Author Archives: thenetprojection

The Global Economy Is a Time Bomb Waiting to Explode

Financial storm
Marshall Auerback / Independent Media Institute

In the aftermath of the greatest financial calamity since the Great Depression, then–chief of staff for the Obama administration Rahm Emanuel made the call for aggressive action to prevent a recurrence of the meltdown of 2008.

Although the U.S. government’s system of checks and balances typically produces incremental reform, Emanuel suggested that during times of financial upheaval, the traditional levers of powers are often scrambled, thereby creating unique conditions whereby legislators could be pushed in the direction of more radical reform. That’s why he suggested that we should never let a crisis go to waste. Ironically, that might be the only pearl of wisdom we ever got from the soon-to-be ex-mayor of Chicago, one of those figures who otherwise embodied the worst Wall Street-centric instincts of the Democratic Party. But give Rahm props for this one useful insight.

But we did let the crisis of 2008 go to waste. Rather than reconstructing a new foundation out of the wreckage, we simply restored the status quo ante, and left the world’s elite financial engineers with a relatively free hand to create a wide range of new destructive financial instruments.

To cite some examples, consider the case of the UK, where England’s local councils have taken on significant risk via structural financial products known as “LOBO loans” (lender option borrower option). Financial blogger Rob Carver explains how they work:

“[Let’s] say I offer to lend you £40 and charge you 3% interest for 5 years. Some other guy comes along and offers you the same deal; but the twist is he will have the option to ask for his money back whenever he likes.

“You wouldn’t borrow money from him because it’s clearly a worse deal. …

“Suppose he sticks to his guns but as a concession he will lend you the money at only 2.9% interest. Would you take that? What about 2.5%? 2%?”

What Carver is describing here is the so-called “teaser”: a seductively low starting interest rate that is sufficiently attractive to induce the buyer to take on the LOBO in the first place. It’s designed to entice someone away from fixed interest rate borrowing (which at least has the virtue of being constant and therefore more readily predictable). The seductive quality of the teaser is that one’s borrowing costs might appear “cheaper” than the higher initial fixed-rate costs offered by the Public Works Loan Board (PWLB), a wing of the government. But the troubles become more apparent with the passage of time.

What happens if and when rates unexpectedly move up? In general, as Carver notes, having to suddenly repay your loan when interest rates have risen to 4 percent is the worst possible time for you. It’s akin to taking away the umbrella the minute it starts to pour. Worse, the authority is likely locked into a contract that typically has a lifespan of 40-70 years. (And who can forecast with any degree of certainty the trend of interest rates over that sort of time span? It makes the whole notion of buying an instrument on that premise to be speculative in the extreme.) Banks have the option of raising rates at their discretion, and although the councils are able to opt out of their contract, they will pay huge penalties if they seek to renegotiate or exercise that option to opt out.

So there’s a huge negotiating imbalance built into the contract, and the likely upshot is that the local council ends up paying more in interest charges over the course of the loan. How much more? According to an activist group, #NoLOBOs (created to help housing authorities combat the impact of these instruments), “a substantial number of housing councils are facing 7-9 % interest rates, which is more than twice the current rate of lending at the PWLB.” And in many instances, the municipalities have been burdened with these higher borrowing costs at a time when additional funding from the national government has been cut back, so they are confronted with a double whammy on both sides of the balance sheet.

What was initially sold as a means to manage risk, then, ultimately metamorphoses into a recipe for financial fragility, especially when it occurs at the municipal level with institutions that don’t have the capacity to create new currency (as a federal authority can do). The “teaser” becomes a poison pill. This means a local authority (or level of government that is a user, rather than issuer, of currency) can go bust.

To give some sense of the magnitude of the market, the Independent notes:

“There is around £18bn worth of private sector loans on councils’ books, according to figures from the Department for Communities and Local Government. … [A]round £15bn of these are Lobos.

“Annual sales to local authorities regularly topped £1bn in the run-up to the financial crisis and peaked at £1.5bn in 2007, before crashing to £600m a year later and then dwindling to nothing in 2012.”

Their revival since 2012 has resulted in hundreds of millions of pounds being skimmed from struggling town hall budgets, which were hit by the double whammy of these toxic instruments, along with austerity-imposed cutbacks from the national government. One particularly egregious example was the cash-strapped town of Newham, which had £398m of exposure to LOBOs back in 2014. Faced as well with cutbacks from the national Tory government, the local council was forced to remove financial support from a homeless hostel, “leading to the eviction of a group of single mothers to save £41,000,” reported British publication Private Eye.

Needless to say, banks and brokers have profited handsomely from the whole exercise, pocketing hundreds of millions of pounds in profits.

Here’s another disaster waiting to happen: Globally, financial markets today are seeing a rebirth of “collateralized loan obligations” (CLOs), instruments broadly similar to the “collateralized debt obligations” (CDOs), which helped to blow up the financial system in 2008. CDOs were asset-backed instruments, a “blended” security comprised of risky mortgage-backed bonds and much of the rest from theoretically safer tranches. The theory underlying them was that the lower the investment quality, the higher the compensating yield, but in reality most turned out to be toxic junk. What distinguishes CLOs from their CDO “cousin” is that instead of repackaging mortgages, subprime and otherwise, CLOs repackage corporate loans, and consumer credit, such as car loans.

Unfortunately, in yet another instance of lessons unlearned from 2008, the collateralized loan obligations, like the CDOs, have virtually non-existent investor protection, “with over 70 percent lacking any covenants that would allow monitoring of financial condition and early intervention to manage problem borrowers. This exacerbates the risk of higher losses,” argues Satyajit Das, a former banker who first identified the risks to financial stability posed by these kinds of instruments back in 2008. In fact, Das elaborates, “relative to mortgages, [CLOs] typically are made up of fewer and larger loans, which increases concentration risk. Leveraged loans are highly sensitive to economic conditions and defaults may be correlated, with many loans experiencing problems simultaneously.” Which intuitively makes total sense: during a slowdown, virtually all economic activity slows down, whether that be housing, car sales, or consumer borrowing. Diversification of risk is therefore more apparent than real.

In an environment of prevailing low interest rates (and, hence, lower yields from conventional instruments), debt investors have been told (again) that they can enhance their portfolio returns, through these higher-yielding CLOs, while mitigating risk simply by diversifying. In theory, the risk is dispersed, but in practice, as Das has pointed out, if you’re simply diversifying different kinds of financial excrement, the end result is more likely to be insolvency for the whole instrument. A common theme is that in spite of the disastrous performance of these instruments during the market crash, many of the underlying loans today still lack standard provisions to protect lenders, such as reporting and requirements to maintain certain income and asset levels. Consequently, more toxic junk is being passed around the system like a hot potato. Last one holding the potato loses.

Given the scale of issuance, all major financial institutions are likely to be left holding these bags. CLOs, notes Das, have been growing at a rate of around $100bn a year for the past decade, and total levels outstanding now approach the size that existed in the CDO market by the time of the 2008 crisis. As the cycle has matured, the quality of the assets of the loans has diminished, and the borrowers have become increasingly leveraged.

This follows a classic pattern of a typical borrowing cycle, as credit structures move from relatively stable “hedge financing” (where the underlying units can meet payment commitments out of income flow) to “Ponzi” finance (borrowing simply to pay interest on the interest), a process originally outlined by the economist Hyman Minsky. Based on the relatively benign conditions of the recent past, both borrowers and lenders are lulled into a false sense of security and increase their respective risk profiles accordingly. Minsky was by no means the only economist whose work has become associated with manias, panic and crash. He built his analysis on the shoulders of analysts of the Great Depression, such as Irving Fisher, John Maynard Keynes, and John Kenneth Galbraith. But what distinguishes Minsky’s scholarship is that he focused it on the “upward” source of the financial instability, as opposed to its disastrous denouement. In relation to today’s CLO market, the parallel is that the decade-long period of stability in the aftermath of 2008 (in reality, faux stability achieved through the injection of trillions of dollars in public sector bailouts) has again given the users a stream of data providing the illusion that leverage is safe.

Rather than respond to each financial meltdown by seeking to curb the activities that led to the crisis in the first place, the sheer ongoing dominance of our financial sector has ensured that policy has merely worked to bail out the big players, and do everything to keep the rigged casino of the economy in their favor. Thus, financial institutions continue to concoct increasingly esoteric and opaque financial instruments that they market to less financially sophisticated counterparties.

Let’s roll back the tape to a few financial crises ago, from the early 1990s. At that time, Bob Citron, the Orange County treasurer, bankrupted his county via leveraged investments he made in structured notes (i.e., customized notes designed to fit the investment wishes and opinions of particular institutional buyers). If you tailor an exotic instrument to fit your investment outlook, you’d better know what you’re doing and appreciate the downside risks. Customization entails a level of financial expertise that Citron later conceded he did not fully possess. He was a sitting duck in a sea of sharks (to mix metaphors). Citron made a bet on the direction of interest rates (he bet they would stay low, which was wrong). As a result of his miscalculation, by 1994 Orange County’s investment portfolio began hemorrhaging hundreds of millions of dollars, ultimately going broke. Without conceding any liability, ultimately Merrill Lynch paid out $400m in penalties to settle the case.

That was an early warning signal, which unfortunately remained unheeded, as it was followed in quick succession by the Asian financial crisis in 1997, the bankruptcy of Long-Term Capital Management and the concomitant Russian debt default in 1998, the dot.com bust, and finally the complete seizure of the global financial system by 2008. Each time, a common foolhardy notion was the idea that higher levels of reward could be achieved without any corresponding increase in risk. All of this occurred against a backdrop of deregulation, minimal transparency and inadequate market supervision.

If you thought the near-breakdown of the global economy in 2008 was enough to make global policymakers and regulators rethink their persistent accommodation of financial innovation and deregulation, think again. Regulators have continued to accommodate this complexity, rather than minimizing it. Complex financial systems beget yet more complex (and ultimately ineffective) regulation. It is better to simplify the system in order to improve the quality of the regulation and the ease of oversight (which the complexity is designed to avoid).

Unfortunately, that’s not what our policymakers have done. Instead of redesigning the system, the monetary authorities have simply inserted themselves in the chain of intermediation that included an ever-evolving variety of books of business without actually considering whether there were too many weak links in the credit chain in the first place. Rather than shorten or redesign the economy’s credit structures, and curb the risks accordingly, central banks instead have simply acted as the ultimate guarantors in a supply chain from money-like instruments to longer-term and riskier credit. Absent any kind of sanction for undertaking more systemically dangerous activities, our policymakers have therefore made the same mistakes that were made in the early 2000s: they are establishing perverse ongoing incentives that increase risk, punishing the timid (prudent?) with low returns. It’s a classic illustration of Gresham’s Law, whereby bad money drives out good.

So here we go again. No less a figure than Claudio Borio, the chief economist of the Bank for International Settlements central, who warned of the dangers of a synchronized housing bubble well before the 2008 crisis, is again sounding the alarm about a recurrence. The crash gave us a chance to downsize finance and restrict its ability to wreak comparable havoc on the economy going forward. Instead, we let the crisis go to waste, which almost certainly means a nasty sequel to 2008 facing us in the near future.

Found at: Truthdig

This article was produced by Economy for All, a project of the Independent Media Institute.

“It is Babel”, says Brazilian Supreme Justice on the US$ 680 million for Car Wash Foundation

marco-aurelioTales Faria at UOL

Justice Marco Aurélio Mello of the Brazilan Supreme Federal Court considers the destination of US$ 650 million to a foundation managed by the Operation Car Wash (Lava Jato) prosecutors to promote anti-corruption policies to be absurd. The money was deposited in January. It is the fruit of an agreement between US authorities, Petrobras and the team of the so-called Republic of Curitiba where Lava Jato is based. It represents 80% of the capital the Brazilian state company had to return to the US Treasury due to the irregularities found in Car Wash. According to Marco Aurélio Mello, such a destination, besides being illegal, sets up a super-entity and bypasses any oversight or control of its accounts. To this blog, he argued:

As has always been sustained by the Supreme Court, public bodies are funded only through the budget approved by the legislature. The mixing of public and private is not in the interests of the State, is not in the interests of society. It is  pernicious to allow ‘super-entities’, and not to allow financial oversight. It is a loss of parameters, it is out of control, it is an administrative mess. It is Babel.

The power conferred on the prosecutors of Paraná is provoking fear in Bolsonaro’s closest circles. Allies of the President argue that he puts off to a possible second mandate his proposal to repeal re-election. Without the chance to run again, Bolsonaro would leave his government vulnerable during the campaign “Moro 2022”.

Sergio Moro is the leading judge behind Operation Car Wash which found alleged corruption in Lula’s PT government, sentenced him to prison and took him out of the running for the Brazilian Presidency, and who then became Justice Minister in the government that took power in Lula’s absence.

The foundation proposed is dangerous because with the same bias that took out Lula from the election, if present in the efforts of education and propaganda, could simply be used to support judge Moro’s political ambitions to get elected to lead the next government.

Zuckerberg’s So-Called Shift Toward Privacy

Cardboard cutouts of Zuckerberg

Cardboard cutouts of Facebook’s chief executive, Mark Zuckerberg, were placed outside the Capitol by protesters when he testified there in April 2018. Credit Saul Loeb/Agence France-Presse — Getty Images

Opinion: Zeynep Tufekci NYT

I was tempted to roll my eyes on Wednesday when Mark Zuckerberg, Facebook’s chief executive, posted a manifesto outlining his plan to make social networking more “privacy-focused” and less about the public disclosure of information.

Why take seriously someone who has repeatedly promised — but seldom delivered — improvements to Facebook’s privacy practices? This is a company, after all, that signed a consent decree with the Federal Trade Commission agreeing to improve how it handles the personal information of its users, after federal regulators filed charges against it for deceiving consumers about their privacy. That was about seven years ago, and it has been one scandal after another since.

But I don’t believe in cynicism: Things can get better if we want them to — through regulatory oversight and political pressure. That said, I also don’t believe in being a sucker. So I read Mr. Zuckerberg’s plan with a keen eye on distinguishing meaningful changes from mere platitudes and evasions.

The platitudes were there, as I expected, but the evasions were worse than I anticipated: The plan, in effect, is to entrench Facebook’s interests while sidestepping all the important issues.

Here are four pressing questions about privacy that Mr. Zuckerberg conspicuously did not address: Will Facebook stop collecting data about people’s browsing behavior, which it does extensively? Will it stop purchasing information from data brokers who collect or “scrape” vast amounts of data about billions of people, often including information related to our health and finances? Will it stop creating “shadow profiles” — collections of data about people who aren’t even on Facebook? And most important: Will it change its fundamental business model, which is based on charging advertisers to take advantage of this widespread surveillance to “micro-target” consumers?

Until Mr. Zuckerberg gives us satisfying answers to those questions, any effort to make Facebook truly “privacy-focused” is sure to disappoint.

Most of Mr. Zuckerberg’s post was devoted to acknowledging familiar realities about social media and citing familiar solutions. He noted that Facebook’s users don’t want to be pushed to be so public; they mostly want to keep in touch with people close to them, often using several of the company’s other services: Instagram, WhatsApp and Messenger. He also noted that users are hungry for less permanent communication features devised by other companies. So Facebook will continue to emulate Snapchat’s ephemeral messaging.

To be fair, there were some genuinely new announcements. For instance, Mr. Zuckerberg said that the company would expand end-to-end encryption of messaging, which prevents Facebook — or anyone other than the participants in a conversation — from seeing the content of messages. I’m certainly in favor of messaging privacy: It is a cornerstone of the effort to push back against the cloud of surveillance that has descended over the globe.

But what we really need — and it is not clear what Facebook has in mind — is privacy for true person-to-person messaging apps, not messaging apps that also allow for secure mass messaging.

At the moment, critics can (and have) held Facebook accountable for its failure to adequately moderate the content it disseminates — allowing for hate speech, vaccine misinformation, fake news and so on. Once end-to-end encryption is put in place, Facebook can wash its hands of the content. We don’t want to end up with all the same problems we now have with viral content online — only with less visibility and nobody to hold responsible for it.

It’s also worth noting that encrypted messaging, in addition to releasing Facebook from the obligation to moderate content, wouldn’t interfere with the surveillance that Facebook conducts for the benefit of advertisers. As Mr. Zuckerberg admitted in an interview after he posted his plan, Facebook isn’t “really using the content of messages to target ads today anyway.” In other words, he is happy to bolster privacy when doing so would decrease Facebook’s responsibilities, but not when doing so would decrease its advertising revenue.

Another point that Mr. Zuckerberg emphasized in his post was his intention to make Facebook’s messaging platforms, Messenger, WhatsApp and Instagram, “interoperable.” He described this decision as part of his “privacy-focused vision,” though it is not clear how doing so — which would presumably involve sharing user data — would serve privacy interests.

Merging those apps just might, however, serve Facebook’s interest in avoiding antitrust remedies. Just as regulators are realizing that allowing Facebook to gobble up all its competitors (including WhatsApp and Instagram) may have been a mistake, Mr. Zuckerberg decides to scramble the eggs to make them harder to separate into independent entities. What a coincidence.

In short, the few genuinely new steps that Mr. Zuckerberg announced on Wednesday seem all too conveniently aligned with Facebook’s needs, whether they concern government regulation, public scandal or profitability. This supposed shift toward a “privacy-focused vision” looks more to me like shrewd competitive positioning, dressed up in privacy rhetoric.

Sheryl Sandberg, Facebook’s chief operating officer, likes to say that the company’s problem is that it has been “way too idealistic.” I think the problem is the invasive way it makes its money and its lack of meaningful oversight. Until those things change, I don’t expect any shift by the company toward privacy to matter much.

Zeynep Tufekci (@zeynep) is an associate professor at the School of Information and Library Science at the University of North Carolina, the author of “Twitter and Tear Gas: The Power and Fragility of Networked Protest” and a contributing opinion writer.

Zeynap’s page: The Internet, technology, politics and society

© 2019 The New York Times Company

Comment: Hoping that regulation of Facebook will happen with this President and Congress is in vain. The right wing will not let it happen so that capitalism and money-making is unfettered. The left wing believe in their meritocracy, that they know better than the rest of us what is fake and what is truth. They do not, and thereby lies the impasse. Big money finances both sides.

 

In the style of Moro – spying and extortion to persecute Cristina Kirchner

carlos-stornelli-marcelo-dalessio

Carlos Stornelli (left), Marcelo D’Alessio (right)

Argentinean federal judge Alejo Ramos Padilla charged the false lawyer Marcelo D’Alessio as a member of an illegal organisation “dedicated to carrying out intelligence and psychological operations against various persons who were then blackmailed or coerced, until they panicked, finally declaring themselves in a certain way and becoming “repentant witnesses”, the Argentinean version of the “plea bargains” so common in the Brazilian Operation Car Wash (Lava-Jato).

The key point in this case is that the judge considers there to be an accord between the intelligence services and the Justice Department that goes against the democratic system using blackmail, coercion, dossiers, distortion and false lawyers demanding money of people, and furthermore, to set up and run judicial cases.

All this is very similar to the judicial scheme carried out in Brazil by the ex-judge Sergio Moro (now recompensed with the post of Minister of Justice in the government of Jair Bolsonaro), regarding bribes linked to the multinational Odebrecht, which had the aim of imprisoning ex-President Lula da Silva and of impeding him from participating in the elections. In the Argentinean case, they are seeking the imprisonment of ex-President Cristina Fernandez de Kirchner, to stop her from running against the current President Mauricio Macri seeking re-election in October.

In the 220 pages of his resolution, Judge Ramos Padilla showed there was a close link between the prosecutor Carlos Stornelli (an Argentinean Deltan Dallagnol) and the supposed lawyer D’Alessio, evident from the many messages and audios exchanged over Whatsapp, and by a four hour meeting between them at the Pinamar resort, as well as handwritten messages in notebooks seized during investigations. Due to this, the magistrate requested the Prosecution Service to investigate the prosecutor, and to begin the due process, if considered pertinent.

In this first resolution, the task is to describe the mechanisms of the crime, as to how Stornelli and D’Alessio extorted the businessman Pedro Etchebest, or how they used a hidden camera against the lawyer José Manuel Ubeira, or used the “repentant witness” statement of Leonardo Fariña, or coerced an ex-member of staff of the Venezuelan state company PDVSA to declare himself repentant.

Despite Stornelli refusing to hand over his mobile phones to enable the frequency and kind of contacts with D’Alessio to be determined – who is the nephew of the Clerk-General of the government, Carlos Marcelo D’Alessio – a third businessman appeared denouncing D’Alessio for extortion and involving the lawyer Rodrigo Gonzalez and the judicial operator of the newspaper Clarín, Daniel Santoro, although they have denied the charge.

The meeting place of the four, Stornelli, D’Alessio, Gonzalez and Santoro, was the restaurant El Obrero, decorated with photos of President Macri. Its owner is a partner in another business venture, of Charly Liñani – denounced by the ex-presidential secretary Pablo Barreiro, of the Cristina Kirchner government, for attempted extortion, committed together with D’Alessio and Gonzalez, as revealed by the journalist Horacio Verbitsky on his site Cohete a la Luna.

The messages and audios also show attempts to use Leonardo Fariña, forcing him to make the declarations required to incriminate Cristina Kirchner. Fariña presented himself spontaneously to the court, and told how D’Alessio offered him to take part in the extortion against Etchebest. That charge has been presented to the Justice Department.

The judicial dispatch includes various audios in which, by means of a plan to extort, one can glimpse the possibility of including the businessman Mariano Martínez Rojas, responsible for the fraud against the workers of the newspaper Tiempo Argentino intended to dismantle the outlet, which now functions as a cooperative of journalists. The blackmail involving Martínez Rojas attempted to make him testify against the Peronista governor of the province of Formosa, Gildo Insfran.

The operation to transform another executive into a repentant witness – Gonzalo Brusa Duvat, who worked in a branch of Venezuelan oil company PDVSA in Argentina – has the same characteristics. Duvat was threatened with an economic criminal judicial case, but would guarantee that the process would disappear in the files if he accepted to declare himself “repentant” for Stornelli.

Once softened up with the threat of a legal suit against him, D’Alessio and the journalist for Clarin, Daniel Santoro, published articles about the declaration by Duvat as repentant, which was announced with pomp and circumstance in dozens of audios and Whatsapp messages. The judge said the precise role of Santoro and of other journalists involved still had to be analysed.

What surprised analysts is that D’Alessio managed to join Stornelli’s investigation team, who is a Federal prosecutor, without being a lawyer and without being registered to work at the Prosecution Service. The other assistants of the prosecutor soon delivered a copy of the declaration D’Alessio later sent to another conservative journalist, Eduardo Feinman – a situation which is at the very least unusual and unprecedented.

Another surprise was the transcription made by the magistrate of a phone tap dated February 4th, in which the false lawyer speaks to someone identified as Andrés Goldemberg: “I am at your disposal, if you need to extract someone”. It also mentions he is able to make available an aeroplane with 14 seats to carry out the operation.

“(The evidence) leads me to the conviction that at least within his post at the Prosecution Service, there was a promiscuous situation (of Stornelli), generating relationships of complicity and mutual collaboration which should not have been permitted, with the consent of the prosecutor, including the carrying out of intelligence and psychological operations to achieve the expected results in the judicial investigations or to attend to the magistrate himself”, wrote the judge.

Rubén Armendariz is a Uruguayan journalist and political scientist, associated with the Latin-American Strategic Analysis Centre (CLAE)
Published originally at estrategia.la

Lula at his grandson’s funeral

Lula grandson funeral

On leaving the cemetery, Lula stood up on the Federal Police car and waved to his supporters. When he got down, the Federal Police agent said: “You should not have done that”.

“You know that I had to”, responded Lula.

Venezuela: US sending planes with guns, ammo and radios for President Maduro’s enemies

The weapons intercepted at Arturo Michelin airport in Venezuela from Miami on February 3, 2019. Photo: Venezuela Ministry of Interior, Justice and Peace.
  • Boeing 767 belonging to US freight company has made dozens of flights between Miami, Colombia and Venezuela since January 11
  • Official said materiel was ‘destined for criminal groups and terrorist actions’ and ‘financed by the fascist extreme right’ and the US government

Venezuelan authorities say a US-owned air freight company delivered a crate of assault weapons earlier this week to the international airport in Valencia to be used in “terrorist actions” against the embattled government of Nicolas Maduro.

An air freight company, 21 Air, based in Greensboro, North Carolina, operates the Boeing 767 aircraft the Venezuelans claim was used in the arms transfer. The flight originated in Miami on Sunday.

The Boeing 767 has made dozens of flights between Miami International Airport and destinations in Colombia and Venezuela since January 11, a flight tracking service shows, often returning to Miami for only a few hours before flying again to South America.

The discovery of the weapons was on Tuesday – two days after the flight landed briefly in Valencia, Venezuela’s third-largest city – as tax authorities and other inspectors conducted a routine inspection of cargo from the flight, according to a statement by the Carabobo state governor’s office.

Bolivarian National Guard General Endes Palencia Ortiz, Venezuela’s vice-minister of citizen security, said authorities found 19 assault weapons, 118 ammunition cartridges, and 90 military-grade radio antennas, among other items.

“This materiel was destined for criminal groups and terrorist actions in the country, financed by the fascist extreme right and the government of the United States,” Palencia Ortiz was quoted as saying.

The freight company, which started five years ago, operates two cargo planes, a Boeing 747 and a Boeing 767, according to the 21 Air website. The Boeing 767, a 32-year-old aircraft once flown by the now-defunct Brazilian carrier Varig, carries the registration N-881-YV and is the aircraft that landed in Valencia on Sunday.

The company did not immediately respond to a request for comment sent through its website. The mobile phone of the company’s chief executive, Michael Mendez, had a recording on Thursday afternoon that said it could not accept calls.

An Ottawa, Canada-based analyst of unusual ship and plane movements, Steffan Watkins, drew attention to the frequent flights of the 21 Air cargo plane in a series of tweets on Thursday.

“All year, they were flying between Philadelphia and Miami and all over the place, but all continental US,” Watkins said in a telephone interview. “Then all of a sudden in January, things changed.”

That is when the cargo plane began flying daily to destinations in Colombia and Venezuela and sometimes several times a day, Watkins said. The plane has made nearly 40 round-trip flights from Miami International Airport to Caracas and Valencia in Venezuela, and Bogota and Medellin in Colombia since January 11.

The most recent tracking of the aircraft showed it arrived from Medellin into Miami airport after midnight on Thursday.

The air cargo company’s website says the Boeing 767 has a payload capacity of 42 tons.

The aircraft in question has passed through many hands since Varig took delivery of it in 1987. In 2004, it was passed to GE Capital Aviation Services, a leasing company that is part of the General Electric conglomerate, according to an operator history on the planespotters.net website. Tampa Cargo, Avianca Cargo and Dynamic Airways later controlled the aircraft until 21 Air received it in 2014.

The provenance of the alleged weaponry was not apparent. And questions about who the arms shipment was destined for, if the Venezuelan version of events is true, only mounted. Delivery at a commercial airport would indicate somebody with authority there would have had a hand.

The weapons intercepted at Arturo Michelin airport in Venezuela from Miami on February 3, 2019. Photo: Venezuela Ministry of Interior, Justice and Peace.
The weapons intercepted at Arturo Michelin airport in Venezuela from Miami on February 3, 2019. Photo: Venezuela Ministry of Interior, Justice and Peace.

Venezuelan authorities displayed the weaponry they said was delivered by the 21 Air cargo plane on open-air tables draped in red cloth. Some of the rifles included stands for long-range targeting. The shipment included 15 AR-15 assault weapons, a Micro Draco semi-automatic pistol with a jumbo magazine, a Colt 7.62 rifle and two telescopic sights, the governor’s statement said.

The weapons intercepted at Arturo Michelin airport in Venezuela from Miami on February 3, 2019. Photo: Venezuela Ministry of Interior, Justice and Peace.
The weapons intercepted at Arturo Michelin airport in Venezuela from Miami on February 3, 2019. Photo: Venezuela Ministry of Interior, Justice and Peace.

Valencia was a former manufacturing and economic hub before the collapse of the nation’s economy.

Flight records from the tracking site flightradar24.com, monitored by Watkins, indicate the 21 Air cargo plane flew at least four times to Valencia from Miami and another four times to Caracas from Miami since January 11. In many cases, the flights would head on to Bogota or Medellin before returning to Miami.

If a US entity was trying to provide arms to a Venezuelan resistance movement, it would be taking a familiar page from the history books.

The CIA operated a dummy airline, known as Air America, from the early 1950s until the mid 1970s for air operations in Southeast Asia, including airdropping weapons to friendly forces.

More than a decade later, Sandinista soldiers shot down a cargo plane taking weapons to the US-backed Contra rebels fighting the Nicaraguan government. A US Marine veteran, Eugene Hasenfus, survived the 1986 crash and told reporters he was working for the CIA, paving the way for his release and return to the United States.

Curiously, one of the figures in the Ronald Reagan administration instrumental in delivering support to the contras, former assistant secretary of state Elliott Abrams, was named by President Donald Trump late last month as his special envoy overseeing policy towards Venezuela.

This article appeared in the South China Morning Post print edition as: Plane from Miami brought arms for ‘terrorist action’

How Israel spies meddle in elections and hack activists with impunity

Hackers for sale AP_17033705484928_edited

Need an Election Meddled With or an Activist Doxxed? Call on These Israeli Spies

Israel’s special relationship with the United States has given it a free pass for atrocities in Gaza. But, beyond this, in an era of legal gray zones in the area of online disinformation operations, the country’s private spy community has been given carte blanche to covertly meddle in a host of nations.

By Alexander Rubinstein Mint Press News

Private Israeli spy companies have been meddling in other countries, including their elections, at previously unknown levels. The private intelligence firm Psy-Group went to great lengths to pitch the Trump presidential campaign on its services and nakedly meddled in a small-town California election, according to a new report published in the latest issue of The New Yorker. Meanwhile, a number of people associated with lawsuits against NSO Group, infamous for its Pegasus spyware, have become targets of another spying group, according to an AP exclusive.

Hacking and meddling: those are two of the terms underpinning allegations against Russia that have captivated American audiences and lawmakers alike for the past two years. But while Russian hacking has not been conclusively linked to the leak of emails from the Democratic National Committee (DNC) servers, nor is there any evidence, or indictments, that the “Russian troll farm” operated by the private Internet Research Agency is secretly run by the Kremlin, there is ample evidence that bands of self-styled spies for hire have used such tactics to undermine American institutions.

Israel’s special relationship with the United States has given it a free pass for atrocities in Gaza. But, beyond this, in an era of legal gray zones in the area of online disinformation operations, the country’s private spy community — which is comprised mostly of former Mossad and former military intelligence officers — has also been given carte blanche to covertly meddle and engage in black-ops missions in a host of nations.

Psy-Group, which is legally based in Cyprus, was stacked with former Israeli intelligence agents. The company expanded on the tactics pioneered by Terrogence, the first major private Israeli spying company, which disrupted alleged terrorist networks with fake online personas.
But Terrogence’s success inspired new companies, staffed similarly with former Mossad agents, that were “less risk-averse,” according to The New Yorker. Such companies include Black Cube, a firm that boasts about its ties to Mossad and Israeli military intelligence and recently worked on behalf of serial sexual abuser and movie mogul Harvey Weinstein to spy on his accusers. Black Cube also compiled dossiers of “dirt” on Obama officials who had worked on the Joint Comprehensive Plan of Action (JCPOA, or Iran Nuclear Deal) and their spouses, on behalf of President Donald Trump’s aides in order to undermine the agreement.
Terrogence’s Vice President for Business and Development, Royi Burstien, wanted to use the fake online personas, or avatars, in situations beyond counter-terrorism, including on behalf of commercial clients. But after less than a year at the company, with it refusing to budge on taking on such clients, Burstien went back to join Israel’s military intelligence. Come 2014, he founded Psy-Group alongside owner Joel Zamel, an Australian native whose father made a fortune in mining.
Before it closed, Psy-Group used oppositional research, doxxing, sockpuppet accounts, fake companies and think tanks, and “honey traps” to secure its objectives. Honey traps refer to the use of sexually attractive agents to butter up sources so they release information.

Pitching the Trump Team

In early 2016, Rick Gates, a deputy to former Trump campaign manager Paul Manafort, was put in touch with Psy-Group, prompting Burstien to draft a plan for a covert influence campaign to promote Trump’s candidacy, counter other Republican challengers, and furnish opposition research on Hillary Clinton.

In May 2016, Zamel emailed GOP heavyweight Newt Gingrich, telling him that he could provide the Trump campaign with powerful social media tools. Gingrich forwarded the email to Jared Kushner. The Trump campaign says it did not hire the company then, either. But Zamel was resolute, and wound up getting a meeting with Donald Trump Jr. and Blackwater founder Erik Prince at Trump Tower. That pitch also failed, according to the parties involved.

However, George Nader — a Lebanese American, consultant to Erik Prince, and adviser to United Arab Emirates Prince Mohammed bin Zayed Al Nahyan — sings a different tune. Nader was at the Trump Tower meeting with Prince, Zamel and Trump Jr. A spokesperson for Nader told The New Yorker “that [Zamel] had conducted a secret campaign that had been influential in Trump’s victory.”

“Here’s the work that we did to help get Trump elected,” Zamel allegedly told Nader.

Nader is a major negotiator for Washington and Israel on Middle East affairs. He is also convicted of sexually abusing 10 boys in the Czech Republic and on child pornography charges in Virginia — charges that were put under seal “due to the extremely sensitive nature of Mr. Nader’s work in the Middle East.”

Black Cube | Israel Hackers

A Psy-Group presentation, which some employees called the “If we had done it” slide deck, “appeared similar” to the document Nader saw that allegedly detailed Psy-Group’s meddling in the 2016 presidential election.

After Nader and Zamel fell into the crosshairs of Special Counsel Robert Mueller, who is investigating allegations of collusion between members of the Trump campaign and officials of the Russian Federation, the FBI came knocking at Psy-Group’s door. “The FBI seemed genuinely surprised that this shit [we were doing] wasn’t illegal,” a former Psy-Group employee told The New Yorker.

Before all that, Psy-Group also reportedly pitched the U.S. State Department and had a partnership with the Trump campaign’s main social media advisor — Cambridge Analytica, the company that rocked Facebook with one of its biggest scandals to date after it harvested 50 million Facebook users’ private information without permission to improve its political ad targeting.

Currently, Psy-Group’s only verifiable success with the administration is through Elliot Abrams, who is listed on Psy-Group’s board of directors and was recently appointed by the Trump administration as Special Envoy for Venezuela to oversee its coup policy. Abrams is also on the Advisory Council of Wikistrat, another company owned by Zamel that is in Mueller’s crosshairs.

Small-Town Election Meddling

While it is in question whether Psy-Group meddled in the 2016 presidential elections, it certainly did in a small town’s hospital board election, giving the corrupt doctor in charge of a local hospital in Tulare enough covert influence tools to conduct a regime-change operation in a small- to medium-sized nation.

In 2014, the doctor, Yorai Benzeevi, bragged that the hospital could generate $9 million a year in revenue on top of his $225,000 a month of income from it. When Benzeevi was eventually ousted, it was discovered that he had run the facility into more than $36 million in debt, according to The New Yorker.

Benzevi maintained his hold on the hospital through a sympathetic board, but only one member needed to be unseated to turn the tide. A young activist, Alex Gutiérrez, asked his mother, Senovia, to run against Benzeevi’s main backer. When she did, shady websites started popping up: TulareLeaks.com, TulareSpeaks.com, DrainTulareSwamp.com. The websites “directed visitors to articles that smeared Senovia Gutiérrez,” a Mexican immigrant who had been working full-time since she was 16 but eventually earned a bachelor’s degree and became a social worker.

While Senovia and her son were seeking small contributions from their neighbors, Benzeevi was in Israel meeting with Psy-Group to listen to proposals on how to take them down. Quickly, fake online personas, or “sock puppet” accounts posing as residents, smeared Senovia on social media, questioned whether she was an American citizen, and accused her of taking bribes.

On one occasion, a blond woman knocked on Senovia’s door. Her other son, Richard, answered it and was then given an envelope. Across the street, a man was standing around and taking photographs. Later, he returned taking more photographs. Those pictures started appearing on DrainTulareSwamp.com in a post that asked ““Who Is Pulling Senovia’s Strings?”

Insinuating that she had taken a bribe, the post said “the public should be watching … Senovia closely. This past week a very expensive black car was seen parked in front of the home of Mrs. Senovia [sic] in addition to several other unidentified cars.” Then flyers directing people to visit TulareSpeaks.com started popping up on door handles in the town.

PsyGroup paid a small businessman who distributes fliers in cash under a pseudonym.

And on the eve of the election, Senovia’s son Alex saw his house burn down. While he thought it was related to the election, the local fire department found no evidence of arson and a former Psy-Group official told The New Yorker he “never initiated any physical fire on any project whatsoever.”

Ultimately, the campaign backfired, as residents believed Senovia was being harassed, leading her to a landslide victory. Psy-Group reportedly billed Benzeevi a mere $230,000 for these services.

Covert on Campus

While Psy-Group’s meddling in small-town politics may have backfired, its interference with university politics was likely more effective. Psy-Group worked on behalf of wealthy Jewish American donors in New York, conducting a campaign called Project Butterfly to “destabilize and disrupt anti-Israel movements from within.”

They were referring to pro-Boycott, DIvestment and Sanction (BDS) groups on 10 college campuses. The BDS movement seeks to economically pressure Israel into ending its apartheid policies and respecting Palestinian human rights.

Psy-Group would compile dossiers on activists and lecturers, scouring the dark web, social media, and other resources for dirt. Then, they would “dox” their targets — releasing personally identifiable information about them to the world. Psy-Group was given research on BDS targets by the neoconservative Foundation for Defense of Democracies think tank. Meanwhile, a former deputy director of Mossad was recruited to help with the project, and a former national security advisor to Prime Minister Benjamin Netanyahu was made an advisor.

Project Butterfly seems to operate similarly to the more widely known Canary Mission, which compiles blacklists of BDS activists and doxxes them online. In late 2018, the Canary Mission was revealed to be bankrolled by at least two Jewish-American charities.

Hacking Away

Psy-Group closed shop in 2018 after it fell into Mueller’s crosshairs. But, another shady Israeli company — similarly based out of Cyprus and with a similar name — continues to conduct its business. The outfit, called NSO Group, manufactures a hacking tool called Pegasus, which gives hackers the ability to look at text messages, detect calls, collect passwords, pinpoint GPS locations, and suck up information from applications like Gmail, Facebook, Skype, WhatsApp and more.

NSO Group hawks its product to governments supposedly for counter-terrorism purposes, but more often than not the victims of Pegasus spyware turn out to be journalists and human rights workers.

Alaa Mahajna | NSO Group

NSO lets its clients hack 10 Android phones for $650,000 in addition to a $500,000 installation fee. The company also cuts deals with governments, allowing them to hack 100 phones for just $800,000, according to internal documents viewed by The New York Times. Commercial proposals for Pegasus tout its ability to gain “unlimited access to a target’s mobile devices” and that it “leaves no traces whatsoever.”

NSO Group’s spyware is suspected to have been used in Israel, Turkey, Thailand, Qatar, Kenya, Uzbekistan, Mozambique, Morocco, Yemen, Hungary, Saudi Arabia, Nigeria and Bahrain. NSO also sold Pegasus to Panama in 2015.

Pegasus | Israel hackers

The following year, it was revealed that Pegasus was used to target a Saudi national and employee of Amnesty International. It was also used to spy on a human-rights activist in the UAE named Ahmed Mansoor, who was the target of a spear phishing campaign promising him details on torture committed in the country. Emirati officials sought to spy on the Saudi prince in charge of the monarchy’s National Guard and Lebanese Prime Minister Saad Hariri, as well as the Qataris — and did so.

At one point, when they were offered a more expensive deal, the Emiratis wanted proof of product. So NSO Group hacked the editor of a London-based Arab newspaper, Abdulaziz Alkhamis, whose cell phone call recordings were forwarded to the UAE officials.

Because the Israeli government considers Pegasus a weapon, the NSO Group needed the approval of the Israeli Defense Ministry in order to sell it to the Emirates, a lawsuit against NSO Group notes.

Pegasus spyware was also used by the Saudis to spy on slain columnist Jamal Khashoggi.

And another journalist in Mexico, as well as human-rights activists, have also become targets of NSO Group’s surveillance technology. In 2017, when a coalition formed to investigate the 2014 disappearance of 43 students in Ayotzinapa, Mexico, its members started receiving spear phishing messages that, if clicked, would install Pegasus on their phones.

Hiring a spy team to smear hacker detractors

These revelations have spawned a number of lawsuits against NSO Group. But since then, six people associated with the litigation have found themselves the target of spies who appear to be with Black Cube, despite previous denials by Black Cube. The only identified individual who participated in the campaign has previous ties to the company. He was, however, “one of many.”

Black Cube has been described by people familiar with its work as the “almost privatized wing of Mossad,” and it is staffed, like NSO Group and Psy-Group, with ex-agents.

Earlier this year, two cybersecurity researchers were lured by agents into meetings at luxury hotels in an effort to discredit their research on NSO Group. Then, on Monday, AP revealed the existence of four other victims, three of whom were lawyers working on lawsuits against NSO, in addition to a journalist based in London who has been writing about the cases.

AP Exclusive: Spy exposed in NYC is one of many

“The targets told the AP that the covert agents tried to goad them into making racist and anti-Israel remarks or revealing sensitive information about their work in connection with the lawsuits,” the outlet reports.

As AP was “preparing to publish” its story, doctored and de-contextualized footage of two of the targets — the journalist and one of the lawyers — meeting with undercover agents was broadcast on Israeli television. Almost comically, if not so tragically, that report claimed the lawsuits against NSO Group were part of a “smear campaign” against the private spy shop.

Top Photo | An Israeli student attending a class how to investigate a computer network that has been hacked in Beit Shemesh, Israel. In its quest to become a world leader in cybersecurity and technology, Israel invests heavily in tech education. Daniel Estrin | AP

Alexander Rubinstein is a staff writer for MintPress News based in Washington, DC. He reports on police, prisons and protests in the United States and the United States’ policing of the world. He previously reported for RT and Sputnik News

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