Monday, February 18, 2008

Two hedge funds operated by Citigroup face financial troubles

Two hedge funds operated by Citigroup face financial troubles

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New York: Citigroup Inc has barred investors in one of its hedge funds from withdrawing their money, and a new leveraged fund lost 52 per cent in its first three months, the Wall Street Journal reported on Friday.

The largest US bank suspended redemptions in CSO Partners, a fund specialising in corporate debt, after investors tried to pull more than 30 per cent of its roughly $500 million of assets, the newspaper said. Citigroup injected $100 million to stabilise the fund, which lost 10.9 per cent last year, the newspaper said.


The fund's manager, John Pickett, left following a dispute with Citigroup executives and complaints from investors after he tried to back out from committing more than half the fund's assets to buy leveraged loans tied to a German media company, the newspaper said. That matter was settled when CSO agreed to buy $746 million of the loans at face value, though they were trading at 86 per cent to 93 per cent of face value, it said.

Meanwhile, Falcon Plus Strategies, launched September 30, lost 52 per cent in the fourth quarter, after betting on mortgage-backed and preferred securities and making trades based on the relative values of municipal bonds and US Treasuries. Some collateralised debt obligations in the fund trade at 25 per cent of their original worth, the newspaper said.

Both funds are run in Citigroup's alternative investments unit. That unit was briefly headed last year by Vikram Pandit, who in December replaced Charles Prince as Citigroup's chief executive. Old Lane Partners, a hedge fund that Pandit founded and sold to Citigroup last year, has also had weak performance, falling 1.8 per cent in January, the newspaper said.

Since June, Citigroup has disclosed some $30 billion of writedowns and losses tied to subprime mortgages, complex debt and deteriorating credit. The problems contributed to a record $9.83 billion fourth-quarter loss.


Profit that quarter in the alternative investments unit fell 89 per cent to $61 million.

Citigroup was not immediately available for comment. A spokesman told the newspaper that CSO and similar hedge funds are subject to comprehensive risk oversight, and that Falcon Plus's returns suffered from volatile fixed-income markets.

Shares of Citigroup closed on Thursday at $25.74 on the New York Stock Exchange.

Can the U.S. Brace Its Fall?

Can the U.S. Brace Its Fall?

by Analysis by Jim Lobe

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WASHINGTON, Feb 17 (IPS) - "Is the American era over?" That was the big question that launched a lengthy analysis by veteran international affairs reporter James Kitfield in the influential ‘National Journal’ last May. Significantly, the article -- which featured interviews with an all-star cast of former top U.S. policy-makers -- was titled "The Decline Begins."

Nine months later, the notion that Washington has entered a "New American Century" -- a phrase used by the nationalist and neo-conservative unilateralists who championed the Iraq war -- in which the U.S. can do whatever it wants, where it wants, and when it wants, without consulting anyone else, seems largely to have gone the way of the dodo bird.

"We are in a multi-polar world," Defence Secretary Robert Gates told a Washington Post columnist recently in what has to be considered the ultimate heresy to pro-war hawks led by the likes of Vice President Dick Cheney and Gates’ predecessor, Donald Rumsfeld.

Indeed, last month’s image of President George W. Bush imploring King Abdullah of Saudi Arabia to increase oil production to boost the battered U.S. economy helped bring home the notion that the commander-in-chief’s word no longer serves as an imperial command.

"It’s affected our families. Paying more for gasoline hurts some of the American families," Bush told reporters just before his meeting with the king. After the meeting Saudi Arabia’s oil minister made clear that Riyadh would increase production only "when the market justifies it" and not before.

Almost as pathetic in their own way were the recent exhortations by Gates -- the steward of a military establishment that spends more money each year than the combined defence budgets of all of the world’s other nations -- for Washington’s NATO allies to contribute 7,000 more troops to help U.S. forces pacify Afghanistan six years after Rumsfeld and his neo-conservative advisers contemptuously spurned their offers of help.

That the response Gates received was not much more favourable than that delivered by Saudi Arabia’s oil minister to Bush’s entreaties spoke volumes not only about the way that his administration has both misunderstood and mishandled its "global war on terror", but, more ominously, about the weakness and fragility of the alliance which Washington led to victory against the Soviet Union in the Cold War.

The last time that policy circles buzzed about Washington’s "decline" came during the waning years of the Cold War, when Yale Professor Paul Kennedy published ‘The Rise and Fall of the Great Powers’. The study argued that the U.S. was falling into a familiar historical pattern where the combination of huge military budgets and ever-larger deficits led inevitably to the kind of "imperial overstretch" that transformed once-mighty empires into shadows of their former selves.

Kennedy’s theory, however, did not anticipate the sudden collapse of the Soviet Union, an earth-shaking event that, combined with Washington’s decisive victory in the first Gulf War, left the U.S. as the world’s undisputed "hyperpower". This status was celebrated by neo-conservatives like Washington Post columnist Charles Krauthammer who, at the time, coined the phrase, "The Unipolar Moment". The status was also reflected in the Pentagon’s draft 1992 Defence Planning Guidance (DPG), which, in turn, became the inspiration for the Project for the New American Century (PNAC) in 1997 and Bush’s first National Security Strategy (NSS) released six months before the Iraq invasion.

At the time, Kennedy himself suggested that Washington may have somehow escaped the laws of history, noting that the sheer size of the U.S. economy, its technological prowess, and military dominance were unprecedented. "I’ve gone back in history and never seen anything like it," he exclaimed at one seminar.

"People are now coming out of the closet on the word ‘empire’," exulted Krauthammer. "The fact is no country has been as dominant culturally, economically, technologically, and militarily in the history of the world since the Roman Empire."

What a difference five years and an invasion and bungled occupation of Iraq make! References to the Roman Empire at this point are more likely to refer to its decline than to its power -- an observation confirmed even by Donald Kagan, a dean of neo-conservatism and Kennedy’s colleague at Yale, whose sons, Robert and Frederick, have been champions of the Bush Doctrine and the Iraq War.

"I’ve argued that not since the Roman Empire has anyone had such extraordinary power as the United States after the Cold War," Kagan told Kitfield. "But all of the elements of our strength are now being challenged, and it’s perfectly possible that we are seeing a relative decline in U.S. power that will prove lasting."

Indeed, that possibility has been transformed into a probability, if not a certainty, by a growing number of policy analysts who see major structural shifts in the distribution of global power -- both "hard" and "soft" -- none of which are likely to lead to the maintenance, let alone the enhancement of Washington’s post-Cold War dominance.

Not only have both Iraq and Afghanistan shown the world the limits of U.S. military power, but they are also exacting an increasingly fearsome toll on Washington’s ability to wage war.

Despite gains in the security situation in Iraq over the past year, top Pentagon brass and independent experts are warning that the current pace of deployments is creating a "hollow force" both in terms of personnel and equipment. In an echo of Kennedy 20 years ago, "overstretched" is the adjective most frequently associated with the U.S. military.

Just as Kennedy had warned against the deadly long-term impact on empires of budgetary deficits, the Bush years have seen an explosion not just of government debt -- currently more than nine trillion dollars -- but also of trade and balance-of-payments deficits. Much of this is due to the high price of oil and gas imports -- which a growing number of experts now believe has become a permanent fixture of the international economy.

The results of the evolving global geo-economy include a much-weakened dollar and increased reliance by both the U.S. government and U.S. business on foreign creditors. Among these creditors are state-controlled agencies (or sovereign wealth funds) some of which -- notably those of China, Russia, and oil-exporting Gulf states -- are not enthralled, to say the least, with Krauthammer’s unipolar vision.

If, for commercial or political reasons, any of these creditors decided to dump their hundreds of billions of dollars of dollar-denominated assets -- or in the case of key energy exporters, for example, to price their commodities in a currency other than the dollar -- the economic impact would be "grave", according to Charles Freeman, retired U.S Ambassador to Saudi Arabia. Freeman’s point was echoed for the first time last week in the U.S. intelligence community’s annual review of the major global threats facing the nation.

The possibility that some combination of those creditors, whose own commercial ties have been growing at an accelerating rate, could decide to act in concert in order to constrain Washington’s freedom of action -- in Central Asia or Iran, for example -- is the emerging nightmare of U.S. policy- makers.

Some analysts, including the director of the Geopolitics of Energy Initiative of the New America Foundation (NAF), Flynt Leverett, profess to see the emergence of a potential counterweight to U.S. power -- one, significantly, that does not depend on the co-operation of Washington’s western allies.

"A ‘community’ of largely non-democratic manufacturing powers and energy exporters is already laying the groundwork for real strategic collaboration, aimed at limiting America’s ability to carry out [its] hegemonic agendas," Leverett, who served in the National Security Council under Bill Clinton and Bush, wrote recently in the ‘National Interest’ journal published by the Nixon Centre.

As a result, the degree to which Washington can slow its decline and preserve its primacy will depend increasingly on its willingness to suppress its unilateralist reflexes and "to take account of the perceptions and interests of others in its foreign-policy decision-making," according to Leverett.

The dirty little secret everyone in Washington knows.

The dirty little secret everyone in Washington knows


David Walker, comptroller general of the U.S., totaled up our government's income, liabilities and future obligations. He concluded the numbers don't add up. Steve Kroft reports for 60 Minutes.
(CBS) This segment was originally broadcast on March 4, 2007. It was updated on July 8, 2007.

RNC Donor Event Outlines Obama Attack Plan

RNC Donor Event Outlines Obama Attack Plan

By Jeffrey Ressner

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ocusing on Barack Obama’s “inexperience” and “undisciplined messaging” are two ways to ensure that the senator from Illinois doesn’t get to be president, according to honchos at the Republican National Committee. Big RNC contributors got an earful this weekend about methods the GOP will use to battle the Democrats for control of the White House this fall, as well as other initiatives central to the conservative cause.

The RNC’s “winter retreat” for major donors at Los Angeles’ Beverly Wilshire Hotel featured such party stalwarts as Karl Rove, RNC chairman Robert Duncan, former Texas Secretary of State Roger Williams, as well as some Hollywood types, including Dave Berg, a segment producer and “political director” for “The Tonight Show” with Jay Leno.

But chief among the RNC’s concerns were how to keep a tight grip on the White House this fall. Plenty of lowbrow Hillary Rodham Clinton jokes were tossed around at the three-day event, but of highest concern was the notion of Obama seizing the Oval Office in a contest against presumptive GOP nominee John McCain.

“We all dislike Hillary,” declared Southern California Rep. Ken Calvert, from the Inland Empire east of Los Angeles, echoing thoughts of the roughly 75 attendees at a Sunday morning RNC session.

“Forgetting who will be the easiest to beat, I’ve got to tell you, a President Hillary doesn’t scare me nearly as much as a President Obama.”

RNC Chairman Duncan as well as Co-Chairman Jo Ann Davidson opened the Sunday session with a Power Point presentation outlining five main strategic attacks against the Obama candidacy. A Politico reporter witnessed the document, but not the presentation.

The first called for pointing out what the GOP views as a seeming incongruity between Obama and the mantle of commander in chief. The second point harkened back to Obama’s days in the Illinois state Senate, noting how his “pattern of voting ‘present’ offers many openings to question his candidacy.” The third offered hope to the GOP faithful that “we can be confident in a campaign about issues.” A fourth bullet point relayed how “undisciplined messaging carries great risk,” while the fifth and final attack point stressed, “His greatest weakness is inexperience. He is not ready to be commander in chief. He is not ready to be president.”

The RNC event also broached taking control of traditionally Democratic issues such as health care, with even Rove stressing a need for Republicans to start addressing the matter. Congressman Calvert described health care as “one of the seminal issues” of the upcoming election and asked, “Are we going to move towards socialized medicine or away from it? Because we can’t move towards the middle.”

Calvert spoke during a morning session of California congressmen including Brian Bilbray, John Campbell and Dan Lungren, which focused mainly on immigration and lowering taxes, as well as more esoteric matters such as water rights. Throughout the event, the subject always seemed to return to this November.

“The American people are yearning for leadership,” said Lungren, who represents a Sacramento-area district. “We can win this election. We will win this election. Forget the carping about John McCain not being the perfect conservative. Ronald Reagan wasn’t a perfect conservative, but he was pretty doggone good. I’m not saying John McCain is Ronald Reagan: John McCain is John McCain. But we can win this election.”

For most of the weekend, however, the retreat gave the chance for donors who contributed $15,000 or more to bask in the 70-degree California sun, enjoy some golf or tennis at the L.A. Country Club, wolf down Wolfgang Puck pizzas at Spago, tour the Getty Center and Paramount Studios, and pay tribute at the Ronald Reagan Presidential Library a half-hour away in Simi Valley.

Berg, the “Tonight Show” segment producer, delivered an informal talk about the pride and pitfalls of being a conservative working in Hollywood. Peppering his speech with references to Michael Moore, Julia Louis-Dreyfus and other Tinseltown lefties, he argued against the liberal mindset that he believes dominates the industry.

“We [conservatives] believe capitalism isn’t a dirty word,” he said. “If you’ve seen Daniel Day Lewis’ portrayal of a greedy, sinister oilman in ‘There Will Be Blood,’ it’s just another example of the Hollywood left’s contempt for capitalism.

“People have called Hollywood conservatives ‘the new gays,’ but I don’t think that’s necessarily the case,” Berg contended. “The gays have been accepted in Hollywood for years. They’ve long been out of the closet. In fact, they’re fixing up the closet, decorating it, and it looks nice, actually.”

Berg centered his talk around the “unintended consequences” of the recent Writers Guild of America strike against networks and studios, which ended last week. Berg placed blame on the WGA’s “radical” negotiators, with writers earning six-figure salaries casting themselves as “poor, exploited, downtrodden” workers, “acting like it’s 1957″ and they were UAW members trying to get back on the assembly line building Corvettes.

“When the writers went on strike Nov. 5, they entrusted their futures to a leadership that essentially believes Karl Marx is still relevant,” he said. “This was a revolution against The Man.”

Berg discussed the return of “The Tonight Show” without its writers in early January, when the only guests consenting to cross the WGA picket lines were NBC News anchors, goofy animal acts and Republican presidential candidates, including McCain, Mike Huckabee, Mitt Romney and Ron Paul.

“The WGA cut a side deal with David Letterman but not with our show,” he recalled. “We had to go back to work as the No. 4 network with no writers and no stars. Actors would not cross the line. I didn’t read this anywhere, but they were threatened with blackballing if they crossed the line to do our shows” - ironic, he says, since he believes Hollywood is “obsessed” with the 1950s blacklisting era of Joseph McCarthy. “The true threat of McCarthyism,” he says, “is coming from the left.”

More than one-third of illegal settlements built on private Palestinian land: Report

More than one-third of illegal settlements built on private Palestinian land: Report

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ERUSALEM: More than one-third of Israel's 122 West Bank settlements were built on land confiscated from private Palestinian owners on security grounds, including some erected after the Israeli Supreme Court outlawed such seizures three decades ago, the Haaretz newspaper reported on Monday.

Israel's settlements, built on land captured in the 1967 Middle East war, have been a contentious enterprise throughout the decades, and a major source of friction with the Palestinians and the international community.

Setlement critics maintain that international law allows the seizure of occupied territory, but only for military needs. In 1979 Israel's Supreme Court banned the military's widespread practice of seizing privately owned West Bank land on security grounds, then turning it over to settlers.

The 44 settlements that Haaretz identified as being built on private Palestinian land are home to tens of thousands of Israelis. At least 19 were built after 1979, the newspaper said.

Haaretz said it based its report on an Israeli military database whose publication the Defense Ministry is fighting. The Israeli military was not immediately available for comment.

The data "prove that systematic land theft for the purpose of establishing settlements was carried out via a fictitious and completely illegal use of the term 'military necessity,'" Haaretz cited attorney Michael Sfard as saying. Sfard represents several Palestinians whose property has been taken over by settlers.

The Haaretz article confirmed a report last year by the anti-settlement watchdog group, Peace Now, that about one-third of the land on which settlements stand was seized from private Palestinian owners, much of it after the Supreme Court ban. That report was based on information leaked from the Civil Administration, the Israeli military department responsible for administering civil affairs in the West Bank.

Both reports challenge the government's claims that it stopped the land seizures after the ban was enacted.

The Defense Ministry has refused to publish its data on settlements, but Peace Now and other organizations have gone to court to have it released under freedom of information laws. A month ago, the Defense Ministry told the court that releasing the information might "damage the state's security and foreign relations."

An Israeli government official familiar with the case said at the time that Israel doesn't want the international community to know the true extent of the country's West Bank settlement activity. "Israel won't release the list because it doesn't want to be embarrassed diplomatically," he said.

Israel declared an official freeze on new settlement construction as part of peace agreements with the Palestinians in the early 1990s but reserved the right to expand existing communities in line with population growth. It also has taken little action on its oft-repeated pledge to dismantle about two dozen of the more than 100 settlement outposts that have sprung up across the West Bank since the 1990s with tacit government approval, but no official authorization.

Some 270,000 Jewish settlers live in the West Bank.

The Trials of Henry Kissinger: The Making Of A War Criminal

The Trials of Henry Kissinger

The Making Of A War Criminal


"A fascinating, bombshell documentary that should shame Americans, regardless of whether or not ultimate blame finally lies with Kissinger. Should be required viewing for civics classes and would-be public servants alike." -- Brent Simon, Entertainment Today.

Secret Iraq Dossier Published

Secret Iraq Dossier Published

The government has been forced to publish the secret first draft of the Iraq WMD dossier written by a Foreign Office spin doctor

By Chris Ames

Read the draft here

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The secret first draft of the Iraq WMD dossier written by Foreign Office spin doctor John Williams has finally been published after a ruling back in January under the Freedom of Information Act.

The document contains an early version of the executive summary of the next draft, which was attributed to Intelligence chief John Scarlett. The document places a spin doctor at the heart of the process of drafting the dossier and blows a hole in the government's evidence to the Hutton Inquiry.

Last month the Foreign Office was ordered by the Information Tribunal to hand over the Williams draft, which I first requested under the Freedom of Information Act in February 2005.

From the time that the row first erupted over Andrew Gilligan's allegations that the dossier had been sexed-up, the government has claimed that Scarlett's draft, produced on 10 September 2002, was the first full draft and produced without interference from spin doctors. But the Williams draft, dated a day earlier, shows that spin doctors were sexing up the dossier at the time the notorious 45 minutes claim was included.

Initially the government withheld the draft from the Hutton Inquiry. Alastair Campbell, Tony Blair's director of communications, denied its existence. But when Scarlett admitted that Williams had done some early drafting, the BBC asked to see it.

The government then supplied a copy of the draft to Lord Hutton but told him that it was "not taken forward" because a "fresh start" was made with Scarlett's draft. Confirmation that Scarlett took up elements of Williams's drafting shows that the government misled Hutton.

Williams did not include the 45 minutes claim in his draft but it is now clear that he did not have access to the intelligence on the claim at the time. However, it has recently been confirmed that Williams attended the meeting that produced Scarlett's draft.

At this meeting, he and other spin doctors saw the intelligence assessment that contained the claim. Scarlett's draft then included it for the first time. When he sent his draft to Campbell, Scarlett wrote of "considerable help from John Williams".

The draft also shows that Williams was responsible for a number of key changes that strengthened the dossier's claims. His executive summary claimed that Iraq had "acquired" uranium. Previous versions only alleged the material had been "sought".

Scarlett's draft also alleged that Iraq had got hold of uranium, stating that it had "purchased" it.

Williams appears largely to have been working on a version of the dossier that was produced during the summer of 2002, before Tony Blair announced in September of that year that a dossier would be published.

He appears not to have made substantial changes to the body text of the document's section on Iraq's "weapons of mass destruction" (WMD) but it is clear that he was aware that this section was being rewritten. In fact, the WMD section contains a comment: "I don't propose to rewrite this until I take delivery of the new version." This shows that Williams intended to continue to rewrite the dossier.

Subsequent versions of the dossier show that the executive summary expressed its claims about Iraq's WMD more strongly than the main text. In many cases, including the 45 minutes claim, the main text was then brought into line with the executive summary.

The involvement of spin doctors in drafting the summary process suggests that they led the sexing up of the dossier.

Read the draft here

The Dumbing Of America

The Dumbing Of America

Call Me a Snob, but Really, We're a Nation of Dunces

By Susan Jacoby

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"The mind of this country, taught to aim at low objects, eats upon itself." Ralph Waldo Emerson offered that observation in 1837, but his words echo with painful prescience in today's very different United States. Americans are in serious intellectual trouble -- in danger of losing our hard-won cultural capital to a virulent mixture of anti-intellectualism, anti-rationalism and low expectations.

This is the last subject that any candidate would dare raise on the long and winding road to the White House. It is almost impossible to talk about the manner in which public ignorance contributes to grave national problems without being labeled an "elitist," one of the most powerful pejoratives that can be applied to anyone aspiring to high office. Instead, our politicians repeatedly assure Americans that they are just "folks," a patronizing term that you will search for in vain in important presidential speeches before 1980. (Just imagine: "We here highly resolve that these dead shall not have died in vain . . . and that government of the folks, by the folks, for the folks, shall not perish from the earth.") Such exaltations of ordinariness are among the distinguishing traits of anti-intellectualism in any era.

The classic work on this subject by Columbia University historian Richard Hofstadter, "Anti-Intellectualism in American Life," was published in early 1963, between the anti-communist crusades of the McCarthy era and the social convulsions of the late 1960s. Hofstadter saw American anti-intellectualism as a basically cyclical phenomenon that often manifested itself as the dark side of the country's democratic impulses in religion and education. But today's brand of anti-intellectualism is less a cycle than a flood. If Hofstadter (who died of leukemia in 1970 at age 54) had lived long enough to write a modern-day sequel, he would have found that our era of 24/7 infotainment has outstripped his most apocalyptic predictions about the future of American culture.

Dumbness, to paraphrase the late senator Daniel Patrick Moynihan, has been steadily defined downward for several decades, by a combination of heretofore irresistible forces. These include the triumph of video culture over print culture (and by video, I mean every form of digital media, as well as older electronic ones); a disjunction between Americans' rising level of formal education and their shaky grasp of basic geography, science and history; and the fusion of anti-rationalism with anti-intellectualism.

First and foremost among the vectors of the new anti-intellectualism is video. The decline of book, newspaper and magazine reading is by now an old story. The drop-off is most pronounced among the young, but it continues to accelerate and afflict Americans of all ages and education levels.

Reading has declined not only among the poorly educated, according to a report last year by the National Endowment for the Arts. In 1982, 82 percent of college graduates read novels or poems for pleasure; two decades later, only 67 percent did. And more than 40 percent of Americans under 44 did not read a single book -- fiction or nonfiction -- over the course of a year. The proportion of 17-year-olds who read nothing (unless required to do so for school) more than doubled between 1984 and 2004. This time period, of course, encompasses the rise of personal computers, Web surfing and video games.

Does all this matter? Technophiles pooh-pooh jeremiads about the end of print culture as the navel-gazing of (what else?) elitists. In his book "Everything Bad Is Good for You: How Today's Popular Culture Is Actually Making Us Smarter," the science writer Steven Johnson assures us that we have nothing to worry about. Sure, parents may see their "vibrant and active children gazing silently, mouths agape, at the screen." But these zombie-like characteristics "are not signs of mental atrophy. They're signs of focus." Balderdash. The real question is what toddlers are screening out, not what they are focusing on, while they sit mesmerized by videos they have seen dozens of times.

Despite an aggressive marketing campaign aimed at encouraging babies as young as 6 months to watch videos, there is no evidence that focusing on a screen is anything but bad for infants and toddlers. In a study released last August, University of Washington researchers found that babies between 8 and 16 months recognized an average of six to eight fewer words for every hour spent watching videos.

I cannot prove that reading for hours in a treehouse (which is what I was doing when I was 13) creates more informed citizens than hammering away at a Microsoft Xbox or obsessing about Facebook profiles. But the inability to concentrate for long periods of time -- as distinct from brief reading hits for information on the Web -- seems to me intimately related to the inability of the public to remember even recent news events. It is not surprising, for example, that less has been heard from the presidential candidates about the Iraq war in the later stages of the primary campaign than in the earlier ones, simply because there have been fewer video reports of violence in Iraq. Candidates, like voters, emphasize the latest news, not necessarily the most important news.

No wonder negative political ads work. "With text, it is even easy to keep track of differing levels of authority behind different pieces of information," the cultural critic Caleb Crain noted recently in the New Yorker. "A comparison of two video reports, on the other hand, is cumbersome. Forced to choose between conflicting stories on television, the viewer falls back on hunches, or on what he believed before he started watching."

As video consumers become progressively more impatient with the process of acquiring information through written language, all politicians find themselves under great pressure to deliver their messages as quickly as possible -- and quickness today is much quicker than it used to be. Harvard University's Kiku Adatto found that between 1968 and 1988, the average sound bite on the news for a presidential candidate -- featuring the candidate's own voice -- dropped from 42.3 seconds to 9.8 seconds. By 2000, according to another Harvard study, the daily candidate bite was down to just 7.8 seconds.

The shrinking public attention span fostered by video is closely tied to the second important anti-intellectual force in American culture: the erosion of general knowledge.

People accustomed to hearing their president explain complicated policy choices by snapping "I'm the decider" may find it almost impossible to imagine the pains that Franklin D. Roosevelt took, in the grim months after Pearl Harbor, to explain why U.S. armed forces were suffering one defeat after another in the Pacific. In February 1942, Roosevelt urged Americans to spread out a map during his radio "fireside chat" so that they might better understand the geography of battle. In stores throughout the country, maps sold out; about 80 percent of American adults tuned in to hear the president. FDR had told his speechwriters that he was certain that if Americans understood the immensity of the distances over which supplies had to travel to the armed forces, "they can take any kind of bad news right on the chin."

This is a portrait not only of a different presidency and president but also of a different country and citizenry, one that lacked access to satellite-enhanced Google maps but was far more receptive to learning and complexity than today's public. According to a 2006 survey by National Geographic-Roper, nearly half of Americans between ages 18 and 24 do not think it necessary to know the location of other countries in which important news is being made. More than a third consider it "not at all important" to know a foreign language, and only 14 percent consider it "very important."

That leads us to the third and final factor behind the new American dumbness: not lack of knowledge per se but arrogance about that lack of knowledge. The problem is not just the things we do not know (consider the one in five American adults who, according to the National Science Foundation, thinks the sun revolves around the Earth); it's the alarming number of Americans who have smugly concluded that they do not need to know such things in the first place. Call this anti-rationalism -- a syndrome that is particularly dangerous to our public institutions and discourse. Not knowing a foreign language or the location of an important country is a manifestation of ignorance; denying that such knowledge matters is pure anti-rationalism. The toxic brew of anti-rationalism and ignorance hurts discussions of U.S. public policy on topics from health care to taxation.

There is no quick cure for this epidemic of arrogant anti-rationalism and anti-intellectualism; rote efforts to raise standardized test scores by stuffing students with specific answers to specific questions on specific tests will not do the job. Moreover, the people who exemplify the problem are usually oblivious to it. ("Hardly anyone believes himself to be against thought and culture," Hofstadter noted.) It is past time for a serious national discussion about whether, as a nation, we truly value intellect and rationality. If this indeed turns out to be a "change election," the low level of discourse in a country with a mind taught to aim at low objects ought to be the first item on the change agenda.

Susan Jacoby's latest book is "The Age of American Unreason."

USDA orders largest ever beef recall

USDA orders largest ever beef recall

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An undercover video showing crippled and sick animals being shoved with forklifts has led to the largest beef recall in the United States and a scramble to find out if any of the meat is still destined for school children's lunches.

The U.S. Department of Agriculture on Sunday ordered the recall of 143 million pounds of beef from a Southern California slaughterhouse that is the subject of an animal-abuse investigation.

The recall will affect beef products dating to Feb. 1, 2006, that came from Chino-based Westland/Hallmark Meat Co., the federal agency said. The company provided meat to various federal programs.

Secretary of Agriculture Ed Schafer said his department has evidence that Westland did not routinely contact its veterinarian when cattle became non-ambulatory after passing inspection, violating health regulations.

"Because the cattle did not receive complete and proper inspection, Food Safety and Inspection Service has determined them to be unfit for human food and the company is conducting a recall," Schafer said in a statement.

A phone message left for Westland president Steve Mendell was not returned Sunday.

Agriculture officials said the massive recall surpasses a 1999 ban of 35 million pounds of ready-to-eat meats. No illnesses have been linked to the newly recalled meat, and officials said the health threat was likely small.

Officials estimate that about 37 million pounds of the recalled beef went to school programs, but they believe most of the meat probably has already been eaten.

"We don't know how much product is out there right now. We don't think there is a health hazard, but we do have to take this action," said Dr. Dick Raymond, USDA Undersecretary for Food Safety.

Federal officials suspended operations at Westland/Hallmark after an undercover video from the Humane Society of the United States surfaced showing crippled and sick animals being shoved with forklifts.

Two former employees were charged Friday. Five felony counts of animal cruelty and three misdemeanors were filed against a pen manager. Three misdemeanor counts — illegal movement of a non-ambulatory animal — were filed against an employee who worked under that manager. Both were fired.

Authorities said the video showed workers kicking, shocking and otherwise abusing "downer" animals that were apparently too sick or injured to walk into the slaughterhouse. Some animals had water forced down their throats, San Bernardino County prosecutor Michael Ramos said.

No charges have been filed against Westland, but an investigation by federal authorities continues.

About 150 school districts around the nation have stopped using ground beef from Hallmark Meat Packing Co., which is associated with Westland. Two fast-food chains, Jack-In-the-Box and In-N-Out, said they would not use beef from Westland/Hallmark.

Most of the beef was sent to distribution centers in bulk packages. The USDA said it will work with distributors to determine how much meat remains.

Federal regulations call for keeping downed cattle out of the food supply because they may pose a higher risk of contamination from E. coli, salmonella or mad cow disease since they typically wallow in feces and their immune systems are often weak.

Upon learning about the recall, some legislators criticized the USDA, saying the federal agency should conduct more thorough inspections to ensure tainted beef doesn't get to the public.

"Today marks the largest beef recall in U.S. history, and it involves the national school lunch program and other federal food and nutrition programs," said U.S. Sen. Tom Harkin, chairman of the Chairman of the Senate Committee on Agriculture, Nutrition and Forestry. "This begs the question: How much longer will we continue to test our luck with weak enforcement of federal food safety regulations?"

Advocacy groups also weighed in, noting the problems at Westland wouldn't have been revealed had it not been for animal right activists.

"On the one hand, I'm glad that the recall is taking place. On the other, it's somewhat disturbing, given that obviously much of this food has already been eaten," said Jean Halloran, director of food policy initiatives at Consumers Union. "It's really closing the barn door after the cows left."

What Do We Stand For?

What Do We Stand For?

By Paul Craig Roberts

Go To Original

Americans traditionally thought of their country as a "city upon a hill," a "light unto the world." Today only the deluded think that. Polls show that the rest of the world regards the U.S. and Israel as the two greatest threats to peace.

This is not surprising. In the words of Arthur Silber:

"The Bush administration has announced to the world, and to all Americans, that this is what the United States now stands for: a vicious determination to dominate the world, criminal, genocidal wars of aggression, torture, and an increasingly brutal and brutalizing authoritarian state at home. That is what we stand for."

Addressing his fellow Americans, Silber asks the paramount question: "why do you support" these horrors?

His question goes to the heart of the matter. Do we Americans have any honor, any humanity, any integrity, any awareness of the crimes our government is committing in our name? Do we have a moral conscience?

How can a moral conscience be reconciled with our continuing to tolerate our government which has invaded two countries on the basis of lies and deception, destroyed their civilian infrastructures and murdered hundreds of thousands of men, women, and children?

The killing and occupation continue even though we now know that the invasions were based on lies and fabricated "evidence." The entire world knows this. Yet Americans continue to act as if the gratuitous invasions, the gratuitous killing, and the gratuitous destruction are justified. There is no end of it in sight.

If Americans have any honor, how can they betray their Founding Fathers, who gave them liberty, by tolerating a government that claims immunity to law and the Constitution and is erecting a police state in their midst?

Answers to these questions vary. Some reply that a fearful and deceived American public seeks safety from terrorists in government power.

Others answer that a majority of Americans finally understand the evil that Bush has set loose and tried to stop him by voting out the Republicans in November 2006 and putting the Democrats in control of Congress – all to no effect – and are now demoralized as neither party gives a hoot for public opinion or has a moral conscience.

The people ask over and over, "What can we do?"

Very little when the institutions put in place to protect the people from tyranny fail. In the U.S., the institutions have failed across the board.

The freedom and independence of the watchdog press was destroyed by the media concentration that was permitted by the Clinton administration and Congress. Americans who rely on traditional print and TV media simply have no idea what is afoot.

Political competition failed when the opposition party became a "me-too" party. The Democrats even confirmed as attorney general Michael Mukasey, an authoritarian who refuses to condemn torture and whose rulings as a federal judge undermined habeas corpus. Such a person is now the highest law enforcement officer in the United States.

The judicial system failed when federal judges ruled that "state secrets" and "national security" are more important than government accountability and the rule of law.

The separation of powers failed when Congress acquiesced to the executive branch's claims of primary power and independence from statutory law and the Constitution.

It failed again when the Democrats refused to impeach Bush and Cheney, the two greatest criminals in American political history.

Without the impeachment of Bush and Cheney, America can never recover. The precedents for unaccountable government established by the Bush administration are too great, their damage too lasting. Without impeachment, America will continue to sink into dictatorship in which criticism of the government and appeals to the Constitution are criminalized. We are closer to executive rule than many people know.

Silber reminds us that America once had leaders, such as Speaker of the House Thomas B. Reed and Sen. Robert M. LaFollette Sr., who valued the principles upon which America was based more than they valued their political careers. Perhaps Ron Paul and Dennis Kucinich are of this ilk, but America has fallen so low that people who stand on principle today are marginalized. They cannot become speaker of the House or a leader in the Senate.

Today Congress is almost as superfluous as the Roman Senate under the caesars. On Feb. 13 the U.S. Senate barely passed a bill banning torture, and the White House promptly announced that President Bush would veto it. Torture is now the American way. The U.S. Senate was only able to muster 51 votes against torture, an indication that almost a majority of U.S. senators support torture.

Bush says that his administration does not torture. So why veto a bill prohibiting torture? Bush seems proud to present America to the world as a torturer.

After years of lying to Americans and the rest of the world that Guantanamo prison contained 774 of "the world's most dangerous terrorists," the Bush regime is bringing six of its victims to trial. The vast majority of the 774 detainees have been quietly released. The U.S. government stole years of life from hundreds of ordinary people who had the misfortune to be in the wrong place at the wrong time and were captured by warlords and sold to the stupid Americans as "terrorists." Needing terrorists to keep the farce going, the U.S. government dropped leaflets in Afghanistan offering $25,000 a head for "terrorists." Kidnappings ensued until the U.S. government had purchased enough "terrorists" to validate the "terrorist threat."

The six that the U.S. is bringing to "trial" include two child soldiers for the Taliban and a car-pool driver who allegedly drove bin Laden.

The Taliban did not attack the U.S. The child soldiers were fighting in an Afghan civil war. The U.S. attacked the Taliban. How does that make Taliban soldiers terrorists who should be locked up and abused in Gitmo and brought before a kangaroo military tribunal? If a terrorist hires a driver or a taxi, does that make the driver a terrorist? What about the pilots of the airliners who brought the alleged 9/11 terrorists to the U.S.? Are they guilty, too?

The Gitmo trials are show trials. Their only purpose is to create the precedent that the executive branch can ignore the U.S. court system and try people in the same manner that innocent people were tried in Stalinist Russia and Gestapo Germany. If the Bush regime had any real evidence against the Gitmo detainees, it would have no need for its kangaroo military tribunal.

If any more proof is needed that Bush has no case against any of the Gitmo detainees, the following AP report, Feb. 14, 2008, should suffice: "The Bush administration asked the Supreme Court on Thursday to limit judges' authority to scrutinize evidence against detainees at Guantanamo Bay."

The reason Bush doesn't want judges to see the evidence is that there is no evidence except a few confessions obtained by torture. In the American system of justice, confession obtained by torture is self-incrimination and is impermissible evidence under the U.S. Constitution.

Andy Worthington's book, The Guantanamo Files, and his online articles make it perfectly clear that the "dangerous terrorists" claim of the Bush administration is just another hoax perpetrated on the inattentive American public.

Recently the nonpartisan Center for Public Integrity issued a report that documents the fact that Bush administration officials made 935 false statements about Iraq to the American people in order to deceive them into going along with Bush's invasion. In recent testimony before Congress, Bush's secretary of state and former national security adviser, Condi Rice, was asked by Rep. Robert Wexler about the 56 false statements she made.

Rice replied: "[I] take my integrity very seriously, and I did not at any time make a statement that I knew to be false." Rice blamed "the intelligence assessments" which "were wrong."

Another Rice lie, like those mushroom clouds that were going to go up over American cities if we didn't invade Iraq. The weapon inspectors told the Bush administration that there were no weapons of mass destruction in Iraq, as Scott Ritter has reminded us over and over. Every knowledgeable person in the country knew there were no weapons. As the leaked Downing Street memo confirms, the head of British intelligence told the UK cabinet that the Bush administration had already decided to invade Iraq and was making up the intelligence to justify the invasion.

But let's assume that Rice was fooled by faulty intelligence. If she had any integrity she would have resigned. In the days when American government officials had integrity, they would have resigned in shame from such a disastrous war and terrible destruction based on their mistake. But Condi Rice, like all the Bush (and Clinton) operatives, is too full of American self-righteousness and ambition to have any remorse about her mistake. Condi can still look herself in the mirror despite one million Iraqis dying from her mistake and several million more being homeless refugees, just as Clinton's secretary of state, Madeleine Albright, can still look herself in the mirror despite sharing responsibility for 500,000 dead Iraqi children.

There is no one in the Bush administration with enough integrity to resign. It is a government devoid of truth, morality, decency, and honor. The Bush administration is a blight upon America and upon the world.

Paul Craig Roberts was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand.

From Foreclosure Signs to Auto Repo Lots

From Foreclosure Signs to Auto Repo Lots

Easy Credit Gives Way to High Consumer Debt and Defaults

By David Cho and Nancy Trejos

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 Reina Bolanos got a loan for her used Honda Odyssey in 2006 on what appeared to be favorable terms: $16,000 without a down payment. Though the 8 percent rate was high, Bank of America offered to spread the loan over six years to keep the monthly payments down.

But the secretary from Silver Spring found that raising her young children cost more than she had expected, and she now worries about losing the car after missing her last two payments.

A growing number of Americans are buckling under the weight of debt as the troubles that started among homeowners with subprime mortgages last year spread to other consumers who rely on credit. Auto loan borrowers are having an especially hard time. The number of people more than 60 days late on their car payments has spiked to a 10-year high, according to Fitch Ratings.

Similar problems are brewing for credit card holders. Card balances written off as uncollectible by banks have jumped 24 percent, and late payments are up 16 percent from a year ago.

Like the mortgage market, consumer credit boomed in recent years as lending standards loosened. Unorthodox auto loans lured consumers to buy cars they otherwise couldn't afford. Credit cards teased holders with introductory rates that soared after a few months. Now, more people are struggling to keep up with their bills under the strain of growing job losses and an economic downturn.

Bolanos, 27, has been using her credit card to pay utility bills and buy groceries, even though the card is nearly maxed out. She's racked up $5,000 in credit card debt. With monthly car payments of $400, $1,335 in rent for her two-bedroom apartment and sizable day-care bills, she's overwhelmed. She and her husband, a construction worker, earn a combined $50,000.

"It's just so stressful," Bolanos said. "To be young and to have a family going through this, it's hard."

Consumers borrow more money today than at any point in history, and they are increasingly using credit to pay for nearly everything, from cars to groceries to electricity. Consumer debt reached an all-time high of $2.55 trillion in December, nearly double from a decade ago, according to the Federal Reserve. Some economists say Americans are simply paying the price of their addiction to debt and are now more vulnerable than ever to credit downturns.

Behind the rising defaults is a tale of two Americas. Those with good credit will almost certainly see lower rates on cars and credit cards as the Fed continues to cut rates this year. But those with bad credit are facing rising rates and being forced to put more money down on cars. Some may not be able to get a credit card or auto loan as banks, spooked by the mortgage mess, have been reassessing the risk of making loans.

"It's going to be much more difficult for those people who are already in credit distress than it is for those of us who are fortunate and have full-time jobs," said Tony Cherin, a finance professor at San Diego State University.

But others worry that even those with good credit will share in the pain. The financial woes that started among homeowners with questionable credit histories -- the "subprime" borrower -- have sparked a downturn in the housing market.

"It's not only people who are stuck with the subprime mortgages. It's your average American," said Todd Cook, president of, which refers financially stressed people to firms that can help them. "It started with mortgages, but it's spilling over. If it's not their homes, it's their credit cards. If it's not their credit cards, it's their autos."

Car loan holders are not only missing their payments. They're increasingly losing their vehicles. The number of repossessions soared last year by 10 percent and is expected to rise by the same amount this year, said Thomas Webb, chief economist for Manheim, a global car auction firm.

Repo lots are getting full, he said, adding that the troubles mean "banks will be looking for more money down, which means most consumers will probably have to buy a lower-priced vehicle."

That would have consequences for the auto industry. Lehman BrothersGeneral Motors, Ford and Chrysler will feel the worst of the downturn because customers with questionable credit account for a higher percentage of their sales than those of European and Asian brands. said in December that it expected U.S. auto sales to drop this year because many consumers will find it tougher to get auto loans. The bank said in its report that

People who opted for nontraditional auto loans to get into more expensive cars are having the most trouble keeping up with their payments. A decade ago, it was rare for loans to last longer than five years; now, it is common for them to go for seven or eight years. While these products lower monthly payments, they also dramatically increase the amount of interest a borrower pays and raise the chance they will default.

Delinquencies among borrowers with poor credit, who favor this loan type, exceeded 4 percent last month -- the first time since 1997. For borrowers with good credit, who tend to use traditional loans, the rate hit 0.8 percent, also the highest in a decade.

Credit card companies are also seeing a rise in delinquencies, and while they are not near historically high levels, they are following a bad trend, industry analysts said.

Leana Divine, 28, said she has about $36,000 in debt on five credit cards. She makes $47,250 a year as an associate manager of programs at the U.S. Chamber of Commerce. She pays about $600 a month in student loans, which went toward a master's degree in international affairs from George Washington University, a degree she now wishes she had not gotten.

"I don't make enough money to pay for my debt," said Divine, who lives in the District. "I end up using credit cards to get by, and it's gotten out of control."

She has tried to cut her spending so that she can make more than the minimum monthly payment on her credit card debt. She does not go to fancy restaurants. She doesn't shop for clothing. She even decided to share a bedroom with a friend to cut down on her rent, which is now $360 a month. When she runs out of cash, she uses credit to pay for groceries, her cellphone, or emergencies.

"I had to pay my gas bill this week," she said. "I had no money to pay for it, and I had to put it on a credit card."

According to Moody's latest report, cardholders are paying back less of their debt. In November, they paid back, on average, 17.9 percent of their credit card debts -- about 3 percent lower than the previous November rate of 18.5 percent.

The report also revealed that the number of people more than 30 days late on their credit card payments in November rose from 3.89 percent a year ago, to 4.28 percent, the highest it's been since March 2005. It was the fifth consecutive month-to-month increase.

Part of the reason so many people are struggling with credit card debt now is that they can no longer tap home equity loans.

Now that housing prices have dropped, homeowners are also less able to extract cash from their properties. Homeowners cashed out only $38 billion from refinances in the last quarter of 2007, the lowest in more than three years and nearly half as much as in the same period in 2006.

"People can't use their home as a piggybank," said Travis B. Plunkett, legislative director for the Consumer Federation of America. "They can't rely on home equity with regard to spending, so they're increasing credit card spending because it's the last place they can go if they want to have access to credit."

Industry analysts said they are also noticing another trend: Banks are starting to get pickier about who they extend credit to and how much they give them. And if existing customers miss a payment or are delinquent, banks are jacking up rates, assessing fees or decreasing credit limits.

Credit card issuers that target subprime borrowers are pulling back the most, said Andrew Davidson, vice president of competitive tracking services for Synovate's financial services group. Among them are Washington Mutual and Discover, both of which have reported drops in earnings. That has made it difficult for these cardholders to transfer their balances to cards with lower rates.

"Today's consumer is charging his groceries. He's charging his medicine. He's charging his gasoline so he can get to work," said Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling. "Now he's maxed out. He's not a candidate to open up new lines of credit. He says, 'Oh my gosh, what am I going to do? I'll file for bankruptcy.' "

The Fall of the Dollar Empire

The Fall of the Dollar Empire

By Hamid Varzi

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An interview with Hamid Varzi by Monavar Khalaj

The following is an interview with Hamid Varzi an economist and banker based in Tehran about the US economic crisis.

Q.Please tell us more about the 2007 subprime mortgage financial crisis and why, how and when it began?

A.The crisis began in 2000 with Bush Jr.'s election that re-established the irresponsible "Supply Side" and "trickle-down" economic policies of the Reagan years. We are wrong to focus only on the subprime crisis, which has been conveniently blown out of all proportion in order to create the convenient and comforting impression that this is a manageable problem solvable through a simple reduction in interest rates and a 90-day government mandated delay on foreclosures (Hillary's recommendation).

The subprime crisis presages far greater problems down the road. It is already spreading to other forms of commercial paper, and even if the damage can be contained the relief will be only temporary because a much larger danger is looming on the horizon: The US economy has grown largely on the back of speculative credit derivatives that have risen exponentially to $ 35 trillion, which is more than double the size of the entire US economy! This is an approaching iceberg, and all you've seen (in the sub-prime scandal) is the tip. To return to your question, the first chart below proves that speculative commercial lending received a major boost with Bush's election, and soared with his re-election.

Credit derivative volumes continue to soar. The notional principal outstanding of credit default swaps (CDSs) grew 33% in the second half of 2006, rising from $26 trillion to $34.5 trillion, following 52% growth during the first half of 2006, according to industry body International Swaps and Derivatives Association (ISDA). (Global Finance, June 2007). The ECB confirms the HI 2006 figure of $ 26 trillion. As you will observe, actual growth has far exceeded even the rapid growth foreseen by the British Bankers' Association Credit Derivatives Report 2006 in which ambitious growth targets for 2008, forecasted below, have already been met. The bulk has been 'created' in and by the United States, and only a small portion of this speculative debt relates to subprime mortgage lending:

The Myth of Reaganomics and the Gratuitous Demonization of Clintonomics

The real root cause of the subprime crisis began with Ronald Reagan. Wall Street 'wisdom' hails Ronald Reagan as the last great saviour of US Capitalism. However, supporters of Ronald Reagan seem unable to explain the unprecedented exponential growth of stocks, during Clinton's presidency, on the back of equally unprecedented (= exploding) budget surpluses, a major decline in the Federal Debt and a major strengthening of the Dollar.

Bush raised fiscal irresponsibility to new highs. The charts below explain why the subprime crisis did NOT occur on Clinton's watch:

During Clinton's 8 years he turned a $ 135 billion Bush Sr. deficit into a $ 526 billion budget surplus, he significantly reduced the National Debt and simultaneously presided over a mind-boggling 240 % rise in the stock market. The perspective of strong fiscal discipline encouraged foreigners to invest in the US and the Dollar rose over 20 % as a result of a combination of the above 3 factors.

The US economy projected strength. Now the Dollar is tanking as a natural reaction to policies that totally reversed Clinton's fiscal and monetary discipline.

America's fate is at the mercy of foreign investors (China, India, Russia and many others with around 10 % annual GDP growth) which are getting stronger by the day and represent the economies of the future.

Q.What was the role of investment banks and mortgage lenders in creating the crisis? Do you think any fraud had happened?

A. No, as far as the investment banks were concerned there was no fraud, just plain greed, ignorance, irresponsibility and stupidity. Even, the SocGen $ 7.2 billion scandal was simply due to the ambitions of one young man trying to make a name for himself by speculating with his Bank's money. Investment bankers tend to be 'cowboys' and 'gamblers' salivating at the prospect of gigantic bonuses when they succeed, and many of whom simply move on to the next bank when they fail (Nick Leeson of Barings Bank was an exception, but only because he actually bankrupted the bank! But I don't believe M. Kerviel has even been charged; he was arrested and then released!).

As for the US mortgage lenders, their 'irresponsibility' bordered on 'fraud', because they lent money to people who obviously couldn't pay, simply in order to earn higher commissions/fees. If you place a knife in the hand of a 2-year old child and it cuts itself it is you, and not the child, who has been criminally negligent, particularly if you have benefited from the child's discomfort as did the mortgage lenders.

Q. Have the world weathered the crisis? If not what are your predictions and prescriptions?

A.Yes, the world has indeed weathered the crisis, because the US sold only about 20 % of its economic toxic waste to the rest of the world. Most importantly, the nations which bought America's toxic waste have suffered financial losses only among their financial institutions, not among the general population which, in most industrialized countries, has to make a 30 % mortgage cash down-payment and provide solid evidence of regular financial income before being granted a mortgage. Not one home-owner in Germany or France or England faced foreclosure because of what happened in the US.

This actually demonstrates how quickly global economies are decoupling from the US economy. The US has a $ 9 trillion National Debt and a net $ 3 trillion foreign debt, so obviously any crisis is going to hit indebted countries far harder than nations flush with cash (Russia, China, India, Japan, the 'Tigers' and Western Europe). The US is in deep fundamental, historical trouble.

Q.What is its impact on the world economy?

A.Greater controls will be imposed by governments across the globe to discourage financial speculation, which is a 'good thing'. Banks will refocus on trade and export finance rather than on gambling. The world economy will cool off (which will reduce some of the speculative excesses such as the current oil and gold prices).

Q.How will it influence the life of ordinary people across the globe, especially those at the bottom of the economic ladder in the US and Europe?

A.Those at the bottom of the economic ladder in Europe are about 10 rungs above their counterparts in the US, so the effect will be negligible compared with the economic hardships to be faced continually by those at the bottom of the US economic ladder. Even setting aside the subprime crisis for a moment, US households are more in debt, generally, than at any time since the 1930s Great Depression. The US Wealth Gap and the US Household Savings rate are both at Great Depression extremes despite an extended period of global economic growth:

Here is the chart confirming a NEGATIVE savings rate, = - 1.5 %

Q. Do Asian economies including China, India, Malaysia and even Iran expect its ramifications?

A. As mentioned above, this is a US crisis because the US does not currently have the fiscal means, the monetary means or the political will to solve it: Nothing will improve unless and until fundamental measures are adopted by the next US Administration similar to those adopted by Bill Clinton (see charts above).

Q.Why has the US Dollar gone into a spiral of decline?

A.Mainly because it has to borrow $ 3 billions each and every day from foreigners to finance its massive current account deficit and its war machine. Foreign nations have become nervous at the annual 10 % deterioration in their Dollar holdings. Foreigners don't even need to reduce their Dollar reserves to precipitate a Dollar crisis; they can do so merely by refusing to increase their holdings, i.e., refrain from participating in further US Treasury auctions.

Q.There are two views about the impact of the dollar decline on the US economy: one holds that it would eventually benefit the US economy through boosting exports while others believe that it damage the US economy. What is your opinion?

A.The export view is sheer unadulterated nonsense. The Dollar has been in fundamental decline since the end of WWII, as has its trade deficit!!! A weak currency is not a panacea for economic health. It merely delays the inevitable drive to increase competitiveness, as demonstrated by Germany which has again become the world's No. 1 exporter despite an 80 % appreciation in the Euro since 2001! The drop in the Dollar has, on the contrary, caused only a minimal reduction of its annual $ 750 billion trade deficit, which proves that US lack of competitiveness is truly endemic and not a function of exchange rates.

A weak currency also boosts inflation as imports become more expensive. In America's case it represents a 'double whammy' because, while imports become more expensive they are unavoidable since the US doesn't produce many of the consumer goods it needs.

Q.Would the dollar's depreciation lead other countries to switch to other main currencies and given that the US Dollar is a fiat currency could such a move further fuel the dollar's decline?

A.They already have! Countries are realizing (ours a little late, but better late than never!) that the US Dollar is in fundamental imperial decline: From a peak of 121 shortly after Clinton left office the Dollar index has been swooning with no end in sight. Yes, Reagan boosted the Dollar temporarily, but only by raising the Prime Rate to a massive 21.5 % to attract foreign aid (sorry, foreign 'capital')! Here is another chart, this time of the Dollar's seemingly unstoppable decline against a basket of international currencies (trade-weighted index):

Q.What will be the impacts of the US dollar decline on Iran's economy?

A.Not much. Iran's own economic policies (or lack of)influence our nation's economic health far more significantly than the Dollar exchange rate.

Q. What will be the impacts of the US presidential elections on the US economy?

A.There will definitely be a massive change, with a return to the much maligned 'Clintonomics' if either Hillary or Obama wins, as I personally predict. The Dollar will strengthen, by which I mean that it will reverse some of its losses, but not that it will re-emerge as the fiat currency. The deterioration in the US fiscal and current account deficits will be stemmed as the US increases taxes, reduces budget wastage, redistributes wealth more fairly and severely reduces military spending on the back of a partial or withdrawal from Iraq which has already cost $ 2 trillion according to 2001 Nobel Economics Prize Winner Joseph Stiglitz.

If McCain wins, after a brief relapse the Euro will strengthen to $ 2.00 from its current rate of $ 1.48, because McCain will be just another Republican spendthrift unable to offload the party baggage (the "special interests"), no matter how 'fiscally responsible' he sounds on the surface. But I doubt he will win.

Q.Do you think the Iranian decision to cut its ties with the greenback and Tehran's call on its importers of crude to pay in non-dollar currencies have adversely contributed to the Dollar nosedive?

A.Definitely, because it was not so much the nominal sums involved, which are paltry by global comparison, but the psychological effect of the move which encouraged others to follow suit.

Q.Should one consider the US crisis as an opportunity for booming economies like India and China to assume a more important role in the world's markets?

A.They already have. The US is totally dependent on China's goodwill. If the US were to ban all imports from China tomorrow morning the US economy would suffer a heart attack as it would have to import those same goods more expensively from elsewhere. In retaliation, the Chinese would sell their surplus Dollar mountain and precipitate a global economic depression. The emerging economies would be better able to withstand such an Armageddon scenario because they are accustomed to hardship, while decadent US consumers are already bankrupt despite an environment of extended global economic growth. The US would probably suffer riots, internal conflict and starvation for the first time in 80 years. Emerging economies are used to economic hardship and even war. The US is much more fragile than its leaders and economic pundits admit. There is a huge fundamental and conceptual difference between a) going from recession to depression (the USA), and b) going from 10 % + economic growth to a more reasonable 3 % economic growth (Russia, India, China, ….).

The impact of the credit crunch on British workers

The impact of the credit crunch on British workers

By Chris Talbot

Go To Original

Indications of the severity with which the credit crunch is likely to hit working people in Britain are contained in a number of recent reports and press articles. These focus, firstly, on the impact of credit becoming more difficult to obtain and, secondly, on the cost of mortgages.

Significant levels of short-term debt—unsecured or secured against property, as well as credit cards—is widespread. Over the last ten years the economy under the Labour government has grown in large part because of consumer spending financed by debt.

According to the National Institute of Economic and Social Research, the ratio of household debt to national income is 1.62 in the UK, the highest for a major economy. It compares to 1.42 in the United States, 1.36 in Japan and 1.09 in Germany. Last year, for the first time, the total stock of consumer debt—at £1,325 billion—was greater than Britain’s GDP. It has trebled over the last ten years.

Figures put out by the Office of National Statistics last June show that British people are saving the smallest amount of their wages since 1960. Real household disposable income—wages after tax, interest payments and pension contributions, adjusted for inflation—fell for two successive quarters.

A recent report by the independent price comparison and switching service shows that over the last ten years the average net income has gone up by 48 percent, only slightly more than essential living costs (43 percent). But average debt repayments have more than doubled, with an increase of 105 percent.

Out of an adult population of 47.5 million, uSwitch found that 4.8 million spent more than they earned last year, nine million just broke even, and the average consumer only had £157 ($309) left in the bank at the end of the month.

This reliance on credit means that millions are now feeling the squeeze. The financial information firm Moneyfacts said at the end of last year that “the credit crunch has caused the personal loan market to tighten, lenders have withdrawn from the market and rates have seen a continuous increase throughout 2007.” Last November alone the number of unsecured loan providers fell by 10 percent.

In the first such action to be taken, the credit card company Egg, which is owned by the US bank Citigroup, withdrew credit cards from 160,000 of its customers. Citigroup’s press statement says that “customers affected had a higher than acceptable risk profile.”

Signs that the collapse of cheap credit is beginning to affect mortgage repayments is contained in a January report from the government’s Financial Services Authority (FSA). House prices in Britain have been part of the global “bubble”, with the average price now standing at over £182,000—some seven times the average income of about £26,000 a year. In 2004 the ratio was five times the average income, whilst back in 1969 it was only two and a half times.

The proportion of houses which are owner occupied is now 70 percent (out of a total of 25 million homes), with some 12 million of these paying mortgages. Public or so-called council housing was largely sold off in the 1980s under the Thatcher government and now accounts for only 10 percent of the total. There is a severe shortage of affordable houses, especially for families and first time buyers. According to charities there are already 526,000 families, including 900,000 children, living in overcrowded accommodation—with 80,000 homeless families in temporary accommodation and 1.6 million on waiting lists for council houses.

Although they do use the term “sub-prime,” the FSA more often refer in their report to “product innovation” and state that new loans have been “concentrated in groups which historically have not been homeowners.”

The FSA examines the risks now facing homeowners, looking at three categories: 1) the loan was taken out for more than 25 years; 2) it was worth more than 90 percent of the house value when sold; or 3) it was for more than 3.5 times the income of the purchaser. The FSA considers the two million people who have taken out mortgages in the two and a half years before September 2007 that fall into just one of these categories “may not represent significant consumer risks”. But with more than one million people who fall into two or more of these categories, it considers “there is a greater cause for concern.” Some 150,000 homeowners fall into all three categories and the FSA consider these “most likely to default on loans.”

These figures are probably an underestimate. There were 27,000 house repossessions in 2007, an increase of 21 percent on the previous year and the highest since 1999. But the figure for repossession represents only a fraction of the total number of people who have run into difficulties with their mortgage repayments. In these circumstances most people manage to negotiate an arrangement with their mortgage provider. They do not, therefore, appear in the figures for defaulters. Shelter, the homeless charity, says it took more than 80,000 calls in 2007 from homeowners concerned about falling behind with payments, eight times the number in 2006. As credit conditions become tighter, mortgage providers may be less willing to agree to such arrangements.

Even if the million or so at risk do not end up defaulting on mortgages, the FSA point out that they may be unable to meet payments on other debts: “We are concerned that many consumers are ill-prepared for a deterioration in economic conditions and may have placed too great a reliance on their ability to depend on cheap credit and housing wealth to sustain their consumption levels and investment plans.”

The FSA’s head of financial strategy and risk, Lyndon Nelson, emphasised this point when he told the Guardian, “It is not necessarily the affordability of the mortgage. It is their other debt. Customers with other borrowing in addition to the mortgage are struggling.”

“The other borrowings tip them over the edge,” he said.

The FSA point out that many of the current mortgages were taken out before the interest rate rises of 2006 and 2007. When mortgages were taken out in 2005 the median repayment was about 24 percent of net income. Current standard rate mortgages take up 27-29 percent of income and will rise to 30 percent should interest rates rise by one percent. This year some 1.4 million mortgages that were taken out on short term fixed rate, i.e., before the rises over the last two years, will have to be re-negotiated. The FSA calculate that moving back to a standard rate would add an average of £210 a month to repayments. This is likely to hit many of the million or so homeowners who fall into two or more risk categories.

Neither the Bank of England nor the government have any room to manoeuvre in this situation. The Bank of England has lowered its base rate a little, but it has been unwilling to follow the sharp cut in the US. Well aware that the British economy is moving into recession, the Bank does not dare boost the economy with more cheap credit because of the threat of inflation.

At a press conference this week presenting the quarterly report of the Bank of England’s Monetary Policy Committee (MPC), the Bank’s governor, Mervyn King, said that predictions were “not inconsistent” with two quarters of zero or negative growth, the technical measure for a recession.

The MPC’s main concerns were that the credit crunch would weigh down on demand, as in the rest of the world, but rising food and energy prices would push up inflation. “Both developments are now more acute than in November,” said King. “As a result the near-term outlook is one of inflation rising sharply alongside a marked slowing in growth.”

Nor is the UK government in a position to stimulate the economy as it has done in the past. In the global downturn following the crash at the beginning of the century, Chancellor Gordon Brown pumped money into the economy through public spending. Now Prime Minister Brown faces a budget deficit that is likely to reach £43 billion ($84 billion) in 2007-8.

The Economist has warned that “Britain will be hit hard by the credit crunch.” It points out, “Lenders slashed the amount of credit they were prepared to make available late last year, and they intend restricting it again in the first quarter of 2008.”

It comments on the significance of the housing price bubble as follows: “The housing market is already wilting, as banks tighten the terms on which they make mortgage loans and would-be buyers take fright at the possibility of instant losses on their purchases. That augurs ill for consumer spending, which has been buoyed over the past couple of years by another bout of rapid house-price inflation. Rising housing wealth has offset a dismal period for living standards as, despite a strong economy, rising inflation, taxes and interest payments have eroded growth in real disposable incomes. Now this prop is about to be removed. Indeed, the first signs of a consumer slowdown are already apparent.”