Friday, February 29, 2008

Vets Break Silence on War Crimes

Vets Break Silence on War Crimes

By Aaron Glantz

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.S. veterans of the wars in Iraq and Afghanistan are planning to descend on Washington from Mar. 13-16 to testify about war crimes they committed or personally witnessed in those countries.

"The war in Iraq is not covered to its potential because of how dangerous it is for reporters to cover it," said Liam Madden, a former Marine and member of the group Iraq Veterans Against the War. "That's left a lot of misconceptions in the minds of the American public about what the true nature of military occupation looks like."

Iraq Veterans Against the War argues that well-publicised incidents of U.S. brutality like the Abu Ghraib prison scandal and the massacre of an entire family of Iraqis in the town of Haditha are not the isolated incidents perpetrated by "a few bad apples", as many politicians and military leaders have claimed. They are part of a pattern, the group says, of "an increasingly bloody occupation".

"The problem that we face in Iraq is that policymakers in leadership have set a precedent of lawlessness where we don't abide by the rule of law, we don't respect international treaties, so when that atmosphere exists it lends itself to criminal activity," argues former U.S. Army Sergeant Logan Laituri, who served a tour in Iraq from 2004 to 2005 before being discharged as a conscientious objector.

Laituri told IPS that precedent of lawlessness makes itself felt in the rules of engagement handed down by commanders to soldiers on the front lines. When he was stationed in Samarra, for example, he said one of his fellow soldiers shot an unarmed man while he walked down the street.

"The problem is that that soldier was not committing a crime as you might call it because the rules of engagement were very clear that no one was supposed to be walking down the street," he said. "But I have a problem with that. You can't tell a family to leave everything they know so you can bomb the shit out of their house or their city. So while he definitely has protection under the law, I don't think that legitimates that type of violence."

Iraq Veterans Against the War is calling the gathering "Winter Soldier," after a quote from the U.S. revolutionary Thomas Paine, who wrote in 1776: "These are the times that try men's souls. The summer soldier and sunshine patriot will, in this crisis, shrink from the service of his country; but he that stands it now, deserves the love and thanks of man and woman."

Organisers say video and photographic evidence will also be presented, and the testimony and panels will be broadcast live on Satellite TV and streaming video on

Winter Soldier is modeled on a similar event held by Vietnam Veterans 37 years ago.

In 1971, over 100 members of Vietnam Veterans Against the War gathered in Detroit to share their stories with fellow citizens. Atrocities like the My Lai massacre had ignited popular opposition to the war, but political and military leaders insisted that such crimes were isolated exceptions.

"Initially even the My Lai massacre was denied," notes Gerald Nicosia, whose book "Home to War" provides the most exhaustive history of the Vietnam veterans' movement.

"The U.S. military has traditionally denied these accusations based on the fact that 'this is a crazy soldier' or 'this is a malcontent' -- that you can't trust this person. And that is the reason that Vietnam Veterans Against the War did this unified presentation in Detriot in 1971."

"They brought together their bona fides and wore their medals and showed it was more than one or two or three malcontents. It was medal-winning, honored soldiers -- veterans in a group verifying what each other said to try to convince people that these charges cannot be denied. That people are doing these things as a matter of policy."

Nicosia says the 1971 Winter Soldier was roundly ignored by the mainstream media, but that it made an indelible imprint on those who were there.

Among those in attendance was 27-year-old Navy Lieutenant John Kerry, who had served on a Swift Boat in Vietnam. Three months after the hearings, Nicosia notes, Kerry took his case to Congress and spoke before a jammed Senate Foreign Relations Committee. Television cameras lined the walls, and veterans packed the seats.

"Many very highly decorated veterans testified to war crimes committed in Southeast Asia," Kerry told the committee, describing the events of the Winter Soldier gathering.

"It is impossible to describe to you exactly what did happen in Detroit -- the emotions in the room, and the feelings of the men who were reliving their experiences in Vietnam. They relived the absolute horror of what this country, in a sense, made them do."

In one of the most famous antiwar speeches of the era, Kerry concluded: "Someone has to die so that President Nixon won't be -- and these are his words -- 'the first president to lose a war'. We are asking Americans to think about that, because how do you ask a man to be the last man to die in Vietnam? How do you ask a man to be the last man to die for a mistake?"

Nicosia says U.S. citizens and veterans find themselves in a similar situation today.

"The majority of the American people are very dissatisfied with the Iraq war now and would be happy to get out of it. But Americans are bred deep into their psyches to think of America as a good country and, I think, much harder than just the hurdle of getting troops out of Iraq is to get Americans to realise the terrible things we do in the name of the United States."

*Aaron Glantz has reported extensively from Iraq and on the treatment of U.S. soldiers when they return home. He is editor of the website and will be co-hosting Pacifica Radio's live broadcast of the Winter Soldier hearings from Mar. 14-16.

Abbas Needs a Miracle

Abbas Needs a Miracle

By Ramzy Baroud

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Time is running out for Israeli Prime Minister Ehud Olmert and Palestinian Authority President Mahmoud Abbas. Although both men are still committed to their risky venture of marginalising Hamas at any cost, the latter’s obduracy and recent events in Gaza point to the inescapable conclusion — the undertaking was doomed from the start.

For Olmert the issue demographics remains. He told Israeli daily Ha’aretz in an interview published in November 2007 that if it didn’t agree to an independent Palestinian state, Israel would “face a South African-style struggle for equal voting rights, and as soon as that happens, the state of Israel is finished”. The Apartheid analogy is of course not a new one. Leading South Africans themselves were the first to make the comparison, and Israel’s history of aiding and abetting the infamous Apartheid South African governments is no secret either.

But Olmert’s belated rude-awakening aside, it is Mahmoud Abbas who is running out of options. Unlike Olmert, Abbas has no real, measurable powers. For one, his popularity amongst his own people has never been high. Past quarrels with late Palestinian Authority President Yasser Arafat during the early years of the Palestinian Uprising singled Abbas out at an untrustworthy opportunist. Late professor Edward Said once called him ‘moderately corrupt.’ The formidable intellectual died before seeing the moderate corruption of Abbas morphing into a wholesale onslaught on democracy, freedom and every noble principle the Palestinians ever fought for. I wonder what Said would have said after seeing the people of Gaza suffering beyond comprehension while Abbas and Olmert meet in the latter’s Jerusalem residence, exchanging words of praise and vowing their undying commitment to ‘peace’.

A photo released by the Israeli government Press office on February 19 showed both leaders leaving another futile meeting in Jerusalem, with Olmert — aware of the cameras flashing all around them — holding an umbrella for the widely grinning Abbas. The post card-like scenario is of course part of the continuing charade of peace talks, deadlines and deadline extensions, interrupted by temporary quarrels, which are sorted out by US envoys before resuming more talks.

But how long can Abbas and Olmert carry on with this charade?

For Olmert, the objective and endgame are clear: stall until a ‘solution’ can be finalised and imposed on the Palestinians. This in turns depends on the finalisation of the construction of the illegal settlements, the wall and the network of Jewish-only bypass roads in Occupied Jerusalem and the West Bank. However, Olmert’s poor standing among the Israeli public and the aforementioned ‘demographic threat’ will not make it possible for him to stall indefinitely. Still, with the US’ record of unconditionally backing Israeli policies, Olmert will remain in a relatively safe spot, regardless of which major presidential candidate goes on to claim the White House.

One can hardly say the same about Abbas. His usefulness for Israel, and thus the US administration, is entirely dependent on his level of ‘cooperation’, which essentially means ensuring Palestinian disunity, fighting Hamas, and remaining a pawn in the US’ imaginative view of the entire region (whereby ‘moderates’ stand united against ‘extremists’ and ‘rejectionists’).

Yet, unlike other Arab ‘moderates’, Abbas lacks all leverage. He ‘presides’ over an ever shrinking entity, itself under military occupation. Many of his people regularly accuse him of ‘treason’, or at best, of ‘selling out’. On top of this, his party is falling apart. Mohammed Dahlan is already acting with the air of presidency. Now based in Egypt, he has been gathering support for himself amidst scattered talks about his desire to form an alternative party to Fatah.

Worse yet, Mohamed Nazzal, a visible member of Hamas’ political bureau in Damascus told on February 19 that despite Hamas’ insistence on the inclusion of Marwan Barghouti (a leading Fatah figure who is greatly supported by the movement’s youth and strongly disliked by the old guard) in any future prisoner swaps, Israel has removed the latter’s name from the list, at Abbas’ behest.

Abbas’ lack of any meaningful political vision is also promoting other members of his team to speak of political programmes entirely inconsistent with his own style. Yasser Abed Rabbo, the Secretary General of the PLO Executive Committee told Reuters in an interview on February 20 — views which he repeated to AFP and Palestinian radio in Arabic — what Palestinians should consider should talks continue to falter. “If things are not going in the direction of actually halting settlement activities, if things are not going in the direction of continuous and serious negotiations, then we should take the step and announce our independence unilaterally.”

Abbas’ answer was his intent to continue negotiating, and that he was “optimistic and hopeful.”

It’s unclear where from Abbas’ hope originates. He stands on very shaky grounds, not only in his conditional relationship with Israel, the US and his own party, at home and abroad, but with Hamas as well. His earlier rhetoric about Hamas’s ties to Al Qaeda and the ‘forces of darkness’ are softening, but he knows he has no mandate to reach out to his opponents. But it is increasingly clear to the world that isolating Hamas means the continuation of Gaza’s mass hunger and suffering. This is so extreme that even Europeans are reportedly rethinking their stance on Hamas, which the EU had deemed ‘terrorist’.

If Abbas, however, tried to rethink his relations with Hamas, he would be abandoned by Israel and the US, and might find himself a victim of a calculated coup led by his party’s strongmen. If he continues with the charade of endless and futile talks with Israel, the patience of his people would eventually run out. Considering all of this — Abbas’ shared responsibly for the plight of Gaza, his anti-democratic legacy and his inability to reunite his faltering party — the president seems condemned to a lose-lose scenario, one which would take no less than a miracle to put right.

Ramzy Baroud ( ) is an author and editor of . (Please visit their website )His work has been published in many newspapers and journals worldwide. His latest book is The Second Palestinian Intifada: A Chronicle of a People's Struggle (Pluto Press, London).

Israeli Missiles Silence Baby's Laughter in Gaza

Israeli Missiles Silence Baby's Laughter in Gaza

By Sami Abu Salem writing from the occupied Gaza Strip

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The innocent laughter of six-month-old baby Mohammed al-Bor'i stopped forever on Wednesday night when shrapnel from an Israeli missile and rubble struck the infant in the head, minutes after he enjoyed his last meal.

"The baby sucked milk, he was playing with his mother; I was reading a book when a rocket hit the Ministry of Interior," said Nasser al-Bor'i, the baby's father.

With the first missile, the electricity was cut and darkness filled the ill-fated house. Stones and pieces of the asbestos ceiling fell onto the head of the laughing child. The explosions continued as two other missiles hit the building.

"I looked for my baby in the darkness between the rubble; I did not know where he was. When he cried once I followed the direction of his voice," Nasser al-Bor'i said. "My hands touched my baby who was breathing hard; I felt warm liquid on my two hands and realized that he was wounded."

Al-Bor'i carried his son to the nearby Shifa Hospital as the blood streamed from his tiny head. In the hospital, al-Bor'i became hysterical when he realized that his only child had been killed.

Tears poured from al-Bor'i's eyes when he saw Mohammed's shoes. "After five years of treatment for sterility, [my wife and] I had a baby. I can't imagine that I lost him in a second."

Toys, a plastic bike, a crib and clothes were covered by the heap of rubble inside Mohammed's bedroom. Cutout magazine pictures of laughing babies decorated the walls, a sad reminder of the joy lost in the strike.

Mohammed's mother sufered shock and fell unconscious when she realized that the child had died. She laid on a hospital bed while her baby was in the morgue. On Thursday morning she cried when she returned home from the hospital to see Mohammed's empty crib.

Mohammed al-Bor'i was not the only child to be killed in the series of Israeli air strikes across the Gaza strip on Wednesday. In the northern Gaza Strip town of Jabalia, three other children, Anas al-Manama, 10, Bilal Hijazi, 11, and Mohammed Hamada, 11, were also killed in an Israeli air strike, Palestinian medical sources reported.

At least 19 Palestinian civilians and militants were killed and dozens wounded by the continuing Israeli air strikes on Gaza in the last two days.

Auto, Home Purchases `Won't Happen' as Fed Cuts Don't Budge Consumer Rates

Auto, Home Buys `Won't Happen' as Rates Don't Budge

By Matthew Benjamin

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Consumers like Valerie Jacobsen aren't getting much of a break on borrowing costs even after five months of interest rate cuts by the Federal Reserve.

Jacobsen, 30, wants to refinance her 7.25 percent first and 8.5 percent second mortgages into one loan at a lower cost. To cut the payments enough to recoup her $3,000 in closing costs, she needs a rate well below 6 percent. She wasn't ready when costs dipped in January and now they're back at levels that make her plan too expensive, the Austin, Minnesota, resident says.

``Rates I'm seeing aren't really mimicking what the Federal Reserve is doing,'' said Jacobsen. ``I'm wondering why that is.''

Trying to spur lending and avert a recession, the Fed has chopped 2.25 percentage points off its benchmark rate since September. Wariness among lenders and fears of inflation are keeping mortgage and auto loan rates close to or above levels before the central bank began easing, while credit-card issuers are tightening their standards.

The slippage between the Fed's rate cuts and consumers' ability to borrow or reduce loan costs is weakening the central bank's ability to stimulate the biggest part of the economy, consumer spending. It accounts for more than two-thirds of goods and services output and stalled for the second consecutive month in January after adjusting for inflation, the Commerce Department said today.

`Missing Activity'

With many households unable to borrow, ``those transactions won't happen, and that missing activity is the missing economic growth,'' said Neal Soss, chief economist at Credit Suisse Group in New York. ``So the Fed will have to do more than otherwise to compensate.''

Fed Chairman Ben Bernanke told the House Financial Services Committee Feb. 27 that ``the slump in subprime mortgage originations, together with a more general tightening of credit conditions, has served to increase the severity of the downturn.''

The Fed lowered the cost of overnight loans between banks by 125 basis points, or 1.25 percentage points, over nine days in January, the fastest easing since 1990. The rate, now at 3 percent, sets the benchmark for other credit.

Consumer costs for mortgages barely budged. The average interest rate on a conventional 30-year fixed-rate mortgage stands at 5.88 percent, according to, 2 basis points below the September level. For jumbo loans, those exceeding $417,000, borrowers are paying an average of 6.82 percent, just 20 basis points lower than when the Fed began easing. Lenders say they are requiring a bigger down payment for that rate than before, as much as 20 percent.

For buyers of new cars, a five-year loan costs 6.95 percent, 4 basis points more than in September. In some states, the rate is closer to 7.5 percent.

Disconnected Rates

Loan costs for individuals and businesses declined 45 basis points since September, or a fifth as much as the Fed's benchmark, according to Merrill Lynch & Co., based in New York. While consumer interest rates have never moved in lockstep with the central bank, now they are even more disconnected, according to David Rosenberg, Merrill Lynch's chief North America economist.

``For every 5 basis points cut by the Fed, only 1 basis point is reaching Main Street,'' said Rosenberg. ``The Fed is cutting rates, which is wonderful for the government yield curve, but most interest rates are not following suit.''

Credit-card rates, which tend to reflect Fed changes quickly, are down an average of 1.32 percentage points since the easing began, according to, a Fort Myers, Florida, research organization.

At the same time, ``card issuers have tightened lending standards, so fewer people qualify for those lower rates,'' says President Robert McKinley.

Reduced Credit

Credit-card lenders including New York-based Citigroup Inc. have reduced lines of credit for borrowers they consider likely to default.

No matter how low rates go, certain consumers may be out of luck. Banks tightened standards and terms for a broad range of loan types over the past three months, according to the Fed's quarterly survey of senior loan officers.

GMAC LLC, the lender controlled by New York-based Cerberus Capital Management LP, tightened underwriting standards three times last year to the least credit-worthy borrowers, according to spokeswoman Gina Proia.

Passing On Risk

``Mortgage and consumer credit are, and will almost certainly become, even harder to come by,'' said Credit Suisse's Soss. He blames growing risk aversion among lenders and widespread fears that inflation will limit the Fed's ability to lower rates further.

In addition, lenders can't pass on the risk as easily as they could before the subprime crisis began, as secondary markets for many loans have dried up.

``There's less availability of securitization financing, so lenders have to price it such that they're comfortable living with the credit risk on their own balance sheet,'' said Eric Wasserstrom, a New York-based UBS AG analyst.

For homebuyers, conditions will get worse, industry analysts say. Loan purchasers like Freddie Mac, the second- largest provider of home-loan money, have added new charges that will ultimately be paid by consumers, says Dean Hackemer, president of Access National Mortgage in Reston, Virginia.

``If you're a consumer with great credit, you're paying a quarter of a percentage point to three-eighths of a percentage point more than you were in September,'' Hackemer said. ``If you've got marginal credit, God help you.''

Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns

Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns

By Brian Louis and Dan Levy

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When Quinn Cuthbertson looks around his new neighborhood in El Dorado Hills, California, he sees rows of empty homes and barren hillsides. A promised new school and a clubhouse haven't materialized.

Cuthbertson paid $460,000 for a four-bedroom house in this northern California town named for the mythical golden city. He now suspects his neighbor spent $45,000 less. Nearby, 87 of 98 Toll Brothers Inc. home sites are undeveloped.

Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University's Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a November report.

``Half-filled developments are an advertisement for a failing housing market,'' said Retsinas, a former assistant secretary for housing at the U.S. Department of Housing and Urban Development. ``It also has a spillover effect on the surrounding community.''

Falling Prices

About 370,000 new homes are for sale because people who initially contracted to buy them backed out, according to estimates in a Feb. 15 report from analysts at New York-based CreditSights Inc. An additional 216,000 homes are under construction, according to Commerce Department data.

In January 1973, the number of finished new homes for sale was 97,000, when the U.S. population was about 212 million, according to the U.S. Census Bureau. In December 2007, 197,000 completed homes were on the market and in January 2008 there were 195,000. The current population is 303.5 million.

Home prices may fall at least 8 percent nationwide and by as much as 26 percent from the third quarter of 2007 before hitting bottom, according to a Feb. 13 report from New York- based Deutsche Bank AG analyst Karen Weaver, the firm's global head of securitization research.

El Dorado Hills and the nearby towns of Bass Lake and Cameron Park started growing in the mid-1990s as Californians sought out new suburbs within commuting distance of Sacramento, the state capital. El Dorado Hills is about 30 miles east of Sacramento and used to be known as just a bus stop between the San Francisco Bay Area and Lake Tahoe resorts.

El Dorado's Growth

``Thirty years ago, El Dorado Hills was a Raley's and a 76 gas station, and some homes off in the hills,'' said Mike Applegarth, a senior administrative analyst in the El Dorado County chief administrative office. Raley's is a grocery store chain based in West Sacramento, California.

Today the town has a Target Corp. store, a Mercedes-Benz dealership and a Regal Cinemas with 14 screens, Applegarth said.

Most of the community's growth came in the late 1990s when the El Dorado County Board of Supervisors gave approval for construction of 11,598 homes as part of five development agreements, said Laura Gill, the county's chief administrative officer.

Lennar Corp., Centex Corp., Cambridge Homes and Parkland Homes plan to build 1,500 houses on 990 acres in El Dorado Hills in the Blackstone El Dorado development south of Highway 50, according to the project's Web site. So far, Centex has built 30 of the 105 houses it plans to construct there, said salesman Bob DeWitt.

Building permits in El Dorado County are estimated to drop to $3.5 million in the fiscal year ending June 30, from a peak of $5.7 million in fiscal 2004, Gill said.

Cutting Prices

In Yorkville, Illinois, a town 55 miles southwest of Chicago, residential building permits fell 47 percent in 2007 from the year earlier.

In El Dorado Hills, Cuthbertson, a California Highway Patrol officer who has two sons ages 4 and 6, plans to stay in the area, and says he can afford to wait for prices to recover.

``We'll wait to see what the neighborhood will be like,'' Cuthbertson said. ``We know prices might be going down, but in five years we'll be OK.''

Homebuilders can't wait. They're cutting prices even further than last year and some are courting real estate brokers and using auctions to get rid of homes. They usually rely on their own staff to sell properties.

Builders Retrench

``It's a desire for the companies to do whatever is necessary to retrench and put themselves in a position to succeed when the residential markets turn more favorable,'' said Keven Lindemann, director of the real estate group at SNL Financial in Charlottesville, Virginia.

The five largest U.S. builders had almost 8,900 completed homes for sale at the end of their most recent quarters, according to data compiled by Bloomberg.

D.R. Horton Inc., the second-biggest U.S. builder, held an ``UnAuction'' on Feb. 16 and Feb. 23 with prices cut as much as 50 percent at 23 developments in Southern California.

Pacific West Cos., a Reno, Nevada-based builder, said this month that it's offering a ``risk free'' price guarantee to buyers in its California communities, including El Dorado Hills. If a similar property in the same development sells for less than a homeowner paid, the company will refund the difference.

`Element of Fear'

``We're taking the element of fear away,'' said Taylor Cohee, Pacific West's vice president of sales.

Builders such as Los Angeles-based KB Home and D.R. Horton of Fort Worth, Texas, are seeking out real estate agents to bring buyers to developments, said Joellen Chappell, sales manager at Century 21 M&M and Associates in Stockton, California. Century 21 realtors are now getting commissions of as much as 4 percent for a sale.

``They're bribing us with bonuses,'' Chappell said.

Stockton's metropolitan area had the second highest foreclosure rate in the U.S. last year and again in January. Almost 5 percent of households in that community were in some stage of foreclosure in 2007, according to RealtyTrac Inc., an Irvine, California-based seller of foreclosure data.

At least 14 new-home auctions are scheduled through April in California, Florida, Illinois, Arizona and Nevada, said Brigitte Boudress, a Beverly Hills, California-based spokeswoman for Kennedy Wilson Inc.

Moving Inventory

``The builders are looking for ways to accelerate sales and get inventory moving,'' said Marty Clouser, senior vice president at Kennedy Wilson. The company auctioned 450 properties last year for $170 million at prices 85 percent to 90 percent less than the homes' listings, Clouser said.

The decline in housing values is reducing the amount of revenue that counties make from property taxes, said Jacqueline Byers, director of research and outreach with the National Association of Counties in Washington. In states like California that require builders to use sales proceeds to pay for streets, fire stations and schools, that means slower development.

Brent Sease, who bought a five-bedroom home built by Miami- based Lennar in El Dorado Hills, said a park and school that were supposed to be constructed are at least two years from being completed. Across the street, red tags that say ``Available'' are pasted on two houses.

``That's the thing I'm concerned about,'' said Sease, a software manager with three daughters. ``It's going to be a while before they put all that in, because they're not selling homes.''

Dollar Falls to 3-Year Low Versus Yen as Fed Cites Trade Boost

Dollar Falls to 3-Year Low Versus Yen as Fed Cites Trade Boost

By Ye Xie and Kim-Mai Cutler

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The dollar fell to the lowest level in three years versus the yen and touched the weakest ever against the euro after the Federal Reserve signaled the currency's decline may be helping the U.S. economy.

The U.S. currency dropped below 104 yen, to its cheapest level since March 2005, as a report showed Chicago-area business shrank this month, fueling bets on a bigger Fed interest-rate cut in March. Fed Chairman Ben S. Bernanke said yesterday the depreciating currency helps cut the trade deficit.

``It's broad dollar weakness because of concerns about the U.S. economy, U.S. yields, expectations of rate cuts and financial markets,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Inc. in New York. ``They don't care about the weak dollar. I absolutely believe the market is disappointed'' by Bernanke's comment.

The dollar fell as low as 103.83 yen, then settled at 103.85 yen at 3:42 p.m. in New York, from 105.37 late yesterday and 107.17 a week ago. Today's drop was its biggest in six weeks. It touched $1.5239 per euro, the weakest since the euro's inception in 1999. It then recovered to trade at $1.5192, from $1.5193 yesterday. The dollar will weaken to $1.55 in coming weeks, Fitzpatrick said.

The U.S. currency lost 2.2 percent against the euro this month, the most since September. The euro is 30 percent above its debut level of about $1.17 in 1999, and is up 84 percent from an all-time low of 82.30 U.S. cents in 2000.

Fed `Indifference'

The yen gained against all 16 most-active currencies today as stocks fell. The Standard & Poor's 500 Index dropped 2.8 percent. The yen rose 1.5 percent to 157.77 per euro, the largest gain in five weeks, from 160.10 yesterday as investors exited so-called carry-trade bets on higher-yielding assets funded with cheap loans in Japan.

While Treasury Secretary Henry Paulson reiterated yesterday he favors a strong dollar and President George W. Bush said the currency should reflect the economy's ``fundamentals,'' Bernanke told a Senate panel the declines have resulted in ``some improvement'' in the trade deficit, which ``is a positive.''

``The Fed is breaking new ground in expressing indifference to the U.S. dollar's decline,'' analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note today. Merrill forecasts the euro to ``peak'' at $1.57 around the end of March.

The U.S. currency's decline has made U.S. goods cheaper abroad, boosting exports to a record and shrinking the nation's trade deficit last year for the first time since 2001. It can also make it less attractive to hold onto U.S. assets. Foreign holdings of U.S. stocks, notes and bonds rose a net $56.5 billion in December, slowing from an increase of $90.9 billion in November, Treasury Department data showed this month.

Chicago Report

Bernanke also said a housing slump may cause smaller U.S. banks to fail and increase unemployment, fueling speculation Fed policy makers will increase the pace of interest-rate cuts.

The National Association of Purchasing Management-Chicago said today its business barometer dropped to 44.5 in February, the lowest since December 2001, from 51.5 a month earlier. Figures less than 50 signal a contraction.

The chances of a 75 basis-point Fed cut to 2.25 percent by March 18 have risen to 70 percent, from 2 percent a week ago, according to futures on the Chicago Board of Trade. The balance of bets is on a half-point reduction.

``It's become all one-way traffic against the dollar,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp.

Yen Climbs

The slump in the U.S. currency helped push the price of oil to a record of $103.05 and gold to an all-time high of $978.50 an ounce in London.

The U.S. Dollar Index traded on ICE Futures in New York, which tracks the currency against six major counterparts, declined to 73.56 today, the lowest since the measure's start in 1973. The dollar dropped to 3.1845 versus Malaysia's ringgit and 28.88 Thai baht, both the weakest in more than a decade, on speculation U.S. rate cuts will prompt fund managers to shift investment into Asia.

The baht rose the most in at least a year as the central bank said it will lift curbs on capital inflows on March 3.

Japan's currency climbed 3.2 percent to 96.79 per Australia's dollar, 3.4 percent to 82.98 per New Zealand dollar and 4.9 percent to 13.25 per South Africa's rand.

The currencies are favorites for so-called carry trades, in which investors get funds in a nation with low borrowing costs and invest in one with higher rates. The risk in that strategy is that swings in exchange rates erase those profits.

Volatility Jumps

``Bernanke's comments heightened negative sentiment on U.S. economic fundamentals,'' said Joseph Kraft, head of capital markets in Japan at Dresdner Kleinwort, the investment bank owned by Germany's Allianz SE. The possibility of bankruptcies among local banks ``may have reduced investors' tolerance for risk, prompting yen-buying,'' he said. The yen may rise to 102 per dollar in a month, Kraft said.

Implied volatility on one-month dollar-yen options touched 14.1 percent, the highest since January, from 11.48 percent yesterday. Traders quote volatility, a gauge of expectations for currency moves, as part of pricing options. Japan's 0.5 percent benchmark rate compares with 7 percent in Australia, 8.25 percent in New Zealand and 11 percent in South Africa.

After trading between $1.43 to $1.49 per euro since November, the dollar decline gained momentum when Fed Vice Chairman Donald Kohn said on Feb. 26 that credit-market turmoil posed a ``greater threat'' than inflation. The comments drove the euro above $1.50 for the first time. The dollar fell past $1.51 on Feb. 27 after Bernanke told a House panel policy makers ``will act in a timely manner'' to support growth.

The euro also got a boost yesterday after European Central Bank President Jean-Claude Trichet said ``price stability is a necessary condition'' for ongoing economic expansion. The ECB next meets on March 6 to set its key rate, now at 4 percent.

U.S. Economy: Spending Eroded by Inflation, Chicago Index Drops

U.S. Economy: Spending Eroded by Inflation, Chicago Index Drops

By Shobhana Chandra

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nflation eroded gains in U.S. consumer spending and a gauge of business sentiment fell to the lowest level in more than six years, pushing the economy toward a recession.

While purchases rose 0.4 percent in January, the Federal Reserve's preferred measure of inflation climbed 0.3 percent, the most in four months, the Commerce Department said today in Washington. The National Association of Purchasing Management- Chicago said its index of business activity tumbled to 44.5 in February. Readings below 50 signal a contraction.

The reports pushed Treasury notes higher and stocks down. Confidence among consumers is waning as fuel costs jump and house values slide, leaving exports to drive factory production.

``There is no growth in consumption except to keep up with price increases,'' said Chris Low, chief economist at FTN Financial in New York. ``Consumers are clearly hard-pressed to maintain their standard of living and are cutting back.''

Traders increasingly anticipate the Fed will reduce its benchmark interest rate by 0.75 percentage point at or before the March 18 meeting of policy makers, according to futures prices. The chance of a three-quarter-point cut rose to 56 percent from 36 percent yesterday and 2 percent a week ago.

Treasury notes extended their advance, pushing the yield on the benchmark 10-year note down 9 basis points to 3.57 percent at 11:11 a.m. in New York. A basis point is 0.01 percentage point. The Dow Jones Industrial Average weakened 1.7 percent to 12,369. The dollar remained lower against the yen.

`Big Issue'

``The big issue is the fact that inflation is accelerating and it's taxing consumer spending,'' said Drew Matus, a senior economist at Lehman Brothers Holdings Inc. in New York. ``The first half is not going to look all that good.''

The Reuters/University of Michigan final index of consumer confidence decreased to 70.8, from 78.4 in January. The measure is the lowest final reading since February 1992 and compares with a preliminary level of 69.6 reported two weeks ago.

Incomes rose 0.3 percent after a 0.5 percent gain the prior month, today's spending report showed. The median forecast was a gain of 0.2 percent.

The report's measure of overall prices rose 0.4 percent and was up a more-than-expected 3.7 percent in the year ended January, the most since September 2005.

The inflation gauge tracked by the Fed, which excludes food and fuel costs, rose 2.2 percent from January 2007.

`Nearly Flat'

``In real terms, we are still aiming for nearly flat real consumption for the quarter,'' Mickey Levy, chief economist at Bank of America Corp. in New York, said in a Bloomberg Television interview.

Economists forecast spending would rise 0.2 percent, after an originally reported 0.2 percent increase in December, according to the median of estimates in a Bloomberg News survey.

The savings rate dropped 0.1 percent for a second month. A negative rate suggests consumers are drawing down savings to maintain spending.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, dropped 1.3 percent. Purchases of non-durable goods decreased 0.2 percent and spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent.

The economy lost jobs in January for the first time in more than four years, and economists surveyed by Bloomberg this month forecast the unemployment rate will rise through midyear.

Warning From Toll

Toll Brothers Inc., the largest U.S. luxury homebuilder, this week reported its biggest quarterly loss in 22 years as the worst housing recession in more than two decades forced the company to write down the value of developments.

``Ceaseless talk of a recession continues to dampen the mood of consumers,'' Chief Executive Officer Robert Toll said on a Feb. 27 conference call. ``This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.''

For now, policy makers have signaled they are more concerned about the economic growth outlook than the acceleration in inflation.

``Downside risks to growth remain,'' Bernanke said in semiannual testimony to Congress this week. The Fed ``will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.''

The Congress and the administration have also passed a $168 billion stimulus package to try to revive growth. Still, a Bloomberg/Los Angeles Times survey from Feb. 21 to Feb. 25 showed most Americans plan to save rather than spend the plan's tax rebates, indicating it may give less of a boost than intended.

U.S. Stocks Plunge on Economic Concern

U.S. Stocks Decline on Economic Concern

By Elizabeth Stanton

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U.S. stocks tumbled, capping the market's fourth-straight monthly drop, after a report showed business activity fell to the lowest level since 2001 and UBS AG said losses in credit markets may top $600 billion.

American International Group Inc., the world's largest insurer, declined the most in two weeks after posting the biggest quarterly deficit in its 89-year history. Sprint Nextel Corp. slumped to a price last seen in 2002 on an analyst report predicting more subscriber defections at the third-biggest U.S. wireless carrier. All 10 industries in the Standard & Poor's 500 Index fell, led by banks and phone companies.

The S&P 500 lost 35.41 points, or 2.6 percent, to 1,332.27 at 3:37 p.m. in New York. The Dow Jones Industrial Average decreased 299.26, or 2.4 percent, to 12,282.92, its steepest retreat since Feb. 5. The Nasdaq Composite Index slid 55.92, or 2.4 percent, to 2,275.65. About 12 stocks dropped for every one that rose on the New York Stock Exchange. Shares fell in Europe and Asia.

``There is certainly no shortage of negative news out there,'' Michael Magiera, senior analyst at Manning & Napier Advisors, which manages $17 billion in Fairport, New York, said in an interview on Bloomberg Television. ``It's going to be a little while before we work through some of this.''

The S&P 500 extended its February decline to more than 3 percent after the National Association of Purchasing Management- Chicago said its business barometer contracted as production and employment weakened, boosting concern the worst earnings slump in six years will continue.

Earnings Slump

Profits at S&P 500 companies fell 23 percent on average in the fourth quarter of 2007 and analysts surveyed by Bloomberg expect a 3 percent year-on-year drop in the first quarter, followed by profit growth of 13.7 percent for the year. Two months ago, the median forecasts were for increases of 4.7 percent in the first quarter and 15.1 percent for the year.

AIG tumbled $3.52, or 7 percent, to $46.63. The insurer posted a fourth-quarter net loss of $5.29 billion, or $2.08 a share, after an $11.1 billion writedown on derivatives linked in part to subprime mortgages. AIG said it expects more writedowns this year. Excluding capital losses and the change in value of some derivatives, the company's loss was $1.25 a share, missing the 69-cent-profit average estimate of 17 analysts surveyed by Bloomberg.

'Foul Mood'

``The news with AIG just put everybody in a foul mood,'' said David Goerz, chief investment officer of Highmark Capital Management, which oversees $22 billion in San Francisco. ``There's just an awful lot of uncertainty in the market about how significant are these credit issues.''

Citigroup Inc., the largest U.S. bank, slid $1.05 to $23.96. Goldman Sachs Group Inc., the biggest securities firm, fell $6.31 to $170.39.

Credit-market losses will climb to at least $600 billion from $160 billion written down so far as investments funded with borrowed money are unwound, UBS credit strategist Geraud Charpin wrote in a note to clients.

``Leveraged risk positions are a cancer in this market and the sooner it is treated the better,'' Charpin wrote. AIG's writedown ``is also the clearest indication that banks are not the only ones to suffer potential losses.''

Lehman Brothers Holdings Inc. and Bear Stearns Cos. fell after Deutsche Bank AG analyst Michael Mayo forecast further writedowns of subprime assets and lowered first-quarter profit estimates for the firms. At least five other analysts have cut their first-quarter analysts for banks and brokers in the last two weeks. Lehman fell $3.78 to $50.90. Bear Stearns lost $4.89 to $79.33.

Ambac, MBIA

Ambac Financial Group Inc. fell 43 cents to $11.37 after CNBC reported that a deal to boost capital at the second-largest bond insurer hit a snag Feb. 27. The group of banks engaged in the bailout will come back with another proposal to keep Ambac together, the financial news network reported. CNBC cited people familiar with the situation.

MBIA Inc., Ambac's larger rival, decreased $1.18 to $12.88. The company is writing ``very little'' new bond insurance business as borrowers balk at buying a guarantee from a money- losing company without stable AAA credit ratings. MBIA said losses on mortgage-backed securities will probably increase this year and expand beyond subprime mortgages.

Sprint slid 85 cents to $7.24 after Robert W. Baird & Co. said subscriber losses will increase.

Exxon Mobil Corp. and Chevron Corp. fell as crude oil retreated from a record and natural gas declined from a two-year high in New York. Exxon fell $2.77 to $86.61. Chevron lost $2.64 to $86.38.

Novell, Gap

Novell Inc. posted the biggest gain in the S&P 500, adding 87 cents, or 13 percent, to $7.41. The second-biggest seller of Linux operating-system software in the U.S. reported a fiscal first-quarter profit that beat analysts' estimates after cutting costs by eliminating jobs and changing sales tactics. The company raised its full-year sales forecast.

Gap Inc. rose 87 cents to $20.32. The largest U.S. clothing retailer said fourth-quarter profit advanced for the first time in three years and forecast further gains this year after it sold more full-priced sweaters and jeans during the holiday season.

3Com Corp. jumped 48 cents, or 16 percent, to $3.39. Bain Capital LLC and Huawei Technologies Co. plan to reapply within several weeks for U.S. approval to acquire the networking systems and services provider for $2.2 billion, the Wall Street Journal reported, citing people familiar with the matter.

Economy Watch

The National Association of Purchasing Management-Chicago said its business barometer dropped to 44.5 in February from 51.5 a month earlier. Figures less than 50 signal a contraction.

Consumer spending in the U.S. rose more than forecast in January, reflecting a jump in prices that is eroding buying power. The 0.4 percent rise in spending followed a revised 0.3 percent gain in December, the Commerce Department said. The Federal Reserve's preferred measure of inflation climbed 0.3 percent, the most in four months.

Yields on Treasury securities slid, sending the two-year note under 1.7 percent for the first time since April 2004, as investors increased bets on interest-rate cuts by the Federal Reserve.

Fed Bets

Interest-rate futures indicate traders for the first time assign a higher probability to a three-quarter-point cut than to a half-point cut at the Fed's next meeting on March 18. The odds of a three-quarter point cut implied by futures prices rose to 70 percent from 36 percent yesterday and 2 percent a week ago. The remaining bets are on a half-point cut.

The central bank has lowered its target for the overnight lending rate between banks five times since September, most recently to 3 percent on Jan. 30.

``The market has been of the belief that the Fed's aggressive easing action would relieve the pressures,'' said Henry Herrmann, president of Waddell & Reed Financial Inc., which manages $65 billion in Overland Park, Kansas. ``The complications are not diminishing, they're growing.''

February Slide

Stocks slid yesterday after slower-than-forecast economic growth, rising jobless claims and Federal Reserve Chairman Ben S. Bernanke's warning of possible failures among smaller banks deepened concern that the economy has tipped into a recession.

The U.S. stock market, as measured by the S&P 500, fared the worst among the world's 10 largest markets in February on concern that a recession is inevitable. Japan posted the second- biggest decline, with a drop of 1.6 percent in the Topix index.

Seven of the 10 biggest markets have fallen more this year than the S&P 500, which is down 8.8 percent in 2008. Canada's Standard & Poor's/TSX Composite Index is down 1.7 percent and Brazil's Bovespa has gained 0.1 percent.

The S&P 500 trades at less than 14 times expected earnings, the lowest valuation since October 1990, reflecting investors' lack of confidence in profit estimates.

Financial companies and telephone stocks have posted the biggest drops among 10 S&P 500 industries in February, declining 11 percent and 9.3 percent respectively.

Facing Default, Some Walk Out on New Homes

Facing Default, Some Walk Out on New Homes

By John Leland

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When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.

In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. "I was terrified," said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.

Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.

Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender's problem. "They took the negativity out of my life," Mr. Zulueta said of You Walk Away. "I was stressing over nothing."

You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of homeownership and foreclosure have changed, economists and housing experts say.

Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, according to a survey by the National Association of Realtors. Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home in order to cover closing costs.

"I think I could make a case that some borrowers were 'renting' (with risk), rather than owning," Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard University, said in an e-mail message.

For some people, then, foreclosure becomes something akin to eviction - a traumatic event, and a blow to one's credit record, but not one that involves loss of life savings or of years spent scrimping to buy the home.

"There certainly appears to be more willingness on the part of borrowers to walk away from mortgages," said John Mechem, spokesman for the Mortgage Bankers Association, who noted that in the past, many would try to save their homes.

In recent months top executives from Bank of America, JPMorgan Chase and Wachovia have all described a new willingness by borrowers to walk away from mortgages.

Carrie Newhouse, a real estate agent who also works as a loss mitigation consultant for mortgage lenders in Minneapolis-St. Paul, said she saw many homeowners who looked at foreclosure as a first option, preferable to dealing with their lender. "I've had people say to me, 'My house isn't worth what I owe, why should I continue to make payments on it?' " Mrs. Newhouse said.

"You bought an adjustable rate mortgage and you're mad the bank is adjusting the rate," she said. "And sometimes the bank people who call these consumers aren't really nice. Not that the bank has the responsibility to be your friend, but a lot are just so uncooperative."

The same sorts of loans that drove the real estate boom now change the nature of foreclosure, giving borrowers incentives to walk away, said Todd Sinai, an associate professor of real estate at the Wharton School of Business at the University of Pennsylvania.

"There's a whole lot of people who would've been stuck as renters without these exotic loan products," Professor Sinai said. "Now it's like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren't any worse off than renting, and you got a chance to do extremely well. If it's heads I win, tails the bank loses, it's worth the gamble."

In the boom market, homeowners took their winnings, withdrawing $800 billion in equity from their homes in 2005 alone, according to RGE Monitor, an online financial research firm.

Since the Depression, American government policy has encouraged homeownership as an absolute good. It protects people from increases in rent and allows them to build equity as they pay off their mortgages. And it creates stability in communities, because owners are invested in their neighbors.

But new types of loans like interest-only mortgages and cash-out refinance loans mean buyers do not pay down their mortgages. And adjustable rate mortgages, which accounted for 39 percent of mortgages written in 2006, expose owners to rent-like rises in their housing costs.

The value of homeownership, then, has increasingly shifted to the home's likelihood to rise in value, like any other investment. And when investments go bad, people tend to walk away.

"When people don't have skin in the game, they behave like they don't have skin in the game," said Karl E. Case, a professor of economics at Wellesley College, who conducts regular surveys of borrowers as a founding partner of Fiserv Case Shiller Weiss, a real estate research firm.

Though many states give banks recourse to sue borrowers for their losses, Mr. Case said, in practice it's not often done "It's tough to do recourse," he said. "It's costly, and the amount of people's nonhousing wealth tends to be pretty slim."

Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Mr. Menegatti said, 20 million households will owe more than the value of their homes.

"Will everyone walk out?" he said. "No. But there's been a cultural shift. Buying a house used to be like entering a marriage, a commitment for life. Now, if you see something better, you go back into the dating market."

When homeowners see houses identical to their own selling for much less than they owe, Mr. Menegatti said, "I wouldn't be surprised to see five or six million homeowners walk away."

For Raymond Zulueta, the decision to go into foreclosure, and to hire You Walk Away, brought him peace of mind. The company assured him that in California he was not liable for his debt, and provided sessions with a lawyer and an accountant, as well as enrollment with a credit repair agency. He stopped paying his mortgage and used the money to pay down other debts.

Consumer advocates and others question the value of You Walk Away's service.

"We are more interested in servicers and borrowers coming to mutual resolutions through loan remediation," said Kevin Stein, associate director of the nonprofit California Reinvestment Coalition. "Even though we are not seeing good outcomes, we're not willing to throw up our hands and say people should walk away from their homes based on the advice of a company that stands to profit from foreclosure."

Jon Maddux, a founder of You Walk Away, said the company's services were not for everybody and were meant as a last resort. The company opened for business in January and says it has just over 200 clients in six states.

"It's not a moral decision," Mr. Maddux said of foreclosure. "The moral decision is, 'I need to pay my kids' health insurance or my car payment so I can get to work.' They made a bad decision, but they shouldn't make more bad ones just because they have this loan."

Mr. Zulueta said he felt he had let down the lender, himself, and his family.

"But you got to move on," he said. "I know in a few years my credit's going to be fine. If I want to get another house, it's going to be there. I'm not the only one who went through this. I know I'm working the system, but you got to do what you got to do. There's always loopholes."

USDA Shuts Down Congressional Audit

USDA Shuts Down Congressional Audit

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WASHINGTON - The Agriculture Department abruptly ordered congressional auditors to leave its headquarters and told its employees not to cooperate with them.

"You are hereby instructed not to meet with any member of the (Government Accountability Office) today, or until this matter is resolved," Michael Watts, a top USDA attorney, wrote to employees Wednesday in an e-mail obtained by The Associated Press.

The auditors were seeking information for an ongoing audit on Agriculture's office of civil rights and its handling of discrimination complaints. Specifically, they were investigating allegations that the department had previously provided false information for the audit.

J. Michael Kelly, Agriculture's deputy general counsel, said the GAO investigators called the department Wednesday morning to say they were on their way to its headquarters and wanted to speak with a handful of specific employees.

The auditors refused to allow USDA lawyers to be present for the interviews, and after allowing one employee to talk, department officials stopped the interviews and told the investigators to leave the building, Kelly said.

"We are not interested in having our employees potentially put themselves at risk when they have not yet been advised of their rights and when we were not allowed to provide counsel," Kelly said. "We also pointed out to them that while they hold themselves out to be criminal investigators, GAO is an arm of Congress and has no authority to investigate violations of criminal law."

Kelly said the department has been cooperating with the auditors for a year but will not allow its employees to discuss the matter until it gets more information.

"We don't have anything to hide," Kelly said. "We have absolutely no understanding of why anybody at GAO believes there's been any misrepresentation."

A spokesman for GAO, the investigative arm of Congress, said the agency could not immediately comment on the matter.

John Boyd, a Virginia farmer who for years has criticized the Agriculture Department on civil rights issues, said the development shows that the department is not open about its handling of civil rights complaints.

"We think it's appalling that the USDA would go this far to obstruct civil rights," he said. "It's obvious that they have something to hide."

Although executive agencies frequently chafe at GAO's findings, the agency has a reputation as an independent, nonpartisan investigative office.

The agency has clashed with the Bush administration, however, most notably in 2002 when it sued Vice President Dick Cheney to get the names of energy executives who met with a White House task force working on President Bush's energy policy. The lawsuit marked the first time in the GAO's nearly 90-year history that it had resorted to asking a federal judge to force a president or vice president or their aides to release documents.

The GAO lost the case.

Terrorized by 'War on Terror'

Terrorized by 'War on Terror'

How a Three-Word Mantra Has Undermined America

By Zbigniew Brzezinski

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he "war on terror" has created a culture of fear in America. The Bush administration's elevation of these three words into a national mantra since the horrific events of 9/11 has had a pernicious impact on American democracy, on America's psyche and on U.S. standing in the world. Using this phrase has actually undermined our ability to effectively confront the real challenges we face from fanatics who may use terrorism against us.

The damage these three words have done -- a classic self-inflicted wound -- is infinitely greater than any wild dreams entertained by the fanatical perpetrators of the 9/11 attacks when they were plotting against us in distant Afghan caves. The phrase itself is meaningless. It defines neither a geographic context nor our presumed enemies. Terrorism is not an enemy but a technique of warfare -- political intimidation through the killing of unarmed non-combatants.

But the little secret here may be that the vagueness of the phrase was deliberately (or instinctively) calculated by its sponsors. Constant reference to a "war on terror" did accomplish one major objective: It stimulated the emergence of a culture of fear. Fear obscures reason, intensifies emotions and makes it easier for demagogic politicians to mobilize the public on behalf of the policies they want to pursue. The war of choice in Iraq could never have gained the congressional support it got without the psychological linkage between the shock of 9/11 and the postulated existence of Iraqi weapons of mass destruction. Support for President Bush in the 2004 elections was also mobilized in part by the notion that "a nation at war" does not change its commander in chief in midstream. The sense of a pervasive but otherwise imprecise danger was thus channeled in a politically expedient direction by the mobilizing appeal of being "at war."

To justify the "war on terror," the administration has lately crafted a false historical narrative that could even become a self-fulfilling prophecy. By claiming that its war is similar to earlier U.S. struggles against Nazism and then Stalinism (while ignoring the fact that both Nazi Germany and Soviet Russia were first-rate military powers, a status al-Qaeda neither has nor can achieve), the administration could be preparing the case for war with Iran. Such war would then plunge America into a protracted conflict spanning Iraq, Iran, Afghanistan and perhaps also Pakistan.

The culture of fear is like a genie that has been let out of its bottle. It acquires a life of its own -- and can become demoralizing. America today is not the self-confident and determined nation that responded to Pearl Harbor; nor is it the America that heard from its leader, at another moment of crisis, the powerful words "the only thing we have to fear is fear itself"; nor is it the calm America that waged the Cold War with quiet persistence despite the knowledge that a real war could be initiated abruptly within minutes and prompt the death of 100 million Americans within just a few hours. We are now divided, uncertain and potentially very susceptible to panic in the event of another terrorist act in the United States itself.

That is the result of five years of almost continuous national brainwashing on the subject of terror, quite unlike the more muted reactions of several other nations (Britain, Spain, Italy, Germany, Japan, to mention just a few) that also have suffered painful terrorist acts. In his latest justification for his war in Iraq, President Bush even claims absurdly that he has to continue waging it lest al-Qaeda cross the Atlantic to launch a war of terror here in the United States.

Such fear-mongering, reinforced by security entrepreneurs, the mass media and the entertainment industry, generates its own momentum. The terror entrepreneurs, usually described as experts on terrorism, are necessarily engaged in competition to justify their existence. Hence their task is to convince the public that it faces new threats. That puts a premium on the presentation of credible scenarios of ever-more-horrifying acts of violence, sometimes even with blueprints for their implementation.

That America has become insecure and more paranoid is hardly debatable. A recent study reported that in 2003, Congress identified 160 sites as potentially important national targets for would-be terrorists. With lobbyists weighing in, by the end of that year the list had grown to 1,849; by the end of 2004, to 28,360; by 2005, to 77,769. The national database of possible targets now has some 300,000 items in it, including the Sears Tower in Chicago and an Illinois Apple and Pork Festival.

Just last week, here in Washington, on my way to visit a journalistic office, I had to pass through one of the absurd "security checks" that have proliferated in almost all the privately owned office buildings in this capital -- and in New York City. A uniformed guard required me to fill out a form, show an I.D. and in this case explain in writing the purpose of my visit. Would a visiting terrorist indicate in writing that the purpose is "to blow up the building"? Would the guard be able to arrest such a self-confessing, would-be suicide bomber? To make matters more absurd, large department stores, with their crowds of shoppers, do not have any comparable procedures. Nor do concert halls or movie theaters. Yet such "security" procedures have become routine, wasting hundreds of millions of dollars and further contributing to a siege mentality.

Government at every level has stimulated the paranoia. Consider, for example, the electronic billboards over interstate highways urging motorists to "Report Suspicious Activity" (drivers in turbans?). Some mass media have made their own contribution. The cable channels and some print media have found that horror scenarios attract audiences, while terror "experts" as "consultants" provide authenticity for the apocalyptic visions fed to the American public. Hence the proliferation of programs with bearded "terrorists" as the central villains. Their general effect is to reinforce the sense of the unknown but lurking danger that is said to increasingly threaten the lives of all Americans.

The entertainment industry has also jumped into the act. Hence the TV serials and films in which the evil characters have recognizable Arab features, sometimes highlighted by religious gestures, that exploit public anxiety and stimulate Islamophobia. Arab facial stereotypes, particularly in newspaper cartoons, have at times been rendered in a manner sadly reminiscent of the Nazi anti-Semitic campaigns. Lately, even some college student organizations have become involved in such propagation, apparently oblivious to the menacing connection between the stimulation of racial and religious hatreds and the unleashing of the unprecedented crimes of the Holocaust.

The atmosphere generated by the "war on terror" has encouraged legal and political harassment of Arab Americans (generally loyal Americans) for conduct that has not been unique to them. A case in point is the reported harassment of the Council on American-Islamic Relations (CAIR) for its attempts to emulate, not very successfully, the American Israel Public Affairs Committee (AIPAC). Some House Republicans recently described CAIR members as "terrorist apologists" who should not be allowed to use a Capitol meeting room for a panel discussion.

Social discrimination, for example toward Muslim air travelers, has also been its unintended byproduct. Not surprisingly, animus toward the United States even among Muslims otherwise not particularly concerned with the Middle East has intensified, while America's reputation as a leader in fostering constructive interracial and interreligious relations has suffered egregiously.

The record is even more troubling in the general area of civil rights. The culture of fear has bred intolerance, suspicion of foreigners and the adoption of legal procedures that undermine fundamental notions of justice. Innocent until proven guilty has been diluted if not undone, with some -- even U.S. citizens -- incarcerated for lengthy periods of time without effective and prompt access to due process. There is no known, hard evidence that such excess has prevented significant acts of terrorism, and convictions for would-be terrorists of any kind have been few and far between. Someday Americans will be as ashamed of this record as they now have become of the earlier instances in U.S. history of panic by the many prompting intolerance against the few.

In the meantime, the "war on terror" has gravely damaged the United States internationally. For Muslims, the similarity between the rough treatment of Iraqi civilians by the U.S. military and of the Palestinians by the Israelis has prompted a widespread sense of hostility toward the United States in general. It's not the "war on terror" that angers Muslims watching the news on television, it's the victimization of Arab civilians. And the resentment is not limited to Muslims. A recent BBC poll of 28,000 people in 27 countries that sought respondents' assessments of the role of states in international affairs resulted in Israel, Iran and the United States being rated (in that order) as the states with "the most negative influence on the world." Alas, for some that is the new axis of evil!

The events of 9/11 could have resulted in a truly global solidarity against extremism and terrorism. A global alliance of moderates, including Muslim ones, engaged in a deliberate campaign both to extirpate the specific terrorist networks and to terminate the political conflicts that spawn terrorism would have been more productive than a demagogically proclaimed and largely solitary U.S. "war on terror" against "Islamo-fascism." Only a confidently determined and reasonable America can promote genuine international security which then leaves no political space for terrorism.

Where is the U.S. leader ready to say, "Enough of this hysteria, stop this paranoia"? Even in the face of future terrorist attacks, the likelihood of which cannot be denied, let us show some sense. Let us be true to our traditions.

Granting Immunity Rewards Lawlessness

Granting Immunity Rewards Lawlessness

By Andrew P. Napolitano

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President Bush addressed the nation in December 2005, a day after The New York Times revealed that for several years he had been authorizing illegal wire taps on the telephones and computers of thousands of Americans believed to be communicating with foreigners who might wish us ill. Bush's attempted justification, however, was as legally baseless as President Richard M. Nixon's when he similarly was caught. Asked, years after his resignation, to justify his actions, Nixon crudely stated, "When the president does it, that means that it is not illegal."

In his address, Bush said he had "authorized the National Security Agency, consistent with U.S. law and the Constitution, to intercept the international communications of people with known links to al-Qaida and related terrorist organizations." Sadly, the president was wrong.

There was and is no U.S. law, and there is nothing in the Constitution, that authorizes warrantless wiretaps on Americans in the United States, no matter with whom they speak or e-mail. In fact, both the law and the Constitution prohibit such surveillance without a search warrant.

The governing law in 2005 was and still is today the Foreign Intelligence Surveillance Act. Enacted in 1978 in response to Nixon's use of the FBI and the CIA to spy on Americans, FISA makes it clear that no surveillance of any American in this country may be authorized or conducted by anyone in the government for any reason at any time under any circumstances, except in accordance with the Fourth Amendment to the Constitution. And the Fourth Amendment requires that no surveillance of an American may occur without a warrant issued by a judge after the judge has found probable cause that a crime has been committed.

FISA, on the other hand, permits surveillance of foreigners, here or abroad, without a warrant for three days; then a warrant, based on probable cause that the target is a foreigner, must be sought.

Forty-eight lawsuits have been filed against telecommunications companies, claiming that many Americans' conversations and e-mails with foreigners have been monitored illegally. The plaintiffs are seeking redress under federal statutes that guarantee the privacy of Americans and authorize lawsuits against individuals and corporations who participate in lawless surveillance.

Are the telecommunications companies that enabled the government's spying legally liable? That depends on what the government told them. The government may use the services of a telecom, with immunity for the carrier, if it does so in accordance with the law: The government needs to produce either a search warrant issued by a judge or certification from the U.S. attorney general that the surveillance does not require a warrant.

All 48 lawsuits against the government and the carriers have been consolidated before one federal judge in San Francisco. The lead defendant is AT&T, which won't even admit that it conducts surveillance at the government's behest. The principal witnesses are present and former AT&T employees who've provided a federal district court judge with irrefutable evidence that the surveillance occurs.

When AT&T and the government moved to dismiss the complaints, Judge Vaughn Walker held that there is a prima facie case here and that AT&T will need to produce either search warrants or the government's certification in order to defend itself.

Any such certification would be a remarkable feat of legal draftsmanship. It would have to purport to justify legally and constitutionally the use of telecoms to engage in secret warrantless spying on Americans and to confer immunity upon those carriers. Come spy for us, in other words, and we'll get you off the hook.

To prevent that certification from being scrutinized and evaluated publicly, the Bush administration has asked Congress to grant immunity to the telecom companies for the spying they've already done. The House thus far has rejected it. The Senate passed legislation that provides it. Never mind that the Constitution prohibits surveillance on Americans, absent a search warrant issued upon a finding of probable cause. Never mind that the Congress can't change the Constitution. Never mind the ugly lessons learned from the Nixon era. The government is spying on us again.

Immunity doesn't enhance freedom; it rewards lawlessness. If the government and the telecoms had obeyed the law, there would be no need for immunity. Show me the legal justification for illegal spying on Americans, and I'll show you a government that just doesn't care about the Constitution.

Every government official takes an oath to uphold the Constitution and the laws of the land. What kind of a country would we have if a president can persuade people to break the law and then help them get away with it? What laws will they break next?

Andrew P. Napolitano, a former superior court judge in New Jersey, is senior judicial analyst at the Fox News Channel. He is the author, most recently, of "A Nation of Sheep."

You Think You Are Free?

You Think You Are Free?

By Linda S. Heard

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Watching old movies makes me sad. I'm inevitably reminded of a kindlier, gentler world without cameras that spy on populations, where overseas travelling was pleasurable and privacy was an individual's right.

Nowadays, states are usurping responsibilities that are rightfully those of their citizens. Western so-called democracies, in particular, are supposed to have governments that are servants of the people, whereas, in fact, the opposite is true. Under the guise of doing what's best for us or ensuring our security, governments are exercising more and more control over our lives. And, tragically, we are facilitating this erosion of our own freedoms, mostly because we're not even aware it's happening.

The US and Britain are leading the pack in this encroaching Orwellian nightmare. "War is peace; Freedom is slavery; Ignorance is strength," wrote George Orwell in his book 1984. In recent years, they have waged wars in the name of peace, put entire populations under their thumb in the name of freedom while government spin and a compliant media serve to keep people ignorant about their leaders' true motives.

If we only knew we are being indoctrinated to offer up our personal freedoms to save ourselves from a horrible fate at the hands of nicotine, calories and Al Qaida. We are being taught to fear asylum seekers, climate change, crazed terrorists and even each other. Western governments are perfecting the politics of fear because fearful populaces will do their bidding without question and willingly subject themselves to control.

Britain has become a master of this technique. It currently holds a database containing the DNA of 4.5 million people, arrested for both serious crimes and minor infractions. The police have found this tool so useful they are pushing to expand it to cover everyone in the country although the Home Office has rejected the idea for the moment.

By 2012 Britons over 16 will be required to hold biometric ID cards checkable by police, immigration and customs officials, as well as public and private bodies such as travel agencies, airlines, banks and even retailers.

By 2010, Britain is also expected to incorporate Radio Frequency Identification (RFID) chips in passports designed to carry a wealth of personal data on travellers.

Further, there is a plan to embed RFID chips in vehicle number plates allowing authorities the capability of identifying any vehicle anywhere in all weather. RFID chips have been embedded on every packet of cigarettes manufactured in the UK since October last year, while others have been fitted to trash cans officially to boost the rate of garbage recycling. Pets entering Britain from abroad are also chipped.

Apparently, the government is also considering injecting prisoners with RFID tags. If that goes ahead it's surely the slippery slope to babies being chipped at birth.

The US has forced European airlines to hand over 19 pieces of information on travellers prior to their departure and wants to extend this one-way data flow to passengers over-flying the US en route to Central America and the Caribbean. The UK wants the system to be used throughout Europe and domestically.

Not only do authorities want to control Britons' movements, they are also after their thoughts. Remember the Orwellian Thought Police, who used surveillance methods and psychological profiles to interpret the future goals of potential dissenters and deviants? This is already happening in the UK where people can expect to be caught on camera up to 300 times per day and where their phone calls and Internet browsing is routinely monitored.

Earlier this month, three British appellate judges had the good sense to quash the convictions of five young Muslims prosecuted for simply downloading "extremist propaganda" from the Internet. There was no other evidence against them and no proof they intended to act on any message contained in such material. In other words, their initial conviction was purely based on thought crime. The judgment read: "Literature may be stored in a book or on a bookshelf, or on a computer drive, without any intention on the part of the possessor to make any future use of it all."

Big Brother Britain isn't working. Indeed, the prisons are overflowing and violent crime is on the up-and-up, much of it fuelled by drugs and alcohol. You've surely heard the expression "give a dog a bad name . . ." Could it be that when law-abiding citizens are prejudged as criminals some of them might conclude, "What the heck"?

But Orwell's Nineteen Eighty-four isn't exactly where Britain is headed. The reality is a combination of Orwell's theories and those set-out in Aldous Huxley's Brave New World.

As the American author Neil Postman wrote in his book, Amusing Ourselves to Death, whereas "Orwell feared the truth would be concealed from us, Huxley feared the truth would be droned in a sea of irrelevance. Orwell feared we would become a captive culture. Huxley feared we would become a trivial culture" consumed by "an almost infinite appetite for distractions".

In a way they were both right. Unless we tear ourselves away from our pretty toys and distractions just long enough to remove our rose-coloured specs, freedom will be obsolete except as a slogan above the gate of the Ministry of Truth.