by Kristin McCracken

In the latest addition to the adventure genre, North Face (Nordwand), director Philipp Stölzl tells the story of Toni Kurz (Benno Fürmann) and Andreas (Andi) Hinterstoisser (Florian Lukas), two Nazi climbers who in 1936 made a daring attempt to ascend the north face of the Eiger. Known as “the last problem of the Western Alps,” this treacherous route seemed to defiantly challenge climbers near and far. Was it insurmountable? Who was brave enough even to try? Kurz & Hinterstoisser’s story is very well known in Alpine regions of Europe and in certain mountaineering circles, but the film is gripping—perhaps even more so— to those of us unfamiliar with their fate.



To a certain point, the Eiger was mastered earlier—and more visibly— than its Alpine peers: a train route was blasted through the mountain as early as 1912, allowing thrill seekers without any athletic ability the chance for breathtaking views from stomach-dropping heights. The film makes great use of these (and higher) vantage points, and depicts life both on the mountain and in the hotel nestled above the treeline just below the north face. In the summer of 1936, tourists at the hotel were afforded a front-row seat to the drama of the climb, attempted by both the German duo and their two Austrian challengers. In the film, one of these spectators is Kurz’s childhood sweetheart, and as we watch the events unfold through her eyes, we are kept in nail-biting suspense, rooting for these (Nazi, and thus unlikely) heroes. The film evokes such notable depictions as Kevin Macdonald's Touching the Void (based on Joe Simpson's marvelous book) and Jon Krakauer's Everest epic Into Thin Air.
 
Tribeca Film talked with Stölzl (also credited as one of the film’s writers) about the German mountain films that inspired him and the many challenges in bringing this story to the screen: developing the backstory, hunting for financing in the European market, making his Nazi characters endearing, and conquering the Eiger in his own unique way.
 
Note: It’s kind of tough to do an interview about the film without giving away the ending; to that end, what's posted here is spoiler-free. More of the story (with spoilers noted) is posted with the full article on TribecaFilm.com.


Philipp Stölzl

Tribeca Film: Please tell us a little about the old German climbing films that were your inspiration.
 
Philipp Stölzl: The climbing films were thought of as sort of a blockbuster genre in the 1920s and 30s. In Germany, people didn’t really travel far—the mountains were the main place for people to go, so they walked and they climbed. Because the more famous climbers were stock heroes, the admiration for climbing was reflected in the movie theaters; thus there were a lot of mountain movies in these years, starting in the 20s and ending during WWII.
 
TF: How did the Nazis get involved with these films, and with climbing?
 
PS: The Nazis loved mountain climbing. The whole idea of climbing fits into the way the Nazis saw death—dying for an ideal was a metaphor, that you could become a willing hero in the war against the rock. When you look at the early mountain movies, they are very symbolistic, with a visual type of language. They were connected to a German Romantic vision of nature, with the mountain as a character. The Nazis really, when you look at the Leni Riefenstahl’s [the Nazi propagandist] documentaries, clearly liked the powerful, visual language. After the war, people had to look for new images, since the mountains were loaded with the whole terror of the Nazis.


Spectators' view from the chalet/hotel at the foot of the Eiger

TF: Is the chalet at the foot of the mountain as it was in the 1930s, or has it been more built up? How realistic was its portrayal in the film?
 
PS: [The hotel] is still [virtually] the same [today], and would have been a prime location to shoot, but we couldn’t afford it. The historic part of what happened at the hotel is pretty realistic. The hotel itself has 60-70 beds, and given the timing [summer], it was sort of a tourist hotspot. The special thing about the Eiger is that there is a public arena—the hotel is at about 2300 meters [up the mountain, above the treeline], which is a very, very high spot for a tourist hotel. The train [through the mountain] was finished in 1912, very early—people were starting to make money off of nature; it’s sort of an early mass tourism place.
 
TF: The cinematography was breathtaking. How did you technically pull off the climbing scenes in blizzard conditions? Were they a combination of actual locations and sets? How grueling was the shoot on the mountain?
 
PS: The whole mountain stuff takes forever and forever—after a long, exhausting day, we would get one or two good shots. Then we shot a lot of documentary-style stuff: a couple of weeks in a mountain cabin, below the face. Then we shot using doubles [on the mountain], and then more main drama with the actors in a refrigerated set. We had a hall, normally meant to cool down vegetables, 15 degrees, and we just did our work inside, with rented snow machines like the ones ski resorts use.
 
TF: It still sounds brutal.

PS: It’s actually more brutal than shooting on a mountain, because at least there you are moving a lot. In the fridge set, you just stand around a wait, and you don’t need to haul everything, so you get cold.



TF: You are a mountain climber yourself. Can you identify with the need to conquer big challenges?

PS: I am familiar with it. I come from Munich, close to the Alps, and as a boy, I went climbing and walking easy routes. We went to all these locations, and I became sort of a more higher-level mountaineer. (I am far from climbing the North Face, but I spent a lot of time with professional mountain climbers.) After we finished the movie, a group of us climbed the Eiger—the actors, the producers, the cameraman, and me—but not the north face. It’s a two-day route. Because there is a train inside the mountain, you can get out on the backside. It’s one day through the glacier, and then you stay in a hut on a ridge, and then you start climbing up the ridge. It’s a beautiful route.

Continue reading on TribecaFilm.com (Warning: contains spoilers!)
More on Germany

This Week's Top Stories in Foreign Affairs:

Desperate or Deliberate Moves from North Korea?
Behind the bells and whistles of US President Barack Obama's State of the Union where the US President claimed that sanctions are working against North Korea, the international pariah state continued to make concrete belligerent moves in its foreign policy this week. The week began on Sunday with Pyongyang accusing Seoul of declaring war by announcing that it would make a preemptive attack if it suspected the South of planning a nuclear attack. Following this, the North has carried out a series of "military exercises" along a disputed naval border with the South, lobbing missiles and artillery towards the contentious line. Although Pyongyang calls these drills "routine", Seoul and its allies are watching tensely. Meanwhile, North Korea arrested another American in addition to Robert Park, a missionary who was arrested Christmas Day. This second American had allegedly trespassed into the isolated state evidently investigating human rights issues. This arrest is sure to raise tensions between Washington and the US again, just as they had been during the imprisonment of two American journalists earlier this year. Such tension was already evident as Washington rebuffed an offer from Pyongyang to reopen talks on locating American remains from the Korean War. The US responded to the proposal by saying that the North should first come clear and clean on its nuclear ambitions.

The State of the Union - What Else?
It was a given that something would be left out of US President Barack Obama's State of the Union address. Although the President focused much of his speech precisely on what it was intended to do (present the state of the union) many analysts and pundits have remarked that it was volume-low on foreign policy (only 11 out of 69 minutes). Why did he sideline foreign policy? Whether it should have included more foreign policy items is beside the point here. The items he brought up were competition in alternative energy markets, sanctions on Iran and North Korea, commitment to the Doha trade talks, and an urge to get trading partners to play by the rules for imports and exports. He also emphasized that the wars in Iraq and Afghanistan are winnable and controllable. Remarkably missing from the speech was any mention of Israel-Palestine, or instability in Pakistan and Yemen. Both of these nations are key fronts in America's war against terrorism, and have been a focal point in foreign policy. This is telling, as Secretary of State Hillary Clinton skipped out on the State of the Union address to meet in London with world leaders to discuss the deteriorating situation in Yemen and Islamist extremists' growing presence there.

War Reports:

Afghanistan/Pakistan
65 nations gathered at a Donors Conference in London to pledge support to the struggling nation and Afghan President Karzai sought to reassure international leaders that Afghanistan is on the right track. This was a tough task for Karzai, who's election was greatly contested and who has yet been able to name a complete Cabinet. During this conference, Karzai clearly stated his intention to foster reconciliation as a key component of his domestic policy, including making peace through tribal councils with Taliban leaders. This is in contrast to the American and NATO strategy to reintegrate low level factions of the Taliban. Taliban leaders have scoffed at this initiative. Meanwhile, a convoy bringing key NATO supplies to Afghanistan was attacked in the key port city of Karachi (a rare and troublesome occurrence).

Iraq
Three coordinated car bombs rocked Baghdad, and killed over 30 people on Monday. One target, the Hamra hotel, is a noted haunt for foreign journalists. Analysts believe this is an effort of insurgents seeking to undermine the upcoming Parliamentary elections on 7 March. Far more likely to disrupt the elections has been the Justice and Accountability Commission's insistence that its disqualification of hundreds of candidates, many of them Sunni, is legal and non-partisan. Some people have suggested, though officials have denied it, that Iranian influence has played a part in the Commission's decisions. Meanwhile, US and Iraqi security forces both confirmed that wanted insurgent Abu Khalaf was killed in the restive area of Mosul.

Analysis in Brief:

Palestinian reconciliation?
On Monday, analysts groaned that Hamas and Fatah were no closer to reconciling their nearly 3-year territorial split amid the expiration of the term of the Palestinian parliament. Then on Thursday, Hamas suggested it was interested in resuming talks via Egyptian moderators in Cairo. Meanwhile, Israeli Defense Minister Ehud Barak told Egyptian President Hosni Mubarak that it was willing to begin low-level talks with the Palestinian Authority. If this small goodwill translates into something larger then we could be in another round of Mideast negotiations.

Belarus buys in and Moscow Enhances Its Sphere of Influence
Following all the hype last week with pro-Russian v. pro-Russian runoff in Ukraine's elections, another former Soviet republic, Belarus, made news this week. Minsk and Moscow reached a deal after a month of back-and-forth proposals concerning oil deliveries. The agreement states that Belarus' tariffs for oil will only increase by 11 percent. It allows Europe to make a sigh of relief... until next year. Clearly, a solution for energy security for Europe is far off so long as nations like Belarus and Ukraine base large portions of national revenue on transit fees for natural resources.

Shaky Status-Quo in Southern Lebanon
Following a Lebanese Parliamentary resolution allowing Hezbollah to keep its arms as long as Israel poses a threat to Lebanese sovereignty and growing worry that Hezbollah is rearming, Israeli leaders have said that the entire Lebanese state, not just Hezbollah, will be the target of Israeli aggression should the border situation escalate. And more recently, Lebanese leaders have claimed to have obtained French guarantees to support Lebanese infrastructure in case of an Israeli attack. Despite this saber rattling on both sides, heads of the U.N. Interim Force in Lebanon (UNIFIL) remain optimistic that conflict will not break out again, though they say both sides could do more to promote peace.

First Peacetime Sri Lankan Elections
Incumbent Mahinda Rajapaksa is re-elected President with 58% of the vote against 40% for opposition leader General Sarath Fonseka. Fonseka says he is contesting the results and security forces surrounded his hotel, but this drama will subside with time. Both Fonseka. as former head of the Army, and Rajapaksa are credited with ending the 26 year civil war the Tamil Tigers. The political allies then suffered a split over who should receive credit for the victory. The winner is now tasked with actually rehabilitating and maintaining a peaceful country, a harder task than merely winning the election.

This Foreign Affairs Roundup can be read on the Simple Intelligence Site or the Huffington Post World Page every Friday.

More on North Korea

President Obama is Proposing a $5,000 Tax Credit for Each New Worker a Company Hires

(Originally posted at amazonwatch.org)

Ecuador's historic proposal to keep some 850 million barrels of crude that lay beneath the country's stunning Yasuní National Park hit a familiar roadblock last weekend, as President Rafael Correa undermined his own negotiating team, denounced foreign donors, and threatened to drill in the ITT oil block (named for the oil wells Ishpingo, Tambococha, Tiputini) in June.

The Yasuní-ITT initiative seeks international compensation to the tune of $350 million per year-half of its forgone oil revenues -- to permanently keep the oil in the ground and thereby avoid deforestation and the emission of some 410 million tons of CO2 that would be eventually be released into the atmosphere if the oil was extracted and consumed.

In his weekly radio address January 9, Correa slammed the team led by Minister of Foreign Affairs Fander Falconi for accepting conditions that were "unacceptable" and "shameful." Correa called the effort a threat to the country's sovereignty, just as the team prepared to seal a deal for an international trust fund administered by the UN Development Program which would help provide donor countries with financial guarantees, given Ecuador's politically turbulent history. The deal was to be signed and announced at a government press conference at the COP15 climate negotiations in Copenhagen, Denmark last December. But due to internal conflicts, the announcement had been scuttled at the last minute.

"Let the northern countries keep their money," Correa declared, sending shock waves through Ecuador and the world, who had rallied around the proposal. This was not the first time Correa has auto-sabotaged the initiative's chances, though it may have been his last opportunity, as the proposal's credibility and donor confidence may be beyond repair.

Joan Martinez Alier, a professor at the Autonomous University of Barcelona, Spain, has been instrumental in the design of the proposal and a founder of its core principle of climate debt.

"For President Correa, it wasn't enough to boycott the signing of the trust fund with UNDP from afar, he had to destroy the entire initiative," says Martinez Alier. "Maybe he felt cornered by the reality that finally the trust fund would be established, the environmentalists would win, the prospect of oil drilling snuffed out, so he undercut his own Minister and negotiating team, and questioned the integrity of the UNDP under the pretext that the terms of the agreement were 'shameful'."

Launched in 2007, the project is a bold proposal from a net oil exporter and OPEC member, seeking to keep its largest oil deposit-some 20% of its reserve -- permanently underground. The initiative is the first of its kind, and a sea change from past administrations' drill-baby-drill policies that have destroyed much of the Amazon and saddled the country with close $14 billion in external debt. The initiative was based on the idea of "climate debt" -- that countries in the North (Annex 1) bear a historic responsibility for global environmental problems like climate change due to their continued level of exorbitant resource consumption, and therefore owe a debt to developing countries in the global south who have differentiated, but shared responsibilities.

Yasuní National Park is a United Nations Biosphere Reserve and home to some of the planet's last indigenous peoples living in voluntary isolation. Yasuní is comprised of more than 2.4 million acres of pristine primary tropical rainforest and boasts the highest concentration of floral and faunal species anywhere in the world. The park contains some 4,000-plant species, 173 species of mammals and 610 bird species, and almost as many tree species in 2.5 acres as found in all of North America. Yasuní also contains more than 100,000 insect species per hectare -- the highest level of insect diversity in the world. In 1999, the Ecuadorean government designated 1.8 million acres of the Park as a "No Go Zone," prohibiting any type of resource extraction in perpetuity. The reserve is home to the Tagaeri and Taromenani, two nomadic clans of uncontacted Huaorani indigenous people living in voluntary isolation.

But despite its unique vision, the project has been riddled by contradictions from the Ecuadorean government since its announcement in 2007. After the official launch of the proposal, Correa's explanation of the initiative led many around the world to believe it was a ransom, rather than an effort to save one of the world's most important places and a proposal for joint North-South cooperation in a country where oil accounts for 60 percent of its exports. The government's insistence on a 1-year deadline to raise close to $4.5 billion dollars, was also seen as an impossibility by potential donors and undercut the proposal's perceived viability. Financial and political guarantees were slow in coming, in part because there were three Foreign Affairs ministers in three years.

While the government made the case for using the funds to make a transition to cleaner, sustainable energy, among other national development priorities, Correa's administration instead approved drilling in an oil block next the ITT and inside Yasuní, and granted dozens of new mining concessions.

The project has also been questioned over the last few months for changing its financial compensation mechanism to include the potential use of carbon markets, and the controversial UNFCCC mitigation program REDD (Reducing Emissions from Deforestation and Degradation).

With each advance, Correa hobbled the initiative. Many wonder whether this was just his latest act of sabotage to an initiative that has insulated him from environmental groups' criticism, all the while laying the groundwork for drilling. Insiders point to factions within Correa's cabinet that did not want a deal to be signed, as well as last-minute pressure from Petroecuador and other interested oil companies.

Many contend that there has been an internal boycott of the initiative by Petroecuador since the initiative was first launched. Indeed, a recent article in the El Comercio newspaper contends that Petroecuador has been actively preparing drilling plans for months. At a press conference the day following his resignation, Falconi declared, "Evidently there are oil interests wanting to drill."

Since his last surprise announcement, the government has proclaimed anew that it is committed to the initiative, and that it will hire new staff. It has also backed away from his threat to begin drilling in June 2010. But in doing so, Correa has backed himself into a corner. Not only does this appear to be the nail in the coffin for the proposal, but the initiative itself has raised the profile of Yasuni's importance to a global level, which will make any drilling in ITT risky business for any company, and a political liability for President Correa.

Under Ecuador's constitution, no oil drilling is allowed in national parks, unless it is of 'national priority.' If a project is indeed deemed so, as the ITT block is, then a national consultation would have to be carried out. Correa himself said that if the proposal fails, he would call a referendum, asking Ecuador's public whether drilling should occur. He also offered to put his own position on the line to ask civil society whether he should continue as the Andean nation's president.

However, by their own choice, the Tagaeri and Taromenane don't have a vote, and no one should have the right to decide their fate for them. Unfortunately for both uncontacted groups and for the world, the fate of Ecuador's visionary solution to address climate change may have met its long foreseen end.

More on Gas & Oil

Designed to help small businesses, two proposals would reward companies for hiring new workers and for giving pay raises or increasing the hours of existing workers.

Acting quickly on a pledge in his State of the Union address, President Obama today will unveil a proposal to give a tax credit of up to $5,000 to companies for every new employee they add to their payrolls this year.

WASHINGTON — The Senate voted Thursday to allow the government to go a whopping $1.9 trillion deeper in debt, offering a vivid election-year reminder that the government has to borrow 40 cents of every dollar it spends.

The measure would put the government on track for a national debt of $14.3 trillion – more than $45,000 for every man, woman and child in the United States. And the debt is increasingly held by foreign nations such as China.

The budget for the current year is about $3.5 trillion and the deficit will probably match last year's $1.4 trillion. The government would have to borrow to cover that $1.4 trillion.

The measure passed 60-39 under ground rules insisted upon by Republicans that required 60 votes to pass it. Democrats and allied independents control 60 seats – for now – and were only able to win the vote because Republican Sen.-elect Scott Brown of Massachusetts has yet to be seated.

While Thursday's vote went smoothly, it came after weeks of difficult negotiations between the White House and both House and Senate Democrats.

Moderate House "Blue Dog" Democrats came away with a tough new "pay-as-you-go" budget law to make it harder to run up the deficit with new tax cuts or federal benefit programs. Senate Democrats won a promise from President Barack Obama to name a bipartisan task force to come up with a plan for dealing with the spiraling debt – but one whose recommendations are unlikely to ever see an up-or-down vote.

Meanwhile, Obama won symbolic support for his proposal for a partial domestic spending freeze.

A 56-strong majority of senators supported a plan, by Sens. Jeff Sessions, R-Ala., and Claire McCaskill, D-Mo., that was strikingly similar to Obama's freeze on domestic programs annually funded by Congress. It failed because 60 votes were required, but the tally serves as a positive sign that even though there's significant opposition from Democratic liberals, Obama's domestic freeze is likely to be adopted when Congress debates its budget.

The debt limit increase comes as a relief to Democrats worried about having to cast multiple, bite-sized increases in the debt in the run-up to the critical midterm elections this fall. Instead, the new limit would allow majority Democrats to avoid another vote until after the midterm elections this fall.

The House is slated to vote on the debt legislation next week to send it to Obama to be signed into law. The new pay-as-you-go rules, approved by the Thursday on a 60-40 vote, should help House leaders round up the votes, despite the political anxiety caused by Brown's stunning win in heavily-Democratic Massachusetts last week.

The new budget rules are designed to curb the spiraling deficit by requiring spending increases or tax cuts to be "paid for" with cuts to other programs or tax increases. If the rules are broken, the White House budget office would force automatic cuts to programs like Medicare, farm subsidies and veterans' pensions.

The idea is that the threat of cuts to such popular programs would be enough to block Congress' free-spending ways, but skeptics say lawmakers can find ways around them fairly easily. Weaker pay-as-you-go rules are in place already, but have been routinely waived.

The new rules would have the force of law and would make it harder to extend permanently some tax cuts – especially on large estates and middle-class tax filers threatened by the alternative minimum tax – that expire at the end of this year.

Lawmakers would be able to extend President Bush's middle-class tax cuts past their expiration a year from now even though they would add another $1.4 trillion to the debt over the next decade. But the top rate for individuals making more than $200,000 and couples earning over $250,000 would rise from 35 percent to 39.6 percent.

Extended unemployment benefits for the long-term jobless coming to a vote next month may also be exempt at a cost of tens of billions dollars more.

Republicans generally opposed the rules as a recipe for tax increases. There had been a few GOP supporters in the past, but Republicans who had voted for the rules in earlier years switched their positions and opposed them.

They included John McCain of Arizona, facing a primary battle with former Rep. J.D. Hayworth, who's winning support from conservative anti-tax "tea party" activists.

Obama's promise to name a bipartisan deficit task force promises to have less of an impact.

Unlike a proposal rejected this week that would legally bind Congress to vote on a commission's plans, there's no way to force the Senate to take a vote on the panel's recommendations. Those would likely blend tax increases with painful spending curbs to programs like Medicare, Medicaid and Social Security – which would probably die as a result of a filibuster.

The President wants businesses that hire new employees this year to get $5,000 per hire, in the form of a tax credit. That will come to about $33 billion. It's good step. He's also supporting a cut in the capital gains tax for small businesses. That makes sense; after all, small businesses generate most jobs.

But here's the problem. Both of these measures, and many of the other tax cuts he's proposing, give ammunition to supply-siders who think the way out of this awful economy is simply to cut taxes on businesses. If a new jobs tax credit is a good idea, why not a cut corporate income taxes? If it's useful to reduce capital gains taxes for small businesses, why isn't it useful to reduce them for all businesses?

The answer, of course, is that across-the-board supply-side tax cuts for businesses don't increase the demand for the things businesses produce. They're useful only to the extent businesses are confident consumers are out there, able and willing to buy. Carefully targeted -- as are the cuts the President is proposing -- they can give businesses an extra nudge to hire. But without adequate demand, they're useless.

So what's the President's new proposal for boosting overall demand? Hmmm. Turns out, he's not really proposing anything new on that score. (Some who watched his State of the Union the other night thought they heard him call for a second stimulus. Actually, he didn't, and as far as I can tell he doesn't plan to.) His political advisors are telling him to emphasize deficit reduction instead. And that's what he did Wednesday night when he talked about a "freeze" on discretionary spending, and a "commission" to look for ways to cut the deficit.

I can understand why Obama's political advisors are pushing him in this direction. Many Americans borrowed too much during the boom years before the Great Recession, and now they're paying the price. So they naturally analogize their own plight to that of the federal government and the economy as a whole. The government is too deep in debt, they reason. Logically, that means the only way out of the nation's economic doldrums is for the government to mend its ways. The government has to reduce its budget deficit just like American families have to reduce theirs.

This analogy is faulty, of course. If John Maynard Keynes taught us anything, it's that a federal budget is not at all like a family budget. In fact, it's precisely because families have to pull in their belts that the federal government has to let its belt out. When consumers and businesses aren't buying much of anything, the government has to fill the gap. That's the only way to get jobs and get the economy moving again. Once the economy is percolating, the government can pull back. By then, tax revenues will soar, and the long-term deficit will shrink. (And yes, entitlement reform is probably necessary in the long term. But here again, it's vitally important to separate the long term from the now.)

But if the public learns the wrong set of lessons -- that tax cuts for businesses are good, and deficit reduction starting now is good -- there's no hope for getting wise policies out of Congress. The debate is framed all wrong.

The President -- any president -- is the nation's educator in chief. Everything he proposes contains an implicit lesson. The economic lesson President Obama ought to be teaching is that targeted tax cuts, mostly for small business, are good to the extent they give businesses a nudge toward creating more jobs. But businesses won't begin to create lots of jobs until they have lots of customers. And that won't happen until lots more Americans have work. The only way to get them work when businesses aren't hiring is for government to prime the pump.

One final lesson I wish he'd teach: The best and fastest way for government to prime the pump is to help states and locales, which are now doing the opposite. They're laying off teachers, police officers, social workers, health care workers, and many more who provide vital public services. And they're increasing taxes and fees. They have no choice. State constitutions require them to balance their budgets. But the result is to negate much of what the federal government has tried to do with its stimulus to date.

We need a second stimulus directed at states and locales. I wish our educator-in-chief would say that loud and clear, explain why, and then do it.

Cross-posted from RobertReich.org.

More on Barack Obama

Today at El Centro del Pueblo in Echo Park, we got this tax season off to the right start by letting residents know that FREE tax assistance is available. During this period of financial instability, families throughout Los Angeles need as much support as possible.

Most residents can't afford to hire an accountant to sift through the pages of the federal tax code and too many assume that they have nowhere to turn for assistance. So today, we sent a clear message to low-income residents:
We will not allow you to miss the opportunity to cash in on your hard work.

We want to ensure that ALL qualifying households can reap the benefits of the Earned Income Tax Credit, or EITC. Local families can visit Volunteer Income Tax Assistance (VITA) sites and receive FREE help with their tax returns.

Tax preparation experts will be on-hand to take you step-by-step through the process and make sure low-income, working Angelenos claim the EITC - one of the most effective ways to alleviate poverty and one of the surest routes to sound financial footing.

In 2009, local VITA and AARP Tax-Aide sites helped residents collect approximately $13.5 million in extra tax credits-a 23% increase from previous year-and $36.8 million in total tax refunds-a 45% increase. Through the help of nearly 2,000 volunteers, we saved over 39,000 low-to-moderate income tax filers $6 million in basic tax preparation fees.

This year, the credit can translate to a refund of up to $5,657, a figure that can equal nearly two months of income for many families.

And this year, through our FamilySource Centers and One-e-App system, we have added 21 additional free tax preparation sites which include screening for EITC eligibility.

The success of this effort rests on volunteers, so if you believe in this program like I do consider donating some time to make sure Los Angeles families get the tax credits they deserve.

To determine your eligibility for EITC or learn about volunteer opportunities, dial 2-1-1 or go to http://www.EITC-LA.com.

No hard-working family should ever lose the chance to get ahead - especially when resources exist and assistance is available. Together, let's make this tax season a bit more pleasant for everyone.

More on Family

No matter which way you look at it, the picture that is emerging of the Federal Reserve, as revealed by the ongoing probes into its AIG bailout, is singularly unflattering.

The explanations for its actions can only support one of two interpretations: that the Fed was a chump, taken by the financiers, or a crony, and was fully aware that it was not just rescuing AIG, but doing so in an overly generous way so as to assist financial firms in a way it hoped would not be widely noticed or understood. The problem with this sort of back-door subsidy, aside from its dubious propriety, is that at best, it's sorta random (who benefits isn't necessarily who is in most need or more deserving of help, just who happens to be lucky enough to be associated with AIG train wreck), and at worst, it rewards stupidity and duplicity.

For the Fed, if it was mainly engaged in "Fed as crony" behavior, that bodes ill for the central bank's future, since it means it has been lying to the public as to why it did what it did. As investigators keep digging, for they will be certain to find evidence that the various explanations that the Fed has given for its actions will be at odds with its internal debates. If you think the Fed's reputation is bad now, just wait to see what happens if it emerges that it was engaged in deception.

Although the focus of press and public attention has been the decision to pay out "100%", this issue has not been framed as crisply as it should be. Remember, the underlying transactions were crap CDOs that the banks (or bank customers, a subject we will turn to later) owned, and on which the banks had gotten credit default swaps from AIG. The Fed in fact paid out WELL MORE than 100% on the value of the AIG credit default swaps by virtue of also buying the CDOs.

Recall the sequence:

1. Fed authorized $85 billion credit facility in September 2008

2. In early October, AIG pays out an additional $18.7 billion to its CDO counterparties, bringing their total collateral to $35 billion (against CDOs with a par value of $62.1 billion) So the dealers had already received 56% of par value at this point (remember, possession is 9/10 of the law).

3. In early November, it looks as if AIG will have to pony up more to its counterparties if it is downgraded, as it presumably will be once it releases crappy earnings. Resulting collateral calls might exceed the remaining amount of the $85 billion loan facility. Fed goes into panicked overdrive, decides of all its options for dealing with the AIG black hole, the best is to buy the CDOs, thus eliminating the need to worry about those pesky CDS.

What we need to stress here, before going into the chump vs. crony theories, is that buying the CDOs in order to terminate credit default swaps is not normal protocol. The Fed could have negotiated a cash settlement (which probably would have amounted to letting the counterparties keep the collateral, with some further adjustments based on the usual arm wrestling. This by the way, could have constituted a 100% payout on the credit default swaps (ie. the decision to pay out in full on the CDS was separate from the decisions to acquire the CDOs), but it would have left the banks with the CDOs. That would have been well short of $62.1 billion; all the dealers felt then that the CDOs had some value (while their marks also said that, dealers have been known to mark paper at unduly high prices to avoid reporting losses; with AIG's credit-worthiness in doubt, the bankers' accountants presumably required markdowns on the credit default swap hedges, which might give some banks an incentive to be less aggressive in reducing the value of their CDOs). That implies the credit defaults swaps themselves were worth considerably less than 100 cents on the dollar.

Buying the CDOs was an unnecessary step and increased the amount paid by the Fed, through AIG, to the counterparties. Moreover, the Fed has gone to unusual, even bizarre, lengths to keep matters regarding the CDOs themselves secret (a good bit of the discussion at the House Oversight Committee hearings on Wednesday today revolved around this issue; we've discussed previously why the Fed's arguments for secrecy do not add up; we will return to this subject at later today at Naked Capitalism).

So let's see how these theories stack up. Each has supporting evidence.

Fed as Chump

This viewpoint boils down to the old saw about poker: if you sit down at a poker table and you don't know who the mark is, by definition, it is you.

The Fed has long believed that the financial crisis was a liquidity event, that investors panicked, but the prices of securities of all sorts fell below "rational" levels. From Bernanke on down, the Fed has made various pronouncements taking up the theme that securities prices, particularly in the October 2008 through March 2009 time frame, reflected irrational despondence. Funny how once Greenspan dared admit in 1996 there might be such a thing as irrational exuberance, not only that turn of phrase, but the very concept, seems to have been expunged from permitted reasoning at the central bank. Not only does the Fed seem constitutionally unable to admit that it was asleep at the switch during the rise of a global credit bubble, but that cheap credit leads to overvalued assets. So asset prices will fall as cheap credit is withdrawn. The Fed has fought this process tooth and nail, believing it can validate asset prices by pulling the right levers (see here for a long-form version of this logic and my objections to it).

So why did they buy the CDOs? Get this: one argument is that they wanted the upside. Huh? That means:

1. They seem to have forgotten that where there is upside, there is also downside. They took a speculative position. This went well beyond what was necessary to deal with the AIG mess

2. They thought they had a better perspective on value than the banks themselves. This is staggering. They have NO idea how these deals are structured, no day-to-day involvement in the subprime, Alt-A, or commercial real estate markets. They are at a massive information disadvantage. The idea that the Fed could make a better trading bet than the banks themselves is a remarkable combination of hubris and stupidity.

While there might be reason to think that prices of liquid assets had overshot on the downside, assets like CDOs that don't trade and are (in this case) priced on cash flows which reflect, among other things, expected defaults and loss severities, are quite another matter. And here, the Fed (its valuation claims to the contrary) looks to have gotten it badly wrong. Per Tom Adam's analysis, at the time Maiden Lane III (the vehicle that bought the CDOs) was created, 19% of the portfolio had been downgraded to junk. Currently, it's 93% below Baa3 according to Moody's, the more conservative of the two major ratings agencies.

More confirmation of the "Fed as chump" theory comes via its reliance solely on BlackRock for advice on the CDOs, particularly once it had set up Maiden Lane III (and recall BlackRock is also managing Maiden Lane I, the Bear bailout entity, and Maiden Lane II, which was created to deal with AIG's securities lending mess). I'd be curious to hear additional reader input, but I am told that private managers of portfolios of this size would have at least two portfolio mangers to give them different views and to compete. But the government would set its criteria for these assignments in such a way that Pimco and BlackRock were the only viable candidates. By contrast, there are asset managers and consultants that are not as large but are very skilled in the CDO space.

The Fed was also played by the French regulators, and perhaps their banks. One of the arguments for the Fed not pushing for a haircut on the credit default swaps, as other banks had accepted in dealing with a distressed insurer, was that French law prohibited it. But this was false, since Societe Generale and BNP Paribas took very large haircuts to close out credit default swaps with Ambac, another bond insurer.

Other examples of Fed naivete comes from e-mails recently made public as a result of the House Oversight Committee investigation: its surprise that AIG might have to make disclosures regarding the bailouts, its clumsy and aggressive efforts to keep matters under wraps, and its reluctant recognition that too many people were party to what went down to maintain secrecy.

Fed as Crony

Although we'll set forth the fact pattern that gives credence to this notion, the most powerful support comes from the Fed's seeming desperation to maintain secrecy, particularly around Maiden Lane III. The Fed's arguments here do not hold up. In Congressional testimony today, the Fed, particularly the general counsel of the New York Fed, Thomas Baxter, argued that keeping transaction-level detail secret, was necessary to maximize value of Maiden Lane. As we have discussed earlier, and continue in more detail in a related post, that is bunk. And that begs the question of why the Fed is so insistent on holding the line here. While it may be imperial overreach and fear of starting down a slippery slope of disclosure, the Fed's bobbing and weaving under the hot lights FEELS like a cover-up.

Moreover, the Fed has withheld information requested via subpoena from both SIGTARP and the House Oversight Panel. That says they are awfully keen to hide...something. That sort of intransigence is a red flag before a bull. The fact they hoped they could get away with it is troubling, and strongly suggests something is amiss.

Now mind you, the Fed's cronyism does NOT have to come about via corruption or other nefarious reasons (the stonewalling could be to protect Geithner and Bernanke; for instance, they could have given testimony that is contradicted by internal evidence). The Fed appears to be captured by the industry, so badly that it is unable to recognize how distorted its perspective has become. This means it will vociferously defend the industry and individual firms.

So what is sus about the Fed's conduct? Consider:

1. The Fed's unusual step of buying the CDOs provided nearly $30 billion more in liquidity to a small number of banks. To put that in context, the first of the Fed's emergency rescue programs, the Term Auction Facility, was at its outset a $40 billion program open to a much larger universe of firms and provided 28 day loans, not a permanent transfer.

2. The insistence that the Fed was up against a hard deadline of November 10. In response to questions today, Baxter insisted that the Fed had to have a new program in place by November 10, because that was when AIG would announce earnings and a rating agency downgrade seemed inevitable, which would lead to more collateral calls.

But that is misleading. First, even if the rating agencies issued their downgrades that very day, the collateral payment was not due that day. There would be some sort of time delay, not long, but I would guess 3-5 days (I assume expert readers will advise me and I will revise the post accordingly). Perhaps more important, it is typical when parties are negotiating to agree on waivers. How hard would it be for the Fed to obtain a waiver if it were negotiating an exit from the AIG CDS? Answer: not very if good faith negotiations were under way. At worst, the Fed could have had AIG make a partial collateral payment out of the remain credit line while discussions continued.

3. The Fed had done nothing to understand the CDS market or prepare for a crisis. Many observers believe the reason that Bear was not allowed to fail was that it was a significant counterparty in the credit default swaps market, that letting any big CDS player go could produce a domino effect, creating a wave of counterparty failures that would lead to systemic collapse. Aside from the backlash against the Bear rescue, Lehman was presumably dispensable despite its larger size because it was not as big a participant in the CDS game.

Since the CDS market was obviously a major source of risk and firms that were big CDS players (Merrill, Morgan Stanley, UBS) were seen as vulnerable, it would seem to be Job Number One of the Fed/Treasury to do some meaningful investigating to see how big the risks were and do some contingency planning (don't even try telling me the Neel Kashkari "break glass" memo mentioned in Sorkin's Too Big To Fail amounted to "planning". You can't plan if you don't understand the terrain. And the "plan" was clearly too high concept to be useful when the dominoes did start to fall).

Now of course, preparation for an investment bank bankruptcy, which would lead (among other things) to a hard look at the credit default swaps market; failure to do so could fit the "Fed as chump" theory, that the authorities dropped the ball, big time. But the powers that be have shown a remarkable lack of interest in real diagnostics throughout. By contrast, the Bank of England, twice a year, puts out a Financial Stability Report than runs rings around anything I have seen the Fed prepare. When UBS got itself in so much hot water that it needed a rescue, the Swiss Banking Federation made it conduct an internal investigation (conducted by outside parties) and make two reports: one to the public, in the form of a report to shareholders that was very detailed, and an even more extensive one to the authorities.

The lack of interest in either post-mortems or planning suggests that the Fed does not want to know. And who would that lack of curiosity benefit? The Fed itself (as in not exposing past policy failures) and of course, the industry (not exposing incompetence and misconduct).

If that is not a misguided set of (implicit) priorities, I don't know what is.

4. As we discuss separately (the new post on this will be up later today), the Fed keeps trying to keep transaction-level detail on Maiden Lane III under wraps, even though its arguments defending this action make no sense. That suggests there must be other reasons. One is that ML III is really not doing so well, despite valuation reports that say otherwise; the second is that digging into the transactions would be embarrassing to the Fed or the counterparties themselves.

4. A look at transaction detail (that is, the stuff the Fed has been desperate to hide), and counterparty exposures (which we have put together, not just CDS counterparty, but lead bank on the CDO, which in a surprisingly large number of cases is different than the CDS counterparty), suggests at a minimum pervasive patterns of really abysmal counterparty risk maangement amongst the AIG counterparties; notably, massive Goldman exposure, along with apparent efforts to conceal it. Thus the reluctance of NY Fed to disclose information about the counterparties begins to look like a possible case of regulatory capture. Or maybe, yet another case of credulity of experts.

As much as the Fed seems awfully eager to close this chapter, enough parties with subpoena are taking interest that l'affaire AIG is going to be scrutinized in exhaustive detail. The dirt will come out. Given the Fed's past record on disaster planning, if there is something serious they are hiding, they are likely to be inadequately prepared for the blowback.

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