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Generational Dynamics Web Log for 9-Sep-2014
9-Sep-14 World View -- Ukraine conflict and rise of ISIS put Russia's Caucasus at risk

Web Log - September, 2014

9-Sep-14 World View -- Ukraine conflict and rise of ISIS put Russia's Caucasus at risk

France's scapegoat 'Rogue trader' Jerome Kerviel is freed from prison

This morning's key headlines from

France's scapegoat 'Rogue trader' Jerome Kerviel is freed from prison

Jerome Kerviel (AFP)
Jerome Kerviel (AFP)

The "rogue trader" Jérôme Kerviel was released from French prison on Monday, after serving part of a three-year sentence from his 2010 conviction on charges of breach of trust, forgery and entering false data. He'll serve out the rest of his sentence under partial house arrest. Kerviel worked at Sociéte Générale's as a trader. He placed fraudulent trades for months and made huge sums of money for the bank. Then his luck ran out, and his fraudulent trades failed, and he cost the bank $7.2 billion. Kerviel acted only on behalf of SocGen, and never tried to make any money himself.

What's so outrageous about this situation is that Kerviel is pretty much the only person who's ever been prosecuted for causing the financial crisis. As I've been writing for years, the evidence is unambiguous that individual "financial engineers" at Citibank, JP Morgan and other banks purposely created tens of trillions of dollars of synthetic subprime mortgage backed securities and sold them, knowing that they were fraudulent. Millions of people have lost their homes, or gone bankrupt, or had their cars repossessed because of the financial crisis, and no one is prosecuted except Kerviel.

An example of the fraud that was committed was exposed in 2010 by the Senate's Financial Crisis Inquiry Commission, as I described in "Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud". According to the testimony at the hearing, what Citibank did was as follows in simple terms: The financial engineers took a collection of subprime-backed B rated securities, applied a "slicing and dicing" process, and converted them into an equivalent value of AAA-rated securities. This is mathematically impossible, and as the Senate hearing showed, this was "smoking gun" proof of fraud.

These financial engineers were so-called because they were Gen-Xers who had gotten Masters degrees in financial engineering in the 1990s. They knew exactly what they were doing when they created and sold these fraudulent securities. Their Boomer CEO bosses could not possibly have understood the math that was used to create these fraudulent securities, but they must have known that the process of transforming B-rated securities to AAA-rated securities was impossible, and had to be illegal.

The model for handling this situation occurred in the late 1980s, when the Savings and Loan scandal occurred. The Bush 41 administration prosecuted thousands of people, sending many to jail.

But Attorney General Eric Holder has not prosecuted a single individual. Holder is always whining that no one respects him, and he whines because he was treated unfairly when he was held in Contempt of Congress for failing to produce documents. And yet, this jerk has not prosecuted a single individual for the financial crisis since he took office in 2008. Why? Either it's because he's totally incompetent, or it's because these bankers have contributed millions of dollars to Obama administration campaigns or organizations endorsed by the Obama administration, and not prosecuting is payoff.

But at least the French sent Kerviel, who never made a penny for himself, to jail. As I always like to say whenever I write about Kerviel, it's good to know that we're all safe today, because the person who caused the financial crisis has been identified, and is no longer at large.

Or perhaps we're not so safe. According to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock valuations) on Friday (September 5) morning was 18.97 -- almost 19 -- which is astronomically high by historical standards. This means that the stock market is still in an enormous bubble, and the financial crisis is going to get much worse. Deutsche Welle and AFP

Ukraine conflict and rise of ISIS put Russia's Caucasus at risk

In recent days we've been discussing the realignment of the Mideast following the Gaza war and the rise of the Islamic State / of Iraq and Syria (IS or ISIS). These crises, along with the conflict in Ukraine, intersect in Russia's southern provinces in the North Caucasus. The population of Chechnya, Dagestan, North Ossetia and the other Caucasus provinces are largely Muslim, and have strong jihadist presences that are kept under title control by Russia's army.

The ISIS crisis and the Ukraine crisis intersect in the North Caucasus, because ISIS is posing a greater threat to the region, while Russia is drawing soldiers out of the region to fight in east Ukraine. For years, the best combat-ready Russian forces were concentrated in the North Caucasus to fight first Chechnya's pro-independence movement and later the insurgency that spread across the entire region. As Russia is increasingly drawn into the conflict with Ukraine, Moscow is forced to relocate its best prepared military units from the North Caucasus to Ukraine. Some observers regard this as a potential "window of opportunity" for the North Caucasian militants.

At the same time, ISIS is posing a direct threat the Caucasus. Thousands of young Muslim men have gone to Syria to join ISIS and become jihadists, including many from the Caucasus. Citizens of Russia do not require visas to visit Turkey, and there are daily flights from North Caucasus locations to Istanbul. From there, would-be jihadists have no trouble traveling to the porous border with Syria and crossing over.

A video recently posted by ISIS on the internet threatens Russia, and Russia's president Vladimir Putin in particular:

"Vladimir Putin, these are the Russian planes that you sent to Bashar. Allah willing, we will take them back to your own turf, and liberate Chechnya and the Caucasus, Allah willing. The Islamic State is here to stay. It is spreading and has become a caliphate. Your throne is being threatened by us. Allah will grant us success. You can see the evidence for that in the Levant. There are consecutive conquests here. We are coming, Allah willing. Allah Akbar."

Ramzan Kadyrov, the Putin-appointed governor of the province of Chechnya, immediately released a statement with a counter-threat on Instagram:

"Taking all responsibility, I declare that those who have voiced a threat against Russia or who have mentioned the name of our president Vladimir Putin will be destroyed right where they made their statement. We will not wait for them to get behind the steering wheel of a plane. They will go where his fellow terrorists are rotting."

In the immediate future, the primary danger for Russian rule in the North Caucasus comes from widespread discontent for economic reasons. In the approach to the Sochi Olympics games earlier this year, Russia had been pouring billions of extra dollars into the North Caucasus to build infrastructure, and to reduce public discontent. But now that source of funds has dried up, and the people in the North Caucasus are bearing the brunt of the European sanctions that have been imposed because of Russia's actions in Ukraine. Jamestown and Ria Novosti and Memri and Jamestown

WHO: Ebola virus is spreading 'exponentially' in Liberia

Whenever an Ebola treatment center opens in Liberia, all the beds are taken immediately. Patients fill taxis going from place to place, hoping to find medical care. The World Health Organization (WHO) says that more than 3,600 people have been infected with Ebola, and 2,000 have died, but as many as 20,000 will be infected. Health care workers have been hit especially hard -- 79 of them have died. "Transmission of the Ebola virus in Liberia is already intense and the number of new cases is increasing exponentially," according to WHO.

Well, if that's really true then a lot more than 20,000 will be infected. Liberia has a population of 4.4 million people, and at the current rate of exponential transmission, 20,000 infections will be reached in just a few more weeks, with a lot more to come. NBC News

(Comments: For reader comments, questions and discussion, see the 9-Sep-14 World View -- Ukraine conflict and rise of ISIS put Russia's Caucasus at risk thread of the Generational Dynamics forum. Comments may be posted anonymously.) (9-Sep-2014) Permanent Link
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