Sunday, December 14, 2014

The Powerful Menace of Debt-Deflation 2014

Global PPI
Debt-deflation poses the ultimate threat of economic pain. At its worst, the very viability (politically and economically) of capitalism itself can be called into question under the pain of debt-deflation. The Great Depression furnishes the most painful example of debt-deflation thus far in modern capitalist economies. In the US, unemployment soared to 25 percent and in the election of 1932 the communist and socialist parties attracted 1 million votes.

Why is debt-deflation so dangerous?

First, in a deflationary reality, people will rationally slow down all spending, constantly delaying purchases of all sorts to take advantage of lower prices. This spending slow-down then spirals, as firms respond to lower revenues by slashing costs, especially employees. As unemployment increases spending necessarily falls further, necessitating more spending cuts in the business sector. In an economy where about 70 percent of all economic activity is consumer-driven, as ours is today, it is easy to see that the threat of deflation can quickly spiral out of control leading to massive unemployment and macroeconomic pain for all.

Second, once deflation takes root, investment is bound to falter. During the Great Depression investment plunged by over 80 percent between 1929 and 1933. Falling prices, unemployment and reduced consumption simply do not inspire investment. Risk aversion becomes the norm as creditors will even accept negative interest rates as investment opportunities shrivel away and currency becomes more valuable over time. These negative rates both reflect and amplify dire investment options and ultimately lead to financial disintermediation as people opt for cash rather than even bank deposits. The withdrawal of capital from the economy then operates to further restrict growth.

Third, and most ominously, consider debt in a deflationary environment. Debt taken out in a non-deflationary environment (often during a bubble) becomes unsustainable in a deflationary environment because dollars by definition become more valuable and scarce. So, debt burdens soar in real terms. Defaults necessarily soar too, and the financial sector then succumbs to losses. Capital freezes, much like what occurred in the wake of the Lehman failure in 2008. Highly indebted societies feel the greatest macroeconomic pain from debt deflation.

Three simple steps toward macroeconomic catastrophe.

Of course, it could never happen today, right? Wrong--it is happening as you read. As the chart above shows, the world has been flirting with deflation for years. Even before the oil price plunge of recent weeks, as The Economist shows, virtually the entire developed world was already perched on a deflationary precipice. Deflationary pressures are growing dramatically, as I demonstrated last week with this blog post.

Most particularly, the recent plunge in crude oil constitutes the most deflationary shock to the global economy since the failure of Lehman Brothers. A huge part of the decline is demand driven, as the International Energy Agency and others continually cut demand estimates, including on Friday which led to the stock market carnage. The price of oil is simply now in a free fall:

In fact, late last week the price fell off the above chart to $57 per barrel. The price drop reflects massive slow-downs across the world especially China, Germany, the Eurozone in general, and Japan. Now oil and other commodity price plunges are dragging nations like Norway, Russia, Venezuela, Nigeria into recessions. The deflationary spiral has begun. This deflationary price spiral bodes ill for the global economy.

Far worse, however, is its impact on asset values and accompanying losses in the financial sector. For example, both Russian and Venezuelan bonds seem headed for default. Energy now constitutes 16 per cent of the US junk bond market, up from 4 percent ten years ago. So, high yield debt markets are silently crashing. The fear is now spreading beyond energy. In fact, the flight to safety has turned into a mad rush--as evidenced by plunging yields in US Treasury debt.

So where precisely in the financial sector will those losses fall. Only the great derivatives wizard knows for sure but a good place to guess is the US megabanks who control 95% of the derivatives market in the US, as I will discuss in my next post.

Can this all be averted? Of course, through vigorous and broad based monetary and fiscal stimulus. I will address these mainstream solutions in a subsequent post.

Friday, December 12, 2014

Greece and a Gathering Perfect Storm in Financial Markets

Events have turned suddenly around the world in a way that promises to spawn macroeconomic disruptions. Basically, several powerful deflationary pressures now grip the global economy. Let me simply survey the worst storms that seem to be emerging around the world:

1) Greece and the possibility of a Grexit from the Euro Zone is back in the news. The Greek Prime Minister has called a snap election that could derail the bailout of Greek debt. The Athens financial markets literally crashed in the wake of this development. The Parliament in Athens will vote first on December 17, and if the government loses there then a general election will follow shortly thereafter. Worst case scenario: months of uncertainty followed by catastrophe.

2) The Euro Zone is in terrible shape and appears to be worsening. The ECB appears totally sidelined by the Germans at this point. It would be hard to imagine that Euro Zone could withstand an event like a Greek exit from the Euro Zone. Even without an exit, it seems destined to suffer a recession and to export deflation worldwide. This is a key reason commodity prices are crashing.

3) China apparently racked up a mountain of bad debts that initially helped fuel its stellar growth but now leaves it with a massive hangover of underutilized assets and loan defaults. The future is not looking good across the Pacific. China is also exporting deflation as its slowdown (of unknown proportions) is clearly causing commodity prices to plunge across the world.

4) In fact, the Bank of International Settlements recently warned that many nations (Russia, Venezuela and a host of others) and private firms face declining revenues and soaring debt burdens because commodity revenues are shrinking as dollar-denominated debt increases in cost due to a surging dollar that is a natural outcome of the commodity bust. This could lead to a rash of defaults.

5) Meanwhile, in the US a dramatic fall in oil prices poses an existential threat to the highest growing part of our economy--energy. Jobs in the oil patch account for virtually all job growth in America over the past five years and jobs beyond energy pay little. Much of the American high yield debt market is centered in the oil patch. With oil in a literal free fall this sector of the US economy may well be doomed. Can the US economy withstand the job losses and loan defaults implicit in very cheap energy?

There are more threats. Banks across the world still need to deleverage, raise capital and therefore reduce lending. Ukraine faces financial collapse. These problems are manageable alone. The above issues are in combination far more lethal.

All of this suggests that despite an apparently buoyant US  stock market (now standing at 17,411) caution must temper any optimism. "This week's financial headlines sound like a recap of the horror stories of the last six years." There is an increasing probability that a major financial crisis looms as deflationary pressures overwhelm an increasingly fragile global economy.

Wednesday, December 3, 2014

Ferguson, Eric Garner and Occupy Wall Street

     A New York grand jury has decided not to indict the police officer who choked Eric Garner to death in Staten Island.  I was too young to march with civil rights leaders in the 1960s.  I am too old to demonstrate with the young people who have protested against the Ferguson grand jury’s decision and have kept the issue of police criminality, brutality and implicit bias in the headlines.  I can’t demonstrate with them, but I’m proud of and grateful for them.


     As many others, including Roland Martin, have said, these protesters have started a movement.  It is a movement precipitated and inspired by the string of young men across the nation who died at the hands of police officers and vigilantes like George Zimmerman. 


     I was proud also of the demonstrators who participated in the Occupy Movement.  I even went to observe and encourage the Occupy Wall Street protesters in Zucotti Park in lower Manhattan.  I am profoundly disappointed that the Occupy Movement has all but disappeared.  Many accused the Occupiers of being unfocused, and disorganized with no meaningfully unifying concept.  The recent protests about police brutality and the targeting of Black men are focused and unified in a way that the Occupiers never achieved.  I thank God for them.  This latest movement makes me hopeful that we will see a resurgence of political and social activism – including a rebirth of Occupy Wall Street.


     I teach law at St. John’s University.  The day after the Ferguson grand jury’s decision was announced, several students of African descent stopped by my office to discuss the decision.  They told me they felt powerless, helpless.  They are now studying for exams.  I can only imagine how they feel as future lawyers trying to earn a law degree as Black vulnerability – physically, emotionally, economically (this is why Occupy Wall Street was so important)—increases exponentially.  The protesters, I hope, inspire them.  Like me, they may not decide to take to the streets, but they will engage in some type of activism in their communities, and at our law school.

Wednesday, November 26, 2014

Statement on Ferguson, Missouri - Society of American Law Teachers

The Society of American Law Teachers (SALT) issued a formal statement in connection with the chaos ensuing in Ferguson, MO.  The statement is below:

November 21, 2014

The Society of American Law Teachers (SALT) calls for the upholding of the rule of law in relation to the death of Michael Brown. Michael Brown’s death and the subsequent protests in Ferguson remind us of the consequences when the community loses faith and trust in America’s policing and judicial systems. SALT is concerned that violence by the police against unarmed Black people is becoming increasingly common. The actions of the police in Ferguson and the community reaction are a microcosm of the inequalities and profound mistrust that pervade many communities around the country that must be addressed.

SALT and its members are committed to ensuring that the system of justice in the United States operates effectively in a manner that affirms the principles of equality and justice. In keeping with our mission, and as a community of engaged law professors, we would like to offer the support and expertise of our members to help address systemic inequities that erode faith in our justice system and to facilitate discussion, dialogue, and concerted action to address the issues that Michael Brown and the Ferguson protests have raised at the local and national level. We must ensure that our system of justice gives historically subordinated populations assurance that the laws are being executed fairly. By acting in solidarity with the people of Ferguson, we seek to promote adherence to and the sanctity of civil and human rights principles in the United States.

In the wake of the events in Ferguson, we call for:

(1) upholding the principles of equality before the law;

(2) implementation of a system of police accountability, oversight and integrity regardless of race, class or social standing;

(3) safeguarding the right to speak freely and peacefully protest and acting to quell excessive police force that inhibits the exercise of these fundamental rights; and

(4) working to eliminate divisive policing and justice policies and practices that demean people of color and view them as objects of threat and fear.

Monday, November 3, 2014

Risk Management and the Interagency Diversity Standards: Opportunity and Peril

Change is afoot in the financial services industry as key elements of the Dodd-Frank Act (finally) take root. Three regulatory initiatives in particular are now at the forefront of bank compliance efforts. First, under section 165(h) of the Dodd-Frank Act, the Federal Reserve issued Enhanced Prudential Regulations (Reg. YY) for large bank holding companies which will take full effect on July 1, 2015. Second, the Office of the Comptroller of the Currency has similarly promulgated new risk management standards applicable to large insured banks and thrifts. Third, the Fed, the OCC, the FDIC, the SEC, and other financial regulators have proposed interagency guidelines for assessing the diversity policies of regulated entities, issued pursuant to section 342(b)(2)(C) of the Dodd-Frank Act.

I have previously blogged about the new risk management standards applicable to banks and other financial institutions. I also have previously blogged on the positive impact of cognitive diversity. In this post, I argue that these new regulatory initiatives should be taken as an invitation for every firm to upgrade their policies to fully embrace cognitive diversity and to move to enhanced risk management policies and procedures. While each firm should customize its approach for its business environment, the empirical evidence suggests that large firm value and performance gains are possible for firms at the cutting edge of these issues. On the other hand, risk and diversity mismanagement can inflict huge costs on firms.

In past posts I have summarized the outsized gains in financial performance for those firms taking a more optimal approach towards ERM. Similarly, it is clear that enhancing the cognitive diversity of a board leads to outsized performance gains. Thus, one recent study found that sound ERM is associated with firm value gains of up to 20 percent. Another recent study found that firms benefiting from the cognitive diversity implicit in having an attorney on the board enjoy a 9.5 percent valuation advantage. These are simply a sample of studies that find such gains.

There are no studies that I know of that assess the positive gains available to firms that seek to optimize their approach to both ERM and diversity, simultaneously.

Logically, ERM and embracing diversity go hand-in-hand. For example, diversity policies that prohibit any hostile environments for any workers will give a firm an advantage in worker productivity as well as limiting the risks from Title VII litigation. Firms should assure they foster business cultures with a zero tolerance approach for discrimination and harassment. Broadly embracing diversity assures the most skilled workforce possible. Similarly firms should seek more diverse leadership can draw upon broader cognitive insights to assure that the firm adhere to ethical norms and expectations that mirror those of diverse constituencies ranging from investors, employees, consumers and suppliers. In sum, diversity is critical to the sound management of legal, regulatory, and reputational risk.

Moreover, aside from the potential gains from optimizing a firm’s approach to risk management and diversity, business leaders should also consider the likelihood of negative outcomes from failing to bring the best learning to bear on these issues to their firms. We learned from the financial crisis that less diverse firms engaged in risker subprime lending activities. Financial firms with superior risk management policies also fared better during the crisis. Failure to embrace ERM and cognitive diversity leads to financially impaired performance.

I will be writing more on these new regulatory initiatives. Today I simply write on a single point: all businesses should reflect on the opportunities as well as the perils presented by the best learning on ERM and diversity management. As I will show in my next posts, these new regulations reflect and further our understanding of ERM and diversity management.

Saturday, October 18, 2014

Prison Populations Declining in the United States

Excellent news reported in the Wall Street Journal for those opposed to mass incarceration in the United States.  Since 2009, prison populations have been on the decline in both the state and federal prison systems.  Relaxation of incredibly harsh drug sentencing policies as well as state leadership recognizing the economic consequences of imprisoning its citizens at never-before-seen levels, has resulted in a concomitant drop in prison populations across the country.

This drop in prison populations for the first time in over 35 years has resulted in some prisons built during the mass incarceration era to sit empty and many are "for sale."  The following tone-deaf statement by a Texas politician to the new trend in relaxing out-of-control drug sentencing policies reflects the reaction of some to the drop in prison populations: "'There’s a prisoner shortage,' said Mike Arismendez, city manager for Littlefield, Texas. 'Everybody finds it hard to believe.'"

According to the Wall Street Journal:  "The incarceration rate is declining largely because crime has fallen significantly in the past generation. In addition, many states have relaxed harsh sentencing laws passed during the tough-on-crime 1980s and 1990s, and have backed rehabilitation programs, resulting in fewer low-level offenders being locked up. States from Michigan to New Jersey have changed parole processes, leading more prisoners to leave earlier."

This trend is a positive step in the right direction, as the Corporate Justice Blog has railed against mass incarceration and U.S. carceral policies for many years.

Monday, September 1, 2014

31 August 1914

One hundred years ago, Europe plunged into mass self-immolation in the service of dim and corrupt monarchs. After a short skirmish to determine lines of defense, WWI settled into massive trench warfare for more than four years, and the blood flowed in Europe like never before. By the end of August 1914, everyone had declared war on everyone, and the long march of death commenced.

Among the millions of dead are the approximately 10,000 souls whose unidentified bones rest at the Navarin Ossuary in northern France, as depicted above. The ossuary is located just north of the Champagne region, and they still occasionally find unidentified bones today, in the nearby fields and the remains of the adjacent network of trenches and surrounding bomb craters. The machinery of death ground up soldiers so thoroughly that it was impossible to identify who belonged to which bones so they threw up monuments like the above, and took a wild guess at the number of dead.These ossuarys are all over northern France, I simply stumbled across the one above, along with numerous military cemeteries. If you really need to further ponder the carnage of WWI, go here, for example.

This war was not necessary. Law cannot abolish wars, but it can absolutely minimize them. The problem with World War I is that the ineptitude of monarchs and their concentrated power caught up with the world. As the US Constitution shows law can fragment power, and law can help assure that meritocratic competition determines who is the most competent and ethical for purposes of wielding power. Simply stated law can curb and channel power productively.

Many believe that WWI was inevitable, that alliances and militarism caused WWI. Former Secretary of State Henry Kissinger recently took that position. I argue that the world spins from crisis to crisis. That in order to manage these crises, it is essential to have the best and the brightest at the helm and the full costs and benefits of crisis resolution or irresolution must fall on those with power. Monarchies reflect the opposite of these principles. These monarchs were not the best and the brightest, simply the most inbred. When they decided to let slip the dogs of war, they calculated that the costs would be borne by their people, not themselves.

The corruption of Tsar Nicholas, the ineptitude of Emperor Franz Joseph, and the arrogant stupidity of Kaiser Wilhelm caused WWI, not a group of abstract notions. In closing let me offer some quotes from some of the new scholarship on the causes of World War I.

On the folly of the Kaiser and Germany: "how would an Austro-German alliance of 120 million defeat an Entente alliance of 260 million that wielded more troops, more ships, and 60 percent more national income? Superb at tactics, the Germans were appalling at strategy, avoiding the net assessments of themselves and the Austrians that would have led them to seek a diplomatic solution, not war, in July 1914." (Wawro, 373).

On the ineptitude of the Emperor and the Austrians: "[Austria] was a desperately conflicted power that thought nothing of throwing all of Europe into the flames to preserve its ancient rights to lands like Bohemia and Hungary--lands that had lost all interest in the Hapsburg connection and were trying to break away. Austria's Great War was built on the reckless gamble that the monarchy's internal problems could be fixed by war. They couldn't." (Wawro, 383).

But my own favorite example of a dim-witted and corrupt monarch is Tsar Nicholas. His support of state-sponsored terrorism (knowingly or otherwise) is the proximate cause of WWI. It led directly to the source of ignition--the assassination of Franz Ferdinand. His blundering decision to mobilize for war in late July of 1914 made war inevitable. He held the last clear chance to avert war and he unleashed war knowing it would lead to a bloodbath:
"The decision for European war was made by Russia on the night of 29 July 1914, when Tsar Nicholas II, advised unanimously by his advisers, signed the order for general mobilization. General mobilization— as he knew— meant war. So clearly did the tsar know this that, on being moved by a telegram from Kaiser Wilhelm II, he changed his mind. 'I will not be responsible for a monstrous slaughter' is the key line of the entire July crisis, for it shows that the tsar, for all his simplicity—knew exactly what he was doing when he did it. He knew exactly what he was doing when he did it again, sixteen hours later, after agonizing all day about it." (McMeekin, 398).

Tsar Nicholas "opportunistically" pushed for Russian expansion into the Balkans and for a warm water port and thereby triggered a "monstrous slaughter." (Wawro, 51).

Monday, August 25, 2014

This Doesn't Happen To White People

Kimberly Jade Norwood
Up on CNN this morning is a compelling post "This Doesn't Happen to White People" by Kimberly Jade Norwood, a law professor at Washington University in St. Louis, discussing events in Ferguson, Missouri, just 12 miles from where she lives.  Professor Norwood reports what an African American mother of four fears on a daily basis:

"Driving, I tend to have a bit of a lead foot -- hitting 45 in a 35 mph zone. The few times I have been stopped in my suburb, the first question I'm asked is whether I live 'around here.' Not one of my white friends has been asked that question when they were pulled over by a police officer.

Last summer, my teenage daughter was shopping with four white friends at a mall in an affluent St. Louis suburb. As they left the store, two mall security guards approached my daughter. They told her the store had called them and reported her as a shoplifter, and asked her to come with them. After a search, they found she had nothing. So far in her young life, mall security guards have stopped her on suspicion of shoplifting three times. Each time she was innocent.

I also have three sons. My two oldest are 22. They are 6-foot-5 and 6-foot-4 and each weighs more than 220 pounds. One recently graduated from college; the other will graduate in 2015. The youngest is 13. All three like to wear jeans and the latest sneakers. They love hoodies. They like looking cool. These three young men have never been arrested or even been in a fight at school.  Every time my sons leave the house, I worry about their safety."

Saturday, July 19, 2014

More on Apis and the Black Hand . . . and the Folly of the Monarchs

I recently reviewed many U.S. history books and texts, from a variety of high profile publishers. Amazingly little mention is made of Serbia as a nation-state in 1914, and zero mention is made of the Black Hand organization or its shadowy leader, Apis (a.k.a Colonel Dragutin Dimitricivitch).

Remarkably, the core cause of the outbreak of World I is ignored in mainstream U.S. history. The basic facts are these: Apis (left) founded the Black Hand along with other Serbian military officers including Major Voja Tonkositch; the Black Hand sought to unify all Serbians beyond the borders of Serbia to create a Greater Serbia; they are associated with a number of assassinations and attempted assassinations; they orchestrated the Sarajevo Assassination that led to World War I; Apis was the head of Serbian Military intelligence; Serbian border guards participated in the Sarajevo plot; the weapons used in the Sarajevo assassination came from the Serbian state armory; and Prime Minister Pasic knew of the nefarious activities of Apis and acted quickly after June 28, 1914 to cover them up. This is all established in my prior posts, as well as a series of new books on the causes of World War I.

The Austrians found all the essential elements of the assassination plan that could be found from an investigation in Sarajevo. The confession of Danilo Ilic (and other assassins) immediately after the assassination directly accused Major Tankositch (right) and the Serbian military in the assassination. The Austria-Hungarian government would need assistance from the Serbian government to follow the leads into Belgrade. That is where things stood on July 13, 1914, and at this point Serbia could have co-operated (as in any transnational murder plot) and World War I could have been averted--saving up to 37 million from the ravages of war.

But Serbia chose not to cooperate at all and the Russians backed them to the hilt through their Serbian Blank Check. Why? Well because both the Serbs and the Russians were in on the murder plot up to their ears, according to the eventual confession of Apis, reproduced here (and generally not otherwise available online):
"Feeling that Austria was planning a war with us, I thought that the disappearance of the Austrian Heir Apparent would weaken the power of military clique he headed, and thus the danger of war would be removed or postponed for a while. I engaged Malobabic to organize the assassination on the occasion of the announced arrival of Franz Ferdinand to Sarajevo. I made up my mind about this only when Artamanov [The Russian Military Attaché in Serbia] assured me that Russia would not leave us without protection if we were attacked by Austria. On this occasion I did not mention my intention for the assassination, and my motive for asking his opinion about Russia's attitude was the possibility that Austria might become aware of our activities, and use this as a pretext to attack us. Malobabic executed my order, organized and performed the assassination. His chief accomplices were in my service and received small payments from me. Some of their receipts are in the hands of the Russians, since I got money for this purpose from Artamanov, as the General Staff [of the Serbian Army] did not have funds available for this increased activity."
As for the Russians, Artamanov admitted that he had funded the Black Hand (but denied fore kowledge of the assassination). Thus, the Apis confession is fully consistent with the report of attorney Freidrich Von Wiesner of July 13, 2014, as well as subsequent admissions by Colonel Artamanov.

In light of the above, blaming primarily Germany for World War I is untenable, even though Germany also suffered from a dim monarch who went on vacation during July 1914. Moreover, the mainstream US approach that vague notions of militarism, alliances, and nationalism led to war is also nonsense. These forces are constants and yet do not always lead to war. (Consider the cold war for example, which never erupted like Europe in 1914).

Instead, World War I illustrates the problems with concentrated, unaccountable, and non-meritocratic power. It proves the folly of monarchies, and the need for law to channel and curb power for the benefit and welfare of society generally, as I argue in Lawless Capitalism, and will elaborate on shortly.

Indeed, the monarchs of World War I closely resemble the financial titans of today--willing and able to bring great ruin upon the world in reckless pursuit of their own venal and narrow self-interest.

Sunday, July 13, 2014

Emperor Franz Joseph and the Incredible Missing Dossier

Emperor Franz Joseph of the Austrian-Hungarian Empire haplessly occupied the Hapsburg throne from 1848 to 1916, one of the longest reigns in history. As the French noted just before the war, Franz Joseph "has no character to speak of; he's a drifter, floating from one system to the next; he has no real friends or confidants; he trusts no one, and inspires confidence in no one, nor does he even believe in himself." Further, he was an "utterly inert, stupid and despairing soul." As Emperor, Franz Joseph would not allow anyone to speak unless he spoke to them first. At 84 years old in 1914 he was borderline senile or as one scholar puts it "the emperor had been in an alarming state of dotage for years." (Wawro, xxiv, 17, 21, 31). All of this would be interesting trivia except for the fact that Emperor Franz Joseph bears the ultimate responsibility for Austria-Hungary's declaration of war on Serbia on July 28, 1914, leading to World War I. That declaration can only be termed recklessly suicidal and inexplicably stupid.

My argument begins on July 13, 1914. On July 13, 1914, the Austrian lawyer, Freidrich Von Wiesner, had completed his investigation into the conspiracy to assassinate Archduke Franz Ferdinand in Sarajevo. His findings directly implicated Serbian officials. According to Sean McMeekin, in July 1914: Countdown to War (p. 120) :
While Wiesner all but ruled out actual Serbian government complicity in plotting the crime, he did declare it “beyond reasonable doubt” that the plot had been hatched in Belgrade with the assistance of (Serbian Army) Major Tankositch, who had provided the assassins with “bombs, Brownings, ammunition, and cyanide of potassium” to swallow after their deed. It was also clear that “Princip, Chabrinovitch, and Grabezh [had been] secretly smuggled across the frontier by Serbian officials.” While Wiesner’s report did not go far beyond what Potiorek had already discovered, his careful, lawyerly prose reassured Berchtold that a proper dossier outlining Serbian guilt would be ready in time to make Austria’s case for war.
Major Voja Tankositch was a co-founder and a leader (McMeekin, 7) of the Black Hand, which had deep connections within the Sebian state, most particularly through the head of Serbian Military Intelligence, Apis (who ultimately confessed to leading the Sarajevo assassination plot). (McMeekin, 9). Apis is the code name for Colonel Dragutin Dimitrijevic who was the ultimate leader of the Black Hand.

In other words, in just over two weeks the Austrian lawyer had uncovered a conspiracy that certainly involved senior members of the Serbian government, even if the government itself had not formally sanctioned the assassination. In fact, it ultimately came to light that the Prime Minister himself had foreknowledge of the entire affair, as noted in my prior post. So, Austria-Hungary had solid cause to demand a more thorough investigation in Belgrade, the capital of Serbia, as they would do in their ultimatum to Serbia that triggered war.

But, instead of using this evidence to show the justness of their cause Austria sat on it until July 25, 1914, when they finally shared a dossier of their evidence with the other powers of Europe (including their ally Germany). (Document No. 19). This is after they sent their ultimatum to Serbia on July 23, after France and Russia pledged complete support to Serbia, and long after any reasonable expectation for such a crucial document containing such crucial evidence should have been issued. At that point all the powers had well-anchored positions.

The dossier should have been ordered to be distributed to all powers by Franz Joseph on July 15, 1914, at the latest. But he was on vacation, five hours from Vienna, with his mistress.