Book Review: Private Empire – ExxonMobil and American Power by Steve Coll

If you were expecting Private Empire, the latest book by two-time Pulitzer Prize winning author Steve Coll, to serve as a hit piece on ExxonMobil (and 'Big Oil' in general) you’ll be somewhat disappointed.

For anyone unfamiliar with his previous work, Steve Coll’s earlier books include the highly recommended Ghost Wars, arguably the definitive geopolitical account of the activities of the CIA and other national intelligence agencies in Afghanistan and Pakistan from the time of the Soviet invasion up to the eve of the 9-11. Ghost Wars won the Pulitzer Prize in 2004 for general non-fiction and was one of the books a newly elected President Barrack Obama was reported to be reading upon entering office.

Steve Coll describes in an interview with Charlie Rose what lead him to want to write Private Empire and how his original idea for the book was to tell a broader story about the oil industry in the style of Daniel Yergin’s The Prize. He soon realized, however, that he needed a central character and Exxon was for him the only logical choice.

Coll’s portrait of Exxon begins in March 1989 with the Exxon Valdez oil spill in Prince William Sound, Alaska, an event which made the company the most reviled in the United Sates. The book’s timeline spans the subsequent transformation of the company, which was led by CEO Lee “Iron Ass” Raymond, up through its present day stewardship by current CEO Rex Tillerson. Along the way we learn a great deal about Exxon, including its somewhat peculiar cult-like corporate culture, its blockbuster merger with Mobil, its controversial stance and efforts on global warning, the access it enjoyed to political leaders such as Vice President Dick Cheney, its somewhat misleading approach to reporting oil reserves, and the company’s record setting financial success. The book in fact makes for a compelling business case study and students of business history, strategy and management will find much of interest.

The most interesting sections of the book are the ones detailing ExxonMobil’s operations in some of the world’s most politically unstable regions. ExxonMobil’s bread and butter business is to invest billions of dollars drilling holes in the ground in countries like Equatorial Guinea and Chad and then spend the next 30-40 years working to make sure that nothing interrupts the company's return on investment. Coll’s account of the 2004 attempted coup in Equatorial Guinea by a group of British and South African mercenaries, who were supported from some elements within the Spanish government, is one of the most fascinating stories in the book.

Continue reading the full review here.

Lagarde Sacrifices Herself to Help Greece's Pro-Bailout New Democracy Party?

The Eurogeddon chess game is getting desperate so don't be surprised to see a few political/PR curveballs over the next few weeks in front of the 17 June Greek election runoff.

Case in point is this weekend's snarky comment from the typically ladylike Madame Lagarde. But before we get to that, some background:

The single worst thing than can happen from the perspective of the Troika (the IMF, EU, and ECB) and Greek elites right now is for Syriza and its 37-year old leader, 'Sexy Alexis', as he's now being called, to do well in the 17 June Greek election runoff.

In the most recent May elections Greek voters turned away from the two pro-bailout/austerity parties, PASOK and New Democracy, as they were seen as tools of the Troika. This rejection by voters sent a shiver up the Troika's spine as they know that should Syriza and Alexis Tsipras prevail he will likely walk away from the terms of the bailout and thereby call the Troika's bluff to either a) cut off Greece's banking system from further ECB funding or b) terminate any further bailout money to Greece's government. Either one of these moves will likely trigger a financial panic and spoil everyone's summer vacation plans.

So the Troika are now desperate to see PASOK and or New Democracy do better in the 17 June election. So how can they help them?

Agent Provocateur: Christine Lagarde, IMF Chief

Angry Greek voters are looking for someone to blame, and as long as PASOK and New Democracy are seen as part of the problem it's unlikely that voters will put them back into power. So one strategy is to try and reshift the political blame onto the external Troika, which would have the effect of diverting negative feelings away from PASOK and New Democracy. This would help the two pro-bailout Greek parties reposition themselves as domestic victims rather than as co-conspirators with the hated foreigners.

And now you understand why the typically politie Christine Lagarde, head of the IMF, probably deliberately roiled the Aegean kettle this weekend with a comment about how it's 'payback time', and Greeks need to pay their taxes.

Queue the Greek firestorm.

And lo and behold, New Democracy, who of course along with PASOK quickly denounced Lagarde's rhetoric, is again rising in the polls.

Nice move, Troika.

And, by the way, Lagarde doesn't pay any taxes on her $551,700 in annual compensation.

Greece Can Physically Print Its Own Euros In Spite Of ECB 'Choke' Efforts

Euro printing press

As the long ago predicted Greek 'bank jog' accelerates there is much talk in the econoblogosphere of the Greek banking system being 'choked off' by the ECB.

If this is in fact the Brussels/Frankfurt plan to force Greece out of the euro there is a perhaps not insignificant obstacle to this strategy: as noted in this post last year, Greece has its own euro printing press. 

The ECB does not print any euro banknotes but actually assigns this task to local member country central banks, with the ECB instructing the local central bank how much of which denominations to print.

So what does this mean?

In opinion polls Greeks want two things: a) to default on their sovereign debt less fiscal austerity and b) stay in the Eurozone. However, European elites (read: Germany) are saying to Greece that you can't have both. But is Germany correct?

An important point to keep in mind here is that there is no legal mechanism to force Greece to drop the euro and readopt the drachma. Hence the idea of choking off the Greek banking system and forcing the Greeks to renounce the euro versus organizing some type of formal action, such as a vote to eject Greece from the euro, which would not be allowed under current EU law.

But in the event of a full-fledged run on Greece's banking system, where Greek banks literally have no cash on hand to give to depositors, it would seem reasonable and (crucially) perhaps legal for the Greek central bank to start printing euro notes even if the ECB disavows this action.

If this were to take place is there anything the ECB could do to stop the Greek central bank from printing euros? Probably not.

It's hard to imagine the situation reaching a stage where the Greek central bank openly revolts against the ECB and starts printing euros. However, Greece need only hint at playing this card for it to have the desired effect, which is to force the ECB to continue accepting Greek bank collateral on reasonable terms. In other words, the fact the Greeks can print their own euros nullifies the ECB's ability to choke the Greek banking system into submission and force a 'voluntary' abandonment of the euro.

Your move, Angela.

Video: Niall Ferguson's China: Triumph and Turmoil

Link to video here. (Non UK-based viewers will need to use a proxy.)

For more on the subject of China and the West here is Standpoint's recent interview with Niall and Dambisa Moyo.

Greece Just Publicly Threatened Its Trump Card

Greece just decided to start 2012 off by significantly upping the ante:

"The bailout agreement needs to be signed otherwise we will be out of the markets, out of the euro," spokesman Pantelis Kapsis told Skai TV.

 Here's my previous piece explaining why in the European sovereign debt crisis Greece holds all the cards.

Will the Next Decade Be Dominated by America?

'Tis the season for predictions and STRATFOR's George Friedman has come up with a whopper.

The first chapter of his new book has been posted here. The main provocative claims is that the American 'Empire' will continue to be dominant over the next decade.

Will it? Here are a couple comments on Friedman's chapter:

First, I would take some issue with simplifying the Great Depression down to having originated in Germany. The role of Germany in the Great Depression does actually deserve more popular credit than it receives, but the scholarly consensus would not agree with Friedman's assertion that its "roots" reside in Germany.

Second, on his main argument, the IMF is projecting that China's economy will surpass the U.S.'s (on a purchasing power parity basis) in just five years in 2016. The EU economy is already larger than the U.S.'s. and has blocked U.S. mergers (e.g., GE's attempted acquisition of Honeywell).

Yes Europe has problems, and yes China may be experiencing the Mother of All Bubbles. But for Friedman to argue that the U.S.'s relative power in the next decade will be anything like it has been over the past 20 years seems incredibly optimistic and naive. The U.S. would appear to be at a significant cyber-warfare disadvantage compared to China at present (Update: within a few hours of this post STRATFOR's website was hacked and private client data posted on the internet). The U.S. has also failed to demonstrate that it can keep the nuclear weapons genie in the bottle in potentially hostile parts of the world. China is developing its first world class navy in 600 years. In short, examples abound of the U.S.'s relative power weakening.

Friedman writes about the U.S.'s need for a regional strategy. One interesting and rarely discussed possible outcome of the fiscal crunch facing America is the potential for unprecedented regional infighting inside the United States. For example, how difficult is it to imagine Texans questioning whether their tax dollars should continue subsidizing Maine, Oregon and Vermont? Or Californians funding Sarah Palin's Alaska?

(click to enlarge)

This is the exact argument which is taking place in Europe right now between Germany and Greece. Yes, there are large differences between American and European social cohesion. But I would not be surprised to see growing regionalization within the U.S. as a key emergent theme in the years to come. In the absence of existential external threats the justification for an extremely powerful and centralized U.S. federal state is more open to question.

Overall, Friedman's chapter is written from the perspective of an all-powerful emperor and not from one bearing witness to the paralysis which has gripped Congress in recent years. I'm also not sure he has a firm grasp on some of the social-demographic shifts which are emerging nor the current economic/financial situation.

In short, this chapter seems more a treatise on how Friedman would prefer to see the world than how it actually is.

Video: Kim Jong-il - 'So Ronery' No More

Recommended links

1. Rogoff: 80% chance that Greece will leave the euro (Bloomberg)

2. More Greece love from Sarkozy: Greece should have been denied euro (BBC)

3. Nominal GDP targeting is unlikely to work (INET)

4. World power swings back to America (Telegraph)

5. Hugh Hendry at LSE Alternative Investment Conference (Greshman's Law). My writeup on Hugh's Jan. 2011 interview at the AIC can be found here. Hugh has agreed to come back to the 2012 AIC conference, which I look forward to attending.

6. Portugal enters the 'Grecian vortex' (Telegraph). AEP has been on a roll lately.

7. Italian 10-Year Yield Tops 6% in Auction, Setting Record (CNBC)

Ever Heard of Somaliland, the Peaceful and Democratic Neighbor of Somalia?

Somaliland's flag

Contrary to the piracy and kidnappings which the media tends to focus on positive things are happening in parts of the Horn of Africa.

Somaliland is one such example. President Ahmed Mohamoud Silyano describes his people's quest for international recognition here.

Here's the BBC's profile of Somaliland.

Though not internationally recognised, Somaliland has a working political system, government institutions, a police force and its own currency. The territory has lobbied hard to win support for its claim to be a sovereign state. 

The former British protectorate has also escaped much of the chaos and violence that plague Somalia, although attacks on Western aid workers in 2003 raised fears that Islamic militants in the territory were targeting foreigners. 

Although there is a thriving private business sector, poverty and unemployment are widespread. The economy is highly dependent on money sent home by members of the diaspora. Duties from Berbera, a port used by landlocked Ethiopia, and livestock exports are important sources of revenue.

Information about traveling in Somaliland, including guidance on safety, can be read about here.

Default Myth Busting: Sorry Simon and James, the U.S. is not a Default Virgin

Professor Simon Johnson and James Kwak of The Baseline Scenario have an article at Vanity Fair about the geopolitical importance of credit in late-18th century France, Great Britain, and (especially) the United States. Their article, however, fails to mention an important detail which also happens to contradict their claim that "the (U.S.) federal government would always honor its debt".

The consolidation/conversion of U.S. revolutionary state debt into federal debt, which took place in the early 1790s, and which the authors refer to in the paragraph prior to the above quote, represented a U.S. sovereign default. (For more on this event see Reinhart and Rogoff (click on the U.S. tab) or Sylla, et al, which describes the 'haircut' bondholders received (6% to 4%).)

The notion that the U.S. has never defaulted has unfortunately been repeated often enough that, like the incorrect claim that TARP was "profitable", otherwise well-informed people have come to believe it.

In terms of other U.S. defaults, Reinhart and Rogoff also count Franklin Roosevelt's 1933 prohibition on owning gold and the subsequent devaluation of the U.S. dollar vs. gold as a default.

It's not very surprising to see Vice President Biden promoting the myth that the U.S. has never defaulted (in his case following a visit to the U.S.'s largest creditor, China). Professor Johnson, however, should know better.

As Predicted U.S.-China Economic War Heating Up

Another prediction which is coming in right on schedule: this Presidential political season the one thing Republicans and Democrats can agree upon (the generally conservative Senate voted 79-19) is that China is manipulating the value of its currency to make its exports more price competitive.

We're still in the early rounds of the latest Congressional flare-up over China's currency policy, so stay tuned.

Video: Secret Swinger Henry Kissinger

Video: Kissinger (National Geographic TV Special)

Review: Bin Laden: Shoot to Kill (Channel 4 On Demand)

A new Channel 4 docudrama on the Bin Laden raid premiered last night and provides new details on the covert op. It also features interview with senior U.S. government officials, a former Seal Team Six member, and a rather candid interview with President Obama. The trailer is embedded below; full video here.

One interesting element from the White House spin which comes through in the video is President Obama's repeated reference to there only being a 50-50 chance of Bin Laden being in the compound, and that this operation was basically a 'gamble'. President Obama has come under a lot of criticism of late for being too risk averse, so from a messaging and political strategy point of view it could be helpful for the President to beef up his risk taking image.

However, the natural question is whether this is the right spot politically for Obama to be positioning himself as a risk taker? I see two potential problems: first, by emphasizing the 50-50 gamble it makes Obama appear like he got lucky. Second, as opposed to gambling on financial regulatory or budget reform here his gamble here involved the lives of military personnel as well as a Pakistani military backlash.

From a military strategy perspective I can see advantages to emphasizing Obama's willingness to take risk on convert raids in terms of the message it sends to both U.S. enemies and 'frenemies' alike. Americans may also prefer that their President be 'lucky' rather than or in addition to being 'good'.

Overall it's an intriguing messaging strategy and the video is well worth a watch.

Bin Laden: Shoot to Kill (Channel 4 trailer) from Nutopia on Vimeo.

Channel 4's Description:

A stellar cast of White House insiders speak on camera about the operation to find and kill Osama Bin Laden, including the first - and extraordinary - documentary interview with President Barack Obama on the subject. 

From the anxiety-drenched minutes in the White House Situation Room to the deadly stairwells of Bin Laden's secret labyrinth, cinematic dramatisations take viewers deep inside one of the most important moments of our era, showing the US Navy Seals coming face to face with the most wanted man in history. 

Based on high-level CIA and White House briefings, and packed with exclusive stories and fresh insights, the film reveals that President Obama received a downbeat last-minute intelligence assessment, which caused many of his senior advisors to turn against the operation.

The Great Hope - An Update on the Holy Grail of Clean, Limitless Energy

Good story from the Guardian on the state of fusion research here.

While economically viable fusion may be decades off at the current low relative level of investment, it's good to see the world's great geopolitical powers working together:

Last year, bulldozers began clearing land 60km north-east of Marseille in southern France. By 2019, it is hoped that the world's largest and most advanced experimental tokamak will be switched on. The €15bn International Thermonuclear Experimental Reactor (ITER) is being funded by an unprecedented international coalition, including the EU, the US, China, India, South Korea and Russia.

h/t Tyler Cowen

A Reason for the Americas to Be Optimistic

In the words of the author, "adios, OPEC".

The Americas, Not the Middle East, Will Be the World Capital of Energy

Michael Lewis on Germany & the Eurozone

The latest and final instalment in a series of what author Michael Lewis has described as 'Euopean financial disaster tourism' articles he's penning for Vanity Fair can be found here. This latest article focuses on Germany (the previous two covered Greece and Ireland - google them or click on 'Michael Lewis' tag below to get the link).

The Germany articles also features an accompanying interview with Lewis, where 'Europe's least welcome tourist' discusses the problems with the broader Eurozone:

VF Daily: Where did the euro go wrong? 

Lewis: At its conception. They glued together a bunch of countries and cultures that didn’t really belong together in the same currency. So if you put Germany together with Greece in a single currency, it’s a little like watching an Olympic sprinter and a fat old man running a three-legged race. The Greeks will never be as productive as the Germans, and the Germans will never be as unproductive as the Greeks. So if they’re in the same currency—unless the Greeks simply up and move to Germany to work for the Germans—it implies a lifetime of transfers from Germany to Greece. 

VF Daily: Greece was allowed a partial default this week, to the tune of $157 billion, despite the E.C.B.’s disapproval. This measure seems like a Band-Aid, though. Can we expect something much larger to happen, or do presidents and prime ministers just enjoy getting together to argue every six months? 

Lewis: The Germans are basically calling the shots here, because they’re the only ones who can afford to pay the bill. My impression is that the German people do not want to pay it, but the German leadership does not want to be labeled as the people who destroyed the euro. So the way Angela Merkel is playing it is to tell the German people what they want to hear until the moment another crisis occurs, and then she goes into parliament and says, “I need this little check to get us through this rough patch, or you will be responsible for the disintegration of Europe.” What she doesn’t ever come away with, however, is a commitment for fiscal union. She doesn’t get Germany agreeing to underwrite euro bonds—to take all the debt of the southern countries. 

VF Daily: Well, it would be political suicide, right? 

Lewis: She may have already committed political suicide. German people are increasingly unhappy with how she has handled the crisis. I don’t think that the German people are going to go all-in. The step that they would need to take is much more dramatic than this Band-Aid.

Video: Our Political and Economic Problems Are Fundamentally a Crisis in Virtue

Marcus Aurelius

George Friedman of STRATFOR gets to the heart of the current political and economic malaise in a brief and succinct video interview here.

He's spot on about the point that all the new regulation in the form of Dodd-Frank, Basel III, etc. do zero good without enforcement.

And why aren't both existing and new regulations being enforced? In Dr. Friedman's view, it comes down to a lack of virtue among our current elite.

The good news is that this is not an insolvable problem for two reasons: First, virtue, in my opinion, is unlike height, raw intelligence, or good looks, in the sense that it is not something that one is by-and-large born with. Virtue is both learned and cultivated over time.

But how much attention do we currently place on the development of virtue? The classics in the western world on this topic include the works by Marcus Aurelius, Benjamin Franklin, Adam Smith, Thomas Aquinas, Aristotle, among others. To perhaps unfairly single out two disciplines, what room is made for those works in our current economics and business curriculum? From my personal observations, zip.

The idea of a renaissance education has been steadily pushed aside through the years in favor of the poly-technical practicalness of the 1-minute manager MBA and quant-PhDs. Today's economic and political conundrum is arguably a by-product of this de-prioritization of the study and development of virtue.

The second reason I am optimistic we can solve this problem is that when our leaders first fail society in such an epic fashion, and then next fail a second time by not fixing the root-cause of the problem, then those of us in representative democracies often make change.

Here's to hoping we get the change right this time.

The Xinjiang 13 and Chinese Appeasement

A disturbing report from Bloomberg about several elite U.S. universities not standing up to Chinese suppression of academic research freedom and free speech:

They call themselves the “Xinjiang 13.” They have been denied permission to enter China, prohibited from flying on a Chinese airline and pressured to adopt China- friendly views. To return to China, two wrote statements disavowing support for the independence movement in Xinjiang province. 

They aren’t exiled Chinese dissidents. They are American scholars from universities, such as Georgetown and Massachusetts Institute of Technology, who have suffered a backlash from China unprecedented in academia since diplomatic relations resumed in 1979. Their offense was co-writing “Xinjiang: China’s Muslim Borderland,” a 484-page paperback published in 2004. 

“I wound up doing the stupidest thing, bringing all of the experts in the field into one room and having the Chinese take us all out,” said Justin Rudelson, a college friend of U.S. Treasury Secretary Timothy Geithner and former senior lecturer at Dartmouth College, who helped enlist contributors to the book and co-wrote one chapter.
The sanctions, which the scholars say were imposed by China’s security services, have hampered careers, personal relationships and American understanding of a large, mineral- rich province where China has suppressed separatist stirrings. Riots and attacks in Xinjiang in July left about 40 people dead.

In the race to embrace China's riches the leaders of elite U.S. academic institutions (who should know better) seem to have forgotten that China is run by a brutal, freedom-suppressing dictatorship. Yet Stanford, the University of Chicago, Duke and NYU have or are in the process of building branch campuses in mainland China. Have many of the U.S.'s best universities forgotten that history has not looked kindly on those who have cozied-up to regimes like China's current one?

The Xinjiang 13 incident also smacks of the same problem in academia which Oscar Winning Director Charles Ferguson documented in his must-watch film Inside Job. Has the academy not learned anything about the importance of professional ethics these past few years?

Full article on the Xinjiang 13 here.

Video: The Commanding Heights - the battle between government and the marketplace

No less relevant today than it was roughly ten years ago when it first premiered, below is Part 1 of the must watch video series The Commanding Heights. Globalization, Keynes vs. Hayek, the future capitalism -- it's all here. Especially recommended for those interested in intellectual history. You'll find the remainder of the episodes at PBS here.