Nick Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute (AEI), where he researches and writes extensively on international security in the Korean Peninsula and Asia, demographics, and economic development. Domestically, he focuses on poverty and social well-being. Dr. Eberstadt is also a senior adviser to the National Bureau of Asian Research.

His many books and monographs include Men Without Work: Post-Pandemic Edition (2022); Russia’s Peacetime Demographic Crisis: Dimensions, Causes, Implications (2010); The Poverty of “the Poverty Rate” (2008); The End of North Korea (1999); The Tyranny of Numbers (1995); and Poverty in China (1979). His latest is Lessons for an Unserious Superpower: The “Scoop” Jackson Legacy and US Foreign Policy (2024).

Joe Klein and I caught up with Nick on Wednesday (29 April) to talk with him about his latest book, ‘America’s Human Arithmetic’, a collection of 15 essays that examine the state of the nation through the eyes of its leading demographer.

The essays grapple with a fundamental disconnect: why are Americans increasingly dissatisfied and less confident in their institutions at the very same time the US has achieved unparalleled wealth and unmatched global power? Prosperity and flourishing, Nick observes, have become decoupled.

Nick explains some of the reasons why in this episode of ‘Night Owls’. You can listen to it by clicking on the forward arrow below.

(‘Night Owls’ interview with Nick Eberstadt. Recorded 29 April 2026. Produced by Dale Eisinger. Hosts: Joe Klein and yours truly.)

If you prefer to listen to podcasts on one of the major podcast platforms, you can find this and all the other ‘Night Owls’ podcasts at Apple, Spotify, Amazon, and iHeart.

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1. The U.S. national debt now exceeds 100% of gross domestic product, crossing a once-unthinkable threshold, on the way toward breaking the record set in the wake of World War II. As of March 31, the country’s publicly held debt was $31.265 trillion, while GDP over the preceding year was $31.216 trillion, according to data released Thursday. That puts the ratio at 100.2%, compared with 99.5% when the last fiscal year ended Sept. 30. That figure will likely climb for the foreseeable future because the federal government is running historically large annual deficits of nearly 6% of GDP, which add to the debt. The government is spending $1.33 for every dollar it collects in revenue, and the budget deficit this year is projected at $1.9 trillion. That is little changed from 2025 as Republicans’ tax cuts kick in before their spending cuts take effect. The final tally will depend on Iran war spending, tariff refunds and the strength of the economy. (Source: wsj.com)

2. U.S. economic growth picked up in the first quarter as businesses invested heavily in artificial intelligence, rebounding from a fourth quarter dented by a government shutdown. At the same time, the economy didn’t expand as fast as economists expected, weighed down by softer consumer spending growth. The Commerce Department said U.S. gross domestic product—the value of all goods and services produced across the economy—rose at a seasonally and inflation adjusted 2% annual rate in the first quarter. (Source: wsj.com)

3. Oil prices hit a fresh wartime peak yesterday, surging to a four-year high above $120 a barrel, before pulling back in volatile trading on concerns that the war in Iran could escalate, leading to a longer disruption of fuel supplies from the Middle East. The average price of regular gasoline in the United States has followed oil higher, hitting $4.30 a gallon on Thursday, up 27 cents in a week, according to data from the AAA motor club. After the Federal Reserve held interest rates steady on Wednesday, Jerome H. Powell, the central bank’s chair, said that policymakers needed to be “very cautious” about their next steps, given the significant uncertainty about the economic outlook. (Source: nytimes.com)

4. A key inflation measure jumped in March as gas prices soared, the latest sign that the Iran war is pushing up the cost of living and delaying any interest rate cuts by the Federal Reserve. An inflation gauge monitored by the Fed rose 0.7% in March from February, up sharply from the previous month, the Commerce Department said Thursday. Compared with a year ago, prices rose 3.5%, the biggest increase in almost three years. At the same time, Thursday’s report showed that Americans’ incomes — wages, business income, and government benefits — increased 0.6%, a solid increase but slower than the rate of inflation, for the second straight month. (Source: apnews.com)

5. Iran’s Supreme Leader Mojtaba Khamenei yesterday declared Iran will retain control over shipping through the Strait of Hormuz and maintain its nuclear and missile capabilities, which supports ISW-CTP’s assessment that the Iranian regime is unlikely to make meaningful concessions in its next proposal to the United States. Some Iranian officials who have advocated for a “pragmatist” approach toward negotiations may be aligning themselves behind Vahidi’s redlines, which Mojtaba publicly endorsed in his April 30 statement. Foreign Affairs Minister Abbas Araghchi has reportedly been acting in “full coordination” with Vahidi and following Vahidi’s “instructions” over the past two weeks. (Source: understandingwar.org)

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A couple of weeks ago, Stanford University posted its “AI Index Report for 2026”. It’s a lengthy document, well worth reading if you have…

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News Items is as invaluable a way to start the day as a strong cup of coffee or a sip of mild gin” — Graydon Carter, editor and author of ‘When The Going Was Good’.

1. J. Craig Venter, a scientist and entrepreneur who raced to decode the human genome, died on Wednesday in San Diego. He was 79. His death was announced by the J. Craig Venter Institute, a nonprofit research organization founded by Dr. Venter and based in San Diego and Rockville, Md. The institute said in a statement that Dr. Venter had been hospitalized recently for side effects from cancer treatment. In the 1990s, Dr. Venter, a risk-taker and intense competitor, made a bold move when he decided that the Human Genome Project, a $3 billion government program for decoding the human genome, was moving slowly enough that he could enter the race late and beat it with a much faster method. His gamble paid off. In 2000, his company, Celera, made a joint announcement with a rival group saying that they had assembled the first human genomes, a landmark step toward uncovering the genetic basis of human disease and origins. (Sources: nytimes.com, genome.gov)

2. President Trump told Axios he's going to keep Iran under a naval blockade until the regime agrees to a deal that addresses U.S. concerns about its nuclear program. Trump is rejecting an Iranian proposal to first open the Strait of Hormuz and lift the blockade, while postponing nuclear talks to a later stage. U.S. Central Command (CENTCOM) has prepared a plan for a "short and powerful" wave of strikes on Iran in hopes of breaking the negotiating deadlock, three sources with knowledge said. After the strikes, which would likely include infrastructure targets, the U.S. would press the regime to come back to the negotiating table and show more flexibility. (Source: axios.com)

3. President Trump is slated to receive a briefing on new plans for potential military action in Iran today from CENTCOM Commander Adm. Brad Cooper, two sources with knowledge tell Axios. The briefing signals that Trump is seriously considering resuming major combat operations either to try to break the logjam in negotiations or to deliver a final blow before ending the war. CENTCOM has prepared a plan for a “short and powerful” wave of strikes on Iran — likely including infrastructure targets — in hopes of breaking the negotiating deadlock, three sources with knowledge said. (Source: axios.com)

4. Eurointelligence:

The prospect of renewed strikes (is) especially bad news. We are currently in what we’d describe, based on the IMF’s own account, as the adverse scenario. The strait of Hormuz has been shut for months, and may well be shut for months more. But there’s relatively little physical infrastructure damage so far.

However, at least two major things could move us into the more severe scenario. One is if restricted traffic through Hormuz becomes semi-permanent even after the war, because Iran simply cannot set up its toll system to move more than 100 ships a day through a now-heavily mined waterway. Another, related to the strikes, is that Iran responds to further escalations with wholesale destruction of Middle Eastern oil infrastructure. If the Houthis in Yemen get involved, this could even threaten the alternative Red Sea route that has been diverting a considerable amount of normally Hormuz-bound oil.

Our sense is that Trump and the Iranians are playing a game of chicken. They both believe their respective blockades are the most effective way to exert leverage without escalating catastrophically. Neither side has much incentive to blink, and the risk of this escalation happening is ever-present in the background. This is not conducive to resolving the Hormuz shortage anytime soon. (Source: eurointelligence.com. Italics mine.)

5. Oil surged past $125 earlier today to its highest level since the Middle East conflict began, as fears mounted of a prolonged disruption to global energy supplies. (Source: ft.com)

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1. Institute for the Study of War Briefing (Iran):

• Iran’s latest proposal in negotiations offers no concessions and represents an Iranian effort to end the war on Tehran’s terms. The proposal illustrates that Iran’s current decisionmaker, Islamic Revolutionary Guards Corps Commander Major General Ahmad Vahidi, believes Iran is winning despite the serious damage Iran has suffered. The United States remains opposed to the most recent April 26 proposal because it failed to address both Iran’s nuclear program and enabled Iran to assert “control” over the Strait of Hormuz.

• Iran’s growing challenges in storing and exporting its oil could be one mechanism by which Iranian calculations change in negotiations. Iran also faces significant pressure on other parts of its economy. It is unclear, however, whether this pressure on Iran’s economy will cause Vahidi and his inner circle to make concessions to the United States.

• Iran’s highest national security decision-making body is preparing for a potential protest wave as economic deterioration and social pressure intensify. Iran’s prolonged internet shutdown is also posing severe economic damage and accelerating unemployment, which likely increases pressure on regime stability.

• Iranian Parliament Speaker Mohammad Bagher Ghalibaf appears to be trying to retain political support and remain a key actor in negotiations despite prior signs of opposition from Vahidi and his inner circle.

• Infighting among hardline factions has escalated into a public media confrontation amid intra-regime competition over negotiations. Intra-regime power struggle between pragmatic hardliners and ultrahardliners indicates the absence of a decisive central arbiter, which has allowed factional disputes to unfold publicly.

• Iran continues to cooperate with key US adversaries, such as Russia and China, as it prepares for a potential resumption of conflict with the United States and Israel. (Source: understandingwar.com. Richard Haass and I discussed the status of the war in the most recent episode of ‘Alternate Shots’.)

2. President Trump has instructed aides to prepare for an extended blockade of Iran, U.S. officials said, targeting the regime’s coffers in a high-risk bid to compel a nuclear capitulation Tehran has long refused. In recent meetings, including a Monday discussion in the Situation Room, Trump opted to continue squeezing Iran’s economy and oil exports by preventing shipping to and from its ports. He assessed that his other options—resume bombing or walk away from the conflict—carried more risk than maintaining the blockade, officials said. Yet continuing the blockade also prolongs a conflict that has driven up gas prices, hurt Trump’s poll numbers and further darkened Republicans’ prospects in the midterm elections. It has also caused the lowest number of transits through the Strait of Hormuz since the war began. Since ending the major bombing campaign in an April 7 cease-fire, Trump has repeatedly walked back from escalating the conflict, opening space for diplomacy after earlier threatening to destroy the entirety of Iranian civilization. But he still wants to tighten the grip on the regime until it caves to his key demand: dismantling all of Iran’s nuclear work. (Source: wsj.com)

3. War has imposed a heavy cost on Iran’s economy: more than a million people out of work, soaring food prices and a prolonged internet shutdown that has slammed online businesses. The question is how much more pain Iran’s leaders are willing to tolerate as they try to negotiate a favorable end to the war. Talks between the U.S. and Iran have stalled. American officials are betting that Iran will soon crack because of the deepening economic crisis. Iran is betting the U.S. will crack first and end its blockade of Iranian ports to calm global markets and bring down American gasoline prices. To contain the economic fallout, the Iranian government has raised wages, subsidized basic goods and handed out cash to the poor. But authorities are confronting a level of hardship not seen in decades, according to residents. (Source: wsj.com)

4. The closure of the Strait of Hormuz, through which not only oil and natural gas but also fertilizer is shipped, is hitting global food production, particularly in poor countries where farmers are more vulnerable to sudden cost increases. That is raising fears of prolonged food price rises and could even lead to shortages if farmers abandon their fields or use less fertilizer. The crisis is unspooling across Asia and the developing world. The price of Vietnamese rice exports, for instance, has surged as production costs rise. In Thailand, a big seafood exporter, fishing fleets have been idled because of rising fuel costs. Much of the Philippines’s fuel is imported from other Asian countries that themselves rely on oil from the Middle East. “Developing countries generally, and the Philippines specifically, have some serious vulnerabilities as a result of the Middle East crisis and the energy supply shock,” said Andrew Jeffries, the Philippines country director for the Asian Development Bank. “People don’t have the incomes to absorb it, as compared to the developed world.” There are political implications, too. Rising food prices could reignite protests in countries such as the Philippines, America’s closest ally in Southeast Asia, or Indonesia, which just agreed to a major defense partnership with the U.S. (Source: wsj.com)

5. The United Arab Emirates said it would leave OPEC, dealing a heavy blow to the oil cartel as the war in Iran scrambles alliances and investment priorities among the world’s top oil producers. The sudden departure of OPEC’s third-biggest producer further weakens a bloc that despite producing up to four out of every 10 barrels of oil pumped worldwide has been hobbled by internal disunity and the rise of American oil output. The war in Iran has piled on more pressure by exacerbating rifts among the Arab countries at the core of the group and by closing the Strait of Hormuz, through which the group’s biggest producers export most of their oil, making it impossible for the group to influence the market during its biggest supply shock. The U.A.E. is in a relatively privileged position with the ability to circumvent the blockage in the strait by routing more than half of its oil exports across the country. (Source: wsj.com)

6. The closure of the Strait of Hormuz has cut off a significant source of liquefied natural gas, but the United States, the biggest exporter of the fuel, is unlikely to pick up that slack because it has no spare capacity. A two-month pause on L.N.G. shipments from Qatar, a Persian Gulf country near the strait, has caused prices to surge across Europe and Asia. That is spreading significant economic pain because places like Italy, Taiwan and South Korea depend on the fuel to produce electricity, heat homes and run industrial plants…The United States is building several export terminals where natural gas is chilled to minus 260 degrees Fahrenheit, turning it into liquid that can be loaded onto oceangoing tankers. But these projects, most of them in Texas and Louisiana, cost billions of dollars and take several years to complete. (Source: nytimes.com)

7. Institute for the Study of War Briefing (Ukraine):

• Ukrainian forces struck the Tuapse Oil Refinery overnight on April 27 to 28, the third strike against the refinery in April so far.

• The April 27 to 28 strikes compelled the Kremlin to acknowledge the impacts of the Ukrainian strikes against the Tuapse Oil Refinery.

• Ukrainian forces recently advanced in the Kharkiv and Orikhiv directions.

• Russian forces launched 123 drones toward Ukraine overnight. (Source: understandingwar.com)

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We had a scary item today about the theft of 15 high tech drones from a New Jersey warehouse. All 15 were recovered.

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1. Item #6 in today’s News Items read as follows:

President Trump is unhappy with the latest Iranian proposal on resolving the two-month war, a U.S. official said, dampening hopes for a resolution to the conflict that has disrupted energy supplies, fueled inflation and killed thousands. Iran’s latest proposal would set aside discussion of Iran’s nuclear program until the war is ended and disputes over shipping from the Gulf are resolved. That is unlikely to satisfy the U.S., which says nuclear issues must be dealt with from the outset, and Trump was unhappy with Iran’s proposal for that reason, a U.S. official briefed on the president’s Monday meeting with his advisers said, speaking on condition of anonymity. (Source: reuters.com, via asia.nikkei.com)

My podcast partner Richard Haass thinks the president should accept this approach and commence negotiations as quickly as possible. But what about the nukes? Richard says: put those negotiations off to a later date. What about tolls on ships passing through the Strait. If that’s what it takes to end the war, so be it. Details TBD.

That’s a quick intro to the first part of the discussion. We move on to discuss the Iranian economy (how long before complete collapse), the Ukraine War (I suggest the Pentagon acquire Ukraine Drone Engineering Inc, immediately) and Prince King Charles’ visit to America. (Sorry.)

We end with a sports triple-header: (1) The amazing Sebastian Sawe and his under 2-hours triumph at the London Marathon; (2) The R&A choosing Royal Lytham and St. Annes to host the 2028 Open Championship (complicating King Charles’ visit to the White House, as President Trump had been demanding The Open Championship be played at Turnberry) and, of course, (3) Richard’s never-ending insistence that things are getting better all the time for the New Jersey Giants football team. Suffice to say Mr. October’s $100 bill is unlikely to change hands.

(‘Alternate Shots’, featuring Richard Haass and John Ellis. Episode #25. Recorded 27 April 2026. Produced by Dale Eisinger. Click on the forward arrow to listen)

If you prefer, you can listen to this episode (and all the previous episodes) by clicking on these hyperlinks: Apple, Amazon, and Spotify. We’re on a number of other podcast platforms as well.

* “Alternate Shots” may or may not be America’s fastest-growing podcast. Depends on how you look at it.

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1. Susan Dominus, The New York Times Sunday Magazine:

Why are babies born young? The most natural phenomenon on earth is actually hard to explain — at least on a cellular level. Consider this problem: The components of conception are old. When a woman gets pregnant, she has been carrying her egg cells since birth. The sperm that joins with the egg to form a zygote might have been just a few months in the making, but it inherits markers of age from the man who produced it. It only follows that the zygote would also show signs of age — and at first it does.

But then a mysterious metamorphosis begins: The cells of the zygote begin to reverse that damage, shaking off the metaphorical dust that the parents accumulated on their DNA. After two weeks, the cells of the embryo are back to a kind of ground zero of youth. Only then are they as young as they will ever be. To understand this process, which was discovered only recently and is known as “natural rejuvenation,” is to contemplate a mind-bending truth: We don’t start out young; we work our way back to it.

Many scientists now believe that mastering cellular rejuvenation may be the key to transforming how long and how well we live. Some hope that they might eventually be able to harness the process to cure hundreds of diseases, extend life by decades and even fend off aging entirely. (Sources: nytimes.com, pubmed.ncbi.nlm.nih.gov)

2. China has launched a comprehensive national campaign against Alzheimer’s, as projections warn the degenerative brain disease could affect nearly 10 per cent of citizens by 2050. With the world’s fastest-growing dementia caseload set to sharply grow by mid-century, China is mobilizing top scientific institutions, major biotech firms and dozens of experts to accelerate the development of original treatments. (Source: scmp.com)

3. Scientists have been shooting particles into clouds since the 1940s, praying it will bring more rain and snow. While researchers agree that “cloud seeding” can work in a laboratory setting, many have doubted how much precipitation it can generate in the real world. But that hasn’t stopped Western states from blasting silver iodide into the sky for decades, hoping it will relieve harsh droughts. Now, start-up company Rainmaker said it has proved its cloud-seeding drones produced 142 million gallons of water in the form of snow. Some scientists said it’s too soon to know if the results are legitimate, as the data has yet to be peer reviewed, and even then it is a small amount of water in the face of the West’s intense drought. But if confirmed it could be a breakthrough, making it the first commercial cloud-seeding operation to prove it made precipitation. (Source: washingtonpost.com)

4. The sophisticated theft of 15 crop-spraying drones last month in New Jersey has the FBI worried as experts warn of “ridiculously bad” consequences and “a potential nightmare scenario” if terrorists get their hands on the machines. The unsolved theft has revived fears rampant in the post-9/11 years that terrorists might use crop dusters to disperse biological or chemical weapons with the aim of inflicting mass casualties inside the United States. The difference now is that the potential threat consists not of one pilot flying a small propellor-driven plane, but more than a dozen remotely piloted vehicles. Heightening the concern even further is the fact that the crime occurred against the backdrop of the United States’ war against Iran. (Source: thehighside.substack.com)

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1. Kenya’s Sabastian Sawe shattered one of athletics’ most elusive barriers yesterday, becoming the first man to run a marathon in under two hours in an official race as he stormed to victory at the London Marathon in ​one hour 59 minutes and 30 seconds. After years of global obsession, lab‑backed experiments and near‑misses, the marathon’s ultimate barrier finally fell as Sawe obliterated the world record previously held by the ‌late Kelvin Kiptum, who set a time of 2:00:35 at the Chicago Marathon in October 2023. For context: Imagine running 100 meters in under 17 seconds – and then ­keeping that pace up for another 26 and a bit miles (42km). That is what the 31-year-old Kenyan did. (Sources: reuters.com, theguardian.com)

2. World military expenditure reached $2887 billion in 2025, an increase of 2.9 per cent in real terms over 2024. Military spending declined in the United States but rose by 14 per cent in Europe and by 8.1 per cent in Asia and Oceania. The top three military spenders—the USA, China and Russia—spent a combined total of $1480 billion, or 51 per cent of the global total, according to new data published today by the Stockholm International Peace Research Institute (SIPRI). Global military expenditure increased to $2887 billion in 2025, the 11th year of consecutive rises, bringing the global military burden—military expenditure as a share of gross domestic product (GDP)—to 2.5 per cent, its highest level since 2009. (Source: sipri.org)

3. General Caine warned about this. From The New York Times:

Since the Iran war began in late February, the United States has burned through around 1,100 of its long-range stealth cruise missiles built for a war with China, close to the total number remaining in the U.S. stockpile. The military has fired off more than 1,000 Tomahawk cruise missiles, roughly 10 times the number it currently buys each year.

The Pentagon used more than 1,200 Patriot interceptor missiles in the war, at more than $4 million a pop, and more than 1,000 Precision Strike and ATACMS ground-based missiles, leaving inventories worrisomely low, according to internal Defense Department estimates and congressional officials.

The Iran war has significantly drained much of the U.S. military’s global supply of munitions, and forced the Pentagon to rush bombs, missiles and other hardware to the Middle East from commands in Asia and Europe. The drawdowns have left these regional commands less ready to confront potential adversaries like Russia and China, and it has forced the United States to find ways to scale up production to address the depletions, Trump administration and congressional officials say. (Read the rest. Sources: nytimes.com, wsj.com)

4. Iran gave the U.S. a new proposal to reopen the Strait of Hormuz and end the war, with nuclear negotiations postponed for a later stage, according to a U.S. official and two sources with knowledge. The diplomacy is in a stalemate, and the Iranian leadership is divided about what nuclear concessions should be on the table. The Iranian proposal would bypass that issue en route to a faster deal. But lifting the blockade and ending the war would remove President Trump’s leverage in any future talks to remove Iran’s stockpile of enriched uranium and convince Tehran to suspend enrichment — two primary war objectives for Trump. (Source: axios.com)

5. Prospects for meaningful US-Iran negotiations remain low due to the Islamic Revolutionary Guards Corps’ (IRGC) domination of decision-making and opposition to compromise. Iranian Foreign Affairs Minister Abbas Araghchi travelled to Muscat, Oman, on April 26 to discuss security in the Strait of Hormuz with Omani Sultan Haitham al Tariq. (Source: understandingwar.org)

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1. President Donald Trump and first lady Melania Trump were rushed out of the White House Correspondents’ Association dinner ​in Washington by Secret Service agents on Saturday night after a man opened fire on security personnel nearby. The man fired a shotgun at a Secret Service agent at a ‌checkpoint in the Washington Hilton hotel before being tackled and arrested. Trump told reporters at a hastily arranged briefing at the White House later that the officer was saved by his bulletproof vest and was in "good shape." U.S. Secret Service spokesperson Anthony Guglielmi confirmed the officer had been released from hospital. (Source: reuters.com)

2. The suspect arrested in the White House Correspondents’ Dinner shooting on Saturday was identified by a law enforcement official as Cole Tomas Allen, a Los Angeles-area man who appears ​from social media sites to be a Caltech graduate working as a part-time ‌teacher and game developer. Mr. Allen, approximately 31 years of age, is a resident of Torrance, California, a coastal town that is part of the South Bay area adjacent to Los Angeles abutting ​Santa Monica Bay. He obtained a bachelor’s degree in ​mechanical engineering from the California Institute of Technology in 2017, and a master’s degree in computer science from ‌California ⁠State University at Dominguez Hills in 2025, according to a social media profile. Caltech said in a statement that a person of that name graduated in 2017. (Source: reuters.com)

3. President Trump scrapped a trip by U.S. envoys Steve Witkoff and Jared Kushner to Pakistan for talks with Iran, leaving himself tough choices over how to force Iran to make concessions the White House wants to strike a deal. Trump said on Saturday that he had decided to cancel the trip after receiving an offer from Iran that fell short of the White House’s expectations. “We’re not going to spend 15 hours in airplanes all the time, going back and forth, to be given a document that was not good enough,” he said. He added that the Iranians had sent a much better offer 10 minutes after he canceled the trip, saying it involved Iran not having a nuclear weapon as part of a deal. (Source: wsj.com)

4. Prospects for meaningful US-Iran negotiations remain low as Islamic Revolutionary Guards Corps (IRGC) Commander Major General Ahmad Vahidi and his inner circle continue to dominate Iran’s decision-making and oppose compromise. ISW-CTP assessed that in recent days, the IRGC has sidelined civilian officials and that Iran’s negotiating team lacks the authority to make independent decisions, which helps explain continued inflexibility and the absence of tangible progress. (Source: understandingwar.org)

5. Only Iran knows how many mines it has placed in the Strait of Hormuz. But even the possibility that it has littered the narrow waterway with the deadly weapons is forcing the US to begin preparing to scour the seabed for them. It could take weeks to complete such a painstaking mission and for the route to be declared safe from mines, which may be camouflaged to look like rocks and can burrow into the sands, according to experts. It would be even longer if the fragile ceasefire between Tehran and Washington collapses and the mission has to be attempted under fire. (Source: ft.com)

6. NBC News:

American military bases and other equipment in the Persian Gulf region suffered extensive damage from Iranian strikes that is far worse than publicly acknowledged and is expected to cost billions of dollars to repair, according to three U.S. officials, two congressional aides and another person familiar with the damage.

The Iranian regime swiftly retaliated after the Trump administration attacked on Feb. 28, hitting dozens of targets across U.S. military bases in seven Middle East countries. Those attacks struck warehouses, command headquarters, aircraft hangars, satellite communications infrastructure, runways, high-end radar systems and dozens of aircraft, according to the U.S. officials and an assessment by the American Enterprise Institute, a conservative think tank in Washington, D.C.

In the initial days of the war, an Iranian F-5 fighter jet bombed the U.S. base Camp Buehring in Kuwait, despite the base having air defenses, a rare breach that marked the first time an enemy fixed-wing aircraft has struck an American military base in years, according to two of the U.S. officials.

The U.S. bases that came under attack are home to thousands of American troops, and in some cases their families, though they were largely cleared out in the days and hours before the U.S. and Israeli went to war with Iran. (Source: nbcnews.com)

7. The Washington Post:

President Vladimir Putin is facing rising discontent across Russian society as the war against Ukraine drags on, the economy flounders and public dissatisfaction mounts over government restrictions on internet access. Russia’s biggest state-owned pollster, the Russian Public Opinion Research Center, on Friday recorded that Putin’s approval rating fell to 65.6 percent, its lowest level since before the beginning of the war and a drop of 12.2 percentage points since the start of the year.

Gauging genuine public opinion is difficult under an authoritarian regime that exiles, imprisons or even kills political opponents and where criticism of the war is illegal, but compared to Putin’s historical ratings — as high as 88 percent — the falling poll numbers signal growing weariness with the war now in its fifth year, and with negotiations to end it largely stalled as the Trump administration focuses on Iran….

“The overall mood is that’s enough already; you’ve been fighting for long enough,” said one Russian official speaking on condition of anonymity for fear of retribution. “It seems to everyone that it’s been going on for longer than World War II, the Great Patriotic War — and at the same time we can’t even take one region,” the official said referring to Russia’s failed effort since the full-scale invasion in 2022 to take full control of the Donetsk region in eastern Ukraine. (Source: washingtonpost.com)

8. Russian forces conducted a massive drone and missile strike consisting of 666 drones and missiles against Ukraine overnight on April 24 into April 25, primarily targeting Dnipro City, Dnipropetrovsk Oblast, killing at least six civilians and injuring at least 47. The Ukrainian Air Force reported that Russian forces launched 47 missiles and 619 drones against Ukraine overnight — the fourth Russian strike of over 500 strike vehicles in April 2026. (Source: understandingwar.org)

9. Europeans have to step up and defend their own interests because the U.S., China and Russia are now all “dead against” them, French President Emmanuel Macron warned on Friday. “We should not underestimate that this is a unique moment where a U.S. president, a Russian president, a Chinese president are dead against the Europeans. So, this is the right moment for us to wake up,” Macron said in a discussion with Greek Prime Minister Kyriakos Mitsotakis organized by the Kathimerini newspaper in Athens. “We have to be a little bit self-confident and deliver an agenda,” he added. (Source: politico.eu)

10. Al Qaeda-linked militants launched coordinated attacks across Mali on Saturday, claiming to have seized two major cities while simultaneously striking the heart of the capital, Bamako, in what observers described as a major, unprecedented offensive. The group, JNIM, attacked several cities at the same time and hit the country’s military headquarters just outside Bamako, where the home of the defense minister was destroyed, according to experts who monitor the region. In a statement, JNIM claimed to have captured the northern city of Kidal and the central city of Mopti, as well as military bases in nearby Sevaré and in Gao. It named the Azawad Liberation Front, an armed separatist movement of the Tuareg ethnic minority, as its partner in the attacks. The offensive follows an evolution of the group from a rural insurgency into a formidable force that uses blockades to starve major cities and launches conventional-style battles against the Malian army. (Source: nytimes.com)

11. A severe shortage of computing power is forcing major Chinese artificial intelligence model developers and cloud service providers to throttle services, ration access and hike prices as demand outstrips chip supply. The computing power crunch underscores the growing mismatch between surging demand for AI applications — particularly resource-intensive coding assistants — and constrained semiconductor supply chains, threatening to throttle the industry’s rapid expansion. (Source: caixinglobal.com)

12. Chinese scientists have developed a method to generate electricity and achieve higher energy efficiency than conventional burning, while producing zero carbon dioxide emissions, by placing coal inside a “battery”. “Coal-fired power” conjures images of heavy pollution, steep carbon footprints and modest efficiency. But a novel, direct coal power technology challenges that stereotype by eliminating combustion entirely and sidestepping the CO₂ emissions that have long defined coal use. A team led by Xie Heping, a member of the Chinese Academy of Sciences with Shenzhen University, has for the first time built what they call a zero-carbon-emission direct coal fuel cell, or ZC-DCFC. (Sources: scmp.com, zgcforum.com)

13. The Justice Department said it would end its criminal investigation of Federal Reserve Chair Jerome Powell, an attempt to clear the obstacle that has stalled Kevin Warsh’s confirmation as his successor. U.S. Attorney Jeanine Pirro announced the move Friday, saying her office is closing an inquiry into Powell’s testimony to Congress about cost overruns on the renovation of two historic Fed buildings. A federal judge had already ruled that the grand jury subpoenas served on the Fed in January were improper and found “essentially zero evidence” of criminal wrongdoing. (Sources: wsj.com, nbcnews.com)

14. The Wall Street Journal:

Two big loans that were made during the post-pandemic boom in private-equity buyouts are defaulting, whacking some private-credit funds and ratcheting up losses in the already troubled corner of Wall Street.

Software maker Medallia—a poster child for the intersection of investor concerns between technology and private capital—can no longer repay about $3 billion of loans from firms including Blackstone, KKR and Apollo Global Management. The lenders are negotiating to take control from private-equity owner Thoma Bravo, which will likely lose $5.1 billion it invested in the company in 2021, people familiar with the matter said.

At the same time, Blackstone, KKR and others are restructuring a $1.4 billion loan they made to help Harvest Partners and other private-equity backers pay for a 2021 buyout of dental-services company Affordable Care, the people said.

The losses are a small slice of the now $2 trillion in loans that private-credit funds have made to companies, but they are intensifying investor angst about the underlying health of these giant lenders on Wall Street. (Source: wsj.com)

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Quick Links: This is well done: How the energy crisis is spreading across the world. Indonesia suggests charging a toll to transit the Malacca Strait. Vladimir Putin’s regime turns on book publishers. Bolsonaro’s son runs for president with a mission: Get dad out of prison. You’ve read it before, you’ll read it again (and again): Trump’s war, redistricting setbacks fan GOP midterm angst. Might Donald Trump try to rig the midterms? Google to invest up to $40 billion in Anthropic. The U.S. government needs Anthropic more than Anthropic needs the U.S. government.

Saturday is an off day, although we sometimes post “guest columns” by contributors we know and admire.

Long story short: No News Items today. See you tomorrow.

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1. The Food and Drug Administration on Thursday approved a gene therapy that can cure a rare, inherited form of deafness. The treatment is the first to restore normal hearing in children who were born deaf. The maker of the therapy, Regeneron, plans to provide it free to any child who needs it. (Sources: nytimes.com, investor.regeneron.com)

2. Chris McGuire:

April 2026 marked a turning point in artificial intelligence: America’s leading AI companies developed models so powerful that they decided not to immediately release them to the public. These systems are the most capable cyber-weapons ever built, and AI leaders have warned for years that their arrival would reshape national security. That moment is here.

The consequences of losing the AI arms race are no longer theoretical. AI models are now the decisive offensive and defensive tools in cyber space, and American and allied cyber security depends on maximising the US lead over China in AI.

Anthropic’s newest model, Claude Mythos Preview, is the first AI model that can autonomously discover, chain together and exploit or patch software vulnerabilities more effectively than almost every human researcher, at unprecedented scale. Cyber security experts describe Mythos as a “watershed event in the history of cyber security”.

Instead of releasing Mythos publicly, Anthropic is deploying it only to select US technology companies for the purpose of shoring up US cyber defences. OpenAI announced that its upcoming model, Spud, would similarly only be released to select cyber security partners. The White House, Treasury department and Federal Reserve have launched parallel efforts to harden US critical infrastructure against AI-enabled cyber attacks.

These efforts are urgent because China will develop a model as capable as Mythos soon. China’s best AI models currently lag behind leading US models by about seven months, potentially slightly more. Seven months is therefore the window to harden America’s entire digital infrastructure before Chinese cyber weapons surpass current US defenses. (Sources: cfr.org, ft.com)

3. The White House has accused China of undertaking industrial-scale theft of American artificial intelligence labs’ intellectual property and warned that it would crack down on a practice that exploits US innovation. “The US government has information indicating that foreign entities, principally based in China, are engaged in deliberate, industrial-scale campaigns to distil US frontier AI systems,” Michael Kratsios, director of the White House Office of Science and Technology Policy, wrote in a memo seen by the Financial Times. The accusation marks the latest escalation in tensions around Chinese groups allegedly raiding advanced American AI research amid an arms race to lead in the technology. It comes just weeks before President Donald Trump will meet President Xi Jinping in Beijing. (Source: ft.com)

4. DeepSeek rolled out preview versions of a new flagship artificial intelligence model a year after upending Silicon Valley, calling it the most powerful open-source platform in a challenge to rivals from OpenAI to Anthropic PBC. The Chinese startup unveiled the V4 Flash and V4 Pro series, touting top-tier performance in coding benchmarks and big advancements in reasoning and agentic tasks. They come with architecture upgrades and optimization improvements, the startup said on Hugging Face. DeepSeek singled out a technique it dubbed Hybrid Attention Architecture, which it said improves the ability of an AI platform to remember queries across long conversations. It also pushed the 1 million-token context window — a leap that allows entire codebases or long documents to be sent as a single prompt. (Sources: bloomberg.com, huggingface.co)

5. The artificial intelligence company Anthropic said this month that it would share its latest A.I. technology with only a small number of partners because of cybersecurity concerns. Yesterday, Anthropic’s chief rival, OpenAI, took a different approach. The company unveiled a new flagship A.I. model, GPT-5.5, and began sharing the technology with the hundreds of millions of people who use ChatGPT, its online chatbot. The companies’ contrasting strategies are a clear indication that Anthropic and OpenAI disagree on how they should handle technology that is increasingly useful for the people trying to defend computer networks as well as those trying to break into those networks. But OpenAI is not throwing caution to the wind. The company said it was not yet releasing the technology as an application programming interface, or A.P.I., which would allow companies and individuals to fold the technology into their own software applications and other tools. (Source: nytimes.com)

6. Anthropic says it has no way to control or shut down its AI models once they’re deployed by the Pentagon, according to a new court filing. The Pentagon designated Anthropic a supply chain risk, contending the AI firm is inappropriately getting involved in how its technology can be used in sensitive military operations. Anthropic argues in the filing to a federal appeals court in D.C. that it has no visibility, technical ability or any kind of “kill switch” for its technology once it’s deployed. (Sources: axios.com, storage.courtlistener.com)

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1. Ukraine’s frontline position is “the strongest” it has been in a year due to superiority in drones and enhanced air defense, said Andriy Sybiha, the foreign minister. Agence France-Presse said its analysis of data from the Institute for the Study of War (ISW) showed Russian troops made almost no territorial gains across the frontline in March – the first time this had occurred in two and a half years. “We have minimised the Russians’ advantage in manpower through the use of drones,” Sybiha added. “For us, the situation on the battlefield is about strengthening our negotiating position. We can shoot down up to 90% of the targets that strike our cities … [Ukraine’s] position on the battlefield is indeed the strongest, or the most solid, it has been over the past year.” (Source: theguardian.com)

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Mary is an extraordinary reporter. This piece is a good example of her remarkable skills.

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The Wall Street Journal had some fun a while back, reporting on a fraudster’s guilty plea to crimes that its own columnist, Jason Zweig, solved all by himself. In a series starting in 2024, Zweig uncovered a onetime broker, Paul Regan, who had conned some 300 people out of more than $50 million, by promising guaranteed returns of up to 17.1 percent per year.

“Any interest you earn is ‘locked in’ and can’t be lost,” said the ads. Zweig knew it was too good to be true, so he made phone calls, stood by his guns, and bit by bit the whole scheme unravelled. Regan, it turned out, had been banned for life from the U.S. securities industry, but he had moved to Medellín and started over.

Wouldn’t it be great if there were more watchdogs like Zweig, warning people away from too-good-to-be-true offers? That’s especially true in the life-and-annuity business. The promises can run for decades, a good deal today can turn into a bad bet by the time you need it, and the financial statements that could steer you out of harm’s way are either hidden behind a paywall or nonexistent.

Suppose you bought a policy from MetLife back in 2007, when it was America’s biggest life insurer, rated AA-, or “very strong,” by Fitch Ratings. You’ve made regular payments ever since to keep it in force. But now the insurer has a different name, Brighthouse. MetLife doesn’t stand behind it any more. Its rating is down to A-minus. Later this year, it will be acquired by a buyout firm, Aquarian, which is smaller and has worse credit. Much of Aquarian’s funding comes from sovereign-wealth funds in Abu Dhabi and Qatar. What do they care about U.S. policyholders?

Aquarian’s $4.1 billion purchase price will go entirely to Brighthouse’s shareholders. There’s no sign of a capital contribution to the company itself. On the contrary: Aquarian plans to shift Brighthouse’s investment portfolio into dicier assets and charge Brighthouse fees for doing so. That will leave less money standing behind your policy.

Should you keep sending in your money? Hard to say. As we’ve noted here before, there’s been a sea change in the once-staid life-and-annuity business. Much of the industry has moved offshore, set up black-box structures, embraced leverage, and paid billions to shareholders out of money that once belonged to policyholders like you.

In the past, you could rely on state insurance regulators to make sure your carrier was solvent. Even now, the Delaware Insurance Department, Brighthouse’s primary state regulator, must bless the Aquarian buyout before it can be done. But how will Delaware decide? If you look carefully at regulatory filings, you’ll see that Delaware hasn’t been holding Brighthouse to its own solvency rules for years.

It’s not just Delaware. In the brave new world of U.S. life insurance, insurers say the state rules are too tough, and regulators in a number of states have offered them relief. As of Dec. 31, 2025, the relief we’re talking about totaled $1.6 trillion – yes, trillion, with a T. At this point, even the regulators seem to have a hard time knowing when enough is too much.

“Regulators must always strike a balance with troubled companies,” said Jane Callanan, general counsel for the Connecticut Insurance Department, in an interview with InsuranceNewsNet in December 2024. The department had just put a troubled insurer, PHL Variable, into “rehabilitation” and was trying to save it. Six months earlier, the department said PHL had a $900 million hole in its balance sheet – but the company’s troubles had first become apparent in 2019. InsuranceNewsNet asked why the department waited five years to intervene.

Callahan said all insurance regulators had to strike a balance between “early intervention” – taking the keys away at the first sign of insolvency – and “allowing companies the opportunity to pursue successful paths out of challenged situations.”

She had a point. No insurance commissioner wants to shut down an ailing insurer if there’s a chance it might recover. There’s no F.D.I.C. for insurance, and policyholders can be badly hurt. But if you opt to give a troubled insurer more time, you run the risk that its problems will grow. If you end up closing it down after all, people will be hurt even more. That’s what happened at PHL Variable. By the time the belated rehabilitation failed, its hole was measured at $2.1 billion. Now it’s in liquidation. (More on that in a future column.)

Callanan wasn’t talking about Brighthouse, but she could have been. Brighthouse put itself up for sale in January 2025, after its capital had been shrinking for five years – not a good sign. Life insurers are supposed to be well capitalized, with enough invested assets to cover all their liabilities – their future payments to policyholders. By law, their balance sheets have to balance. They even have to have a little excess, known as their surplus. If a company burns through its surplus, the regulators are supposed to step in.

But in a Brighthouse quarterly earnings call last year, one analyst said he thought the company had achieved its surplus with a thumb on the scale.

“There’s something problematic about the way you’re projecting and accounting for your liabilities,” said the analyst, Alex Scott of Barclays. “Is that right?”

The chief financial officer, Edward Spehar, declined to answer the question.

Brighthouse Life, the company’s main operating unit, has a large black-box subsidiary, Brighthouse Re, where it sends some of its liabilities. Brighthouse Re’s legal structure is something called a “captive,” and the practice of sending its liabilities there is called “captive reinsurance.”

Please understand: “Captive reinsurance” is sleight of hand. Real reinsurance is an arms-length transaction between two independent parties that transfer risk from one to the other. It’s widely used in the industry and generally considered beneficial. But that’s not what’s happening when Brighthouse Life sends its obligations to Brighthouse Re. When it sends obligations to its wholly owned subsidiary, the risks haven’t really gone anywhere. They’re still at Brighthouse Life. It’s like moving furniture from your living room to your closet – you can’t see it any more, but it’s still in the house.

Why bother? Because captives enjoy strict confidentiality under state insurance law. When Brighthouse Life sends its life-and-annuity obligations to Brighthouse Re, they disappear. They’re not on Brighthouse Life’s balance sheet any more. Brighthouse Re’s balance sheet is confidential. Poof! Brighthouse Life’s balance sheet appears to balance, as required, thanks to captive reinsurance.

This isn’t fraud. It’s been approved by the Delaware Insurance Department – which helps to explain why Alex Scott sounded so exasperated in that analysts’ call. Neither he, nor anybody else, aside from a few company insiders and Delaware regulators, knows how Brighthouse Re plans to pay the obligations it’s been given. We’re talking about billions of dollars.

“It makes it very difficult to value your company,” Scott complained.

CFO Spehar told him the 10-K of Brighthouse Financial – the holding company over Brighthouse Life and other subsidiaries – had “some basic numbers,” but they “are not the most relevant numbers to consider.” Indeed, an insurance holding company’s 10-K is written for shareholders. Not policyholders. A 10-K is filed with the S.E.C. It’s easy to get, and it’s free. But it consolidates the numbers of a whole family of insurers, and a lot of detail gets netted out. Policyholders care foremost about the solvency of the insurer whose name is on their policy. A 10-K doesn’t tell them that.

To get the facts about their own insurer, on a stand-alone basis, a policyholder needs to see the insurer’s filings to its primary state regulator. They’re very detailed. They follow a uniform set of accounting standards, put forward by the National Association of Insurance Commissioners. But they can be hard to get – sometimes impossible. The N.A.I.C. keeps them behind a paywall. Users must register and pay. (Imagine the S.E.C. doing that.) Brighthouse Financial is a big holding company with sophisticated investors, so it puts its state regulatory filings on its website. But many life insurers don’t.

And remember: A captive reinsurer’s regulatory filings are confidential. You could buy every last filing in the N.A.I.C.’s database and you still wouldn’t get one from a captive reinsurer. This matters. Of that $1.6 trillion of obligations to policyholders that U.S. life insurers have tucked away in black boxes, about $1 trillion is in black boxes offshore, beyond the long arm of the states. The other $600 billion has been ceded to captive reinsurers onshore, in the states’ own domiciles. That’s an awful lot of money to take for granted.

When Brighthouse put itself up for sale, it made a small exception to all the opacity: Prospective suitors who signed confidentiality agreements could enter a “virtual data room” and look at all its numbers, even the black-box numbers.

A dozen prospective suitors took a look. All but one – Aquarian – said, “No thanks.” That’s telling you something.

Part of the suitors’ qualms may have been driven by recent concerns about private credit, the loans made by non-banks to smaller companies that can’t get bank loans. Life insurers, including Brighthouse, have been adding private credit to their investment portfolios for at least a decade. But two automotive bankruptcies last fall, of Tricolor and First Brands, unleashed waves of consternation about private credit, because both companies were awash in it. Wall Street now knows there’s a problem, but Wall Street can’t tell where the next blowup will be – hence JPMorgan Chase CEO Jamie Dimon’s oft-quoted remark that with private credit, you don’t know where the next “cockroach” will come crawling out of the woodwork. His bank lost more than $170 million in the Tricolor collapse.

A lot of the private-credit loans and structured securities have been added to life insurers’ investment portfolios through private placements. That means there’s no market price, no public rating by a big agency like Moody’s or Fitch, no disclosure of the structure or of what happens at maturity. Sometimes, instead of a cash repayment, the holder just gets more of the same debt.

“The life insurers are the biggest buyer of private credit funds,” said Alberto Gallo, chief investment officer of Andromeda Capital Management, a London-based firm focused on fixed income. He said he’s been shorting the bonds issued by life insurers, including Brighthouse. (Short trades make money when the price of a security falls.)

“The whole system is very fragile,” Gallo said. “You don’t know which piece is going to fall first. That’s why we decided to short the whole thing.”

So private credit is definitely a problem. But it’s not the problem. It you step back and take in the long view, you’ll see that it’s just the most recent development in the sweeping transformation of the whole life-and-annuity sector.

Brighthouse makes as good an example as any, but to see what happened you have to go back to the 2000s, when it was still part of MetLife – basically, MetLife’s retail business. (MetLife didn’t spin off Brighthouse until 2017.)

MetLife and lots of other life insurers went public around the turn of the millennium. For the first time, they had shareholders. Corporate officers and directors took on a legal duty to act in the shareholders’ best interests. That’s no different from fiduciary duty at any publicly traded company, except that state insurance regulation operates on rules and principles dating back to when the companies were mutuals, owned by their policyholders. In that framework, policyholder interests come first. Much of the sleight of hand we’re seeing today results from company officials and regulators trying to navigate these two conflicting legal frameworks.

Shareholders – we’ll call them Wall Street – aren’t terribly interested in balanced balance sheets or solemn promises to policyholders. They care about returns on investment. They like to see rivers of premium dollars flowing into the insurers they own, but they don’t like the way state regulation expects insurers to invest the money. They argue that it’s wasteful, forcing life insurers to tie up scads of money in low-yielding, high-grade bonds.

In fact, if there’s one thing Wall Street hates to see, it’s life insurers setting up low-yielding reserves to pay claims to policyholders that may not come due for decades. To Wall Street, those reserves are “excess capital,” just waiting to be set free and used to pay dividends and other gains to shareholders, preferably at the end of the next quarter.

The 2000s were the years when America’s boomers – nearly 70 million people – were approaching retirement and wondering how to make their savings last for the rest of their lives. Life insurers were clamoring to sell them annuities, contracts where you pay up front to get a stream of regular payments in retirement. They were especially pushing variable annuities, in which the future payments were tied to the performance of an investment account. But the boomers were wary, having just seen the record-breaking bull market of the 1990s turn to bust.

To get them off the fence, MetLife and its competitors added increasingly generous “guaranteed minimum income benefits” to their variable annuities. It turned into an arms race of promises. To put it very simply, the guarantees gave buyers gains when the markets went up, but their retirement payments couldn’t be reduced if the markets went down.

Sounds a bit like those “locked in” interest rates that made Jason Zweig pounce, doesn’t it? A guaranteed income stream that goes up when the markets rise, then stays up when the markets fall, is going to cost gazillions when you have to start paying it. MetLife and its competitors did charge extra for their guarantees, but not nearly enough to cover the cost.

State regulators expected the insurers to set up adequate reserves. Wall Street expected dividends. How to serve both masters? Captive reinsurance!

In 2001, MetLife set up a big captive reinsurer, Exeter Reassurance, in Bermuda. MetLife sent its variable annuity obligations there. The costly guarantees dropped off MetLife’s own balance sheet. Offshore, out of sight, Exeter secured the guarantees not with bonds, but with a sophisticated “dynamic hedging” system, with hundreds of dedicated servers running complex risk simulations, and dozens of traders using several types of derivatives to adjust their hedge positions as the markets changed.

By securing its obligations that way, MetLife could hold off on dreary, low-paying bonds, while paying shareholder dividends that increased in each of its first seven years as a publicly traded company. From 2001 to 2007 the rate paid to shareholders more than tripled.

Then came 2008 and the Global Financial Crisis. Insurers’ investment portfolios took a beating, especially if they had lots of toxic mortgage-backed securities – and especially if those securities were backed by ersatz bond insurance from A.I.G., which collapsed that fall and had to be bailed out by the taxpayers.

Huge bank bailouts got most of the headlines and taxpayer wrath, but life insurers needed help too. Even as their investments tanked, their annuity obligations ballooned, thanks to those guarantees that stayed high when the markets fell. State regulations required insurers to add to their reserves, but the insurers couldn’t afford to fill such a big hole.

So state regulators offered accounting relief. They let insurers carry most of their shrunken assets at book value, which was higher than the market price. It was forbearance – giving life insurers time to rebuild instead of enforcing the law – and it was widely seen as necessary to shield policyholders in a global crisis. But just like Dr. Strangelove’s Doomsday Machine, it was built without an “off” switch. Life insurers are still using it today, 18 years after the crisis.

At the same time, some spotted an opportunity. Executives at Apollo Global Management, the huge private-equity firm, saw that battered life insurers would be relatively cheap to acquire. In 2009 Apollo took over $1.6 billion of annuity obligations from an Iowa insurer, American Equity, which paid Apollo with bonds from its shrunken investment portfolio. Apollo used the acquisition to found a new insurance operation, Athene.

Athene didn’t have to contend with low-yielding bonds and costly reserves – Apollo set up its core operations in Bermuda. There, it could swap out American Equity’s state-compliant bonds for alternative investments. Private credit would eventually be a favorite. Apollo could originate the private loans and structure the securities for Athene’s investment portfolio; Athene paid Apollo investment-management fees for the service.

Over the next few years Apollo acquired several more languishing life insurers. Athene grew into one of America’s biggest fixed annuity providers. (The guaranteed variable annuity arms race of the 2000s had ended with the financial crisis.) Athene sold annuities in the U.S. through state-regulated affiliates, then transferred the obligations and premiums to its Bermuda operations, beyond the long arm of the states.

It was a huge success. The Apollo-Athene duo attracted the attention of other big private-equity companies. They saw armies of policyholders sending in premiums, which wouldn’t be paid out until far in the future. Meanwhile, the money was being invested according to Apollo’s vision, which included a higher risk-reward profile and plenty of dividends for shareholders. Perfect. Soon they were taking control of other life insurers, setting up their own offshore black boxes, and replacing “excess capital” with financial wizardry. KKR now owns Global Atlantic. Blackstone has acquired Allstate’s life-and-annuity business and renamed it Everlake. Brookfield Asset Management has acquired American National and American Equity. The Carlyle Group has a majority stake in Fortitude Re. And so on. Brighthouse is, in fact, the last big life insurer to remain independent for now.

States saw their regulated life insurers vanishing offshore. A number of them got busy promoting their own quasi-Bermudas – alternative domiciles where insurers could conduct black-box, Bermuda-style reinsurance deals without ever leaving Delaware, Vermont, Arizona, Utah, or any of the other 30-odd states that now permit captive reinsurance. That meant the insurers in their care could shed obligations – $600 billion worth and counting – beef up their balance sheets, and send money to pay shareholder dividends.

MetLife wasn’t so lucky. It had acquired a bank in 2001 and became subject to regulation as a bank holding company. It wanted to keep increasing its shareholder dividends every year, even after the Global Financial Crisis. It said its dynamic hedging program had tided it through the crisis in much better shape than other life insurers.

But by law, MetLife was required to get Federal Reserve approval of its dividend payouts. The Fed had just helped the Treasury bail out banks to the tune of $498 billion, and it wasn’t impressed by MetLife’s offshore hedging activities. It saw derivatives-counterparty risk at Exeter Re that could start up a whole new toxic cascade. Every year, from 2008 through 2012, MetLife sought to increase its dividends. Every year the Fed said No. It also required MetLife to increase its capital, so MetLife issued 75 million common shares, making it even harder to raise the company’s per-share dividend rate.

After five years of hearing the Fed say No, MetLife sold its banking operations and de-registered as a bank holding company. That took the Fed out of the picture, and MetLife promptly increased its dividend by nearly 50 percent.

But not so fast. The Treasury had formed a Financial Stability Oversight Council, with a Congressional mandate to look for “Systemically Important Financial Institutions,” or SIFIs – institutions that were so big and intertwined that if one of them failed it could topple the others. SIFIs were to get an extra layer of regulation, by none other than the Fed.

When the Council designated MetLife a SIFI, MetLife sued. Eventually the designation was reversed, but the fight went on for years.

Meanwhile, New York’s Financial Services Superintendent, Benjamin Lawsky, had also spotted Exeter Re and become concerned. New York was now MetLife’s primary state regulator, and MetLife was America’s largest life insurer. Lawsky could see it sending all those costly variable-annuity guarantees offshore, to be managed in ways that didn’t conform to state insurance rules.

Lawsky started making speeches about “shadow insurance,” saying insurers were “using shell games to hide risk and loosen reserve requirements.” He attracted media attention, but when he called on the other state insurance commissioners to join him in a nationwide moratorium on captive reinsurance, all the states but one, California, snubbed him. Many were busy by then promoting themselves as quasi-Bermudas.

Lawsky may not have realized the power of the current he was swimming against. Athene was burgeoning in Bermuda. No one was calling it a SIFI. Other private-equity firms were buying life insurers and moving operations offshore. States were vying to keep them.

In the middle of all that, MetLife announced that it had heard Lawsky. It would spend about a year unwinding the intricacies of Exeter Re and bringing the business back onshore. It would be and difficult and expensive. Exeter Re was so vast – so laden with costly guarantees – that MetLife would have to combine at least three U.S.-based subsidiaries, just to hold it all.

But MetLife didn’t bring the business back to New York. It went to Delaware instead. Delaware had a statute promising “thorough and swift” authorization of complex reinsurance transactions, because the growth of captive reinsurance was in the “best interests of this State.”

By the end of 2014, the transfer was done. The former Exeter Reassurance had a new name: MetLife Insurance Company USA. An unusual footnote in its regulatory filing for the year said that in Bermuda it had used an offshore method of calculating its obligations. Upon its arrival in Delaware, it didn’t have to calculate them at all.

Departures from the N.A.I.C.’s accounting standards aren’t unheard-of. They’re called “permitted practices,” and their impact on the insurer’s balance sheet has to be disclosed. But MetLife USA’s footnote said that Delaware had granted it “permission not to calculate, record, or disclose the effect of this permitted practice on statutory surplus.”

“This disclosure is truly blowing my mind,” said Tom Gober, a forensic accountant who specializes in reinsurance.

Bringing Exeter Re onshore was “likely one of the most important, massive, and complex affiliated reinsurance transactions in history,” he said. “The N.A.I.C. has always said that when it’s a material transaction with an affiliate, the books must be kept in a way that shows the effect. But MetLife didn’t have to do that. It’s just insane. It means they’re keeping everybody in the dark.”

Doing it that way, he said, made it possible for the new Delaware operations to send money upstream to MetLife Inc., the corporate holding company. That’s who pays dividends to shareholders.

“They know there’s a hole” in MetLife USA’s balance sheet, Gober said. “The fact that they know there’s a hole, and they let them pay out dividends, is allowing them to pay out policyholder money that should have been kept for reserves.”

In 2016 MetLife announced it was going to spin off Brighthouse. MetLife would keep its institutional businesses. Brighthouse Life would take over most of MetLife’s retail operations, including those expensive annuity guarantees from the 2000s. It has a captive reinsurer, Brighthouse Re, in Delaware, where it could hold the “legacy” obligations, out of sight.

Brighthouse Life is still making good on those payments. It’s legally obliged to do so. But it’s not easy. Over the last few years, its payments to policyholders have eclipsed the money it has taken in in premiums.

At the same time, Brighthouse has been buying back stock, which also returns money to shareholders. (Unlike MetLife, Brighthouse doesn’t pay quarterly dividends.) Since the spinoff, Brighthouse has spent $2.2 billion on stock buybacks. Like dividends, they have to be approved by state regulators. They’re not supposed to happen if your balance sheet doesn’t balance. But Brighthouse has its secret weapon, captive reinsurance.

Brighthouse Re’s balance sheet remains confidential, but Brighthouse Life’s filings show the value of the obligations that it “ceded” to its captive, to use the reinsurance term. The year before the spinoff it ceded $2.1 billion of obligations to the captive. By the end of 2016, when the spinoff was underway, it had ceded $8.2 billion. At the end of 2017, after the spinoff was done, it had ceded $18.5 billion. By the end of 2025 it had ceded $24.3 billion.

That’s what’s keeping Brighthouse Life’s balance sheet in balance. But the big and rising numbers make you wonder how long it can continue.

If I were a policyholder, I wouldn’t like to see $2.2 billion used to buy back stock at a time when there’s not enough money to support all the obligations to policyholders like me. In most cases an insurance commissioner is required to hold a public hearing before a significant merger or acquisition. That would be a good place to ask whether those two Middle Eastern sovereign wealth funds are willing to make a large capital contribution, since Brighthouse looks like it’s going to need one. No hearing has been scheduled yet, though.

There’s also a document called Form A, that’s filed with state regulators every time an outside party seeks to take control of an insurer. It contains all sorts of detail, including the backgrounds of the buyers, proprietary business plans, and financial forecasts. Form A could be of great help to policyholders who have begun to doubt how sincerely Delaware is looking out for their interests.

It’s mandatory. It’s sworn. And guess what? It’s confidential.

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1. Pancreatic cancer is one of the deadliest cancers. It killed nearly 52,000 Americans last year, many within a year of diagnosis. Now, there are some new experimental medicines with the potential to change that. New data from two drugs showed it might be possible to keep the disease in check for longer than ever before. One drug, developed by Revolution Medicines, shrank tumors in roughly half of people who used it as a first treatment. And an mRNA vaccine made by Germany-based BioNTech and Genentech kept most patients who responded to it alive six years—an unusually long stretch for a cancer that normally leaves only around one in eight people alive five years after diagnosis. (Source: wsj.com)

2. Bloomberg:

President Trump announced he was extending a ceasefire with Iran indefinitely a day before it was set to expire, even as plans for a fresh round of talks between the two countries fell apart. In a Truth Social post, Trump said Tuesday he would maintain a blockade over ships coming to and from Iran in the Strait of Hormuz. He said Pakistan, which had mediated between the two sides, asked for the US to hold off on fresh strikes and he was extending the ceasefire until Iran submits a new proposal “and discussions are concluded, one way or the other.” (Source: bloomberg.com. Italics mine.)

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1. President Trump signaled he is unlikely to extend a two-week ceasefire with Iran that’s set to expire in two days, while Iran has yet to confirm it will participate in talks to end a war that’s engulfed the Middle East and upended global trade. Trump said in an interview yesterday that the ceasefire expires on Wednesday evening in Washington and he is “not going to be rushed into making a bad deal.” He said the Strait of Hormuz would stay blockaded for now, and “I’m not opening it until a deal is signed.” Iran’s Parliament Speaker Mohammad Bagher Ghalibaf said his country would not “accept negotiations under the shadow of threats.” The standoff underscores the uncertainty surrounding a new round of talks, even after Trump said negotiations could begin as early as Tuesday. The US president has threatened strikes on Iran’s power infrastructure if diplomacy fails. A pause in hostilities has mostly held for two weeks after a conflict that killed thousands across the region and disrupted global energy supplies. (Sources: bloomberg.com, theguardian.com)

2. Robert Pape:

Iran has combined modest technologies with advantageous geography to create a lever over a critical artery of the global economy (the Strait of Hormuz).

Iran is unlikely to relinquish this source of power. No state voluntarily abandons a position that yields systemic influence.

The United States is unlikely to accept it. Iran’s gain translates directly into diminished U.S. freedom of action in a region long central to its strategy.

That leaves two broad paths.

The first is accommodation: accepting Iran’s emergence as a fourth center of world power. Under this path, Iran would consolidate its position atop a chokepoint that carries roughly one-quarter of global seaborne oil and nearly one-fifth of global LNG trade, converting geographic leverage into sustained economic and political power.

The second is escalation: attempting to wrest control of the Strait through sustained military operations. Given that only 3.5 to 5.5 million barrels per day can be rerouted through alternative pipelines—far short of total flows—any serious attempt to neutralize Iran’s leverage would require not just maritime operations, but physical control over the territory from which that leverage is exercised.

That is not a limited intervention. It is the opening phase of a much larger war.

This is the core of the Escalation Trap.

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1. "Never." That's when a senior Iranian lawmaker says they'll be ready to give up their control of the Strait of Hormuz. “It’s our inalienable right,” Ebrahim Azizi, a former commander in Iran’s Islamic Revolutionary Guards Corps (IRGC), tells the BBC in Tehran. “Iran will decide the right of passage, including permissions for vessels to pass through the Strait.” And he says that’s about to become enshrined in law. “We are introducing a bill in parliament, based on article 110 of the constitution, which includes the environment, maritime safety and national security - and the armed forces will implement the law,” says this member of parliament who heads the Committee for National Security and Foreign Policy. (Source: bbc.com)

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Last Thursday evening, Richard (Haass) distributed his weekly Substack newsletter, Home & Away. It was surprisingly optimistic — cautiously optimistic, to be sure —from someone whose views on the Iran war have been devoid of wishful thinking. Excerpt:

The principal reality now is that neither the United States nor Iran would benefit from a resumption of fighting. We have all but run out of targets, and the Trump administration should have learned by now that bombing will not lead Iran to capitulate. Nor will it produce regime change.

As for Iran, it has already shown it is both willing and able to disrupt shipping and threaten the energy infrastructure of its neighbors. But carrying out such a threat at this stage would lead to the destruction of its own energy infrastructure, making economic recovery all but impossible. Closing the Bab el-Mandeb through Houthi military action is another possibility for the regime, but it would not help the Iranian economy.

There is also reason to believe that China, which is heavily dependent on not just Iranian but also the broader region’s oil and gas, has no interest in a widening of the war at this time. And when it comes to the blockade, China complains but is highly unlikely to challenge it directly. Indeed, there are reports that China’s veteran foreign minister Wang Yi has weighed in with his Iranian counterpart, urging that the Strait be an open waterway.

All of which is to suggest that an extension of the current two-week ceasefire is likely, as is the resumption of direct negotiations. (Source: richardhaass.substack.com)

It’s unclear what, exactly, sparked yesterday’s “resumption of hostilities”, but by the end of the day, ceasefire was off the menu. Richard is no doubt correct asserting the "resumption of direct negotiations” is inevitable, possibly beginning tomorrow in Islamabad. But there’s no denying, for the moment anyway, negotiations are stalled and hostilities are not.

That’s what this week’s episode of ‘Alternate Shots’ is about: How cautious optimism turned to an end to the ceasefire, and why.

We also discussed Peter Magyar’s landslide defeat of Viktor Orban in last Sunday’s Turkish elections, President Trump’s baffling decision to attack Pope Leo and, in our “sports section”, the beginning of the end of the LIV golf tour. Inevitably, there were lame jokes about “sand traps”.

Click on the forward arrow below to listen in:

(‘Alternate Shots’ Episode #24. Produced by Dale Eisinger. Recorded 18 April 2024.)

If you prefer, you can listen to this episode (and all the previous episodes) by clicking on these hyperlinks: Apple, Amazon, and Spotify. We’re on a number of other podcast platforms as well.

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