Why Is Donald Trump Afraid of Putin

After the Helsinki spectacle where Donald Trump almost gave Vladimir Putin a public foot massage, the usual suspects rose again with their "this is it, the straw that will break the Orange Camel" cries.

They hollered Trump's subdued performance was treasonous and it was proof that Putin had some compromising tape on him and he was Putin's poodle.

There were also, to my eye, homophobic depictions of their relationship.

What I don't understand is how long will this "I can't believe his base is not deserting him" discourse go on. After ever scandalous tweet they rush to quiz the Trumpkins and they all gleefully say that they love the Man.

Neither do I understand the liberal conviction that Putin has something on Trump, which is why the Orange Man is behaving in a strangely decile manner.

This time, I didn't bother with another "nothing will derail Donald Trump" post.

There is no point in repeating the axiomatic truth that there is virtually nothing Trump can do that will turn his evangelical, white privileged, racist and affluent base off.

You can show that he colluded with Russia to win the elections and his folks will say, good for him.

However, there is one thing Trump is afraid of and it is why he is extremely cautious in dealing with Putin. It has to do with my prediction about how his presidency will likely to end. And as one of my most popular posts, it is still on the right hand margin.

My view is that, nothing other than financial fraud, money laundering and associated crimes can bring Trump down. But those crimes, when revealed, will almost certainly force him to resign.

As I explained in that post in some detail, in mid-2000s, after six bankruptcies, Trump was toxic and no financial institution would lend him money. So, to develop residences, hotels and golf courses, he began working with Russian, Kazakh, Georgian and Azeri businessmen, like Felix Sater, Tevfik Arif, Alexander Shnaider, Tamir Sapir and the Mammadov family.

There is a long list of dubious development projects here and you can click on them to see the problem in each instance.

The people whose name I mentioned are all shady characters with extensive links to criminal groups and in my opinion it is very likely that they used the Trump Organization to launder hundreds of millions of dollars. They financed properties, Trump slapped his name on them, the units got sold, hotels and golf courses managed and fresh smelling money came out from the other end.

Financial fraud would be problematic for Trump for two reasons: One, unlike sex allegations, which are of "he-said-she-said" narratives, money laundering is easily proven and him helping some foreign criminals clean up their ill-gotten gains would give pause even the staunchest Trumpkin.

There are some hard-to-believe projects.

As the New Yorker's Adam Davidson put it:

Although we cannot say that Trump himself knowingly engaged in money laundering, we do know with certainty that much of his business in the past decade was in the industries most known for money laundering, in the locations most conducive to money laundering, and with people who bear the key hallmarks of money launderers.

Moreover, associated crimes like tax evasion could become a serious headache for him. And it would be difficult for Fox News to claim bothsideism as there is nothing like this on the Democratic side.

But perhaps more importantly, such a scandal would destroy the Trump brand and make it impossible for him to profit from the presidency and his business model (putting his name on other people's properties and getting a license fee) would vanish overnight.

Faced with such a situation, Trump would make a deal and simply resign.

As you might remember, I maintained throughout that this outcome was more or less inevitable because of Trump's stupid feud with intelligence agencies. They know where the bodies are buried and they will unearth them when it is appropriate.

It turns out your humble soapbox operator was on to something.

Credit

Recently, an editor at the New Yorker concurred with the general outline of this analysis.

According to several Russia experts "kompromat" does not necessarily refer to a compromising video clip that can be used for blackmailing.

You know the apocryphal pee-tape.

Instead, it should be thought of pieces of information being held by different players within the "sistema" or system, which is an informal structure of hierarchy where the players constantly shift position relative to others.

In this case "kompromat" is about Trump's past business dealings with these guys.

If there truly is damaging kompromat on Trump, it could well be in the hands of Trump’s business partners, or even in those of their rivals. Trump’s Georgian partners, for example, have been in direct conflict with other local business networks over a host of crucial deals involving major telecommunications projects in the country. His Azerbaijani partners were tightly linked to Iranians who were also senior officers in the Islamic Revolutionary Guard Corps. 

And the reason why Trump is being nice to Putin is this:

The scenario that, to my mind, makes the most sense of the given facts and requires the fewest fantastical leaps is that, a decade or so ago, Trump, naïve, covetous, and struggling for cash, may have laundered money for a business partner from the former Soviet Union or engaged in some other financial crime. This placed him, unawares, squarely within sistema, where he remained, conducting business with other members of a handful of overlapping Central Asian networks. Had he never sought the Presidency, he may never have had to come to terms with these decisions. But now he is much like everyone else in sistema. He fears there is kompromat out there—maybe a lot of it—but he doesn’t know precisely what it is, who has it, or what might set them off.

Hence the reluctance to release tax returns and insistence that his business dealings are off-limits to Mueller.

And of course his super nice guy routine with Putin.

Because he doesn't know how much Putin knows and he is worried.

And he will do anything to make sure that it is not a problem.

Turkish Elections: How Did Erdogan Win?

Turkey's pugnacious president Recep Tayyip Erdogan won the most important election of his political career.

Erdogan Campaigning

And he did so decisively.

He became president in the first round and he preserved his majority in Parliament, albeit through an electoral alliance.

He achieved all that at a time when the Turkish economy was looking into an abyss with foreign currency and corporate debt and inflation are all at an all-time high.

Anyone else in anywhere else would have seen his wings clipped. Not him.

Erdogan's GOP Strategy

He was facing an elactoral alliance composed of:

a) Republican People's Party (CHP) a secular social democratic party,
b) The Good Party (IP), an ultra-nationalist party led by a charismatic and pious conservative woman,
c) Felicity Party (SP) an Islamist party led by a life-long political Islamist and an early collaborator of Erdogan.

What is important to note is the fact that the alliance removed the need for each party to clear the 10 percent threshold to get their votes turned into seats. This was done in order to encourage hard core Islamists to vote for SP without worrying that they might be wasting their ballot.

The idea behind bringing together a staunchly secular party, a conservative, ultra-nationalistic party and an Islamist party was to convince disgruntled AKP voters to consider voting for this new formation.

And it resonated with many of them. Poll after poll showed that Erdogan would be forced to go to the second round and he would very likely lose his legislative majority.

Herein lies a twist.

As I posted a couple of week before the elections, one opinion poll found that both Turks and Kurds were more inclined to support IP and its leader Meral Aksener than CHP and its presidential candidate Muharrem Ince.

In fact, that poll indicated that Aksener would force Erdogan to a second round and could then win the presidency.

While an outlier, the poll made sense because a very large portion of the Turkish electorate has always had an intense dislike for the CHP.

Some associate it with a zealous prosecution of Islamist population (it was illegal to wear a hijab or niqab until AKP came to power and women could not wear a headscarf of any kind in schools and universities or government buildings).

Others hate the party for its long association with the army (the only two times it formed a government were after military coups). And its tacit role in the country's four coups.

Others see it as a rigid and shallow agents of Western influence with no specific outlook or platform.

I can go on.

The fact remains that a significant majority of the Turkish electorate would vote for anyone before they considered CHP.

Hence the Erdogan strategy.

Muharrem Ince

He methodically ignored the nationalist conservative Aksener and IP and the Islamist Felicity Party. He solely focused on CHP and its candidate. Since he controls almost all the media outlets they followed suit.

You could see Ince on many talk shows on in the news bulletins, Aksener, not so much. Mind you, even then the balance between Erdogan - Ince media exposure was very much in favor of the former but Aksener was nowhere to be found.

In the May 1-25 period, the country’s two main news channels, NTV and CNN Turk, dedicated a combined 70 hours of coverage to Erdogan’s Justice and Development Party (AKP) and its election ally, the Nationalist Action Party (MHP), according to a report by the two opposition-nominated members of Turkey’s media watchdog RTUK. The report was made available to Al-Monitor. The CHP and Ince got 22 hours, while the Good Party and its presidential candidate, Meral Aksener, got 17 minutes and the HDP received no coverage at all.

In other words, he transformed the elections from being between a coalition of conservative, nationalist, Islamist and secularist parties and Erdogan's AKP into a bipolar Us and Them race.

Us being the Sunni conservatives, Them being the Western-minded secularists.

Essentially, Erdogan was saying if it is between me and CHP, who you're gonna call?

And the electorate chanted "Ghostbusters" as they were expected to.

Erdogan's message contained the threat that if CHP came to power, despite Ince's reassurances, they would bring back all those anti-Islamist laws. They could force the removal of headscarves, reduce the number of religious schools and go back to Kemalist days of early republic.

And his base ate it up. After all, candidate Ince might be relatable with his mother and sister both wearing a headscarf, but he is not the leader of CHP.

Charismnatically challenged Kilicdaroglu

Since Ince committed himself to going back to the previous system of a ceremonial president with an executive prime minister, Kemal Kilicdaroglu, the leader of CHP could soon become prime minister in a new government.

He is an Alevi, which is an offshoot of Shia Islam and most Sunnis consider them heretic infidels.

That was Erdogan's message. I know Ince seems nice but you elect him, you will be governed by a secular Alevi. Me or them?

It is like the GOP telling their base if it is not them, then it is Nancy Pelosi, abortion at every clinic, socialist health care and probably another black president.

Who cares if Trump is a twice divorced, pussy-grabbing idiot. He is what stands between, conservative, evangelical and racist GOP voters and Pelosi at Co.

Erdogan has also used GOP's voter suppression techniques.

Many voting districts were redefined. They changed voting stations in the Kurdish region removing them from pro-Kurdish villages. This made voting for many rural Kurds very difficult.

There was also some evidence of ballot stuffing.

Officers resorted to firing their guns into the air to stop the threesome in the country’s southeastern province of Urfa from delivering four sacks stuffed with fake voting cards to the Bilge Primary School, which was being used as a polling station.

Ballot stuffing is not widespread in Turkey but this incident was not a one-off situation either. I assume ballot stuffing was part of Erdogan's Plan B or C or D, something that can be used, on a limited basis, to alter an undesirable outcome.

For instance, in the 2017 referendum, the Organisation  for Security and Cooperation in Europe (OSCE) alleged that up to 2.5 million votes might have been manipulated. Out of 55 million voters 2.5 million vote is not a big deal perhaps but if you won the referendum with 1.5 percent, it is a huge deal.

Which brings me to the other parties and especially the surprising MHP win.

Other Parties and the Mystery of MHP?

Kilicdaroglu, the beleaguered leader of CHP lost nine consecutive elections but has no intention to resign. In fact, he criticized Ince's performance and said that he did not get as many vote as he should have.

He is counting on the fact that, despite reducing the party's electoral support from 25.32 percent to 22.64 percent he was rewarded with more seats (146) than the previous election (131). Most of that was due to the fact that the number of MPs went up from 550 to 600.

In any event, Turkey's electoral laws and CHP's bylaws are such that it is almost impossible to remove a party leader through regular democratic means. To give you an idea, since 1923 the CHP has had only five leaders. Can you find another such example in the world?

Meral Aksener, the leader of the nationalistic and conservative Good Party (IP) passed the 10 percent threshold and will have 43 seats in the new assembly.

The case of her former party the proto-fascist Nationalist Action Party (MHP) is very interesting. Devlet Bahceli, the leader of MHP fought off Aksener's leadership bid tooth and nail and expelled her from the party. She went on to form IP and Bahceli entered into an electoral alliance with Erdogan and AKP.

Interestingly, between 1 May and 25 June only a single polling company placed MHP above the 10 percent threshold. Fourteen others predicted that it would never go over.

There is a good reason for that. The ceiling of MHP's support is around 5.5 to 6 million votes.  It once hit 7.5 million (for the June 2015 hung parliament) but contemporaneous opinion polls clearly showed that the additional votes came from disgruntled AKP supporters. And the next time around, in November 2015, the party's vote went back to 5.7 million.

But let's stipulate, for the sake of the argument that 7.5 million votes is the true potential support level for ultra-nationalistic parties in Turkey.

In 24 June 2018 elections MHP and IP, which share the same identical electoral base received 10,555,227 votes. That's almost double the regular MHP vote.

How could MHP get to preserve its share of the vote when half of its base went to support an offshoot party? Even the one opinion poll that gave MHP 10.5 percent found that IP was going to be stuck at 7.4 percent. Yet they received collectively 21 percent of the vote.

You could argue that since AKP's vote went from 49.5 to 42.5 percent, a significant percentage of AKP voters went to ultra-nationalistic parties.

The problem with that argument is that no opinion poll showed such a drastic move away from AKP to ultra-nationalist parties. And why should they?

With his Afrin excursion, his Syrian adventures in Al-Bab and Manbij and his genocidal tactics in Southeast Turkey Erdogan showed his bone fide as the most nationalistic leader in Turkey. Why would such voters desert him at this juncture?

In other words, there is no explanation for this 21 percent ultra-nationalistic vote either arithmetically or politically.

And curiously no one tried to explain this odd result.

Unless of course, these three guys caught with fake ballot bags were part of a larger effort to get MHP over the 10 percent threshold.

Where is OSCE when you need them.

Is Separating Children From Their Parents Trump's Katrina Moment?

After weeks of horrible pictures and video clips about ICE thugs torturing migrant families and kidnapping their children, the Orange Man relented.

Well, sort of.

But can we claim that this was a big deal for his base, as did the former New York Times editor and current Guardian columnist Jill Abramson, that the new policy of taking away children and toddlers from their families and putting them in metal cages was Donald Trump's Katrina moment.

She is adamant about it.

I, on the other hand, don't think so.

There is absolutely nothing Donald J. Trump could do that would turn his base against him.

Nothing.

He famously said:

“I could stand in the middle of Fifth Avenue and shoot somebody and I wouldn’t lose any voters”

And he was right.

You could have a clip of him having sex with a minor and the evangelicals would rush to call him a man of God.

You could show him in that Moscow hotel with some sort of golden shower situation, Republicans would applaud him for his unconventional hair growth techniques.

You could prove that he is milking the presidency for personal economic gain and his base will praise him for his business acumen.

Well, they are already doing that last one.

There are two reasons for that.

First, that's because for the Republican party voters Trump is the Savior.

He is the man who put black and brown people down (literally and figuratively), put women in their place and restore the good old days when blacks were called with the n-word, Mexicans were wetbacks and women knew that the kitchen was their sole domain.

Plus and perhaps most importantly, in a polarized society, he knows how to ridicule libturds and kick them in the teeth.

Did I mention that the Republican base is racist? They are.

African Americans and Hispanics are not really human in their eyes. Remember, for them, the elegant and brilliant and supremely accomplished Michelle Obama (Princeton and Harvard Law School alumnus) was an ape on heels.

Forced separation of Mexican toddlers from their mothers is nothing to them.

Trump's first campaign manager Corey Lewandowski was on Fox News recently and when they mentioned a ten year old girl with Down syndrome was separated from her parents, his response was "womp, womp."

Hilarious, right? A frightened, handicapped child is so funny when they are Mexican.

There is more.

In recent days, abuse claims have surfaced about how migrant children have been detained at two centres. 

Juveniles held in a detention centre in Virginia say they were handcuffed, beaten, left nude in concrete cells and locked in solitary confinement, the Associated Press reported.
Some have said guards strapped them to chairs with bags over their heads.

Can you say, Vel" d'Hiv Roundup?

I sense you disagree with my characterization of GOP voters.

Well, according to the most recent Gallup poll as reported by FiveThirtyEight,

Trump does have near-ironclad support (close to 90 percent approval, according to Gallup) among self-described Republicans nationally.

See what I mean? 90 percent.

More importantly, a clear majority of Republicans approve of the separation of children from their parents.

A strange thing happened on the way to a predicted universal condemnation of Mr Trump's policy of separating children from parents who cross the US-Mexico border without documentation. It turns out Republican voters like it. 

According to a recent Quinnipiac poll, while 91% of Democrats and 68% of independents oppose separating asylum-seekers and others in the US illegally from their children, 55% of Republicans support it. 

Far from being Trump's Katrina moment, this is his victory lap.

Trump voters adore him because he got rid of the dog-whistle.  He was the first openly racist presidential candidate and Republicans love him for that.

That is why the GOP will never abandon him, He is their wet dream.

The second reason is the media coverage of all things Trump.

Trump voters get their news from Fox. Fox is an echo chamber. They don't mention children chained to walls or sleeping on concrete floors or the fact that none of the kidnapped 2300 kids will ever be returned to their parents.

If you watch Fox News they are on a cushy summer camp having fun.

Fox News host Laura Ingraham called the detention centres "essentially summer camps", and praised Mr Trump for "doing what we should have been doing all along, prosecuting all border crashers". 

Conservative author Ann Coulter called the children "child actors weeping and crying" on TV networks.

But it is not just Fox News. The so called liberal media is guilty of helping the Trump agenda by not challenging his lies.

For weeks, Trump claimed that this cruel policy was a legacy of the Democrats and he was helpless to change it. Everybody knew that this was a huge lie as it was something enacted by his KKK-loving garden gnome Attorney General Jeffrey Beauregard Sessions.

But you wouldn't know this if you were reading about it on BBC News. This was a Trump tweet.

This is how BBC explained it.

There is no law that mandates separating children from parents who cross the border illegally. 

In 1997, Democratic President Bill Clinton signed the Flores Settlement law that required unaccompanied minors who arrive in the US to be released to their parents, a legal guardian or an adult relative, If no relatives are available then the relevant government agency can appoint an appropriate adult to look after the child. 

And in 2008, Republican President George W. Bush signed an anti-trafficking statute that requires unaccompanied minors to be transferred out of immigration centres within 72 hours. Neither of these recommends separating families.

Basically, anything and everything except to say that Trump is not telling the truth. And the piece was entitled "Reality Check."

Right.

You so care don;t U 

Another excellent example is the jacket Melania chose to wear to visit a children detention center.

I Really Don't Care, Do U? said her vetement.

Somehow, most media outlets pondered whether this was a hidden message.  This was so hard to decipher.

What could it mean?

BBC provided five different explanations.

I am not kidding.

Guardian columnist Arwa Mahdawi, questioned in an article entitled "the great Melania mystery, does she really care?"

Who could tell? The message was so scrambled.

The Independent was equally perplexed. They wondered "Why didn't someone stop Melania Trump from wearing that 'I really don't care' jacket?"

Well, can you imagine the shitstorm if Michelle Obama went to a similar event with this outfit?

On his late-night show, comedian Stephen Colbert asked a version of the question reverberating around political Washington: “How many people would get fired for this at a normal White House? One? Five? The entire executive branch? ... People who were supposedly on her side let her get on a plane with a jacket that said, ‘I really don’t care, do you?’”

In Melania's case, her spokespeople said there was no hidden message and most media outlets reported that.

Now, can you see the message?

If you can, you are are so biased.

Shame on you.

It is just a jacket.

Donald Trump is what you get when you put together a rabidly racist electorate with a meak media.

So, no, this is not his Katrina moment.

And he will never have a Katrina moment as long as Fox News exists and the rest of the media will give him a free pass on every lie.

Turkish Elections and Why the Opposition Should Hope for an Erdogan Win

It's not for nothing that I am your resident contrarian.

My Turkish friends are furious about this statement. Especially now that some analysts seem to believe that Erdogan might lose these elections.

They keep reminding me that Tayyip Erdogan is a corrupt bully who destroyed the country's institutions to pave the way for an unchallenged one-man rule and ask me why they should hope for him to win again.

There are three very good reasons.

The first one is the fact that Erdogan would never relinquish power and would do anything, including killing scores of people, to remain president. He had done it before, ask the Kurds.

The second reason is the looming economic crash from which there is no escape. Any government will be sitting on a ticking time bomb.

Thirdly, Erdogan destroyed all the major institutions of the country and filled them up with his poorly educated and unqualified supporters. Essentially, Turkey is ungovernable.

This is the end of the Erdogan model and I would rather that he stayed in power to face the consequences of his policies and the major upheaval that will ensue. Besides, this is the only way to avoid a future Erdogan.

Let me explain my thinking.

A Revolutionary Guard Called SADAT

As I said, Erdogan will never relinquish power willingly. If his private polling is in line with the outlier poll I mentioned in my previous post (indicating that Erdogan would lose against Good Party leader Meral Aksener in the second round) he would never allow the elections to take place.

To do so is very easy.

Adnan Tanriverdi

Erdogan has been building up a private militia called SADAT. It was created by Adnan Tanriverdi, a retired brigadier general who was expelled from the army in 1997 for his Islamist views. The organization promotes itself as a defense consultancy but it is much more than that.

SADAT is fashioned after Iran's Islamic Revolutionary Guard Corps (IRGC) i.e. unlike the military which is loyal to the state, SADAT is loyal to the Dear Leader and his regime. For instance, there are eyewitness accounts about SADAT snipers killing people during the botched coup attempt on 15 July 2016.

Tanriverdi is Erdogan's principal military adviser and reportedly he has more influence than the Chief of General Staff. There are credible allegations that SADAT was training ISIS and other terror groups in Syria. They are also quite active in agitating Turks in Europe and they seem to have a hand in recruitment for radical Islamist groups.

If Erdogan's internal polling shows that he might lose, all he needs to do is to direct SADAT goons to start some  street violence in pro-opposition districts in large cities and to have them kill a large number of people.  You may be surprised to learn that extrajudicial killings are no longer a crime  in Turkey.

Next thing you know, he declares that the elections are suspended.

Erdogan is fully cognizant that if his opponents ever get the opportunity, they will uncover all his corrupt dealings and punish him, his family and his entourage very severely. He simply cannot afford to let go of power.

But let's, for the sake of the argument, envisage a scenario where he lost the elections and agreed to step away.

I can categorically tell you that, regardless of its composition, the new government is doomed to fail.

A Crumbling Economy

Turkish economy is about to collapse as it is facing a perfect storm.

The economy is built on borrowed money and a lot of it is short term capital. In a global economy where the Feds increase interest rates (as they are expected to so again later in the year) the dollar is rushing back home, creating a liquidity crisis for the so called emerging markets.

Within that category, Turkey is the worst hit because of its exceptionally weak economic fundamentals.

To begin with, it has a huge corporate debt. As of April 2018, corporate debt was 70 percent of the GDP.

A little over half of that is in foreign currency. Turkish Lira has lost 20 percent of its value since the beginning of the year (40 percent in 2 years and 124 percent in 5 years). As one brokerage put it "each 1 cent depreciation in the currency adds about 5 billion liras to the cost of Turkey’s foreign borrowings."

Very few companies can withstand that kind of profit erosion. As a result, companies that are previously considered too-big-to-fail, began to default or ask banks to restructure their debts. Two recent examples:

On Saturday, Hurriyet newspaper revealed that Dogus Holding, one of Turkey’s largest conglomerates, was in talks with several banks to restructure TL23.5bn ($5.81bn) in debt. Just in September last year, Turkey was still dealing with its largest debt default, Otas, on a $4.75bn loan.

There is also Yildiz Holding, the owner of Godiva chocolates and McVitie's biscuits looking for a $7 billion loan, the largest ever in Turkey.

Turkish food giant Yildiz Holding is to restructure $6.5 billion of its $8.5 billion in debt and the refinancing could be completed by the end of next week, two people familiar with the matter said on Wednesday.

In global markets, Turkish banks are seen as high risk institutions and they are having a hard time raising funds. Fitch has just placed 25 Turkish banks on watch negative citing risks to performance, asset quality and liquidity.

Moreover, the banking sector is holding its breath about the fine to be imposed on Halkbank. If, as predicted, the fine is $30 billion and over, you can forget about Turkish banks being able to raise funds for a good while.

This is happening at a time when there is not much money in Turkey's coffers.

Currently, Turkey's foreign debt is a little over $450 billion and to service it, it needs $188 billion in the next 12 months. Add to that $50 billion to finance a current account deficit of 6.5 percent of GDP (which shot up by 35.6 percent last April to hit almost $7 billion for the month) and you can see the enormity of the problem.

Ostensibly Turkey's Central Bank has roughly $100 billion in its foreign currency reserves. But that might be a major overestimate. Some of that money is in gold and a good chunk of it is commercial bank reserves deposited there. Analysts from UBS and other banks estimated (in 2017) that the real figure is closer to $35 billion and I know some analysts who put it even lower.

There is one more threat to the Turkish banking sector and that is the real estate bubble. Turkey's economic growth was largely fuelled by construction. With increased demands, construction companies rushed to build residential and non-residential buildings and banks happily provided financing. As long as prices went up and interest rates stayed flat, the formula worked.

One of the ways banks kept interest rates flat was to raise their funds abroad. With both the Dollar and Euro having a low interest rate, they could charge a higher domestic rates and make a healthy margin. In fact, they were so confident that things would stay the same, they sold long term (10-15 years) fixed rate interest mortgages. That encouraged further demand and led to even more construction.

When foreign currency interest rates started to creep up (and domestic rates shot up) those long term loans became a major liability. The banks saw their margins disappear and started losing money.

But now the construction sector is in deep trouble. One analyst is expecting serial bankruptcies. This is partly because construction companies are unable to fund their projects and have a hard time collecting the money they are owed. Currently, they survive with a barter system -a percentage of the building in exchange for materials to build it- but it is not tenable and industry insiders warn against a serious implosion in the second half of the year.

When construction sector loans start defaulting Turkish banks will be in serious jeopardy.

And that is not all.

Inflation hovers around 12 percent (and this is despite changing the measuring basket in an effort to get a lower figure) and it is rising.

[A]n inflation report showed consumer prices rose 12.15 percent in May from a year earlier, with the worst core reading on record and producer prices advancing more than 20 percent.

Normally, faced with similar situations, Central Banks hike up interest rates. That cools off the economy, reduces demand and gets inflation under control. And it also supports the currency.

However the Turkish Central Bank has been unable to do that because Erdogan is opposed to raising interest rates. He summoned the Chair of the supposedly independent Central Bank to his party headquarters to dress him down about "interest rates [being] the mother and father of all evil"

He is convinced that the best way to fight inflation is to lower interest rates. When he recently shared this rather unconventional axiom to money managers in London they laughed him off.

Still, when the Lira hit 4.92 against the Dollar in May the Bank had to move in to prevent the psychologically traumatic 5 Lira barrier and raised interest rates by 300 points. Which meant  a hike from 13.5 percent to 16.5 percent. It wasn't enough: four days ago, the Bank raised it again by 125 basis points to reach 17.75 percent.

But it was too late. Despite a initial rally, the Lira did not recover and the Dollar is still hovering around 4.52 and Moody's just threatened to lower Turkey's credit rating again (last downgrade was in March to Ba2, which is "junk" category).

That would force Turkey to pay a significant risk premium for any money coming into its banks.

In fact, the situation is so bad that more than one analyst warned that Turkey will be the ground zero for the next global debt crisis. Famed economic historian Russell Napier made the same prediction recently. And famous Harvard economist Kenneth Rogoff admitted the plausibility of that scenario. The fear is not that about the $330 billion foreign bank exposure in Turkey. They worry that a Turkish default could trigger a chain reaction involving Argentina, Brazil and even Italy.

In any event, whoever wins the elections, they will have two options. They will either hike up interests rates dramatically or let inflation soar.

If they choose the first solution, that would destroy the construction sector which is sitting on a glut of unsold buildings and they will bring down the banks that financed them. Moreover, higher rates would make credit very expensive, severely slowing down economic activity. That in turn will raise the already double digit unemployment to new heights.

If they choose the second solution, that is keep rates low and let inflation go crazy, this will lead to rapidly increasing prices and will decimate people's purchasing power. Turkey already went through 100 percent inflation rates in the 1980s  and people will not take this lying down. High inflation will also push foreign currency up making imports prohibitively expensive.

If the opposition wins and they choose one or the other option they will be blamed for people's economic woes. I can easily foresee major street protests (helped by SADAT) to clamor for new elections. Erdogan will return triumphant and that will be that.

An Ungovernable Country

Turkey's economic problems are well known. What is not generally discussed is the dismal shape of its institution.

Erdogan's early success was largely credited to the technocrats belonging to Fethullah Gulen's Hizmet movement. They ran the economy and staffed the senior positions in state enterprises.  For instance, the incredible success of Turkish Airlines owed a lot to their managerial know how. The carrier maintained an annual 10 percent growth for a decade and remained profitable. It was elected Europe's best airline for many years and had the lowest cost profile among large carriers.

Since 2013, Erdogan has been removing these technocrats and replacing them with his own pitifully underqualified supporters. Just to use the same example, 8,000 people were fired or pushed to early retirement at Turkish Airlines. The new managers reversed the trend the airline went "from big profit to big loss."

The same thing happened with the army, judiciary, general state bureaucracy, schools and universities and any institution you can name as Erdogan got rid of anyone who could represent a challenge to his rule.

A new government will have to run the country without the participation of these institutions. And that is not a tenable position.

Replacing Erdogan's cronies would take a long time and in many cases, the previous staffers either left the country or are too broken up about their treatment to be able to make a reasonable come back.

So, while seeing Erdogan defeated would put a smile on my face, I would much rather have him dealing with the inevitable chaos after the elections.

Turkish Elections and Why Erdogan Might Lose

Not many Western media outlets are covering the upcoming Turkish elections.

And since they might end up with a major upset, I thought I gave you a brief summary.

In a second post, I will outline the reasons why I think the opposition should hope for an Erdogan win.

Let's start with the elections.

Actually, there are two elections, the first one is to elect an executive president ostensibly styled after the American presidency as it exists in the mind of Donald J. Trump, al-Sisi be damned.

You know, someone who controls all three branches of government and, of course, the media.

Those elections are schedules for 24 June and if no candidate secures 50 percent of the votes a second round will take place on 7 July.

Concurrently, on June 24 legislative elections will be held to elect members of parliament (MPs) to a newly enlarged 600-member National Assembly.

The Players

There are six presidential candidates and two electoral alliances.

Tayyip Erdogan, the current president and the leader of the Justice and Development Party (AKP), is the most popular candidate by a country mile. Various polls place his first round electoral support somewhere between 42 and 54 percent.

So it is conceivable that he could get elected president in the first round. But most polls indicate that this is not very likely. After 15 years in power with his pugnacious ruling style and his polarizing rhetoric, there is a palpable Erdogan fatigue in the country, even among his supporters.

Muharrem Ince is the candidate put forward by the main opposition Republican People's Party (CHP). He is not the leader of CHP and he was designated as candidate when the party leader Kemal Kilicdaroglu's amazingly stupid plan of fielding the former president and AKP founder Abdullah Gul as the opposition candidate did not pan out.

Ince is more popular than the charismatically challenged Kilicdaroglu and he is proving himself a decent candidate.

Meral Aksener, the leader of newly formed Good Party (IP) is a curious candidate. She was one of the senior leaders of the proto-fascist National Action Party (MHP) and left MHP when the party leader, Devlet Bahceli, blocked her leadership bid. She formed the Good Party to go after MHP voters.

The dark side of her candidacy is the fact that, most of the extrajudicial killings that took place in southeast Turkey in the 1990s happened when she was the Minister of the Interior.

Selahattin Demirtas was the leader of the pro-Kurdish HDP until his recent incarceration. He was the man who engineered the stinging Erdogan setback in June 2015 elections by pushing his pro-Kurdish party over the 10 percent electoral threshold and reducing AKP's legislative presence.

Erdogan responded by bombing Kurdish cities in the southeast and by removing duly elected mayors of Kurdish-majority cities. Properly cowed, Kurdish voters flocked back to him six months later and he won a bigger majority. He then convinced Kilicdaroglu to agree to a constitutional amendment to lift the legislative immunity of MPs and once that was passed, Demirtas was promptly indicted and put in jail.

This could have been the last footnote for Demirtas had it not been for Erdogan's infamous Afrin invasion. As the June 2015 electoral defeat for Erdogan was largely the result of the Kobane debacle what put Demirtas back on top in Kurdish and Turkish politics was the misguided Afrin adventure. Pious Kurds decided to give him a second chance as did the Turkish progressives.

Two Electoral Alliances

For the presidential elections, Erdogan and MHP leader Bahceli formed the People's Alliance which fielded Erdogan as its sole candidate.

CHP, IP and the Islamist Felicity Party formed the Nation Alliance but they decided to fight the first round with their individual candidates. Whoever gets the second largest vote will face Erdogan with the support of the other parties.

Given CHP's electoral history and the recent emergence of IP, most analysts assume and most polls indicate that Ince will be the opposition candidate for the run off elections.

However, one polster (with a solid history for accuracy) recently suggested that Aksener had a comfortable lead over Ince and was likely to become the opposition candidate.

First round results

This is very interesting for a very good reason.

The Equations

According to the same polling company, if Aksener is the opposition candidate to face Erdogan, she gets 54 percent of the vote and becomes president.

Conversely, if Ince is the opposition candidate, he loses to Erdogan 57-43.

That's largely because Turkey's conservative center cannot bring itself to vote for a progressive candidate. In the eyes of this segment, Aksener being a staunch nationalist and a practising Muslim she is seen as a major departure from Erdogan himself.

This is substantiated by the fact that 80 percent of MHP voters and 15 to 20 percent of AKP voters are willing to support her against Erdogan. Whereas the support figures from MHP and AKP electorate for Ince go down to 20 and 7 percent respectively.

More interestingly, while some 35 percent of HDP voters are willing to vote for Ince in the second round, a staggering 65 percent declared that they would cast their ballots for Aksener. This, despite her past record about massacring Kurds.

It shows how pious and divided the Kurdish electorate is. Her Muslim identity is more important than her past as Turkish nationalist who waged a covert war against Kurdish separatists.

Nevertheless, Kurds are the kingmakers in these elections. HDP is expected to clear the 10 percent threshold for the legislative elections. If that happens, the AKP-MHP electoral alliance may no longer have the majority in Parliament.

Erdogan is so worried about that prospect that he got the Higher Electoral Board to relocate polling stations from pro-HDP villages to pro-AKP villages in southeastern Turkey.

I would not write Erdogan off as he is a wily politician with boundary issues: he will do anything and everything to stay in power.

In this instance, I think that would be the best option for the future of the country.

I will explain why in my next post.

The Looming Halkbank Fine

If you are like most people, the name of the state-owned Turkish bank will not mean anything to you. However, in a few days time, it might become the most important news item about Turkey's economic future and political stability.

I mentioned Halkbank, or Halk Bankasi AS (its full Turkish name) about two years ago as a major threat to Erdogan's political survival. It played a key role in the biggest sanctions-evasion scheme in recent memory.

Reza Zarrab, a dual Iranian-Turkish citizen helped Iran sell its oil and gas and buy goods by creating an alternative to the SWIFT network through Halk Bankasi.

It was a complicated setup.

Tehran then decided to use a bypass system based on Turkey’s Halkbank. SWIFT was sidelined first by setting up front companies in China. Money was sent to the Chinese bank accounts of these companies from Iran as if they were reimbursements for exports. That money was instantly transferred to front or real companies in Turkey, also as export reimbursements. Gold bought with that money was moved to Iran via Dubai.

According to the Foundation for Defense of Democracies (FDD), this "massive "gas-for-gold" sanctions-busting scheme yielded neighboring Iran some $13 billion in Turkish gold between 2012 and 2013."

In fact, this was just the tip of the iceberg as the FDD estimates that the actual sums were much higher.

The more we investigated, the more we realized that Zarrab’s schemes, which could have helped Iran pocket more than $100 billion, rank among the largest sanctions evasion episode in modern history.

Since the sanctions were designed to hamper Iran's nuclear program, you can imagine where at least some of that money went.

Zarrab took his family to Disneyland in March 2016 and was promptly arrested by the American authorities and indicted by Preet Bharara, the then US Attorney for the Southern District of New York.

After a long trial with many ups and downs, former Halkbank deputy general manager Hakan Atilla was found guilty on 3 January 2018 (along with two Turkish ministers who were charged in absentia) and he is awaiting sentencing. While the prosecution is asking 20 years, the judge postponed sentencing twice so far. It has just been reported that the sentence will be announced on Wednesday 16 May.

What is more interesting for our purposes is the fine that the Treasury Department's Office of Foreign Assets Control (OFAC) is likely to impose to Halkbank and perhaps six other Turkish banks.

Turkish analysts and markets initially appeared optimistic about the size of the fine. But people who are familiar with the BNP Paribas (BNP) believe that Turkey is in for a big surprise.

In a decision made in May 2015, a U.S. court imposed a penalty of $8.9 billion against BNP, including $8.8 billion that it said was equal to the amount of transactions identified as criminal. The agreement with BNP was conditional on it accepting full responsibility for the crime and convincing U.S. authorities that it would set mechanisms in place to ensure full compliance with the sanctions regime in the future.

Remember that the amount BNP was accused of laundering was $10.3 billion.

The fact remains that Halkbank has laundered at least four (4) times more money than BNPP. In addition, a former top level U.S. Treasury official testified at Mr. Atilla’s trial that U.S. officials had warned Mr. Atilla and other Halkbank executives not to violate U.S. sanctions on a few occasions. Moreover, Halkbank has had the benefit of BNPP’s example as a test case for what happens when banks violate sanctions regimes. As a result, any fine imposed upon Halkbank will likely exceed that of BNPP’s and any settlement will likely contain stricter and more rigid measures.

I got curious and called a friend of mine who is in senior management at BNP and put the question to him. He said that the BNP analysts believe that the fine will be between $30 billion and $100 billion.

I asked if their people could be mistaken as these are huge sums and they would certainly bring Turkey to its knees. His response was that, is OFAC followed the same guidelines, there is no way they can impose a fine less than $30 billion.

He also added that they might postpone the decision until after the upcoming Turkish elections on 24 June. He was implying that the results might determine the size of the fine.

What should be worrisome for Turkish companies is the fact that such fines are always accompanied with an admission of wrongdoing and we know that Turkey's bombastic president will never agree to issuing such statement.

And without one, Washington could designate Halkbank on OFAC's sanction list.

This designation would effectively cut off the bank’s access to the U.S. market. Since Halkbank is the largest listed bank in Turkey, such a designation could have serious repercussions not just for the bank, but for Turkey at large.

That would remove Halkbank's ability to do business in dollars. And that is a kiss of death for any bank.

Moreover, if the fine was very high and targeted the other six banks named, the economic repercussions would be very serious.

The evaporation of credit would bring household consumption and fixed capital formation growth downward significantly, subsequently bringing headline GDP growth down by about 1 percentage point compared with current projections. Depreciation of the lira would be more prolonged, the stabilization of which would deplete foreign currency reserves to dangerously low levels. The sharp weakening of the lira and concurrent drop in reserves would severely undermine the country's ability to meet external debt obligations. Net portfolio capital flows could be outward for several months, raising the likelihood of a current-account crisis. With markets unstable, inflation would spike.

Originally, the OFAC decision was scheduled for 17 May (I can't find the link but I know I read it somewhere). If my friend at BNP is correct, we will see it postponed until after 24 June.

But if it is announced before the elections and it is substantial then we can assume that Turkey is no longer useful for the longer term American regional plans.

------------------
UPDATE

The sentence came in as reported and it is just two years and eight months. Judge Berman was lenient:

Prosecutors had asked for at least 15 years in prison for Mr Atilla, 47, citing the seriousness of the crimes and the need to deter similar offences. 

But US District Judge Richard Berman said that the Halkbank executive appeared to have been “following orders” from the bank’s chief executive, Suleyman Aslan, who is one of several suspects wanted in the US in connection with the case, along with Zafer Caglayan, a former minister of the economy. 

“Mr Atilla was something of a cog in the wheel and, I would add, at times a reluctant one at that,” he said, arguing that he deserved a “lenient” sentence because of his minor role and otherwise “exemplary” life. 

But analysts believe that (a) the fine will come after the elections on June 24 and (b) it will be large enough to cause major disruption.

We'll see in due course.

Shooting White People While Being Mohamed Noor

Last July, a nice Australian woman called 9-11 to report a rape incident.

When the police car arrived at the scene, she was shot by one of the officers.

Now, as I noted at the time, this is something of a routine in the USA. You look directly into a police officer's eye you are shot. You look unhappy about being Tasered you are shot. You have the wrong skin color, you are definitely shot.

But in this instance, this is what I wrote:

Last year, 968 people were killed by police. This year, so far, 554. 

There were several issues with this one though. 

Otherwise it would not have made the headlines. 

First, she was a white woman. 

Second she was from Australia, an English speaking and relatively powerful country where the media can ask questions. 

Finally, the officer who shot her was called Mohamed Noor. 

Remember Philando Castile? Also in Minnesota. 

And countless others. 

But I predict that this time they will indict the officer. 

And throw the book at him. 

Because he shot a white woman from Australia while being Mohamed Noor.

Well, they just did. He is charged with third-degree and second-degree murder.

Don't get me wrong, I am not suggesting that this is an injustice for the officer.

Far from it. He should get punished for what he did and if you ask me, what they are proposing is rather lenient.

What I am suggesting that, under the same circumstances, Jeronimo Yanez who shot Philando Castile was charged with lesser crimes and, well, he was acquitted.

What I am also suggesting is that this case shows very clearly the racial bias in the US. When white police officers kill black people, it's all good. In fact, this is the majority of the shooting incidents I linked above.

And this what "All lives matter" idiots are trying to hide.

But when a Muslim officer kills a white woman, we know that "White Lives Matter."

Which was my point.

Nevertheless, I wish Justine Damond was alive and I didn't have to make this point.

But I also wish that Philando Castile was with us.

You know, all lives matter.

Really.