This book is a MUST READ. Of course it is old now and the 911 inside job has uncovered a much deeper level of a criminal empire. BUT IT IS CRITICALLY IMPORTANT for us to have an understanding of the ways that our democracy is undermined by the ILLEGITEMATE OWNERS of this world. The book is freely availabe from zmag.org website. Blogspot adaptation by u2rh2.
Thursday, November 20, 2008
Noam Chomsky photo and recent article
jamal saidi/reuters/file 2006
BOSTON GLOBE writes: Let's set aside the sticky little journalistic concept of objectivity for a minute, shall we?
HAHA, don't they do this habitually and as a matter of principle? A corporate newspaper LIES for PROFIT, basta!
SRI LANKA - Sunday Times: www.sundaytimes.lk/081116/International/sundaytimesinternational-02.html Barack Obama's victory has caused a mixed response from various sources. On the cautious side we have an intellectual giant like Noam Chomsky claiming like all US Presidents, Obama too would be held hostage by the big boys of big business - or the plutocrats - who actually run the nation and by extension the entire world.
US Presidents are corporate puppets one and all.
25 Most Important Stories the Media Isn't Reporting
Project Censored conducts research on important national news stories that are underreported, ignored, misrepresented, or censored by the US corporate media. Each year, Project Censored publishes a ranking of the top 25 most censored nationally important news stories in the yearbook, Censored: Media Democracy in Action.
Founded by Carl Jensen in 1976, Project Censored is a media research program working in cooperation with numerous independent media groups in the US. Project Censored’s principle objective is training of SSU students in media research and First Amendment issues and the advocacy for, and protection of, free press rights in the United States. Project Censored has trained over 1,500 students in investigative research in the past three decades. Through a partnership of faculty, students, and the community, Project Censored conducts research on important national news stories that are underreported, ignored, misrepresented, or censored by the US corporate media. Each year, Project Censored publishes a ranking of the top 25 most censored nationally important news stories in the yearbook, Censored: Media Democracy in Action, which is released in September. Recent Censored books have been published in Spanish, Italian and Arabic.
The Project works in cooperation with SSU academic classes Sociology of Media and Sociology of Censorship, where students earn credit for their research and participate in writing the annual yearbook. Additionally, Project Censored sponsors and supervises over 60 student interns a year who do in depth investigative research, sponsor campus events and speakers, and organize an annual national Media Accountability Conference. Students also participate in writing the Project Censored quarterly newsletter (circulation 9,000) and assist with maintaining the Project Censored website www.projectcensored.org, which receives over a million views a month from all over the world.
Between 700 and 1000 stories are submitted to Project Censored each year from journalists, scholars, librarians, and concerned citizens around the world. With the help of more than 200 Sonoma State University faculty, students, and community members, Project Censored reviews the story submissions for coverage, content, reliability of sources and national significance. The university community selects 25 stories to submit to the Project Censored panel of judges who then rank them in order of importance. Current or previous national judges include: Noam Chomsky, Susan Faludi, George Gerbner, Sut Jhally, Frances Moore Lappe, Michael Parenti, Herbert I. Schiller, Barbara Seaman, Erna Smith, Mike Wallace and Howard Zinn. All 25 stories are featured in the yearbook, Censored: The News That Didn’t Make the News.
Project Censored is administered through the SSU Sociology Department with financial support from the SSU Instructionally Related Activity Fund, School of Social Science, Media Freedom Foundation Inc. and donations from thousands of supporters around the country.
In the Daily Camera (Aug. 25), Professor Howard Smokler, responding to a column by Nat Hentoff (June 30), writes that I have "hurt and offended" him by two actions concerning Robert Faurisson, who in 1980 published a book entitled Memoir in Defense Against Those Who Accuse Me of Falsifying History in which, according to Smokler, "he charged that 'the myth of the gas chambers' originated in certain American Zionist circles around 1942 ... "The two actions are: 1) that I "defended Faurisson's right to publish these falsehoods," and 2) that "in a letter to the historian Lucy Dawidowicz, (I) expressed complete agnosticism on the subject of whether Faurisson's views were 'horrendous." I will return to the first point. As for the second, it is not clear on what grounds Professor Smokler might be hurt or offended by a personal letter, which I presume he has never seen, written to a third party, but the question is academic, since he has grossly misinterpreted its contents.
The relevant facts are as follows. Faurisson was a professor of French literature at the University of Lyon. After he published some items in which he denied the existence of gas chambers, he was suspended from teaching on the grounds that the university could not protect him from violence. He was then brought to trial for "falsification of history," and condemned -- the first time in the West, to my knowledge, that the courts have affirmed the familiar Stalinist-fascist doctrine that the State has the right to determine historical truth and to punish deviation from it. I was one of 500 foreign signers of a petition urging that Faurisson's civil rights be respected. Shortly after, in a letter of Sept. 10, 1980, Ms. Dawidowicz wrote me asking whether I "had signed a statement defending Robert Faurisson's right to speak his views," and if so, "what reason compelled me to sign it." On Sept. 18, I wrote her that I had indeed signed a statement defending Faurisson's right to speak his views. As for my reasons, I wrote that "I signed the appeal because I believe that people have the right of freedom and expression whatever their views, that the importance of defending these rights is all the greater when the person expresses views that are abhorrent to virtually everyone (as in this case), and that this becomes particularly important when the person in question is thrown out of his academic position," and subjected to other ill-treatment. I did not know then about the "falsification of history" trial, and had never heard of Faurisson's book, which appeared three months later; this book, as the title indicates, was a defense against the scandalous charges for which he was later sentenced, dealing specifically with the charge that he had falsified the diaries of Nazi doctor Johann Paul Kremer.*
[*Faurisson was not convicted of falsifying history; the Paris Court of Appeals upheld a guilty verdict based on "personal damages" likely to arise from "passionately aggressive actions against all those ... implicitly accused of lying and deception" by the results of Faurisson's research. (Ed. note)]
I also wrote to Ms. Dawidowicz that I was shocked by her query as to why one should defend freedom of speech. I remain shocked today. I might add that no question has ever been raised on the innumerable occasions when I have signed similar petitions for people with all sorts of views, often views of which I know nothing or which I know to be horrendous, or when I have taken far stronger and more controversial stands in support of civil liberties, for example, when I supported the right of American war criminals not only to speak and teach but also to conduct their research, on grounds of academic freedom, at a time when their work was being used to murder and destroy (no one accuses Faurisson of being a war criminal or claims that his work is contributing to massive ongoing crimes). I might note that the utter hypocrisy of Smokler, Dawidowicz and their circles more generally is very clearly demonstrated by the fact that they are "hurt and offended" by my defense of the right of free expression in the Faurisson case, but not by far more controversial and extreme actions of mine in defense of the same rights for people they find more congenial.
I went on to inform Ms. Dawidowicz that I knew very little about Faurisson's work, so that while it may be "horrendous," as claimed by his critics, I obviously could not comment. This is what Smokler reports as an expression of "complete agnosticism." Apparently, he is willing to pass judgment on matters of which he knows nothing, but I am not, and the fact that a person is universally denounced does not suffice for me to join in the parade without at least looking at what he has to say, which I had not done in this case and had no particular interest in doing: I am willing to wager that Smokler has never read a word by Faurisson, nor is there any reason why he should. Furthermore, as I wrote to Ms. Dawidowicz, the nature of his views is, plainly, completely irrelevant to the issue of his right to express them, a truism among civil libertarians that those of a Stalinist-fascist persuasion find quite shocking.
I have discussed Smokler's second charge, based on his distortion of the personal letter to Dawidowicz to which he alludes. Let us consider the first charge. Here he is correct. I do defend the right of Faurisson to publish falsehoods, as I defend the right of anyone else to do so, including Professor Smokler. As I wrote to Ms. Dawidowicz in the letter that Smokler misrepresents, "I thought that all of this had been settled in the 18th century, but apparently others do not agree," including Professor Smokler. He states that my support for familiar Enlightenment principles and my rejection of the Stalinist-fascist doctrine that he advocates hurts and offends him. I am afraid I have no apologies to offer about that. Smokler goes on to deny at length a claim that was never made, either by me or by Nat Hentoff: namely, that my "political rights," including the right of freedom of speech, were denied in the three incidents mentioned by Hentoff: namely, 1) a request by students at Cornell Medical School that I withdraw as commencement speaker (as I did) because my views on Zionism so offended them that the occasion would be spoiled for them no matter what I spoke on; 2) the withdrawal of an invitation by the Middle East Center at the University of Michigan after pressure by faculty members who demanded that I not be permitted to speak on the Middle East at the Cleveland City Club, evidently under some form of pressure. Smokler is quite right to say that there is no issue of freedom of speech in these cases, nor has anyone so alleged.
The issue, as Hentoff clearly stated, is an entirely different one. It is as stated in my letter to the Cornell Medical students, which Hentoff quoted: "As you may know, Israeli doves have bitterly deplored the chauvinist fanaticism among sectors of the American Jewish community that they consider -- rightly in my view -- to be driving their country to disaster." I have taken many highly controversial positions on many matters, but incidents of the kind Hentoff describes have never occurred except on this issue, and then only in the United States; my only comparable experience is in the Soviet sphere, where not a word of mine on any political topic is allowed expression. Many others have had the same experience, including prominent Israelis: for example, (General) Mattityahu Peled, who bitterly denounced the American Jewish community, after a visit here when he was subjected to the kind of abuse familiar among those who do not toe the Party Line with sufficient precision, for their "state of near hysteria" and their "blindly chauvinistic and narrow-minded" support for the most reactionary policies within Israel, which poses "the danger of prodding Israel once more toward a posture of calloused intransigence." Other well-known Israeli doves have condemned what they correctly describe as the "Stalinist" practices in these circles. The issue is a serious one, but it is not one of freedom of speech in the technical sense that Smokler irrelevantly debates with no opponent.
Smokler states that it is my responsibility to "make publicly available the evidence which leads (me) to assert that (I am) systematically excluded from the expression of (my) ideas." The assertion is his, not mine, but apart from that, I do not accept such responsibility. The ridiculous antics of Smokler's friends and associates are not my concern. If Nat Hentoff or others ask me for information about these matters, I will provide it, but I recognize no duty beyond that. The Michigan affair was discussed extensively in the University and Ann Arbor press, and by Michigan historian Alan Wald in several articles. It was regarded as scandalous quite rightly, but I have never mentioned it except in response to queries. The same is true of the other two incidents, and of many others.
Suppression of critical comment on Israel of a sort that is easily expressed in Israel itself is readily demonstrable. To mention only one case, my book Fateful Triangle (1983) was reviewed in major (and minor) newspapers and news weeklies in Canada, Britain, Australia (even on national TV), and in exactly two local newspapers in the United States (and in the New York Review of Books, after a long review had appeared in its sister journal in London, which is widely read here), though its contents are far more relevant to U.S. concerns. This is quite typical, for others as well. While I am asked to write regularly on the Middle East in major journals in Israel, Europe and elsewhere, that is virtually inconceivable here. My experience is not all that unusual in this regard. It should be noted that the U.S. is a highly ideological society in which dissenting opinion is effectively marginalized as compared with other industrial democracies, but nevertheless, the case of the Middle East is unique. As has been observed in press commentary in Israel -- a more democratic society than ours, at least for its Jewish majority -- this is a serious danger for American democracy, for the Middle East, and indeed for world peace.
Again let me stress that no one is raising an issue of the "political rights" of critics of Israeli policies. To take another case, my "political rights" are not violated when the Anti-Defamation League of B'nai B'rith keeps a 150-page file on my activities, including surveillance of my talks and grossly falsified accounts of these talks and other matters, which the League then circulates to people with whom I am to have debates (e.g., Harvard Law Professor Alan Dershowitz) or to groups in universities where I am to speak so that they can extract defamatory and slanderous lies from this material. The issues, rather, are quite different. I have agreed to provide these files (leaked to me from the ADL office) to the people who find the Stalinist-style mentality and behavior of the ADL scandalous, and who question whether a tax-exempt organization should devote itself to surveillance and defamation of critics of the state it serves, but I accept no further responsibility to concern myself with the matter, contrary to Smokler's absurd claim, any more than I waste time over the behavior of Communist Party hacks. For those who may be interested in the disreputable and dangerous activities of these groups, there is ample evidence in Paul Findley's recent book, They Dare to Speak Out, Naseer Aruri's "The Middle East on the U.S. Campus," (Link, published by Americans for Middle East Understanding), and other works.
Smokler also presents his private version of my views, claiming that I have given no evidence for them and that an unnamed Africanist interprets the facts differently. No comment appears necessary. Those who may be interested in what my views actually are and whether I have given evidence for them can easily consult available literature, for example, Fateful Triangle. To my knowledge, only one competent Zionist historian has reviewed this book, Dr. Noah Lucas, in the Jewish Quarterly, London, Nos. 3-4, 1984. I will simply quote his concluding words: "Good luck to the reader who may succeed in refuting any of the facts or assumptions or conclusions presented by Chomsky. It will not be accomplished by anyone who approaches the matter as an issue of propaganda or public relations for Israel, but only by the student who matches research with research." Not by Professor Smokler, plainly.
Start mobilising now to join the European anti-Nato demonstration
The Strasbourg protest will begin with a counter-summit bringing together anti-war activists, writers and politicians from around the world. It will start on Thursday 2 April.
Friday 3 April will be a day of civil disobedience and Saturday 4 April will be the day of the international demonstration.
The counter-summit will come to a climax on Sunday 5 April when Noam Chomsky will be one of the key speakers.
The Stop the War Coalition is calling for the biggest possible mobilisation from Britain.
Every Stop the War group around the country should start mobilising now.
Stop the War is encouraging groups to set up mobilising committees to bring in new networks and new activists.
The aim should be to get delegations from every college, workplace and campaign group in the area. There is a four-page brochure about the protests which can be downloaded from the Stop the War website. It contains a model resolution for trade unions and student unions.
Information on transport and accommodation for the event will be posted as it comes in. Coaches are being organised from London and all Stop the War groups are being encouraged to book transport.
The NATO bombing of Yugoslavia took place during the Kosovo War. Its legality and legitimacy was and is highly disputed.
A few critics like Noam Chomsky, have condemned NATO's military campaign in Yugoslavia in general, and its bombing campaign in particular, which included the bombing of electricity and water supplies and television stations as well as military targets.
Supporters maintain that it brought to an end Serbian repression of Kosovo's Albanian population. They argue that the bombing campaign hastened (or caused) the downfall of Slobodan Miloševic''s Yugoslav government, which they see as responsible for the international isolation of Yugoslavia, many war crimes and gross human rights violations.
NATO's argument for the bombing's legitimacy
1. NATO perceived the conditions in Kosovo as posing a risk to regional stability.
NATO and the international community have a legitimate interest in developments in Kosovo, inter alia because of their impact on the stability of the whole region which is of concern to the Alliance. -- NATO Council Statement, March 5th 1998.
2. NATO was justified in acting to maintain regional stability under Articles 2 and 4 of the NATO charter.
3. The use of force by NATO would not be inconsistent with UN resolutions on the matter: Resolution 1160 and Resolution 1199.
The UN Charter
The prohibition against the use of force in the UN Charter can be found in article 2(4):
All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations.
There are two specific exceptions against this prohibition provided for in the Charter.
The first is in Chapter VII, where the Security Council has been given power in order to fulfil its responsibility for the maintenance of international peace and security. Article 42 states (emphasis added):
Should the Security Council consider that measures provided for in Article 41 would be inadequate or have proved to be inadequate, it may take such action by air, sea, or land forces as may be necessary to maintain or restore international peace and security. Such action may include demonstrations, blockade, and other operations by air, sea, or land forces of Members of the United Nations.
The second specific exception is found in article 51, regarding the right to self-defence (emphasis added):
Nothing in the present Charter shall impair the inherent right of individual or collective self-defence if an armed attack occurs against a Member of the United Nations, until the Security Council has taken measures necessary to maintain international peace and security . . .
While NATO did not have the backing of the United Nations Security Council to use force in Yugoslavia, nor claims an armed attack occurred against another state, its advocates contend that its actions were consistent with the United Nations Charter. Additionally, as NATO is an international organization itself (and not a member state of the United Nations), NATO itself is not subject to limitations which would apply to members of the UN.[citation needed] The principal issue however remains whether the member states of NATO, the U.S. and the European powers, violated the UN Charter by attacking a fellow UN member state in the absence of an attack or a threat of imminent attack on them and in the absence of UN Security Council authorization.
The United Nations considers NATO to be a regional arrangement under UN Article 52, which states (emphasis added):
1. Nothing in the present Charter precludes the existence of regional arrangements or agencies for dealing with such matters relating to the maintenance of international peace and security as are appropriate for regional action provided that such arrangements or agencies and their activities are consistent with the Purposes and Principles of the United Nations.
However, the UN policy on military intervention by regional arrangements is contained in UN Article 53, which states (emphasis added):
1. The Security Council shall, where appropriate, utilize such regional arrangements or agencies for enforcement action under its authority. But no enforcement action shall be taken under regional arrangements or by regional agencies without the authorization of the Security Council . . .
NATO's charter
It has been argued that NATO's actions were in violation of the charter of NATO itself. Proponents of this viewpoint argue that Article 5 of NATO's charter restricts NATO's use of force to situations where a NATO member has been attacked. Critics of this theory argue that the purpose of Article 5 is to require all NATO members to respond when any NATO member is attacked, not to restrict the circumstances under which NATO will choose to use force.
NATO itself justified the actions in Kosovo under its Article 4, which states:
The Parties will consult together whenever, in the opinion of any of them, the territorial integrity, political independence or security of any of the Parties is threatened.
Because the NATO actions in Kosovo were taken after consultation with all members, were approved by a NATO vote, and were undertaken by several NATO members, NATO contends that its actions were in accordance with its charter. However, opponents of NATO's involvement contend that the situation in Serbia and Yugoslavia posed no threat to any of the NATO members.
The Vienna Convention
It has also been argued that the treaties signed by Serbia are void because the signatories were forced to sign them. Article 52 of the U.N Convention on the Law of Treaties at Vienna (the Vienna Convention) states:
A treaty is void if its conclusion has been procured by the threat or use of force in violation of the principles of international law embodied in the Charter of the United Nations.
Since many treaties are signed while the use (or threat) of force is in effect, most scholars agree that Article 52 refers only to force that is in violation of the principles of international law embodied in the Charter of the United Nations. Therefore, the question of whether the treaties are void depends on the question of whether NATO's use of force was in violation of the principles of the United Nations.
UC Berkeley; IIES, Stockholm University; Harvard University
September 19, 2008
Abstract
We estimate the impact of coups and top-secret coup authorizations on asset prices of partially nationalized US companies that stood to benefit from US backed coups. A small number of highly exposed and well connected firms reacted to coup authorizations classified as top-secret. The average abnormal return to a coup authorization is 1.7% over 4 days, rising to 3.4% over thirteen days.
Pre-coup authorizations account for a larger share of stock price increases than the actual coup events themselves.There is no effect in the case of the widely publicized, poorly executed Bay of Pigs invasion, consistent with abnormal returns to coup authorizations reflecting credible private information. We also introduce two new intuitive and easy to implement nonparametric tests that do not rely on asymptotic sample size approximations.
We would like to thank Zihe Liu and Ettore Panetti for excellent research assistance. Stefano Della Vigna, Robert Gibbs, John Prados, Gerard Roland and seminar participants at NYU, the Santa FE Institute, UC Berkeley, and the University of Warwick all provided helpful comments.
11 Introduction
This paper estimates the effect of secret United States decisions to overthrow foreign governments on the stock market prices of well-connected companies that stood to benefit from regime change.
We look at companies that had a large fraction of their assets expropriated by a government that was subsequently a target of a U.S. sponsored covert operation aimed at overthrowing the regime. We find statistically and economically significant effects on stock prices both from the regime change itself and from “top secret” authorizations.
Using offcial timelines reconstructed from CIA documents, we estimate the impact of key decisions concerning coup planning on stock returns. In particular, we find a strong impact on stock prices in a limited number of companies which were both (1.) highly exposed in the country under consideration and (2.) well connected to the CIA. Our results are evidence of two distinct phenomena. First, we provide indirect evidence of organizational leaks from the CIA and/or other parts of the executive branch to financial markets.
Secondly, we provide evidence that covert interventions provided arbitrage opportunities for traders of companies connected to the CIA, implying that the coups were valuable to those corporations. Our findings complement other evidence in empirical political economy that large, politically connected firms benefitted from favorable political regimes (Faccio, 2006; Fisman, 2001; Jayachandran, 2006; Knight, 2006; Snowberg et al., 2007). However, we show that firms benefft not only from publicly announced events but also from top-secret events, suggesting information flows from covert operations into markets.
Our results are consistent with recent papers that have used asset price data to show that companies can profit from conflict (DellaVigna and La Ferrara, 2007; Guidolin and La Ferrara, 2007). We also provide evidence that private information leaks into asset prices slowly over time. This is consistent with both private information theories of asset price determination (Allen et al., 2006) and the empirical literature on insider trading (Meulbroek, 1992).
Additionally, we interpret our results as providing an estimate of the value of a coup to a potential corporate beneficiary. Net total price rises from coup authorizations are larger in magnitude than price changes from the coups themselves. There exists widespread scholarly disagreement on the motivations behind covert interventions, ranging from ideological motives (Westad, 2005) to protecting the economic interests of powerful lobbies in the intervening governments (Gibbs, 1991).
While we are unable to resolve this debate, we show that regime changes lead to significant economic gains for corporations that stood to benefit from U.S. interventions in developing countries.
Within economics, the literature on anti-democratic political transitions has emphasized the role of domestic elites (Acemoglu and Robinson, 2006). However, coups have often been instigated, planned and even partially executed from abroad, most notably by the U.S. and the Soviet Union during the Cold War.
Operating under the threat of nuclear war, direct conflict between the two superpowers was replaced by covert and proxy operations to install supporting regimes. According to Easterly et al. (2008), 24 country leaders were installed by the CIA and 16 by the KGB since the end of the Second World War.
Our paper also makes an econometric contribution to hypothesis testing in event studies. The structure of our event study allows us to improve on existing nonparametric tests. Nonparametric tests used in event studies do not use exact small sample distributions but rather distributions with faster asymptotic convergence to a normal distribution (Campbell et al., 1997; Guidolin and La Ferrara, 2007). We introduce two new small sample tests that are valid without asymptotic approximations based upon the number of events.
Section II of this paper discusses the history of U.S. covert interventions, with backgrounds on each of the coups in our sample. Section III describes the data and our selection of companies and events. Section IV outlines our estimation strategies and Section V reports our main results along with a number of robustness checks.
In section VI, we present and implement our small sample tests. Section VII provides an interpretation of our main results; we decompose the total value of a coup to a multinational into public and private components. We also calibrate a simple asset pricing equation and back out the implied changes in the stock market’s assessment of the probability of a future coup. We conclude in section VIII.
2 Background and History: The CIA
The Central Intelligence Agency was brought into existence in 1947 under the National Security Act of July 26. The act allowed for “functions and duties related to intelligence affecting the national security”, in addition to intelligence gathering (Weiner, 2007). Initially, the scope of the CIA was relegated to intelligence, though a substantial and vocal group advocated for a more active role for the agency. Most of the CIA’s legal authority derived from National Security Council Directive No. 4, which ordered the CIA to undertake covert actions against communism.
Covert operations designed to overthrow foreign governments necessitated the approval of the director of the CIA in addition to the President of the United States. A 1978 executive order described covert actions as “operations conducted abroad in support of national foreign policy objectives which are designed to further offcial United States programs and policies abroad and which are planned and executed so that the role of the United States government is not apparent or acknowledged publicly” (Johnson, 1989).
After Eisenhower’s election in 1952, Allen Dulles was appointed director of the agency. Under Dulles, the CIA expanded its role to include planning and executing overthrows of foreign governments using military force.
All but 5 of the CIA operations in Table I, including 3 of the 4 studied in this paper, began during Dulles’ reign as CIA director under the Eisenhower administration. Allen Dulles was supported by his brother, John Foster Dulles, who was the contemporaneous Secretary of State. The Dulles brothers together wielded substantial influence over American foreign policy from
1952 to 1960.
The qualitative evidence suggesting links between U.S. finance and the CIA is substantial. Firstly, the Dulles brothers both worked for Sullivan and Cromwell, a prominent Wall Street law firm that included, for example, United Fruit in its clientele.
Secondly, much of the CIA, particularly under Dulles, was extracted from law firms close to the financial sector. For example, Frank Wisner, who was in charge of the covert operations wing of the CIA(called the Offce of Policy Coordination(OPC)), worked for the Wall Street law firm Carter Ledyard prior to joining the OPC. “Wisner, in turn, recruited Barnes and Fitzgerald, both Harvard-trained Wall Street lawyers” (Thomas, 1996).
In addition, CIA leadership would often consult with corporations that had investments in countries of interest to the CIA.We exploit declassified records of these meetings in determining our set of companies with access to the CIA below.
In 1974, partly due to public outcry over the U.S. involvement in the military coup in Chile, the Hughes-Ryan Act increased congressional oversight of CIA covert operations. In 1975, the U.S. legislature formed subcommittees to investigate American covert action. Thus, the intensity and scope of U.S. covert actions fell substantially (Johnson, 1989). The height of covert CIA activity lasted slightly more than twenty years encompassing the period from 1952 to 1974.
Our sample of coups includes 4 such covert attempts. The first one occurred in Iran in August, 1953, when the CIA, assisted by the UK MI6, engineered a toppling of Prime Minister Mossadegh. Mossadegh had nationalized the oil fields and refinery at Abadan, which were the property of the Anglo-Iranian oil company, itself a nationally owned company of the UK government.
In Guatemala, the CIA overthrow of Jacobo Arbenz Guzman in June, 1954 occurred after the Arbenz government had nationalised most of United Fruit’s assets in Guatemala.
In Cuba, the Castro government nationalized all US property in 1960, one year before the failed Bay of Pigs coup attempt in April, 1961. Finally, the Chilean nationalization of copper and other foreign owned assets began under the Frei government but accelerated after the Allende government came to power in late 1970. Allende was in offce less than 3 years before he was killed in a coup on September 11, 1973.
In appendix A, we provide a more detailed synopsis of each coup, focusing on the nature of the pre-coup regime, the motivations behind the expropriations, the American response, and the resolution of the coup.
3 Data
3.1 Coup Selection
We selected our sample of coups on the following basis: (1.) a CIA timeline of events or a secondary timeline based upon an original CIA document existed, (2.) the coup contained secret planning events including at least one covert authorization of a coup attempt by a national intelligence agency and/or a head of state, and (3.) the coup authorization was against a government which nationalized property of at least one sufficiently exposed multinational firm with publicly traded shares. Table I shows a full list of CIA operations from Prados (2006). The highlighted operations are those that met our criteria, which limited us to 4 coup attempts.
Operation Ajax in Iran in 1953 led to the overthrow of Muhammed Mossadegh. Operations PBFortune and PBSuccess in Guatemala in 1952 and 1954 respectively culminated in the overthrow Jacobo Arbenz Guzman. The US unsuccessfully attempted to overthrow the Fidel Castro government in Operation Zapata in 1961. Finally, Operation FU/Belt in Chile, which began in 1970, contributed to the overthrow of Salvador Allende.
3.2 Event Selection
Our primary source of events are timelines reconstructed directly from declassified CIA sources by offcial historians. Operation Ajax in Iran was constructed by the New York Times on the basis of the internal CIA history of the Iran operation written by Wilber (1954) and declassified in 20002
Available at http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB28/
Available at http://www.nytimes.com/library/world/mideast/041600iran-cia-index.html
In the case of Guatemala, the CIA itself did an internal timeline of the operation, which we used3
The Bay of Pigs timeline comes from the National Security Archives, housed at George Washington University, which has filed virtually all of the Freedom of Information Act (declassication) requests regarding Cuba and the CIA. For FU/Belt in Chile, we used the timeline constructed by the Church Committee which was a committee set up in 1975 by the US Senate to investigate foreign intelligence operations5
The Church Committee Report, which was recently declassified, created a timeline of events based upon top-secret CIA documents for Chile.
We first extract all of the authorization events from the offcial timelines. These are restricted to those where either the coup was explicitly approved by the head of a government (the President of the United States or the Prime Minister of the United Kingdom) or the head of an intelligence agency (the CIA or MI6) or where US $1 million or more were allocated to the overthrow of a foreign government. Authorization events are coded as “good” or “bad” depending on whether they increase or decrease the likelihood of a coup. Our selection and coding of authorization events is presented in Table III.
We also extract public events from the offcial timelines for use as controls in some specifications. Public events are restricted to dates where company assets are nationalized or regime transitions and consolidations occur. The public events are coded as “good” or “bad”, where “good” events are those which are likely to increase the stock price and ”bad” events are ones which are likely to cause a decline in the stock price. The public events and their coding is listed in Table IVA; Table IVB lists the dates of the regime changes themselves.
Available at http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB4/
Available at http://www.gwu.edu/~nsarchiv/bayofpigs/chron.html
Available at http://foia.state.gov/Reports/ChurchReport.asp
73.3 Company Selection
We apply 3 criteria to select our sample of companies. First, a company must be publicly traded, so that we can observe a stock price. Secondly, the company must be “well-connected”, in terms of being linked to the CIA. Finally, the company should be highly exposed to political changes in the affected country, in the sense that a large fraction of a company’s assets are in that country.
We begin with the list of all companies nationalized by a regime prior to the coup, which we obtain from the CIA timelines. In the cases of Chile and Cuba, the nationalized companies nationalized are not mentioned by name in the timelines themselves. We obtain lists of nationalized copmanies in Chilea and Cuba lists of nationalized companies from Congressional testimonies about expropriations of U.S. companies.
First, we require that the company was listed on the NYSE, NASDAQ, or AMEX exchanges, which we determine from listing in the CRSP database. Second, we determine, from declassified sources, whether or not the company had met with the CIA. We first include all companies that were listed as having met with the CIA in the internal histories. Then we do automated searches of the declassified CIA documents in the National Security Archive for CIA memos mentioning the company and the country in the period of the CIA operation.
If a company is listed together with the country in a declassified memo, it is included in the sample. Finally, we calculate the percent of a company’s assets that were in the country, which we call a company’s exposure, for the remaining companies. In our benchmark specification, we include only those companies which had the highest exposure for each country.
For example, ITT met with CIA offcials about Chile. However, ITT’s assets in Chile were only 7.3% of its total assets (Table II) and thus it would be difficult to pick up the impact of even a large change in the probability of a coup. Its stock price does not seem to have reacted to coup authorizations. Alternatively, Anglo-Lautaro Nitrate Ltd. was a small publicly traded company with a majority of its assets in Chile (Table II). However, it did not meet with the CIA and was almost surely not privy to information about coup authorizations.
In our robustness section, we consider two alternative selections of companies. First, we consider the top 10 most exposed, in total assets rather than percentage terms. In Guatemala and Iran, only one company was effected. In Chile and Cuba, only some are publicly traded and thus available on CRSP. In total, this specification adds 9 companies, all of which are listed in Table II. Second, we consider country portfolios of all companies which were listed as having met with the CIA and which had over 15% of their assets. In comparison with our baseline where we consider the most exposed connected company in the nationalizing country, this specification adds only one company, ITT in Cuba.
4 Methodology
Our main hypothesis is that authorization events should result in a slow increase in the stock price of the affected company over the days following the event. There are multiple reasons that prices may react steadily and slowly as opposed to all at once with private information. First, the information may itself slowly take time to diffuse. Second, there may be secondary trading or momentum; traders may update based upon previous price increases. Third, traders may be cautious and wait to see if other investors are trading on the private information (Allen et. al., 2006). For this reason we look at windows of different lengths around the authorization events.
Our benchmark specification is a 4 day window starting at the event date. In this paper, we employ two different estimation strategies. The first, which we call the “regression method”, includes the contemporaneous market return as a control along with dummies for contemporaneous authorization events in a single specification where the dependent variable is the raw stock return. Our second approach is the event-study methodology originally developed by Fama (Campbell et al., 1997; Fama, 1969).
We first estimate abnormal returns using a pre-event sample, where abnormal returns are returns in excess of what would be predicted in a simple linear market model. We then calculate the mean cumulative abnormal returns for a number of days after each event, and test to see if it significantly different from 0. We refer to the second approach as the “out of sample method”, referring to the fact that the abnormal returns are calculated using a sample of stock market returns from before the authorization events.
4.1 Regression Method
For the regression method we estimate the following equation with OLS:
Rft = af + ßfRmt + Dft + ft (1)
Rft is the one day raw stock return for firm f between date t and date t-1, Rmt is the one day New York Stock Exchange index return between date t and date t-1, and Dft is a k-day dummy variable which takes on a value of one on an authorization day and for the k-1 days following an authorization day. The average daily abnormal return over the k days after an event (inclusive) is f.
The cumulative abnormal return is kf, the average abnormal return times the event window length. Our sample is the time period starting exactly one year before the nationalizing regime comes to power until exactly one year after the end of the coup. The standard error for the cumulative abnormal return is given by the standard error on the regression coeffcient multiplied by the length of the window. Except where noted, we report heteroskedasticity-robust standard errors.
4.2 Out of Sample Method
The out of sample method first estimates a market model in an “estimation window” that is prior to any coup-related events. Our estimation window is one calendar year in length and begins 2 years before the nationalizing regime comes to power.
The number of trading days differ in the estimation window. Chile has 235 days; Cuba has 250 days; Guatemala has 282 days; and Iran has 260 days. Guatemala has more trading days because the NYSE was open on Saturdays until September 29, 1952. Also since more trading holidays have each firm, we estimate:
Rft = af + ßfRmt + ft (2)
Using the estimated coefficients from (2), we calculate the abnormal returns around our authorization events as the difference between the actual and predicted returns for a given date:
ˆ ARft = Rft - ˆ af - ˆ ßfRmt (3)
We consider windows around the authorization events of length k, where k is between 0 and 15 days. We take the average abnormal return over the k days as:
Pt0+k
t=t0
ˆ ARft k + 1
The cumulative abnormal return for k + 1 days for firm f, CAR(f, k + 1), is defined as:
CAR(f, k + 1) = t0+k X t=t0 ˆ ARft
The standard error for the average abnormal return for an individual event is the estimated standard deviation from the estimation window multiplied by the square root of the length of the CAR period:
ˆ sARf v k + 1
To compute cumulative abnormal returns for multiple events, we add up the CARs across events. In most event studies, there is one event per firm. In our setup, that is not the case. However, as long as our events are independent over time within firm been added over time, the number of trading days per year has decreased over time.
Lastly, Anglo-Iranian traded on the London Stock Exchange during the period in question, which accounts for the lower number of trading days in comparison with Guatemala. We opted to use exactly one year for the estimation window rather than a fixed number of trading days. However, the choice of the estimation window does not impact our results.
as well as across firms, we can use abuse notation use and f to index events over a set F of events with |F| number of events. In this case, different events may correspond to the same firm. Then, we can compute the CAR for a group of firms:
CAR(F, k + 1) = P|F| f=1 Pt0+k t=t0 ˆ ARft |F|
and we can compute the standard error by:
P|F| f=1 ˆ sARf vk + 1 |F|
5 Results
5.1 Baseline Results
In Table 5, we report the cumulative abnormal returns for authorization events using window lengths ranging 1 to 16 days. We find clear evidence that stock prices react positively to authorization events using both our regression and out of sample methods. In the pooled sample, the average 4 day stock price return for an authorization event is 1.7% with a standard error of 0.7%.
The cumulative abnormal returns are signifficant for the all-country sample from 4 day through 16 day cumulative abnormal returns at a minimum of 10% level of signifficance and often at a 1% level, depending upon the specification. The abnormal returns are largest between 3 and 12 days after the event, consistent with the hypothesis that private information is incorporated into asset prices with a delay.
Figure 1 provides graphical evidence on abnormal returns around an authorization event, with 95% confidence intervals shown. We compute cumulative abnormal returns, aggregated across events, for each of the 22 days following an event and each of the 22 days prior to an event, aggregated backwards in time. Cumulative abnormal returns become significant at a 5% level on the 4th day after an event and remain significant until day 13.
Moreover, the gains seem to be permanent, although not statistically distinguishable from 0 after approximately 2 weeks. Going backwards in time from the event date, however, the cumulative abnormal returns show no trends and are never signifcant.
The effects for Iran and Guatemala are consistently the strongest. In both cases, the average cumulative abnormal return after 4 days is around 2.5% with a standard error of less than 0.9% using the regression method. The out of sample method’s estimates are almost identical for Guatemala and smaller for Iran. The standard errors are consistently smaller using the out of sample method. The Chile estimates are slightly smaller in magnitude. The peak effect is almost 0.5% per day over a 4 day horizon. The abnormal returns for Guatemala and Iran are 0.5-0.6% per day by the day after the event and they remain that high for the first 6 days.
We do not find an effect within the Cuba subsample. There is no detectable change in the stock prices of affected companies following a decision to invade Cuba, whether made by the CIA or the President. This could in part be due to the poor planning and execution of Operation Zapata. Much of the information was leaked to the press ahead of time7
. Additionally, substantial errors in the Bay of Pigs planning and implementation may have made investors rightfully skeptical about the likely success of the operation.
5.2 Robustness
We perform a number of robustness checks. All are estimated both in the pooled sample and by country. We compute cumulative abnormal returns over a 4 day period following an authorization event. All specifications are estimated using the regression method.
Kennedy reads the [NYT] story he exclaims that Castro doesn’t need spies in the United States; all he has to do is read the newspaper” (Wyden, 1979)
135.2.1 Public Events and Media Coverage
Top-secret decisions to overthrow foreign governments may have coincided with public events in the targeted countries. This could bias our estimates, reflecting the effect of public news rather than private information. We control for other events in two different ways. First, we control for the number of articles in the NY Times mentioning the country by name.
Second, we control for other public events; these are nationalizations of foreign owned property as well as electoral transitions and consolidations which are also listed in the declassified timelines. They are listed in Table IVA. Third, we control simultaneously for both public events and NY Times articles.
Lastly, we also try dropping all dates where the NY times had at least one article on the country (Meulbroek, 1992). This is a strong test. Since most days have at least one article mentioning any given one of our countries, we lose most of our sample in this specification.
Table VI reports 4-day cumulative abnormal returns. We find that controlling for public events and New York Times articles does not afect our results. The average aggregate effect for a 4-day period is between 1.7% to 2.4% and significant at the 1% level, depending on the specification.
This is true even when we restrict to days with no New York Times articles about the relevant country. Our results by country are largely similar to those from the baseline specifications. One exception is the estimate for Cuba on the sample restricted to days where the New York Times had no coverage of Cuba.
In this case, the coeficient is 1.7%, and significant at the 10% level. This is consistent with the theory that top-secret news about authorizations is more credible when it remains covert.
5.2.2 Other Robustness Checks
We also consider raw returns, unadjusted by a market return, reassuring us that our cumulative abnormal return effects are due to increases in the treatment company stock prices rather than drops in the market. Column 1 of Table VII shows an 14average 0.49% cumulative abnormal return per day. To control for potential serial correlation in returns, we cluster on month. As can be seen in Column 2 of Table VII, this reduces our standard errors across specifications and does not alter any of our qualitative results.
We control for industry returns by first constructing an equal-weighted basket of returns for all companies in the same 3-digit industry as our treatment companies. We exclude the treatment companies themselves, and otherwise restrict the basket to companies which were listed in CRSP for the entire event window period for the treatment company in question. We then regress the returns of the treatment company on the NYSE index, the authorization events, and the equal weighted industry index. Column 3 of Table VII shows the estimates from this specification, and again the efect is unchanged.
We also consider two placebos, reported in columns 7 and 8 of Table VII. We regress NYSE index returns on our event dummies. We also regress our equal-weighted baskets of industry returns on country-specific NYSE index returns and the authorization event dummies. The 4 day abnormal returns are small and insignificant in all of the samples, both with the NYSE returns as the dependent variable and with the industry returns as the dependent variable.
We consider two other specifications where we look at a broader set of companies, reported in columns 4 and 6 of Table VII. First, we construct an equal-weighted basket of all companies within a country who (1.) met with the CIA and (2.) held 15% or more of their assets in the nationalizing country. Our results in this specification are similar to our baseline results. This is unsurprising since our sample in this specification is the same as in our baseline with the exception of the addition of ITT to the country portfolio in Cuba. In our second specification, we consider all publicly listed companies in the top ten most exposed companies operating within the nationalizing country. Here we use gross asset exposure rather than exposure as a percentage of total assets. This leaves us with 13 companies in total, listed in Table II.
The 4 day abnormal returns for Chile and Cuba are both negative and not significant 15at the 10% level. This is consistent with the hypothesis that only companies which were both large and highly exposed would react to authorization events. One potential explanation for our fndings is pre-existing market momentum. We include a dummy that is equal to 1 in a 20 day window around each authorization event. This specification tests whether the abnormal returns are higher in the 4 days right after an authorization than in the average of the 20 day period surrounding each authorization event. Column 5 of Table VII shows that the average abnormal return per day is approximately 0.52% and is significant at the 1% level. Pre-existing price trends do not explain our results.
5.3 Time-Shifted Placebos
As additional evidence that our effects are not an artifact of the data, we rerun our main specification on placebo dates. We take our 4 day cumulative abnormal returns and shift our authorization events forwards as well as backwards by 5, 10, 15, 20 and 30 days. For a K day shift, we estimate:
Rft = af + ßfRmt + fKDft+K + ft (4)
Out of the 11 time-shifted regressions, fK is only significant for K = 0, our benchmark specification with cumulative abnormal return of approximately 1.7% which is significant at the 1% level. The cumulative abnormal returns 5 days or 10 days before a authorization event are zero to a tenth of a percentage point. The two largest of the remaining ten abnormal returns are the ones for K = 30 and K = 5. Both are between 0.6% and 0.7%. All other abnormal returns are well below 0.5%. The placebo estimates reinforce that our baseline estimates are due to local serial correlation in returns. The pattern of no abnormal returns before a decision, sizeable abnormal returns just after a decision, and smaller possible abnormal returns in the medium run after a decision is consistent with our hypothesis of secret authorization events causing a slow increase in the stock price.
165.4 Coup Effects
We now estimate abnormal returns, using the regression method, for coup attempts. We do this for two reasons. First, we want to show that these companies were affected by the coup attempts themselves, confirming that companies were beneffitting from the regime change. Second, we want to compare the direct effect of the coup itself to the total net rise due to pre-coup authorizations.
We look at 3 specifications: abnormal returns on the first day of the coup, abnormal returns on the first day of the new regime, and abnormal returns during the coup window. We define the coup window as the period from and including the first day of the coup to and including the first day of the new regime. For Cuba, which was unsuccessful, the coup window is the duration of the Bay of Pigs operation, as given in the CIA timeline. These dates are listed in Table IVB.
Since our coup window lengths vary across countries, instead of reporting cumulative abnormal returns, we report the average daily abnormal return during the window. Our results are large and signifficant. On an average day during the coup window, our treatment companies, experienced a stock price rise of 0.8%. The individual company average abnormal returns vary from United Fruit in Guatemala which had zero rise on average during the coup window to Anaconda in Chile which experienced a 4.6% increase in its stock price. Anaconda’s large increase in its stock price was partially due to the fact that the coup happened quickly and was consolidated essentially immediately; this is dififerent from our 3 other coups where it took longer for the overthrow to succeed or fail.
Cuba’s abnormal returns were negative because the coup failed. This suggests that the possibility of a coup against the Castro regime in Cuba had already been priced into American Sugar’s stock. Anglo-Iranian oil had a large increase over the coup window. It was approximately 1.4% per day and significant at the 10% level. The insignificant estimate for Guatemala is perhaps due to the high degree of political uncertainty following the coup. When the Arbenz government finally resigned on June 28, 1954, there was still speculation about whether the coup would be successful. Also, in the 11 days after the fall of the Arbenz regime, 5 separate juntas gained control of the government. Lastly, within two weeks of the end of the Guatemalan coup, the United Fruit Company was hit with a large anti-trust law suit (Gleijeses, 1991).
We consider two other measures of the effect of the coup: the abnormal return on the first trading day of the coup and the abnormal return on the first trading day of the new regime. The average abnormal return across companies on the first day of the coup was approximately 2.3% and signifficant at the 1% level. In both Chile and Cuba, the returns were signifficant at the 10% level or higher. The abnormal returns in Cuba were positive, perhaps indicating that markets expected the coup to be successful on the first day. The abnormal returns on the first day following the coup attempt (whether or not it was successful) are large for all companies, with Anglo-Iranian at 2.0%, American Sugar at -3.3%, United Fruit at 3.7% and Anaconda at 4.6%. The CIA-engineered regime changes had a substantial impact on stock prices for the exposed companies in our treatment sample.
Small Sample Distribution Tests
Conditional distributions of abnormal returns are potentially skewed in small samples, thus distorting test size. In response to this problem, tests have been developed which have better small-sample distribution properties than t-tests of OLS coefficients for event study regressions. The two most common are the sign test and the rank test. Both tests focus on median as opposed to mean returns and thus are more informative in the presence of abnormal return skewness. However, the sign and rank tests are both only asymptotically of correct size.
Guidolin and La Ferrara (2007) provides a more detailed summary of the sign and rank tests. The sign test signs events +1 or -1 depending upon whether the event abnormal returns are above or below median abnormal returns. Thus, for each event, we defne Gft = 1(eft - median(e* f ) > 0), where eft is the the cumulative abnormal return during event t in country f, and the median is taken over the estimation window. 18Under a null hypothesis that event abnormal returns are identically and independently drawn from the same returns distribution as estimation window returns, the average event sign should not be significantly diferent from zero. The sigh test divides the average sign across firms of the event date,
PGft by the standard deviation of the average signs of the firms over the estimation window. This statistic is given by:
Pft Gft0 q1 k Pt0-1 t=t0-k( PfGft)2 (5)
The test is asymptotically distributed according to a unit normal but simulations have shown it to have faster small sample convergence properties to the normal in comparison with standard tests on OLS coefficients.
The rank test assigns a rank to each event abnormal return for a firm relative to its estimation window (a total of k1(f) - k0(f) + 1 daily abnormal returns), which we denote by fift. Under a null hypothesis that mean event rank is not signifficantly above or below the median rank in the estimation window, the rank test divides the mean rank for event abnormal returns by the standard deviation of the mean rank across firms over the estimation window.
Again, this ratio is asymptotically normally distributed with rapid small sample convergence properties. The rapidity of small sample convergence is verified through simulations (Corrado and Zivney, 1992).
While the sign and rank tests are a definite improvement over small sample OLS estimates, they have two main drawbacks in the context of the current paper. First, when testing the impact of a single event on multiple companies, it is sensible to control for intra-day correlation in returns across companies. However, when each event occurs on a different day, this is not necessary. Moreover, attempting to do so in small samples will incorrectly estimate the standard deviation of the returns. Second, the small sample convergence properties of the sign and rank tests are only verified through simulations and thus the speed of convergence may depend upon the distribution of returns. Since all of our events occur on different days, we do not need to take intra-day covariances across companies into account. This allows us to construct actual small sample tests (as opposed to asymptotic tests). We create a test based upon the binomial distribution to supplant the sign test and a test based upon the uniform distribution to supplant the rank test. We report results both for the 4 company sample and the 3 company sample (excluding American Sugar in Cuba).
6.1 Generalized Bernoulli Test
The Bernoulli test is a small sample test corresponding to the sign test which is implementable when events are distributed identically and independetly of one another. In general, we would like to come up with a statistic which computes the probability of observing at least as many abnormal returns above or below the median or, more generally, any given percentile:
P X f Gf ! = m
In the canonical event study, one event occurs on a given day and a group of firms all experience the event. In this case, it makes sense to assume that there is serial correlation in the event returns. Therefore, we can assymptotically approximate the probability by a normal distribution, incorporating the covariance in returns by implementing the sign test. However, if abnormal returns are distributed identically and independently across time and across events, then we know that the events are distributed exactly according to a Bernoulli distribution and the joint probability of getting m events higher than the pth percentile is given by the cumulative Bernoulli distribution:
FM(m; p) = 1 - M X f=m M i pi (1 - p) M-i (7)
Without loss of generality, we assume that p = .5. Then, due to the symmetry of the cumulative Bernoulli distribution, the two-sided probability of getting m or more abnormal returns above the 1 pth percentile or below the pth percentile is given by
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