philippe Moureax, who governed Molenbeek from 1992 to 2012 as his private fiefdom, perfected this culture of denial and is to a large extent responsible for the current state of affairs in the neighborhood.


“Two journalists had already reported on the presence of radical Islamists in Molenbeek and the danger they posed — and both became victims of character assassination.”

This terror-enabling culture of willful ignorance and denial continues up until today — compounded by the lack of a central and unified security authority in Brussels. The city has 19 mayors, one for each borough assembly — as exemplified by the current mayor of Molenbeek, Françoise Schepmans.

One month prior to the Paris attacks, Schepmans received a list “with the names and addresses of more than 80 people suspected as Islamic militants living in her area,” according to the New York Times. The list was based on information from Belgium’s security apparatus, and included three of the terrorists behind the Paris attacks, including Salah Abdeslam. “What was I supposed to do about them? It is not my job to track possible terrorists,” Mayor Schepmans said. “That is the responsibility of the federal police.”

Federica Mogherini, the EU’s de facto foreign minister (posing at left with Iranian Foreign Minister Javad Zarif) said last year, “Islam belongs in Europe…. I am not afraid to say that political Islam should be part of the picture.” Françoise Schepmans (right), mayor of the Molenbeek district of Brussels, received a list with the names and addresses of over 80 suspected Islamic militants living in her area. “What was I supposed to do about them? It is not my job to track possible terrorists,” she said. “That is the responsibility of the federal police.”

This lack of accountability can only exacerbate an already dire situation. Far more damning, according to reports, is that Belgian authorities had accurate advance warnings that terrorists planned to launch attacks at Brussels airport and in the subway — yet they failed to act. This extremely lax approach to security appears to be a widespread problem in the Belgian — and probably European — political and security apparatus.

If there is to be any hope of fighting the terror threats against the West, and actually bringing public life back to a semblance of normality, at an absolute minimum the politics of willful ignorance, political correctness, and denial will have to go.

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Countdown To Insolvency Begins For Chicago Pensions As State Supreme Court Rejects Reform Bid

Last July, Cook County judge Rita Novak dealt Chicago Mayor Rahm Emanuel a bitter blow in his efforts to cut pension expenses.

“A Cook County judge will rule on the legality of a 2014 pension law aimed at reforming two of Chicago’s underfunded city retirement systems,” the Illinois Policy Institute wrote, in the lead up to the crucial ruling. “While the pension law included some much-needed reforms, such as an increase in the retirement age, if upheld the law ultimately would put Chicago residents on the hook for millions of dollars of tax increases.”

Novak’s decision came on the heels of a May ruling by the state Supreme Court which, in a unanimous decision, struck down a pension reform bid as an unconstitutional violation of benefits that are widely seen as sacrosanct. The read through from that ruling prompted Moody’s to downgrade Chicago to junk, giving the Windy City the dubious distinction of being the only major metropolitan area “in recent history” to carry such a low rating other than Detroit.

Two months later, Novak cited the state Supreme Court’s ruling on her way to declaring Emanuel’s plan unconstitutional.

“This principle is particularly compelling where the Supreme Court’s decision is so recent, deals with such closely parallel issues and provides crystal-clear direction on the proper interpretation of the law,” Novak wrote. “The Constitution of Illinois provides that public pensions shall not be diminished or impaired.”

There you go. As we’ve discussed on a number of occasions, the Illinois Supreme Court’s decision has ramifications far beyond the state’s borders. “My reaction was, ‘Yeah, that’s going to play here,’ ” John D. McGinnis, a lawmaker in Pennsylvania told The New York Times last summer. Pennsylvania, The Times continued, “has also been diverting money from its pension system, setting the stage for a crisis as more and more public workers retire.”

Essentially, what Illinois has done is set a precedent whereby efforts to reform pension plans and restore sustainability will everywhere and always be struck down. That leaves lawmakers with few options and may end up forcing officials to extend and pretend with ponzi-like schemes such as pension obligation bonds.

In any event, Chicago made a last ditch effort to salvage the reform effort after Novak’s ruling by appealing Cook County’s decision to the State Supreme court.

Put simply: Emanuel lost. The court deemed his plan unconstitutional.

“These modifications to pension benefits unquestionably diminish the value of the retirement annuities the members of (the city workers and laborers funds) were promised when they joined the pension system. Accordingly, based on the plain language of the act, these annuity reducing provisions contravene the pension protection clause’s absolute prohibition against diminishment of pension benefits, and exceed the General Assembly’s authority,” the justices wrote in their opinion.

“Emanuel tried to require city workers and laborers to increase their retirement contributions by 2.5 percentage points — to 11 percent of their wages — in phases over five years,” The Chicago Tribune writes, adding that “in exchange, the city agreed to increase its annual contributions to the pension funds by hundreds of millions of dollars a year [by] increasing fees on telephone and cellphone bills for emergency dispatch services by $1.40 a month, to $3.90, on every line billed to a city address.”

Stephen Patton, counsel for the city, tried to make an argument that was absurd and yet completely accurate all at the same time. The changes, he said, did not diminish or impair pension benefits, rather the city’s plan “preserved and protected” them.

As we wrote immediately after Novak’s ruling last summer, “while we certainly understand the idea that cutting pension benefits amounts a breach of the so-called ‘implicit contract’ between public sector employees and state and local governments, it seems as though workers and the courts are suffering from an acute case of myopia and denial of economic realities. Put simply: if the pension system isn’t reformed, it will run out of money and no one will get anything.”

“A recent analysis by the Municipal Employees’ Annuity and Benefit Fund of Chicago concluded its assets would be depleted by 2024 if Emanuel’s pension plan failed to pass constitutional muster,” The Tribune continues. So Patton is correct. The reforms would “preserve and protect” benefits but they would of course also diminish them materially from current levels.

The good news for taxpayers is that they’ll be off the hook in the short-term. Some $250 million the city had committed to spend to sweeten the deal for pensions that went along with the plan will no longer be needed. But over the long haul, this is a disaster. “The city faces a short-term benefit of about $89 million that’s currently in escrow that can be used to help other areas of the budget. But it will be a very hollow victory for the beneficiaries,” Civic Federation President Laurence Msall said.

“While their contributions will diminish slightly, the condition of the funds will revert back to something that is totally unsustainable and in danger of being completely insolvent within 10 to 15 years,” he continued, before delivering the following rather dire assessment: Hundreds of millions in savings from rationalized pension benefits will be lost that will either have to be made up from reductions in city services, increased taxes or by allowing these funds to further deteriorate.”

Of course it’s not that representatives of city employees don’t understand what the word “insolvent” means. They just don’t think it’s workers’ responsibility to figure out how to dig out of the hole. “For too long, city workers have been labeled as the problem when, in fact, we are part of the solution.,” Jeff Johnson, president of the Municipal Employees’ Society representing city workers, said. “With a modest pension of $34,000 and a high population residing in Chicago, we are the single largest tax base of any group.”

AFSCME Council 31, the Chicago Teachers Union, the Il. Nurses Association and Teamsters Local 700 all agree. “Politicians caused the pension debt by failing to adequately fund employee retirement benefits while city employees were faithfully paying their share,” they said, in a joint statement. Here’s more color from the Chicago Sun Times:

Earlier this week, top mayoral aides said the city’s course of action would depend largely on how Thursday’s Supreme Court ruling is worded.


If the court gives Chicago a road map on how benefit reductions and increased contributions might be negotiated — in exchange for some other benefit chosen by the employee — then Emanuel will bring labor leaders back to the bargaining table to hammer out such an agreement.


If the door is slammed shut and the court says there is nothing the city can do to change the benefits, then the mayor will have no choice but to find a way to pay the added costs.


In that case, he’ll try to negotiate work-rule changes, lower break-in pay for new employees, another round of health care reforms, and other cost-saving concessions, and dedicate those savings to pensions, City Hall sources said.


The remaining shortfall could come from raising the telephone tax. Chicago is legally authorized to raise its telephone tax to the highest rate charged by any municipality in the state. That means there’s room to grow.


More property tax increases are unlikely, considering the fact that Emanuel just raised property taxes by $588 million for police and fire pensions and school construction and has promised to raise them by another $170 million for teacher pensions, whether or not the state does its part to help a nearly bankrupt Chicago Public School System.


“Obviously, we would have preferred a win, but we don’t think the door is completely shut. They left the door open on collective bargaining as a possible,” said a top mayoral aide who asked to remain anonymous.


Emanuel acknowledged that borrowing more money is “not my favorite option.” But it’s a “better option” than asking property owners to pay more at a time when Rauner’s pro-business, anti-union agenda has the state “spinning around and not doing anything,” the mayor said.

What all of the above means is that irrespective of who’s ultimately at fault, there will be no legislating away pension benefits – even if doing so is the only realistic way for officials to ensure that state and local governments can continue to pay out any benefits at all going forward. That is, even if long-run insolvency is certain, benefits will be paid out in full up to and until the day of reckoning finally comes and it will be up to lawmakers to figure out how to rescue the system in the meantime. If that means raising taxes and/or going into further debt, then that’s what it means. 

Obviously, this doesn’t bode well for fiscal sustainability and one can’t help but think that further downgrades from Moody’s are right around the corner. The takeaway for the rest of the country’s state and local governments: if you were considering pension reform, don’t.

*  *  *

Full ruling

Illinois Supreme Court Chicago Municipal Pension

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The Forex Rigging Irony

While Forex banks, traders, and other institutions are being blamed for market rigging, the Swiss National Bank can publish reports about its own market rigging, but instead of being a scandal, it’s economic data.  That’s because the vast majority don’t understand how the Forex markets work.  It’s not insulting – it’s a fact.  Currently there are hundreds of pending litigation cases against a plethora of Forex banks, traders, and other institutions – but none against a central bank.  Of course it would be ridiculous to sue a central bank for market rigging – because it’s in their mandate to manipulate the market.  Of course they don’t call it manipulation, they call it ‘market operations’ and the Fed, sometimes known as ‘market intervention’ or ‘stabalization efforts.’  Anyhow, it seems strange that on the one hand, central banks manipulate their own currency via ‘market operations’ which mostly are done through commercial Forex banks, but it is the Forex banks that receive this printed money that are sued, not the central banks.

But look from the CB perspective – what’s the point of printing money if you can’t use it to intervene in the market and prop your own currency?  

From Fortress Capital (source: Bloomberg):

The Swiss National Bank will probably stay on hold at its monetary policy meeting on March 17 as banks in the country are already facing pressure from negative interest rates, economists and strategists say in notes to clients.

The fact that the euro remained broadly stable against Swiss franc after the European Central Bank meeting lessens pressure on the SNB to act this week. SNB may intervene in the forex market to stem the franc’s appreciation.

The question in everyone’s mind now – do these central banks really know what they are doing?  I mean, is there a coordinated international policy?  A conspiracy?  A conspiracy would imply intelligence.  Who knows.  

One perspective is to look at Forex markets from the perspective of those in power, the UHNWI, or ‘them’ – ‘they’ or ‘The Elite.’  They have all the money they can possibly have – with this money they buy power, such as politicians, countries, people, etc.  They can’t buy anything more.  So the only thing left is to ensure the status quo – or ensure as much as possible they maintain their position.  One way to do this which is more subtle, is to destroy the money supply.  By making currency worthless, or worth – less, any potential competition will be either wiped out or marginalized.  Would-be billionaires and up and coming entrepreneurs who are out there in the ‘real world’ making business, are contained.  It also affords them other opportunities, such as providing this fresh QE money to the private banks they actually own, allowing them to invest in HFT and other stat arb style investment strategies with virtually no risk, allowing them to grow their own portfolios at a level which is practically speaking, exponentially greater than the average investor.  And if their investments fail, they can always bail themselves out – or as the trend is, tax savers and bail themselves in.

Remember, our financial system is created by rules that are constantly changing.  Just as Central Bank are created they are destroyed.  Russia being one of the newest Central Bank in the game; about 30 years old:

The Central Bank of the Russian Federation (Bank of Russia) was established July 13, 1990 as a result of the transformation of the Russian Republican Bank of the State Bank of the USSR. It was accountable to theSupreme Soviet of the RSFSR. On December 2, 1990 the Supreme Soviet of the RSFSR passed the Law on the Central Bank of the Russian Federation (Bank of Russia), according to which the Bank of Russia has become a legal entity, the main bank of the RSFSR and was accountable to the Supreme Soviet of the RSFSR. In June 1991, the charter was adopted by the Bank of Russia. On December 20, 1991 the State Bank of the USSR was abolished and all its assets, liabilities and property in the RSFSR were transferred to the Central Bank of the Russian Federation (Bank of Russia), which was then renamed to the Central Bank of the Russian Federation (Bank of Russia). Since 1992, the Bank of Russia began to buy and sell foreign currency on the foreign exchange market created by it, establish and publish the official exchange rates of foreign currencies against the ruble.

If Russia can establish a new Central Bank, why can’t the United States of America, Australia, Canada, Germany?  How close are we to a hyperinflationary trap, as happened during the 19th century?

Wildcat banking refers to the practices of banks chartered under state law during the periods of non-federally regulated state banking between 1816 and 1863 in the United States, also known as the Free Banking Era. This era, commonly described as an example of free banking, was not a period of true free banking, as banks were free of only federal regulation; banking was regulated by the states. The actual regulation of banking during this period varied from state to state.

According to some sources, the term came from a bank in Michigan that issued private paper currency with the image of a wildcat. After the bank failed, poorly backed bank notes became known as wildcat currency, and the banks that issued them as wildcat banks.[1]However, according to others, wildcat meant a rash speculator as early as 1812, and by 1838 had been extended to any risky business venture.[2] A common conception of the wildcat bank in Westerns and like stories was of a bank that left its safe somewhat ajar for depositors to see, in which the banker would display a barrel full of nails, grain or flour with a thin sprinkling of cash on top, thus fooling depositors into thinking it was a successful bank.  The traditional view of wildcat banks describes them as distributing nearly worthless currency backed by questionable security (such as mortgages and bonds). These actions ended when note circulation by state banks was stopped after the passage of the National Bank Act of 1863. Mark Twain, in his autobiography, refers to the use of such currency in 1853, “The firm paid my wages in wildcat money at its face value”.

Certainly, our current system is better that which was used during the “Free Banking Era” because the fiat money today is NOT “worthless currency” – but Central Banks such as the SNB (Swiss National Bank) certainly are trying hard to make it such!

Forex isn’t just a money market, it’s the underpinning of all other markets (i.e. you sell your stocks for US Dollars).  Learn more about Forex with Splitting Pennies – Understanding Forex – the book.

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The Streak Is Over – Stocks Suffer Down Week ‘Despite’ Bombings, Hawks, & Dismal Data

As we tweeted at the open, between plunging durable goods, the slide in Services PMI and the tumble in Q1 GDP expectations, it’s surprising it took this long to push the Dow green (BUT the S&P smash failed)… Happy Easter Christians…


Before we start, you are here…


This is what the day looked like across the asset classes… (dismal data sparked panic buying once the stock ‘market’ opened)…


The S&P and Dow desperately clung to unchanged as Small Caps ripped…


VIX was smashed back to a 14 handle to force the S&P green…BUT FAILED!


But, despite the surge effort, cash equity indices have a down week…


Valeant just can’t keep a bounce, tumbling 7% on Sequoia shenanigans…


Treasury yields V-shaped along with everything else, but 30Y yields closed lower on the week…


Cable rallied today but remains down 2.2% on the week. The Dollar managed a small gain today for a 5-day winning streak – the longest streak since April 2015


Commodities were mixed today but mostly ended flat, though all down for the week…


Gold was double-monkey-hammered overnight before bouncing back….


Charts: Bloomberg

Bonus Chart: We thought stocks are meant to LEAD fundamentals… NOT LAG…

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