Saturday, November 29, 2008

Poverty and hunger on the rise in the US

Poverty and hunger on the rise in the US

By David Walsh

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The US Department of Agriculture will shortly release figures showing that a record number of Americans, some 30 million, now receive food stamps, benefits available to low- or no-income people. That total will surpass the previous record set in the wake of the Hurricane Katrina disaster in 2005.

Every statistic related to poverty and hunger, as well as anecdotal reports from food banks and charities, points to a sharp growth in social misery in America. The majority of the statistics do not take into account the rapid economic deterioration of the past several months.

The figure of 30 million people on food stamps is one sign of the social crisis—although only the near-destitute qualify for the benefits, which themselves are entirely inadequate. The maximum monthly amount for a single individual is $176, the minimum, $14. A family of eight can receive $1,058. The average monthly benefit per person is $95, while the average US household spends $184 per person a month on food.

The number of those using food stamps rose 9.6 percent, or some 2.6 million people, from August 2007 to August 2008. The total is expected to continue rising sharply. Already in 25 states, at least one in five children is receiving food stamps.

Those receiving the benefits must have an income under 130 percent of the federal poverty level ($21,200) for a family of four, or $27,600. Income levels necessary to decently sustain a family of four are estimated to be at least twice the official poverty level. In the New York City area, for a four-member family, the Economic Policy Institute’s “Family Budget Calculator” puts the figure at $68,000; in the Los Angeles-Long Beach area at $54,000; and in the Detroit-Livonia-Warren, Michigan, area at $44,000. If this more-accurate measure were used, the percentage of Americans living in poverty would be at least 30 percent.

The Department of Agriculture (USDA) reports that 39 percent of food stamp recipients have income of half or less of the federal government’s poverty figure, and some 15 percent have no income whatsoever. Approximately 70 percent of the households in the program, now officially known as the Simplified Nutrition Assistance Program, have no “countable resources”—i.e., cash and investments. Families with savings of more than $2,000 are disqualified from receiving food stamps.

As miserly as the benefits are, only two thirds of those eligible actually receive any at all. Many are unaware that the benefits exist, others don’t see the point of overcoming the considerable bureaucratic hurdles for the pittance they would receive, and language and transportation problems stymie still others.

In regard to the needs of poor people in general, as a result of the devastation of the “social safety net” by Republicans and Democrats alike in Washington, according to the Center on Budget and Policy Priorities, “basic cash assistance [now] reaches many fewer poor families with children than in the recessions of the 1970s, 1980s, and 1990s. Today, only about 40 percent of families eligible for cash assistance under the Temporary Assistance for Needy Families program actually receive it.” That is about half the percentage of the families eligible for assistance in previous recessions.

The Center estimates that an additional 10 million people will be forced into poverty in the US if the current recessionary economic trends continue.

In mid-November, the USDA released figures showing that more than 36 million Americans, including 12.4 million children, were officially “food-insecure” in 2007. The number with “very low food security”—in other words, the number of those regularly going hungry—has risen steadily over the decade; in 2007, the members of some 4.7 million households fell into this category.

The number of children consistently going hungry in America jumped to 700,000 last year, an increase of more than 60 percent from 2006; the number of elderly people with low food security rose by 26 percent. The data underestimates the actual numbers because it doesn’t take into account homeless individuals or families.

Feeding America, the country’s largest hunger relief organization, issued a statement November 17 pointing out that the number of Americans forced to skip a meal and survive without adequate nutrition had grown with the onset of the current downturn.

Vicki Escarra, president and CEO of Feeding America, commented: “Our food banks are calling us every day, telling us that demand for emergency food is higher than it has ever been in our history. They are serving a significant number of new clients—people who were once their donors, middle class workers who can no longer make ends meet.”

Research conducted by the organization last spring revealed that food banks were witnessing an average increased need of nearly 20 percent; in many areas, the need had doubled from the same period in 2007.

Escarra continued: “If the [USDA] data we are reviewing today reflected food insecurity data from the last 12 months, it would be even more shocking. Unemployment rates and healthcare costs continue to soar, and there is not an end expected in near sight.… We don’t expect the lines to get any shorter at local food pantries any time soon, and we won’t know how bad it really is until the future USDA numbers are released next year.”

The new food stamp numbers were reported on the eve of Thanksgiving, one of the country’s major holidays. For millions, there was little to be thankful about.

CBS News reported that 10,000 people showed up for an annual Thanksgiving food giveaway in Los Angeles on Tuesday. “In Dallas, the number of food shelf visits is up 25 percent,” CBS commented. “It’s up 33 percent in Chicago and 41 percent in Los Angeles, according to Feeding America and the Los Angeles Food Bank.…

“At one food bank in Los Angeles they are working 18 hour days and shipping 1 million pounds of food out to food pantries every week, but it’s still not enough to meet the growing need.

“ ‘We see this as a crisis situation we don’t see going away in the near future,’ said Michael Flood, the CEO of the Los Angeles Regional Food Bank.”

Visits to food pantries in Washington, D.C., are up “20% to 100%,” according to the Washington Post, and “calls to the Capital Area Food Bank’s hunger hotline have jumped 248%.” Most of the calls are from people who never used the service before.

Donations to food banks have climbed nationally about 18 percent, but demand has grown by 25-40 percent, says Feeding America.

The destruction of jobs and benefits, rising health costs and the slashing of social programs are driving the crisis. Moreover, while food prices are not climbing as they were earlier in the year, in October the consumer price index for food and beverages was still 6.1 percent higher than a year ago.

A remarkable episode, an indicator of the depth of the current crisis, took place in the unlikely locale of Platteville, Colorado, November 22. The Miller family, who farm 600 acres outside the town, some 40 miles north of Denver, decided to give away the remains of their potato, carrot and leek crop, because cold weather was about to kill it off. To the Millers’ astonishment, approximately 40,000 people showed up to dig in the ground and carry off the free food. Traffic backed up for miles, “and police ticketed people who had illegally abandoned their cars in the frenzy,” observed the Denver Post.

Farmer Chris Miller told the media: “Overwhelmed is putting it mildly.… People obviously need food.”

Indeed. In New York, reports Food Bank for New York City, as of 2007 more than one in five children (397,000) were relying on soup kitchens and food banks, up 48 percent from 269,000 in 2004. Approximately 1.3 million residents of New York, the “world’s financial capital,” relied on emergency food in 2007.

Meanwhile, the New York Times took note last week that hedge fund operator John Paulson wined and dined 100 investors and listened to former Federal Reserve chairman Alan Greenspan and current Treasury Secretary Henry Paulson at the exclusive Metropolitan Club in Manhattan, facing Central Park, on November 17.

The Times noted that “the crowd at the Metropolitan Club betrayed no signs of the financial distress. The din that spilled from the dining room into the marbled-and-gilt main chamber was filled with laughter.

“Mr. Greenspan spoke while guests dined on a three-course meal—preceded, of course, by a cocktail reception featuring Krug Grand Cuvee champagne and 2006 Chassagne-Montrachet from Domaine Marc Morey.

“For dinner? Jumbo crabmeat & avocado, paired with 1999 Haut-Brion; and Colorado rack of lamb with tarragon jus and parmesan polenta cake, paired with 1999 Chateau Margaux and 1999 Lafitte-Rothschild (which can fetch more than $500 a bottle).”

US commits $800 billion more to bail out consumer credit and mortgage market

US commits $800 billion more to bail out consumer credit and mortgage market

By Patrick O’Connor

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US Treasury Secretary Henry Paulson announced Tuesday another extension of the Bush administration’s bailout of the financial system, committing $800 billion towards lending programs aimed at preventing the collapse of the home mortgage and consumer credit market. This marks the first time that the Treasury and the Fed have ever intervened to finance consumer debt.

The latest programs push the total size of the direct and indirect financial obligations assumed by the federal government to more than $8 trillion. Paulson emphasized that the new lending measures were merely a “starting point” and could soon be extended to cover other debt, including commercial mortgage-backed securities, a move that would further increase the enormous public resources that have been diverted to protecting the interests of the financial oligarchy.

The new measures, announced a day after the $249 billion bailout of Citigroup, underscore both the depth of the crisis wracking the financial markets and the increasingly disoriented response by the authorities in Washington. Just last week, Paulson told Congress that the financial system had been stabilized by the massive capital injections into the markets engineered by the Bush administration. His actions this week belie such claims.

The Federal Reserve is to create a Term Asset-Backed Securities Loan Facility (TALF) that will lend up to $200 billion to holders of high-grade securities backed by assets including loans to small businesses, students, credit card holders, and car owners. The TALF is backed up by $20 billion from the Treasury’s $700 billion bailout fund that was authorized by Congress in September.

The other aspect of Paulson’s latest program is a $600 billion mortgage lending fund. The Fed is to buy up to $500 billion of mortgage bonds guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae, and will purchase another $100 billion of the mortgage finance companies’ debt securities—pools of mortgages bundled together and sold on the financial markets.

None of these measures address the root causes of the increasingly severe economic crisis. Even if the programs make credit more accessible and somewhat less expensive, the ability of millions of ordinary working people to cover their debts amid rising unemployment and declining real wages will remain in doubt.

The immediate impact of Paulson’s announcement was to trigger a wave of mortgage refinancing by indebted home owners. The Wall Street Journal reported that James Ramsey of Aurora, Illinois, locked in a 5.5 percent interest rate on his $180,000 mortgage. His previous rate of 5.625 percent was due to rise by up to 1 percent in January. Ramsey explained that the refinance arrangement “is going to let me pay off a couple of credit cards really quick.”

The Journal explained that the slightly lower mortgage rates are only available to borrowers who have the cash and credit rating to qualify for home loans under existing lending standards. Among those excluded are the roughly 11.8 million homeowners who are prevented from refinancing because their mortgage is now greater than the value of their property. The Paulson plan, in other words, will do nothing to alleviate the foreclosure crisis.

Home prices are continuing to decline. One gauge released by Standard & Poor’s on Tuesday, the Case-Shiller Home Price Index, found that prices declined on an annualized basis in the third quarter by a national average of 16.6 percent. This is the largest quarterly decline recorded since the survey began in 1988. Some cities were especially hard hit, including Phoenix and Las Vegas (down more than 30 percent) and Los Angeles, Miami, San Diego and San Francisco (more than 26 percent). Additional data released yesterday by the Commerce Department showed sales of family homes dropped to their lowest level last month since January 1991.

One housing analyst cited in the New York Times on Tuesday said that “it is unlikely that we are anywhere near a bottom in nationwide home prices”.

Meanwhile, concerns have been raised in the financial press about some of the implications of Paulson’s new initiatives.

“[The Fed’s] approach is similar to steps taken in Japan in the 1990s and earlier this decade, when the Bank of Japan pumped reserves into Japanese banks,” the Wall Street Journal explained. “The Fed is taking that process a step further. Not only is it pumping in reserves, it is deciding where that cash should go, through its own lending programs... There are many risks to this approach. Markets could become dependent on Fed financing, possibly slowing their own recovery. Fed officials are concerned about how they will exit from lending programs, but see that as a problem they’ll have to confront when the crisis subsides, something that is still seen as far off. There are other risks: that the new programs won’t work, that more money will be needed, and that the Fed could suffer losses on all of this lending, particularly with the economy so fragile.”

The Financial Times interviewed Tony Crezcenki, an analyst at trading firm Miller Tabak, who said: “We don’t know yet how it is that the Fed will finance its $600 billion of purchases. What we do know is that it can’t do it with its current Treasury holdings, which total a comparatively smaller $489 billion.” Tabak said he feared the Fed would undermine the greenback if the markets believed the central bank was pumping out an excessive supply of dollars. “Today’s action again begs the question: if the Fed and the Treasury are backing the US financial system, who is backing the US?”

US recession deepens

New economic data released in recent days again indicate that the unfolding recession is developing at a pace and scale unmatched since the 1930s.

On Tuesday, the Commerce Department revised its figures for economic activity in the third quarter. Gross domestic product, previously reported to have contracted by 0.3 percent, actually declined by 0.5 percent. Disposable personal income plummeted at an annual rate of 9.2 percent. Consumer spending declined by 3.7 percent on an annualized basis, significantly worse than the previously reported 3.1 percent.

More Commerce Department data was released yesterday. Consumer spending in October declined by 1 percent, the largest monthly fall since September 2001. October saw the fourth consecutive monthly drop in consumer spending; August recorded a 0.1 percent and September a 0.3 percent contraction. With consumer spending accounting for more than two-thirds of all economic activity, the accelerating downturn is an acute indicator of the mounting recessionary crisis.

Yesterday’s Commerce Department data added to deflation fears. Prices fell by 0.6 percent last month, compared to a 0.1 increase in September. The economic indicators suggested that to the extent that Americans have experienced slightly lower costs of living in some areas, such as the lower cost of gas, they are saving more to prepare for anticipated hardships. Savings as a percentage of disposable income was 2.4 percent in October, up from 1 percent a month earlier.

Business investment and capital spending also took a severe hit last month. Orders for durable goods, regarded as a key indicator of business spending, plummeted by 6.2 percent in October, more than twice the rate anticipated by economists, and sharply up from the 0.2 fall recorded in September.

National capital investment, excluding aircraft and military expenditure, was down 4 percent in October. According to High Frequency Economics, capital investment has plunged by more than 30 percent on an annualized basis in the last three months. The firm’s chief US economist, Ian Shepherdson, told the Washington Post that this figure was “terrifying”.

Last Friday, before the release of the latest economic data, Goldman Sachs economists revised their fourth quarter forecasts downwards, from negative 3.5 percent to negative 5 percent GDP growth. The firm said it expects the economy to contract in each quarter until mid-2009. The official unemployment rate is expected to reach 9 percent by the end of next year, and continue to rise in 2010. “This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II,” the economists concluded.

The stagnating “real economy” is in turn rebounding into the financial markets and banking system, undermining the limited impact of the Treasury and Federal Reserve’s bailout programs. On Tuesday the Federal Deposit Insurance Corporation (FDIC) released a report on the third quarter performance of the banking industry. It found that US banks’ net income in the three months from July to September was just $1.7 billion, down 94 percent from the $27 billion recorded over the same period in 2007.

Nine banks collapsed during the quarter, the most recorded since 1993. Among the failures was Washington Mutual Bank, which was the largest insured institution to fall in the FDIC’s 75-year history. More collapses are inevitable. The number of banks on the FDIC’s “Problem List” increased from 117 to 171, and the assets of “problem” institutions increased from $78 billion to $115 billion in the third quarter.

New U.S. Mortgage Crisis Looms

New U.S. Mortgage Crisis Looms


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The full scope of the U.S. housing meltdown isn't clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts across the country.

Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls from Michigan to Georgia are entering foreclosure.

Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.

That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies' credit.

“We're probably in the first inning of the commercial mortgage problem,” said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That's bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.

Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.

“It's a toxic drug and nobody knows how bad it's going to be,” said Paul Miller, an analyst with Friedman Billings Ramsey, who was among the first to sound alarm bells in the residential market.

Unlike home mortgages, businesses don't pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20-billion (U.S.) will be due next year, covering everything from office and condo complexes to hotels and malls.

The retail outlook is particularly bad. Circuit City and Linens 'n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.

Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20-billion in mortgages come due next year — 2010 and 2011 totals are projected to be even higher — many property owners won't have the money.

Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm.

Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.

California, New York, Texas and Florida — states with a high concentration of mortgages in the securities market, according to Fitch — are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia.

The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping centre goes into foreclosure. Nobody can buy the mall because banks won't write mortgages as long as investors won't purchase them.

“Credit markets have seized up,” corporate securities lawyer Michael Gambro said. “People are not willing to take risks. They're not buying anything.”

That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.

“The system has never been tested for a deep recession,” said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.

One hope was that the U.S. would use some of the $700-billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.

“He's created havoc in the marketplace by changing the rules,” Mr. Rosen said. “It was the stupidest statement on Earth.”

The U.S. Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don't have to declare huge losses whenever the market declines.

But the only surefire remedy is for the economy to stabilize, for businesses to start expanding and for investors to trust the market again. Until then, Mr. Tross said, “There's going to be a lot of pain going forward.”

Iceland: Street protests against government and economic meltdown

Iceland: Street protests against government and economic meltdown

By Jordan Shilton

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Thousands protested in the Icelandic capital Reykjavik last Saturday, calling for the resignation of the government and for early elections. The protest follows weeks of unrest on the streets, in the aftermath of the banking collapse last month that left the economy in meltdown.

Protestors gathered to demand the release of a fellow demonstrator who had been held by police from the previous day. After demonstrating in front of the parliament (Althingi), several hundred protestors proceeded to the main police station where violent clashes took place. Police used pepper spray against demonstrators, and it was reported that at least five people were taken to hospital with injuries.

Days before, the government reached a negotiated settlement with a number of European countries to determine the terms by which savers' deposits in Iceland's banks would be reimbursed. The deal meant that the loan to be made to Iceland by the International Monetary Fund (IMF) of US$2.1 billion could be finalised. The loan will be conditional on "reforms" to bring the government's soaring public debt under control, which will inevitably mean deep cuts to public services. Having assumed responsibility for the debts of Iceland's three main banks, government debt is set to rise to a staggering 130 percent of GDP next year.

In tandem with the IMF-backed loan, Sweden, Norway, Denmark and Finland announced a joint plan to lend a further US$2.5 billion to Iceland. Underscoring the fragility of government finances in the current climate, Finland revealed it would have to borrow the funds in order to make them available. Following the announcement of this package, loans from a number of European countries, including Britain, the Netherlands and Germany, were announced, bringing the total loaned to Iceland to approximately US$10 billion. Some of this funding, from Britain and the Netherlands, is to be used to finance the compensation package by which the Icelandic government will re-pay depositors in the failed banks.

The amount being made available to Iceland in loans is almost one and a half times the size of its economy. Far from guaranteeing stability, it threatens to cause serious uncertainty. Credit rating firm Standard & Poor's reduced its rating on Iceland's national debt from BBB to BBB—in the wake of the loan deal. As John Danielsson, writing in the Financial Times, pointed out, "The governments of the UK and the Netherlands have demanded that the Icelandic government cover losses from Icesave savings accounts. Since the total amount of losses may exceed the gross national product of Iceland, it is hard to see how Iceland could meet those demands.... [A] settlement along the lines demanded by the creditors would likely lead to a national bankruptcy."

While the current government won election in early 2007, protestors have made it clear that they have no confidence that it can do anything to avert an economic catastrophe. Gudrun Jonsdottir commented, "I've just had enough of this whole thing. I don't trust the government, I don't trust the banks, I don't trust the political parties, and I don't trust the IMF."

Opposition to the IMF was evident at the protest, with one sign reading: "The IMF will crush education, welfare, healthcare and democracy." A number of those who spoke at the protest indicated their fears that many of these services could face privatisation.

Similar sentiments were expressed by a number of comments published by the BBC from readers in Iceland. Responding to the recent interest rate hike in late October, one said, "This will cause many companies to go under and will put extra pressure on households. I thought it was enough as it was. People have lost a lot of their savings and pensions and I have heard that young males aged 25-35 who are heavily indebted are committing suicide as they can't bear the heavy interest payments."

The interest rate rise from 12 percent to 18 percent was announced in late October by the central bank (Sedlabanki) as a condition for receiving the US$2.1 billion loan from the IMF.

Predictions suggest that Iceland faces an economic contraction of at least 10 percent in the coming year. A third of the total population of 310,000 face the loss of their home and life savings, with the government refusing to guarantee that domestic depositors in the failed banks will receive their money back. Job losses will also rise dramatically in the coming months. With Iceland facing bankruptcy, it has been suggested by some companies with headquarters there that they may relocate. Others will look to shift their operations elsewhere. Figures for October indicate that unemployment stood at 1.9 percent, but it is expected that by the end of November unemployment will be well above 3 percent.

Compounding these problems, the krona has virtually ceased to be traded, with the only sale being a daily auction by Sedlabanki. While it is currently trading at around 170 krónur per euro, Dansk bank analyst Lars Chrissansen believes that when the currency is allowed to be traded freely, its value will plummet to nearer 300 krónur per euro. Such a decline will hit ordinary people hard. On November 26, figures put the rate of inflation at 17.4 percent with prices having risen by 1.7 percent in a month. Food prices led the way in the increase, rising by 30 percent since the start of the year.

Along with the ongoing protests calling for the resignation of the government and Sedlabanki governor David Oddsson, recent polls show an overwhelming majority of the population in favour of early elections. The latest poll conducted by local newspaper Frettabladid published on November 25 shows 70 percent in favour of early elections, with 38 percent demanding elections in the first few months of next year. Having been re-elected last year, the governing coalition of the Social Democrats and Independence Party does not have to call another election until 2011.

Reflecting growing tensions within the ruling establishment, Sedlabanki governor Oddsson issued a speech criticising the handling of the economic crisis by politicians. A former prime minister and Independence party leader, who worked closely with current Prime Minister Geir Haarde to liberalise the country's financial system, Oddsson attempted to shift blame away from Sedlabanki for the banking collapse. Stating that "over the past several weeks, the Central Bank of Iceland and its leaders have been at the top of the most-wanted list," he said, "the most fascinating thing is that among the people behind this campaign are those who bear the most responsibility for the situation now facing us."

In Oddsson's opinion, this responsibility lies with the Financial Supervisory Authority. Citing examples of statements provided by Sedlabanki over a period of 18 months prior to last months banking collapse he stated, "it is a blatant misstatement to assert that the Central Bank of Iceland had not long ago become aware of the situation and warned about it. The Bank issued repeated warnings in the public arena and was even more vehement in private discussions."

While he did not directly criticise the government by name, this was his target—particularly with regard to its inquiry in to the banks' downfall. He described this as a "whitewash" which was "unsuitable and insufficient" to uncover what had caused the collapse. Oddsson also made comments to the effect that the decision by the British government to use anti-terror laws to freeze the assets of Landsbanki following its failure was justified. The Financial Times quoted him as saying, "Not all conversations concerning this matter have been made public.... When the matter is investigated, other conversations will have to be made public. I am aware of what they are about and I am aware of what in fact determined the position of the UK authorities."

As the paper goes on to note, this account could undermine attempts by the Icelandic government to sue the UK over its use of the anti-terror legislation.

A no-confidence vote was brought against the government on November 24 by the opposition parties, the Progressive Party and the Left Green Movement. As well as calling for the resignation of the governing coalition, it demanded immediate elections. The motion was defeated by 42 votes to 18 with 3 abstentions.

Iceland: A portent of the future

Iceland: A portent of the future

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Iceland is facing a social and economic catastrophe. Its 300,000 people have suffered the worst and most immediate impact of the worldwide financial crisis of any advanced country.

For that reason, the events in Iceland offer a portent of developments that must inevitably unfold in much larger nations and on the international arena.

Iceland's banking system has collapsed, plunging its entire economy into an accelerating decline. In the space of seven days in October, its three major banks became insolvent and the government was forced to step in and take them over. The Brown Labour government in Britain used anti-terror laws in an effort to force the return of hundreds of millions invested there by individuals, company's pension schemes, local councils, charities and police forces—much of which will not be retrieved.

The scale of the losses was due to Iceland's efforts to become a centre for global speculative investments, primarily by linking bank rates to inflation, which exceeded 15 percent. Its banks offered rates often 50 percent higher than available elsewhere.

At its height, Iceland's banks held foreign assets worth up to ten times its gross domestic product, with much of this investment secured against international loans. It represented a huge speculative bubble built on a pyramid scheme of unsustainable debt.

Iceland is effectively bankrupt and cannot possibly repay its vast debts. The losses that have now been suffered by foreign creditors are estimated to be above $40 billion. Landsbanki's online banking unit Icesave, for example, attracted more $6.75 billion in investments in the UK and $1.5 billion in the Netherlands. Both countries are demanding these sums are returned, a debt greater than Iceland's entire GDP. As Jon Danielsson, reader in finance at the London School of Economics, pointed out, "By comparison, the total amount of reparations payments demanded of Germany following World War I was around 85 percent of GDP."

Iceland has only staved off default by securing $10 billion in financial assistance. A $2.1 billion loan from the IMF is the first time that a developed country has received such assistance since Britain in 1976. It will be accompanied by demands for the type of "structural adjustment programmes" suffered by many impoverished African and Asian countries so that global debts can be "serviced". In addition Sweden, Norway, Denmark and Finland have lent $2.5 billion, with additional loans agreed by other European countries fearing the impact of total economic collapse.

The economy is in meltdown. In domestic currency terms GDP has contracted by 15 percent, but due to the collapse of the krona's value this represents 65 percent in euro terms. Iceland's currency is almost impossible to trade internationally. The value of the krona has halved and inflation has reached 17.1 percent, rising by 1.74 percent in a single month. Essentials have risen even faster, with food prices rising by 30 percent.

Companies are folding every day and making thousands of workers redundant. About a third of the population are believed to have lost all or most of their savings. The situation is so bad that, in surveys, one third of respondents said they were considering emigration. Many young people, with employment skills, are already leaving.

This is the background for the political protests now taking place regularly in the capital Reykjavik—directed against both the coalition government of the Independence Party and the Social Democratic Alliance and the IMF.

The concern within the media and ruling circles for the fate of Iceland is palpable. Max Keiser wrote in the Huffington Post asking, "Who Could Have Predicted Revolution in Iceland?"

He reports how earlier, "I asked the Head of Research at Kaupthing Bank, if when the global debt bubble did burst, the people might 'rise up' in anger as they did in France in the 1780's. He laughed at the question: Today, the Icelandic people are calling for revolution, literally."

The investment journal Fall also poses the question, "Who would have ever imagined that Iceland would be in a virtual state of economic anarchy and revolution?"

However, fears extend far wider than the economic and political fate of Iceland. Danielson insists that "Europe's leaders urgently need to take steps to prevent similar things from happening to small nations with big banking sectors."

Hungary has already negotiated a $16 billion loan from the IMF and $8 billion from the European Union that demands massive cuts in services, jobs and pensions, workers suffering a wage freeze and losing a yearly bonus worth eight percent of pay. Ukraine was loaned $16.5 billion from the IMF and Belarus, Serbia, Romania, Latvia, Estonia and Lithuania are reportedly actively seeking loans.

Ireland is predicted to also follow Iceland's path. All News Web Ireland states that "there is a good chance that Ireland might be the next European nation to hit the skids in a big way. 'The Irish property market is severely overpriced, and the level of debt here is sky-high: as people realise they can't eat a house and as investment from the US starts drying the bubble will burst' argues Sean McCarthy, a senior economic advisor to the Irish banking sector. 'When the property bubble truly deflates here and panic takes over God help Ireland.'"

The investment blog Credit Writedowns notes that whereas "Ireland was the first country to offer a blanket guarantee to its banks' depositors," the "country has an outsized financial sector which could not possibly be guaranteed by the Irish government." Therefore, "It remains to be seen whether there is a sub-current of panic about the fragile Irish banking system that could lead it to Iceland's fate."

Fears of national bankruptcy leading to social and political unrest are not, moreover, confined to small nations. There is serious discussion of a similar fate awaiting the world's fifth largest economy, the UK.

Patrick Hosking asked in the November 22 edition of Times, "Is Britain simply a bigger version of Iceland? Certainly the City of London is starting to look a bit too much like Reykjavik, but with taller buildings and fewer cod... In essence the domestic banks are largely bust. The Government's £500 billion bailout plan is primarily designed not to keep banks lending to small firms and to homebuyers but to prevent an unimaginable financial calamity."

Hosking concludes with an ominous warning: "Banks provide the very foundations and plumbing of the entire economy. A failure of confidence in them could still bring the entire capitalist edifice tumbling down... At the risk of hyperbole, we should not be worrying about whether this is going to be a thin Christmas for retailers (it is), but whether Britain and the West are about to plunge into a years-long economic Dark Age—complete with mass unemployment and social unrest."

Who is Paul Volcker? Obama appoints a longtime enemy of the working class

Who is Paul Volcker? Obama appoints a longtime enemy of the working class

By Patrick Martin

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President-elect Barack Obama announced Wednesday the appointment of former Federal Reserve Board Chairman Paul Volcker to head a White House advisory board to oversee the new administration's policies for stabilizing financial markets. The selection of the 81-year-old Volcker puts an inveterate enemy of the working class at the side of the new president, and demonstrates the class character of the right-wing government that Obama is assembling.

In the course of the week, Obama selected his entire economic team: Timothy Geithner, currently president of the New York branch of the Federal Reserve, who will become secretary of the treasury; Lawrence Summers, former Clinton treasury secretary, who will head the National Economic Council, the chief White House group for coordinating economic policy; and Peter Orszag, who will become budget director. Summers, Geithner and Orszag are all protégés of former Clinton treasury secretary Robert Rubin, former CEO of Goldman Sachs and now director and vice chairman of Citigroup.

These appointments have been greeted favorably on Wall Street, with a 1,200-point runup in stock prices since Geithner's name was made public last Friday. Congressional Republicans hailed the selection of Geithner and Summers, and an op-ed column in the Wall Street Journal November 28 by former Bush political adviser Karl Rove was headlined, "Thanksgiving Cheer From Obama: He's assembled a first-rate economic team."

But it is the selection of Volcker that is the sharpest warning to the working class. No other individual in modern US history is so closely identified with the deliberate creation of mass unemployment to drive down wages and smash the organized resistance of the working class to the demands of corporate America. He put into motion policies that led to the destruction of large sections of industry and the explosive growth of financial speculation in the US economy.

Volcker served as Fed Chairman from 1979 to 1987, a critical period in the history of the American working class, in which the official labor movement was effectively destroyed as an instrument of workers' self-defense, and the unions transformed into what they are today: a mechanism for the suppression of workers' struggles and the destruction of their jobs and wages.

Democratic President Jimmy Carter nominated Volcker—a former Chase Manhattan Bank executive—to head the Federal Reserve in August 1979, at a turning point for the American ruling class and world capitalism as a whole. The coming to power of Margaret Thatcher in Britain three months earlier first signaled the drastic shift to the right internationally on the part of big business. The selection of Volcker initiated a similar shift within the United States, which culminated in November 1980 when Ronald Reagan defeated Carter for reelection.

Runaway price inflation had sparked a series of bitter strikes by workers seeking to defend their living standards, and the Carter administration had suffered a humiliating defeat when more than 100,000 coal miners struck for 111 days in 1977-78 in defiance of a presidential no-strike order under the Taft-Hartley Law. The White House had been unable to cow the miners into submission—they publicly burned copies of the president's back-to-work order on the picket line—and Carter was compelled to rely on the leadership of the United Mine Workers union to deprive the rank-and-file of any gains from their struggle.

Volcker was brought in to initiate policies that would suppress inflation—and the wages movement in the working class—by driving up the rate of unemployment. Under his leadership, the Federal Reserve rapidly raised interest rates to an unprecedented 20 percent, choking off home-buying and purchases of cars and other durable goods and triggering a series of corporate bankruptcies.

The economic turmoil contributed heavily to Carter's defeat in the presidential contest, but that prospect did not faze Volcker, whose loyalty to the Democratic Party and the president who nominated him took a distant second place to his devotion to the long-term interests of American capitalism, which required the most draconian methods.

Once Reagan entered the White House in January 1981, Volcker worked closely with the new Republican administration, and was reappointed by Reagan in 1983 to continue his inflation-fighting course. In 1982-83, the US economy plunged into the sharpest recession of the post-World War II period.

The economic devastation was focused particularly in the industrial Midwest—steel mills, auto plants, coal mines were shut down, many of them permanently. The city of Detroit began the downward slide that has continued to this day, and Buffalo, Akron, Youngstown, Gary, Indiana and countless industrial towns followed suit.

The response to the attacks by big business and the Reagan administration was the biggest wave of strike struggles since the 1940s, beginning with the PATCO air traffic controllers strike in August 1981, where Reagan ordered the firing of 12,000 workers and made the firings stick. He had the backing of the entire US ruling elite, Democrats and Republicans alike, and critical assistance from the AFL-CIO bureaucracy, which blocked any large-scale mobilization of workers behind the PATCO strikers, leaving them to isolation and defeat.

Volcker famously praised Reagan for breaking the PATCO strike, calling his action the most important factor in bringing inflation under control.

PATCO set the pattern for the struggles which followed: Greyhound, Phelps Dodge, Hormel, International Paper, A. T. Massey Coal, Continental Airlines, and Eastern Airlines. Isolated groups of workers engaged in militant and protracted battles, in many cases against state repression and employer violence, all stabbed in the back by the AFL-CIO. The outcome was the destruction of union locals, the arrest, imprisonment and even murder of striking workers, the strengthening of the bureaucratic apparatus, and the emergence of corporatism—labor-management "partnership" —as the guiding philosophy of the American unions.

Throughout this period, there was a bipartisan anti-labor front in Washington: Republican Reagan in the White House, Democrat Volcker at the Fed, a Republican-controlled US Senate, and a Democratic-controlled House of Representatives. Democratic governors and mayors worked hand-in-glove with unionbusting corporations, calling out the National Guard or mobilizing local police against strikes in Arizona, Minnesota, Kentucky, West Virginia and countless cities and towns.

Particularly relevant today is the role played by the Democrats in the bailout of Chrysler Corporation in 1979-80. The Carter administration provided loan guarantees to Chrysler in return for concessions by the United Auto Workers union, including the first-ever cuts in wages and benefits imposed by a major American trade union on its own membership—setting the pattern for the concessions bargaining of the 1980s.

Like a criminal returning to the scene of the crime, Volcker now goes back to Washington as a principal adviser to another Democratic Party administration preparing to bail out bankrupt auto manufacturers at the expense of the auto workers and the working class as a whole. He can rely on his direct personal experience with the UAW bureaucracy to demand that the union finish the job it began three decades ago: transforming what was once the most powerful section of the American working class into a super-exploited mass of low-paid, casual laborers, without any rights.

When Obama announced that he was establishing the President's Economic Recovery Advisory Board, with Volcker as its head, he praised the "sound and independent judgment" of the former Fed chairman. That "judgment" included early support for Obama's presidential campaign—he gave $2,300 to Obama's primary campaign last February, the most Volcker has ever contributed to any candidate, Democrat or Republican.

"Paul Volcker hasn't been in Washington for quite some time," Obama said, "and that's part of the reason he can provide a fresh perspective."

Volcker's record from 1979 to 1987 suggests what this "fresh perspective" will consist of. Unemployment in the United States reached 11.3 percent in 1982, double the level of 1975. The average wage of young workers fell 30 percent by 1987. Infant mortality, family violence, drug addiction and other concomitants of economic hardship soared.

But the wealthiest 1 percent of the population saw a staggering 50 percent increase in their wealth during that period. That is why the American ruling elite remembers the Volcker years fondly, and why, acting through their servant Obama, the financial aristocracy has summoned the old reactionary for one last service in attacking the working class.

CEOs “cashed out” prior to economic crisis

CEOs “cashed out” prior to economic crisis

By Tom Eley

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Balzac’s maxim that “behind every great fortune lies a great crime” may yet prove a fitting epitaph for American capitalism. A recent survey by the Wall Street Journal reveals that CEOs at major US financial and real estate firms converted tens of millions of dollars of overvalued stock into cash prior to the eruption of the current financial crisis, even as many of their corporations approached the precipice.

The Journal analyzed the fortunes of CEOs from 2003 to 2007 based on executive compensation and stock sale data. Fifteen of these CEOs took home more than $100 million in cash during this period. At the high end was Charles Schwab, who made over $816 million from his self-named accounting firm, almost all of it from stock sales.

Of the 120 publicly traded firms the Journal analyzed, CEOs cashed out a total of more than $21 billion. However, data was gathered only from publicly traded companies, and thus does not include similar fortunes that have been made by “hedge fund chiefs, Wall Street traders, and executives who sold their companies outright.” Nor did it include data related to exit packages, the multimillion-dollar “golden parachutes” awarded to retiring or fired executives.

The Journal’s findings underscore the parasitism and criminality of the US financial elite. Defenders have long justified extravagant CEO pay by claiming that these were the talented “risk-takers” who generated enormous wealth for investors. But the Journal’s data shows that there is no correlation between compensation and a firm’s success. On the contrary, many CEOs rewarded themselves just as their corporations approached ruin.

These included Richard Fuld, the CEO of Lehman Brothers, who transformed his firm’s stock into well over $100 million in cash. When added to his salary and bonuses, Fuld pocketed nearly $185 million in the five years before 2008, even as he guided his 150-year-old investment bank to ruin. James Cayne of Bear Stearns did nearly as well at his investment bank, collecting over $163.2 million, the vast majority of which was garnered from selling stock that would soon be scarcely worth the paper upon which it was printed.

Maurice Greenberg of American International Group (AIG) made $132.8 million between 2003 and 2005, when he was forced to resign. Well over $100 million of this came from windfall stock sales of the giant insurer. AIG collapsed in September, but was determined to be “too big to fail” by the federal government, and was bailed out twice in less than one month to the tune of some $120 billion.

In August, the sub-prime mortgage giant Countrywide Financial Group collapsed spectacularly, and was absorbed by Bank of America. In the previous five years, however, Countrywide’s CEO, Angelo Mozilo, took home $471 million, over $400 million of which came from sales of the company’s soon-to-be-worthless stock.

A look at the sectors of the economy where these richly remunerated executives worked, moreover, demonstrates the advanced rot of the US economy as a whole. Without exception, they represented corporations that engaged in financial speculation—“industries closely tied to the financial crisis,” as the Journal puts it—and that produced no real value. These until recently “vibrant” parts of the economy functioned only to siphon off enormous social wealth and deposit it in the bank accounts of the CEOs and big investors.

One example the Journal considered is the private student loan sector, which made Daniel Meyers, the CEO of a firm called First Marblehead, a very wealthy man. Marblehead specialized in servicing loans to students who had “exhausted the cheaper government-backed variety,” and then repackaging and selling the debt to big banks such as Bank of America. Meyers earned nearly $100 million, almost all of it in the sale of company stock; together with other Marblehead insiders, $660 million was taken. The Journal notes that Meyers used $10.3 million of his fortune to buy an ocean-front property in Rhode Island—the state with the highest unemployment rate. Meyers tore down the villa that was there and has put up a 38,000-square-foot mansion he named, befitting a pirate, “Seaward.”

Another sector of the economy that has proved highly lucrative for CEOs is that of home mortgages. In addition to the aforementioned case of Angelo Mozilo and Countrywide, the Journal highlights the case of New Century Financial, the nation’s second largest subprime lender. While the lender is now bankrupt, over a period of four years its three leading executives took home a combined $74 million. The Journal also mentions the case of Herbert and Marion Sandler, who made $2 billion off selling their mortgage firm, Golden West Financial Corp., to Wachovia in 2005. This purchase likely contributed to the demise of Wachovia, which collapsed in October and was bought out by Wells Fargo.

In the field of “credit-default swaps,” Michael Gooch made $82.5 million through his firm GTI Group. Over $77 million of this came from a remarkably well-timed sale in May of 2006. Since then, GTI’s stock has lost over 90 percent of its value. Gooch owns three mansions, and boasted to the Journal that he could pay off his only debt, a $1 million mortgage, “with the spare change in my bank account.”

The Journal notes with some surprise that one of the most highly remunerative fields was that of “home-building.” The wealth accumulated by CEOs in this sector is a clear byproduct of the speculative real estate bubble that emerged over the last decade. Toll Brothers, specializing in building suburban mansions, made Robert and Bruce Toll three quarters of a billion in cash, largely in stock sales. The company has lost 74 percent of its value in the past year.

Chad Dreier, CEO of Ryland Group, made $181 million building homes in “hot markets” such as Las Vegas that have now gone bust, exposing thousands of families to foreclosure. Dwight Schar, the CEO of a building firm called NVR, took home $626 million in 2003-2007, almost all from the sale of stock. Schar spent about $86 million of this fortune in 2005 to buy the Palm Beach, Florida estate of billionaire Ronald Perelman. The Journal notes that the 11-acre oceanfront complex includes two swimming pools and a tennis court.

It is perhaps a sign of the times that the Wall Street Journal, long a mouthpiece of US finance capital, would run a prominent article that questions the enormous personal fortunes built up by CEOs through dubious means even as their corporations sailed toward disaster. Running such an article aims in part, no doubt, to appease the rage of thousands of middling investors who have lost their shirts in the economic crisis.

In any event, the criminal methods of these CEOs, who have led their companies and American capitalism as a whole to the brink of ruin, do not derive from personal greed alone. In their criminality and nearsightedness the CEOs reflect, instead, the narrowing horizon and historical decline of US capitalism, in which the accumulation of extreme wealth long ago lost whatever connection it had to the creation of real value.

The Gates appointment: Obama slaps antiwar voters in the face

The Gates appointment: Obama slaps antiwar voters in the face

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The agreement by Defense Secretary Robert Gates to remain at the Pentagon under the incoming Democratic administration—widely reported in the US media over the past 24 hours—is the starkest and most brazen rebuff given by President-elect Barack Obama to the tens of millions who voted for him based on the false promise that he would bring “change” to Washington.

George W. Bush appointed Gates to head the Pentagon in November 2006, two years ago, following the Republican debacle in the congressional elections and the resignation of Donald Rumsfeld. While millions voted for the Democrats in 2006 in an effort to compel an end to the war in Iraq, the Bush administration went in the opposite direction, escalating the US military intervention through the “surge” of an additional 30,000 combat troops. (The congressional Democrats dutifully went along, appropriating the funds required to pay for the surge and confirming Gates, General David W. Petraeus and other top officials).

Gates played a key role in these events—the appointment of Petraeus as chief US commander in Iraq, the bloody fighting of the spring and summer of 2007, with the highest US casualties of the war, the enormous increase in aerial bombardment, with a shattering effect on Iraqi society, and the combination of bribery and repression that split both the Sunni and Shi’ite opposition to the US occupation regime.

Obama won the Democratic presidential nomination over Senator Hillary Clinton in large measure because he appealed to the same antiwar sentiments that had propelled the Democrats to their victory in the 2006 congressional elections. His mantra throughout the primary campaign—a rebuke to Clinton and other rival Democratic candidates who had voted for war in the Senate—was that he would end the war in Iraq, “a war that should never have been authorized and never been fought.”

Now, with the retention of Gates at the Pentagon, and the widely reported offer of the State Department to Clinton—as well as the selection of a slew of pro-war figures for lesser national security positions—Obama is reassuring the military, the intelligence agencies and the ruling elite as a whole that he will be firmly committed to the defense of US imperialism, including clinging to every inch of territory and every drop of oil secured by the Bush administration’s criminal aggression in Iraq and Afghanistan.

It was widely noted in the US media that Gates is the first Pentagon chief in US history to be retained after a change of party in the White House. That Obama is sending a signal of his future policy was acknowledged both by media outlets generally supportive of the Bush administration’s policy in Iraq and those more critical.

The Wall Street Journal called the decision “the clearest indication to date of the incoming administration’s thinking about Iraq and Afghanistan. The defense secretary has opposed a firm timetable for withdrawing American forces from Iraq, so his appointment could mean that Mr. Obama was further moving away from his campaign promise to remove most combat troops from Iraq by mid-2010. The two men largely see eye-to-eye on Afghanistan, which will be the new administration’s main national-security priority.”

The New York Times suggested that “Mr. Gates will now have to pivot from serving the commander in chief who started the Iraq war to serving one who has promised to end it.” But the newspaper acknowledged that it was Obama rather than Gates who was shifting gears. “In deciding to ask Mr. Gates to stay, Mr. Obama put aside concerns that he would send a jarring signal after a political campaign in which he made opposition to the war his signature issue in the early days.”

There have been attempts by Obama’s apologists in liberal quarters such as The Nation to claim that Obama himself will set the policy, including a gradual pullout from Iraq, and that he has only assembled a hawkish lineup of appointees to forestall right-wing criticism of his foreign policy. This begs the question, of course, of why figures such as Gates, Clinton and retired General James Jones, tipped for national security adviser, would agree to play a role in such a charade. An even better question would be: what assurances has Obama made to Gates about the future course of the wars in Iraq and Afghanistan, to obtain his agreement to continue in office?

More than a million people have been killed in the bloodbath unleashed by the 2003 US invasion of Iraq. Five million have been displaced from their homes. Iraq has been destroyed as a functioning society. Afghanistan is already in ruins after 30 years of US-instigated warfare, and Pakistan is well on its way to becoming the next battlefield in the region.

In the eyes of most of the world’s population, and millions of Americans, Gates deserves a prominent place in the dock at a future war crimes tribunal, alongside Bush, Cheney, Rumsfeld, Rice, Colin Powell, and others responsible for the greatest act of mass murder in the twenty-first century. In retaining Gates, and thereby embracing the policies of occupation and semi-colonial domination with which he is associated, Obama is dropping any antiwar pretense and emerging openly as the newest commander-in-chief of American imperialism.

Food Prices Will Rise, Causing Export Bans, Riots

Food Prices Will Rise, Causing Export Bans, Riots: Chart of Day

By Mark Gilbert

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Food prices will rise next year, prompting a revival of protectionism from food-growing nations and risking a renewed bout of rioting, according to Jochen Hitzfeld, an analyst at UniCredit SpA in Munich.

“Agricultural commodities will outperform the broad commodity indices in 2009,” Hitzfeld wrote in a research note this week. “If key crop-producing countries then impose export bans again and speculators drive up prices via physical stockpiling and futures contracts, new food unrest is even conceivable in the second half of 2009.”

The CHART OF THE DAY shows food prices for the past 10 years as measured by an index compiled by UBS AG and Bloomberg that tracks at least 13 foodstuffs, including wheat, soybeans, sugar, cocoa and coffee. The index has declined 35 percent since peaking in July.

“The prices of many agricultural commodities are now clearly below their production costs,” Hitzfeld wrote. “We expect the coming year to bring a cutback in area under cultivation as well as a decline in the yield per hectare.”

FDA Hid Names of Melamine Contaminated Infant Formula Products from the Public

FDA Hid Names of Melamine Contaminated Infant Formula Products from the Public

by Mike Adams

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When the FDA discovered melamine in U.S. infant formula products, it made a conscious decision to withhold that information from the public. Instead, it called a teleconference with the infant formula manufacturers to warn them about its findings!

The truth about the melamine only became public after the Associated Press filed a Freedom of Information Act request, demanding the test results from the FDA. Absent that request, this whole issue would have continued to remain an FDA secret.

In the aftermath of that decision, the FDA is now under intense fire for once again betraying the public trust and acting to protect the interests of corporations rather than the people. Congress, public health groups and consumer advocate (like me) are blasting the FDA for utterly disregarding public safety and catering (once again) to the financial interests of the companies it regulates.

The FDA, of course, claims that low levels of melamine are perfectly safe for babies to consume in unlimited quantity. Sure they are! And Bisphenol-A is safe, too. So is aspartame, sodium nitrite, sucralose, MSG and every other food ingredient poison you can think of. According to the FDA, they're all safe for babies to eat or drink in virtually unlimited quantities.

Needless to say, the FDA has become the laughing stock of all intelligent observers. It's not hard to figure out that the FDA has sold out to Big Business and betrayed the people, thrusting defenseless babies directly into the line of fire of dangerous chemicals and toxic additives.

Yet the FDA still conspires to hide the truth about these dangers from the public.

Truth be told, it is the FDA that has become the real danger to the public. This agency is a complete failure. Its leaders should resign in disgrace... or, more accurately, they should be arrested and prosecuted for their roles in a deadly conspiracy involving food and drug companies that sought to boost business profits at the expense of human lives.

This is all about much more than mere melamine, of course. If the FDA would consciously hide the truth about melamine from the public it was supposed to serve, then what else might it hide in the future? (What has it been hiding already?)

The bottom line is that the FDA cannot be trusted, and rather than ruling by trusted authority, it rules by intimidation and oppression, even with its own scientists (

Think about it: If the FDA doesn't care enough about the safety of your babies to disclose the truth about melamine, what makes you think the FDA will give a damn about anything else that might threaten the health and safety of Americans?

The FDA exists for only one purpose: To protect the profits of powerful food and drug companies. Babies be damned.

Click to read: FDA Hid Names of Melamine Contaminated Infant Formula Products from the Public

From The FDA collected 87 samples of infant formula made by American manufacturers, tested all but 10 of them and held a conference call Monday with manufacturers to alert them to the preliminary findings, FDA spokeswoman Judy Leon said. She said she did not know when the agency was planning to inform the public.... more

Government bailout hits $8.5 trillion

Government bailout hits $8.5 trillion

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The federal government committed an additional $800 billion to two new loan programs on Tuesday, bringing its cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion, according to Bloomberg News.

That sum represents almost 60 percent of the nation's estimated gross domestic product.

Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it's impossible to predict how much they will cost taxpayers. The final cost won't be known for many years.

The money has been committed to a wide array of programs, including loans and loan guarantees, asset purchases, equity investments in financial companies, tax breaks for banks, help for struggling homeowners and a currency stabilization fund.

Most of the money, about $5.5 trillion, comes from the Federal Reserve, which as an independent entity does not need congressional approval to lend money to banks or, in "unusual and exigent circumstances," to other financial institutions.

To stimulate lending, the Fed said on Tuesday it will purchase up to $600 billion in mortgage debt issued or backed by Fannie Mae, Freddie Mac and government housing agencies. It also will lend up to $200 billion to holders of securities backed by consumer and small-business loans. All but $20 billion of that $800 billion represents new commitments, a Fed spokeswoman said.

About $1.1 trillion of the $8.5 trillion is coming from the Treasury Department, including $700 billion approved by Congress in dramatic fashion under the Troubled Asset Relief Program.

The rest of the commitments are coming from the Federal Deposit Insurance Corp. and the Federal Housing Administration.

Only about $3.2 trillion of the $8.5 trillion has been tapped so far, according to Bloomberg. Some of it might never be.

Relatively little of the money represents direct outlays of cash with no strings attached, such as the $168 billion in stimulus checks mailed last spring.

Where it's going

Most of the money is going into loans or loan guarantees, asset purchases or stock investments on which the government could see some return.

"If the economy were to miraculously recover, the taxpayer could make money. That's not my best guess or even a likely scenario," but it's not inconceivable, says Anil Kashyap, a professor at the University of Chicago's Booth School of Business.

The risk/reward ratio for taxpayers varies greatly from program to program.

For example, the first deal the government made when it bailed out insurance giant AIG had little risk and a lot of potential upside for taxpayers, Kashyap said. "Then it turned out the situation (at AIG) was worse than realized, and the terms were so brutal (to AIG) that we had to renegotiate. Now we have given them a lot more credit on more generous terms."

Kashyap says the worst deal for taxpayers could be the Citigroup deal announced late Sunday. The government agreed to buy an additional $20 billion in preferred stock and absorb up to $249 billion in losses on troubled assets owned by Citi.

Given that Citigroup's entire market value on Friday was $20.5 billion, "instead of taking that $20 billion in preferred shares we could have bought the company," he says.

It's hard to say how much the overall rescue attempt will add to the annual deficit or the national debt because the government accounts for each program differently.

If the Treasury borrows money to finance a program, that money adds to the federal debt and must eventually be paid off, with interest, says Diane Lim Rogers, chief economist with the Concord Coalition, a nonpartisan group that aims to eliminate federal deficits.

The federal debt held by the public has risen to $6.4 trillion from $5.5 trillion at the end of August. (Total debt, including that owed to Social Security and other government agencies, stands at more than $10 trillion.)

However, a $1 billion increase in the federal debt does not necessarily increase the annual budget deficit by $1 billion because it is expected to be repaid over time, Rogers said.

Annual deficit

A deficit arises when the government's expenditures exceed its revenues in a particular year. Some estimate that the federal deficit will exceed $1 trillion this fiscal year as a result of the economic slowdown and efforts to revive it.

The Fed's activities to shore up the financial system do not show up directly on the federal budget, although they can have an impact. The Fed lends money from its own balance sheet or by essentially creating new money. It has been doing both this year.

The problem is, "if you print money all the time, the money becomes worth less," Rogers says. This usually leads to higher inflation and higher interest rates. The value of the dollar also falls because foreign investors become less willing to invest in the United States.

Today, interest rates are relatively low and the dollar has been mostly strengthening this year because U.S. Treasury securities "are still for the moment a very safe thing to be investing in because the financial market is so unstable," Rogers said. "Once we stabilize the stock market, people will not be so enamored of clutching onto Treasurys."

At that point, interest rates and inflation will rise. Increased borrowing by the Treasury will also put upward pressure on interest rates.

Deflation a big concern

Today, however, the Fed is more worried about deflation than inflation and is willing to flood the market with money if necessary to prevent an economic collapse.

Federal Reserve Chairman Ben Bernanke "has ordered the helicopters to get ready," said Axel Merk, president of Merk Investments. "The helicopters are hovering and the first cash is making it through the seams. Soon, a door may be opened."

Rogers says her biggest fear is not hyperinflation and the social unrest it could unleash. "I'm more worried about a lot of federal dollars being committed and not having much to show for it. My worst fear is we are leaving our children with a huge debt burden and not much left to pay it back."

Economic rescue

Key dates in the federal government's campaign to alleviate the economic crisis.

March 11: The Federal Reserve announces a rescue package to provide up to $200 billion in loans to banks and investment houses and let them put up risky mortgage-backed securities as collateral.

March 16: The Fed provides a $29 billion loan to JPMorgan Chase & Co. as part of its purchase of investment bank Bear Stearns.

July 30: President Bush signs a housing bill including $300 billion in new loan authority for the government to back cheaper mortgages for troubled homeowners.

Sept. 7: The Treasury takes over mortgage giants Fannie Mae and Freddie Mac, putting them into a conservatorship and pledging up to $200 billion to back their assets.

Sept. 16: The Fed injects $85 billion into the failing American International Group, one of the world's largest insurance companies.

Sept. 16: The Fed pumps $70 billion more into the nation's financial system to help ease credit stresses.

Sept. 19: The Treasury temporarily guarantees money market funds against losses up to $50 billion.

Oct. 3: President Bush signs the $700 billion economic bailout package. Treasury Secretary Henry Paulson says the money will be used to buy distressed mortgage-related securities from banks.

Oct. 6: The Fed increases a short-term loan program, saying it is boosting short-term lending to banks to $150 billion.

Oct. 7: The Fed says it will start buying unsecured short-term debt from companies, and says that up to $1.3 trillion of the debt may qualify for the program.

Oct. 8: The Fed agrees to lend AIG $37.8 billion more, bringing total to about $123 billion.

Oct. 14: The Treasury says it will use $250 billion of the $700 billion bailout to inject capital into the banks, with $125 billion provided to nine of the largest.

Oct. 14: The FDIC says it will temporarily guarantee up to a total of $1.4 trillion in loans between banks.

Oct. 21: The Fed says it will provide up to $540 billion in financing to provide liquidity for money market mutual funds.

Nov. 10: The Treasury and Fed replace the two loans provided to AIG with a $150 billion aid package that includes an infusion of $40 billion from the government's bailout fund.

Nov. 12: Paulson says the government will not buy distressed mortgage-related assets, but instead will concentrate on injecting capital into banks.

Nov. 17: Treasury says it has provided $33.6 billion in capital to another 21 banks. So far, the government has invested $158.6 billion in 30 banks.

Sunday: The Treasury says it will invest $20 billion in Citigroup Inc., on top of $25 billion provided Oct. 14. The Treasury, Fed and FDIC also pledge to backstop large losses Citigroup might absorb on $306 billion in real estate-related assets.

Tuesday: The Fed says it will purchase up to $600 billion more in mortgage-related assets and will lend up to $200 billion to the holders of securities backed by various types of consumer loans.

Unchecked US attacks may reach Peshawar, officials warn

Unchecked US attacks may reach Peshawar, officials warn

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US drone attacks may extend as deep as NWFP capital Peshawar if the political leadership does not work out a ‘bipartisan policy’ to tackle the 'extremely dangerous situation’, government and military officials have warned.

"[The US] can come to Hayatabad (in Peshawar) tomorrow to hit a target and will say they have intelligence that Gulbuddin Hekmatyar was hiding there," senior government and army officials told Daily Times in a series of interviews last week. The US has carried out more than two dozens airstrikes in the Tribal Areas this year, using unmanned spy planes mainly to target Al Qaeda. The warning follows a rare US attack outside the Tribal Areas targeting a suspected Al Qaeda hideout in Bannu on November 19.

"These attacks should end. They are not stopping Al Qaeda attacks, nor will they help Pakistan's campaign against this organisation," the officials speaking on condition of anonymity told Daily Times. They said the US should show how seriously the attacks affected Al Qaeda's ability to strike. "We need to know how much damage has been done to Al Qaeda’s ability to carry out attacks in future." Asked if Pakistan had given a 'tacit approval’ for the US to carry out the attacks, an army official said: "The army chief has not given any such permission. If Pervez Musharraf had done this I would have heard about or known it." iqbal khattak

America Out of Work

America Out of Work

By Marie Cocco

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There will be no freedom from want. The only thing we might now hope for is freedom from fear. Even that is a distant state of mind.

It is not just the wild fluctuations in the stock market, the water-cooler jokes about retirement accounts that are now 201(k)s. It is the incomprehensible dithering of our current president through his lame-duck period, his bizarre refusal to give approval to any economic package that aided anyone or anything that is not a big bank or a Wall Street financial institution.

This delay may well be the scariest development of these frightening times.

What are the reasons for President George W. Bush to have blocked the post-election congressional effort to make a down payment on an anti-recession program aimed at job-creation and sending money to the squeezed states, which must balance their budgets while struggling with ever-rising demand for basic services such as Medicaid and what remains of the program we used to call welfare? Bush has argued, at various times in the past few weeks, either that such a package isn't really necessary or that it might be possible if it were tied to a long-term trade deal with Colombia. The reasoning tortures the mind.

Besides inheriting an economic crisis of historic proportions, President-elect Barack Obama must make up for the squandered time. But at the earliest, it is likely to be at least February or March before the first dollar of an Obama recovery plan is felt.

This is a national disgrace.

Consider, for example, that one of the leading indicators of poverty -- a rise in the number of people eligible for food stamps -- climbed 10 percent between August 2007 and August 2008. According to the Center on Budget and Policy Priorities, which studies the impact of federal policy on the poor and working class, one in five children already receives food stamps, a rate that is comparable to the recessions of the early 1980s and the 1990s. Advocates for the poor are expecting that a record number of Americans will be receiving food stamps once new numbers are tallied over the coming weeks.

And we aren't deep into this recession yet. Economists believe that unemployment will climb to 8 percent or even 9 percent next year.

As it happens, right around the time we became politically enamored of de-regulating whole industries -- and so prepared the ground for the current economic morass -- we also became politically obsessed with shrinking the social safety net. It was too generous, the thinking went, and had to be made less so to encourage work and discourage dependency.

We are entering a recession the likes of which we haven't seen in about three decades or perhaps longer. Since the last time the economy fared so poorly, changes in the unemployment compensation system, coupled with a transformation of the labor force to include vastly more part-time and low-wage workers, have left a majority of workers unprotected by this basic benefit. "Unemployment benefits cover a smaller set of workers than they did in the late 1970s and early 1980s," says Sharon Parrott, director of welfare reform and income support research at the Center on Budget and Policy Priorities. Fewer than 40 percent of unemployed workers now are eligible for benefits.

And we haven't yet tested -- not on this scale anyway -- what really happens to the welfare-to-work system when there is no work.

Welfare revision was a signature cause of the 1990s, a centerpiece of President Bill Clinton's drive to remake the Democratic Party's image and a relentless demand of congressional Republicans determined to dry up what they considered wasteful social spending. Basic cash assistance to the poorest families has shrunk substantially since the 1970s and 1980s. In most states, adults who have no children and are not disabled are ineligible for any aid. Single mothers who may have lost their jobs now have time limits on the number of months they can receive public assistance. To cope, Parrott says, "they'll double up, they'll live with friends, they'll move from house to house, which is very bad for kids."

We have lavished hundreds of billions of taxpayer dollars on the financial masterminds whose collective genius has brought us these desperate times. Some of those taxes were paid by the now-unemployed workers who don't qualify for benefits. Having socialized the financial system, there is no excuse now for failing to repair the social safety net.