Saturday, February 23, 2008

The U.S Financial System, the Debt Bubble and the Cancer of Excessive Deregulation

The U.S Financial System, the Debt Bubble and the Cancer of Excessive Deregulation

by Rodrigue Tremblay

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"It's...poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end."
Warren Buffett, American investor
“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
John Maynard Keynes (1883-1946)
"New money that enters the economy does not affect all economic actors equally nor does new money influence all economic actors at the same time. Newly created money must enter into the economy at a specific point. Generally this monetary injection comes via credit expansion through the banking sector. Those who receive this new money first benefit at the expense of those who receive the money only after it has snaked through the economy and prices have had a chance to adjust."
Friedrich A. Hayek (1899-1992), Austrian economist

When Fed Chairman Ben Bernanke says the economic situation is worsening, you'd better believe him. In fact, the U.S. credit markets are collapsing under our very eyes, and there is no end in sight as to when this will stop, let alone reverse itself.

1 — Leading economic indicators for the U.S. economy are falling;
2 — Consumer confidence sentiment is falling as mortgage equity withdrawals are drying up;
3 — employment numbers are falling;
4 — the January 2008 report on the U.S. service economy
5 — the number of new jobless claims is still dangerously high; 6 — The housing crisis is getting up steam; banks have to place larger and larger subprime losses on their balance sheets, thus undermining their capital bases and bringing many of them to the brink of insolvency;
7 — the credit-ratings agencies are under siege;
8 — bond guarantee insurance companies are in the process of loosing their triple-A ratings and some are on the brink of bankruptcy;
9 — the $2.6 trillion municipal bond market is about to take a nose dive, if and when the bond insurers do not pull it through;
10 — the leveraged corporate loan market is in disarray;
11 — the more than a trillion dollar market for mortgage- and debt-backed securities could collapse completely if the largest American mortgage insurers continue to suffer crippling losses;
12 — large hedge funds are losing money on a high scale and they are suffering from a run on their assets;
13 — in the U.S., total debt as a percentage of GDP is at more than 300 percent, a record level (N.B.: in 1980, it was 125 percent!);
14 — and, finally, the worldwide hundreds-of- trillion dollar derivatives market could implode anytime, if too many financial institutions go under during the coming months, as most of these transactions are inter-institution trades. indicates that it contracted early in the year for the first time in 58 months;

There are a few positive straws in the wind, such as the fact that manufacturing output seems to be holding up pretty well, as the devalued dollar stimulates exports, but the overall economic picture remains bleak. This is a tribute to the U.S. economy's resiliency.

This mess all begun in the early 2000s, and even as far back as the early 1980s, when the Fed and the SEC adopted a hands-off approach to financial markets, guided by the new economic religion that "markets can do no wrong." What we are witnessing is the failure of nearly thirty years of so-called conservative debt-ridden and deregulation-ridden economic policies.

It must be understood that the most recent subprime problem really began in 2000, when the credit-rating agency of Standard & Poors issued a pronouncement saying that "piggyback" mortgage financing of houses, when a second mortgage is taken to pay the down-payment on a first mortgage, was no more likely to lead to default than more standard mortgages. This encouraged mortgage lending institutions to relax their lending practices, going as far as lending on mortgages with no down-payment whatsoever, and even postponing capital and interest payments for some time. And, with the Fed and the SEC looking the other way, a fatal next step was taken. Banks and their subsidiaries decided to follow new toxic and risky rules of banking.

Indeed, while traditionally banks would borrow short and lend long, they went one giant step further: they began transforming long term loans, such as mortgages, car loans, student loans, etc., into short term loans. Indeed, they got into the alchemist business of bundling together relatively long term loans into packages that they sliced into smaller credit instruments that had all the characteristics of short-term commercial paper, but were carrying higher yields. They then sold these new "structured investment vehicles" (SIVs), for a fee, to all kinds of investors who were looking for higher yields than the meager rates that alternatives were paying. And, since banks were behind these new artificial financial assets, the credit-agencies gave them an AAA-rating, which allowed regulated pension funds and insurance companies to invest in them, believing they were both safe and liquid. —They were in for a shock. When the housing bubble burst, the value of real assets behind the new financial instruments began declining, pulling the rug out from underneath the asset-backed paper market, (ABCP) which became illiquid and toxic. With hardly any trading on the new instruments, nobody knew the true value of the paper, and thus nobody was willing to buy it. This crisis of confidence has now permeated to other credit markets and is threatening the entire financial system as the contagion spreads.

As late as 2003-04, then Fed Chairman Alan Greenspan was not the least worried by the subprime-financed-housing-mortgage bubble but was instead encouraging people to take out adjustable-rate mortgages, even though interest rates were at a thirty-year low and were bound to increase. Even in late 2006, newly appointed Fed Chairman Ben Bernanke professed not to be preoccupied by the housing bubble, saying that high prices were only a reflection of a strong economy. Mind you, this was more than one year after the housing market peaked in the spring of 2005. History will record that the Fed and the SEC did nothing to prevent the debt pyramid from reaching the dangerous levels it attained and which is now crushing the economy.

On a longer span of time, when one looks at a graph provided by the U.S. Bureau of Economic Analysis (BEA) and which shows the relative importance of total outstanding debt (corporate, financial, government, plus personal) in relation to the economy, one is struck by the fact that this ratio stayed around 1.2 times GDP for decades. Then, something big happened in the early 1980s, and the ratio started to rise, with only a slight pause in the mid-1990s, to reach the air-rarefied level of 3.1 times GDP presently, nearly 200 percent more than it used to be.

The adoption of massive tax cuts coupled with government deficit spending policies, and deregulation policies, by the Reagan and subsequent GOP administrations, all culminating in a grotesque way under the current administration, contributed massively to this unprecedented debt bubble. It took many years to build up the debt pyramid, and it will take many years to unwind it and to reduce this cumulative mountain of debt to a more manageable size.

That is the big picture behind this crisis. It is much bigger than the S&L crisis of the 1980s, which looks puny in comparison with the current one. That is why I think this crisis will linger on for at least a few more years, possibly until 2010-11.

Rodrigue Tremblay is professor emeritus of economics at the University of Montreal and can be reached at
He is the author of the book 'The New American Empire'
Visit his blog site at:
Author's Website:
Check Dr. Tremblay's coming book "The Code for Global Ethics" at:

Where's The Iraqi Voice? By Noam Chomsky

Where's The Iraqi Voice?

By Noam Chomsky

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THE US occupying army in Iraq (euphemistically called the Multi-National Force-Iraq) carries out extensive studies of popular attitudes. Its December 2007 report of a study of focus groups was uncharacteristically upbeat.

The report concluded that the survey "provides very strong evidence" to refute the common view that "national reconciliation is neither anticipated nor possible". On the contrary, the survey found that a sense of "optimistic possibility permeated all focus groups ... and far more commonalities than differences are found among these seemingly diverse groups of Iraqis."

This discovery of "shared beliefs" among Iraqis throughout the country is "good news, according to a military analysis of the results", Karen deYoung reports in The Washington Post.

The "shared beliefs" were identified in the report. To quote deYoung, "Iraqis of all sectarian and ethnic groups believe that the U.S. military invasion is the primary root of the violent differences among them, and see the departure of 'occupying forces' as the key to national reconciliation."

So, according to Iraqis, there is hope of national reconciliation if the invaders, responsible for the internal violence, withdraw and leave Iraq to Iraqis.

The report did not mention other good news: Iraqis appear to accept the highest values of Americans, as established at the Nuremberg Tribunal -- specifically, that aggression -- "invasion by its armed forces" by one state "of the territory of another state" -- is "the supreme international crime differing only from other war crimes in that it contains within itself the accumulated evil of the whole". The chief US prosecutor at Nuremberg, Supreme Court Justice Robert Jackson, forcefully insisted that the Tribunal would be mere farce if we do not apply its principles to ourselves.

Unlike Iraqis, the United States, indeed the West generally, rejects the lofty values professed at Nuremberg, an interesting indication of the substance of the famous "clash of civilisations".

More good news was reported by Gen David Petraeus and Ambassador to Iraq Ryan Crocker during the extravaganza staged on September 11, 2007. Only a cynic might imagine that the timing was intended to insinuate the Bush-Cheney claims of links between Saddam Hussein and Osama bin Laden, so that by committing the "supreme international crime" they were defending the world against terror -- which increased sevenfold as a result of the invasion, according to an analysis last year by terrorism specialists Peter Bergen and Paul Cruickshank.

Petraeus and Crocker provided figures to show that the Iraqi government was greatly accelerating spending on reconstruction, reaching a quarter of the funding set aside for that purpose. Good news indeed, until it was investigated by the Government Accountability Office, which found that the actual figure was one-sixth of what Petraeus and Crocker reported, a 50 per cent decline from the preceding year.

More good news is the decline in sectarian violence, attributable in part to the success of the murderous ethnic cleansing that Iraqis blame on the invasion; there are fewer targets for sectarian killing. But it is also attributable to Washington's decision to support the tribal groups that had organised to drive out Iraqi Al Qaeda, and to an increase in US troops.

It is possible that Petraeus's strategy may approach the success of the Russians in Chechnya, where fighting is now "limited and sporadic, and Grozny is in the midst of a building boom" after having been reduced to rubble by the Russian attack, CJ Chivers reports in the New York Times last September.

Perhaps some day Baghdad and Fallujah too will enjoy "electricity restored in many neighbourhoods, new businesses opening and the city's main streets repaved", as in booming Grozny. Possible, but dubious, considering the likely consequence of creating warlord armies that may be the seeds of even greater sectarian violence, adding to the "accumulated evil" of the aggression. Iraqis are not alone in believing that national reconciliation is possible. A Canadian-run poll found that Afghans are hopeful about the future and favour the presence of Canadian and other foreign troops -- the "good news" that made the headlines.

The small print suggests some qualifications. Only 20 per cent "think the Taleban will prevail once foreign troops leave". Three-quarters support negotiations between the US-backed Karzai government and the Taleban, and over half favour a coalition government. The great majority therefore strongly disagree with the US-Canadian stance, and believe that peace is possible with a turn towards peaceful means. Though the question was not asked in the poll, it seems a reasonable surmise that the foreign presence is favoured for aid and reconstruction.

There are, of course, numerous questions about polls in countries under foreign military occupation, particularly in places like southern Afghanistan. But the results of the Iraq and Afghan studies conform to earlier ones, and should not be dismissed.

Recent polls in Pakistan also provide "good news" for Washington. Fully 5 per cent favour allowing US or other foreign troops to enter Pakistan "to pursue or capture Al Qaeda fighters". Nine per cent favour allowing US forces "to pursue and capture Taleban insurgents who have crossed over from Afghanistan".

Almost half favour allowing Pakistani troops to do so. And only a little more than 80 per cent regard the US military presence in Asia and Afghanistan as a threat to Pakistan, while an overwhelming majority believe that the United States is trying to harm the Islamic world. The good news is that these results are a considerable improvement over October 2001, when a Newsweek poll found that "eighty-three per cent of Pakistanis surveyed say they side with the Taleban, with a mere three per cent expressing support for the United States," and over 80 per cent described Osama bin Laden as a guerrilla and six per cent a terrorist.

Amid the outpouring of good news from across the region, there is now much earnest debate among political candidates, government officials and commentators concerning the options available to the US in Iraq. One voice is consistently missing: that of Iraqis. Their "shared beliefs" are well known, as in the past. But they cannot be permitted to choose their own path any more than young children can. Only the conquerors have that right.

Perhaps here too there are some lessons about the "clash of civilisations".

Noam Chomsky is a professor of linguistics at the Massachusetts Institute of Technology and the author, most recently, of Hegemony or Survival Americas Quest for Global Dominance.

In Tatters Beneath a Surge of Claims

In Tatters Beneath a Surge of Claims

Analysis by Ali al-Fadhily and Dahr Jamail

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What the U.S. has been calling the success of a "surge", many Iraqis see as evidence of catastrophe. Where U.S. forces point to peace and calm, local Iraqis find an eerie silence.

And when U.S. forces speak of a reduction in violence, many Iraqis simply do not know what they are talking about.

Hundreds died in a series of explosions in Baghdad last month. This was despite the strongest ever security measures taken by the U.S. military, riding the "surge" in security forces and their activities.

The death toll is high, according to the website, which provides reliable numbers of Iraqi civilian and security deaths.

In January this year 485 civilians were killed, according to the website. It says the number is based on news reports, and that "actual totals for Iraqi deaths are higher than the numbers recorded on this site."

The average month in 2005, before the "surge" was launched, saw 568 civilian deaths. In January 2006, the month before the "surge" began, 590 civilians died.

Many of the killings have taken place in the most well guarded areas of Baghdad. And they have continued this month.

"Two car bombs exploded in Jadriya, killing so many people, the day the American Secretary of Defence (Robert Gates) was visiting Baghdad last week," a captain from the Karrada district police in Baghdad, speaking on condition of anonymity, told IPS.

"Another car bomb killed eight people and injured 20 Thursday (last week) in the Muraidy market of Sadr City, east of Baghdad, although the Mehdi army (the militia of Muqtada al-Sadr) provides strict protection to the city," the officer said. "There is no security in this country any more."

Unidentified bodies of Iraqis killed by militias continue to appear in Baghdad and other Iraqi cities. The Iraqi government has issued instructions to all security and health offices not to give out the body count to the media. Dozens of bodies are found every day across Baghdad, residents say. Morgue officials confirm this.

"We are not authorised to issue any numbers, but I can tell you that we are still receiving human bodies every day; the men have no identity on them," a doctor at the Baghdad morgue told IPS. "The bodies that have signs of torture are the Sunnis killed by Shia militias; those with a bullet in the head are usually policemen, translators or contractors who worked for the Americans."

The "surge" of 30,000 additional troops came to Iraq, mostly Baghdad, in February of last year. The total current number of U.S. troops in Iraq is approximately 157,000. They were sent to end violence, and with a declared aim of helping political reconciliation.

But where peace of sorts has descended in Baghdad, Iraq's capital city of six million (in a population of 25 million), it comes from a partitioning of people along sectarian lines. The Iraqi Red Crescent reports that one in four residents has been driven out of their homes by death squads, or by the "surge".

According to an Iraqi Red Crescent report titled 'The Internally Displaced People in Iraq' released Jan. 27, 1,364,978 residents of Baghdad have been displaced.

The Environment News Service reported Jan. 7 that "many of the capital's once mixed areas have become either purely Sunni or Shia after militias forced families out for belonging to the other religious branch of Islam."

Some of the eerie calm in areas of Baghdad comes because togetherness has ended. Sunnis and Shias who lived together for generations are now partitioned. This is not the peace many Iraqis were looking for, surge or no surge.

On Jan. 8, UNHCR spokesperson Ron Redmond announced that there were at least 2.2 million Iraqis internally displaced within the country, and that at least another two million had fled the country altogether. This, no doubt, would make many areas quieter.

The U.S. military has erected three to four metre high concrete walls around several neighbourhoods, forcing residents to choose either Sunni or Shia areas in which to live. Such separation has brought large-scale displacement, and protests.

Sunni Muslims seem to have the worst of it. Many Iraqis are outraged by the number of Sunni detainees the "surge" has taken.

Residents of Amiriya district of western Baghdad demonstrated Feb. 11 against mistreatment by U.S. and Iraqi forces involved in the "surge". The "surge" aims to eradicate al-Qaeda from Iraq, but this has meant that most military operations have been carried out in Sunni areas like Amiriya.

"We are here to protest against the unfair arrests and raids conducted against the innocent people of Amiriya," Salih al-Mutlag, chief of the Arab Dialogue Council in the Iraqi government told IPS at the demonstration. "This has gone too far under the flag of fighting terror."

Al-Mutlag said they were also demonstrating against arrests in the western parts of Baghdad, despite an apparently peaceful situation there as a result of residents' cooperation with Iraqi army units. Large numbers of residents came out in the Dora region of southwest Baghdad to protest against the U.S. military for arresting 18 people, including an 80-year-old man.

"We are the ones who improved the situation in western parts of Baghdad without any interference from the Americans and their puppet Iraqi government," former Iraqi Army Major Abu Wussam told IPS in Amiriya. "We negotiated with our brothers in the Iraqi national resistance who agreed to conduct their activities in a different way from the traditional way they used to work.

"It seems Americans did not like it, and so they are punishing us for it, instead of releasing our detainees as they promised."

Some of the apparent peace on the street is a consequence of rising detentions. In November last year Karl Matley, head of the Iraqi branch of the International Committee of the Red Cross, declared that more than 60,000 prisoners and detainees are held in prisons and other detention centres. A large number of these were taken during the "surge".

By August 2007, half a year into the "surge", the number of detainees held by the U.S.-led military forces in Iraq had swelled by 50 percent, with the inmate population growing to 24,500, from 16,000 in February, according to U.S. military officers in Iraq.

The officers reported that nearly 85 percent of the detainees in custody were Sunni Arabs.

Given that the majority of the detained are Sunnis, the "surge", rather than bridging political differences and aiding reconciliation between Sunni and Shia groups, appears to have had the opposite effect.

And yet, there could be more dangerous reasons to doubt such success of the "surge" that is claimed.

Among the recent arrests in Baghdad, the U.S. military counted six members of the Sahwa (Awakening) forces. This is a force of resistance fighters now ostensibly working with the U.S. military. The U.S. pays each member 300 dollars monthly. More than 80 percent of about 70,000 Sahwa members are Sunni.

The arrest of some Sahwa members is indication of U.S. military doubts about the loyalties of some of these Sahwa fighters. Shia political parties and militias already accuse them of being resistance fighters in disguise. Many believe that large numbers of Sahwa forces are resistance fighters simply riding the "surge".

"How come Sunni parts of Baghdad became so quiet all of a sudden," says Jawad Salman, a former resident of Amiriya who fled his house in 2006 after Iraqi resistance members accused him of being a government spy. "It is a game well played by terrorists to divert the fight against Shia groups. I lived there and I know that all residents fully support what the U.S. calls the terrorists."

The Sahwa strategy has brought down the number of U.S. casualties – for now. But the U.S. strategy seems to have done less for Iraq than for its own forces.

Why Hillary Clinton’s Iraq Vote Does Matter

Why Hillary Clinton’s Iraq Vote Does Matter

By Stephen Zunes

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In response to a series of articles in recent months regarding the foreign policy positions of Senator Hillary Clinton - in which, among other things, I have emphasized her October 2002 vote authorizing the U.S. invasion of Iraq - I have received comments such as the following:

“The only mistake Hillary made was to believe what the President told her and that Dubya would not lie about such a national matter involving the military. She chose to believe what he said and the intel presented to her -as did so many others on both sides of the political aisle…. GET OVER IT! It is water under the bridge…”

In reality, however, Hillary Clinton’s decision to vote to authorize the invasion of Iraq in fact is of critical importance and should disqualify her - along with Senator John McCain, who also voted in favor of the war resolution - from ever becoming president.

There have been many tragic consequences of the war for which Senator Clinton and others who made it possible should be held accountable: the deaths of thousands of American soldiers and the tens of thousands permanently wounded; the hundreds of thousands of Iraqis killed; the hundreds of billions of dollars drained from our national treasury; the social, economic and environmental damage inflicted upon Iraq; the misallocation of human and material resources away from real strategic threats; and, the resulting growth in Islamic extremism and anti-Americanism which will threaten our national security for decades to come .

More importantly, however, is what the decision says about Hillary Clinton’s world view:

Contempt for International Law

According to Article VI of the U.S. Constitution, international treaties signed by the president and ratified by a two-thirds majority of the Senate are to be treated as supreme law of the United States. Among these is the United Nations Charter, long recognized as the most important single document regulating the use of military force in the post-World War II era.

Senator Clinton has defended her vote on the grounds of enforcing UN Security Council resolutions being violated by Iraq. However, in articles 41 and 42 of the UN Charter, the nations of the world agreed that no member state has the right to enforce any resolution militarily unless the Security Council determines that there has been a material breach of its resolution, decides that all non-military means of enforcement have been exhausted, and specifically authorizes the use of military force. This is what the Security Council did in November 1990 with Resolution 678 in response to Iraq’s ongoing occupation of Kuwait in violation of a series of resolutions demanding withdrawal. When Iraq finally complied through its forced evacuation from Kuwait in February of 1991, this resolution became moot.

Legally, the conflict regarding access for UN inspectors and possible Iraqi procurement of “weapons of mass destruction” (WMDs) had always been between Iraq and the United Nations, not between Iraq and the United States. The United States therefore had no legal right to act on the dispute unilaterally. Although UN Security Council Resolution 687, which demands Iraqi disarmament, was the most detailed in the world body’s history, no military enforcement mechanisms were included. Nor did the Security Council specify any military enforcement mechanisms in subsequent resolutions. As is normally the case when it is determined that governments are violating all or part of UN resolutions, any decision about enforcement is a matter for the Security Council as a whole - not for any one member of the council.

While UN Security Council resolution 1441, passed in November 2002, warned of unspecified “serious consequences” if Iraq failed to comply with the UN disarmament and inspections regime, the resolution also made clear that only the weapons inspectors - not UN member states - had the authority to report Iraqi violations. In the lead-up to the March 2003 U.S. invasion, the inspectors did not report any Iraqi violations of serious consequence. Furthermore, the resolution stated that the Security Council “remains seized of the matter,” reiterating the fact that only the council itself had the authority to approve the use of force

It is noteworthy, then, that Senator Clinton voted against an amendment sponsored by Senator Carl Levin that would have authorized U.S. military action against Iraq if the UN Security Council approved the use of force and instead voted for the resolution authorizing President Bush to invade Iraq at the time and circumstances of his own choosing.

If Senator Clinton believes the United States can unilaterally claim the right to invade Iraq because of that country’s violation of Security Council resolutions, other Council members could logically also claim the right to invade other states that are in material breach of UN Security Council resolutions, such as Israel, Morocco, Turkey, Armenia, Pakistan and India . Her insistence on the right of the United States to unilaterally invade foreign countries because of alleged violations of UN Security Council resolutions seriously undermines the principle of collective security and the authority of the United Nations and thereby opens the door to international anarchy.

International law is quite clear about when military force is allowed. In addition to the aforementioned case of UN Security Council authorization, the only other time the UN Charter allows a member state to use armed force is described in Article 51, which states that it is permissible for “individual or collective self-defense” against “armed attack…until the Security Council has taken measures necessary to maintain international peace and security.” Since none of these criteria were met, the U.S. invasion was clearly a violation of the UN Charter, as acknowledged by the UN Secretary General and the majority of member states. Clinton’s support for the war, therefore, demonstrates her belief that the United States should not be bound by its international legal obligations.

There is a tradition in customary international law that does allow for a pre-emptive strike for self-defense, but this is only in an indisputable case of a clear and present danger, such as troops massing along a border poised for invasion or missiles being loaded onto launchers in preparation for an attack. It does not, as Senator Clinton claims, give the United States the right to invade a country on the far side of the world based upon unsubstantiated allegations that that country might be developing weapons that might be passed on to terrorists that might then some day be used against us.

The October 2002 war resolution essentially constituted a renunciation of the UN Charter’s prohibition against such wars of aggression and effectively constituted a repudiation of the post-WWII international legal order. Hillary Clinton’s vote to authorize this illegal invasion, therefore, demonstrates her contempt for international law and is indicative that, as president, she will not hesitate to violate international legal norms in order to advance American hegemony.

Contempt for the Truth

In the months leading up to the Iraq war vote, Senator Clinton was briefed by a number of arms control specialists, former arms inspectors, strategic analysts, and others who informed her that the Bush administration’s WMD claims were not to be taken seriously and that Iraq had achieved at least qualitative disarmament.

Despite this, in an apparent effort to discredit those questioning the administration’s hyperbolic statements about Iraq’s supposed military threat and to justify her vote to authorize the invasion, Senator Clinton insisted that Iraq’s possession of chemical and biological weapons was “not in doubt” and was “undisputed.” In reality, she knew there were serious doubts about Iraq’s purported possession of such weapons at that time and, indeed, no such weapons were ever found.

Similarly, even after the International Atomic Energy Agency issued a report prior to the war vote that Iraq no longer had a nuclear program and despite the 2001 National Intelligence Estimate (NIE) that confirmed there was no evidence that such work on Iraq’s nuclear program had resumed, Senator Clinton also defended her vote by claiming that, “If left unchecked, Saddam Hussein will . . . keep trying to develop nuclear weapons.” In reality, Iraq had completely eliminated its nuclear program a full decade earlier.

Although top strategic analysts also correctly informed her that there were no apparent links between Saddam Hussein’s secular nationalist regime and the radical Islamist al-Qaeda, Senator Clinton insisted that Saddam “has also given aid, comfort, and sanctuary to terrorists, including al Qaeda members.” This came despite a subsequent definitive report by the Department of Defense which noted that not only did no such link exist, but that no such link could have even been reasonably suggested based upon the evidence available at that time.

Clinton’s supporters have defended her false pre-invasion allegations by citing the public summary of the 2002 NIE which appeared to confirm some of the Bush administration’s claims. However, there were a number of reasons to have been skeptical of this summary: this NIE was compiled in a much shorter time frame than is normally provided for such documents and the report expressed far more certainty regarding Iraq’s WMD capabilities than all the reports from the previous five years, despite the lack of additional data to justify such a shift. When the report was released, there was much stronger dissent within the intelligence community than about any other NIE in history and the longer classified version, which was available to every member of Congress, included these dissenting voices from within the intelligence community. It was also well-known through media reports at that time that the administration was applying enormous pressure on the intelligence agencies to put together a report emphasizing the alleged Iraqi threat.

Despite this, the NIE also challenged the notion of any operational ties between the Iraqi government and Al-Qaeda and questioned some of the more categorical claims by President Bush about Iraq’s WMDs. However, Senator Clinton didn’t even bother to read it. She now claims that it wasn’t necessary for her to have actually looked at the 92-page document herself because she was briefed on the contents of the report. However, since no one on her staff was authorized to read it, it’s unclear who could have actually briefed her.

Whether Senator Clinton lied in order to frighten the American people into accepting a costly U.S. takeover of that oil-rich country or whether she was simply na├»ve and ignorant, her false statements regarding Iraq’s WMD capabilities - given that this was her central argument in justifying the invasion - raises serious questions regarding her fitness to become president of the United States. There is little reason to doubt, therefore, that she would again be willing to either lie or to blindly accept transparently inaccurate and alarmist intelligence data in order to lead America into another tragic war.

Indeed, Senator Clinton later admitted that she supported the U.S. invasion and occupation of Iraq regardless of the fact that Iraq did not really threaten U.S. national security. Many months after the U.S. invasion and the formal acknowledgement that Iraq neither had any WMDs or WMD programs nor any ties to Al-Qaeda, Senator Clinton declared, “I was one who supported giving President Bush the authority, if necessary, to use force against Saddam Hussein. I believe that that was the right vote” and was one that “I stand by.”

Contempt for Good Judgment

Senator Clinton was also briefed by scholars of the Middle East, Middle Eastern political leaders, former State Department and intelligence officials and others who recognized that a U.S. invasion would likely result in a bloody insurgency, a rise in Islamist extremism and terrorism, increased sectarian and ethnic conflict, and related problems. Few people familiar with Iraq have been at all surprised that the U.S. invasion has become such a tragedy. Therefore, claims by Senator Clinton that she was unaware of the likely consequences of the invasion are completely false.

Indeed, one need not be an expert on the Middle East to recognize that a U.S. invasion and occupation of a large Arab country with such a strong tradition of nationalism and resistance to outsiders result in a major insurgency.

Senator Clinton also naively accepted the idea that the Bush administration - which was serving as the primary foreign backer of the autocratic Mubarak government in Egypt, Israeli occupation forces in the West Bank, Moroccan occupation forces in Western Sahara, the family dictatorship in Saudi Arabia, the medieval sultanate of Oman, the military regime of Pakistan, and the crypto-communist rulers of Uzbekistan - was sincerely motivated to promote democracy in Iraq. She also failed to recognize that a unilateral invasion and occupation by a Western power with such a record of supporting repressive regimes around the world and with a growing dependence on imported natural resources located within the country in question would be seen by the subjected population not as liberators to be welcomed but as conquerors to be resisted.

Clinton also appeared to naively assume that a stable liberal democracy could flourish in a country that had never had a democratic government, that was an artificial creation thrown together from three Ottoman provinces by colonial powers and that had only been truly independent for 45 years, and where fighting between Arabs and Kurds and between Sunni and Shiite Muslims has resulted in the deaths of tens of thousands in recent decades. She also assumed that the right-wing neoconservatives in the Bush administration would have the ability and interest in creating conditions that could lead to a stable democratic system.

Clearly, then, despite her much-touted “experience,” Senator Clinton has demonstrated, through her support for the Bush administration’s invasion and occupation of Iraq, a profound ignorance of the reality of the Middle East and an arrogant assumption that peace, stability and democratic governance can be created through the application of U.S. military force.

Hillary Clinton’s World View

The 2002 vote authorizing the U.S. invasion of Iraq was not like the vote on the 1964 Gulf of Tonkin resolution on the use of force against North Vietnam, for which Congress had no time for hearings or debate and for which most of those supporting it (mistakenly) thought they were simply authorizing limited short-term retaliatory strikes in response to a specific series of alleged incidents. By contrast, prior to her vote in support of the resolution authorizing the use of force against Iraq, Senator Clinton had many months to investigate the administration’s claims that Iraq was a threat as well as the likely implications of a U.S. invasion. She also surely recognized that the resolution authorized a full-scale invasion of a sovereign nation and a subsequent military occupation of an indefinite period.

In voting to authorize the invasion of Iraq, then, Senator Clinton has offered a clear demonstration of how she would approach international affairs and security policy:

* the United States need not abide by its international legal obligations, including those prohibiting wars of aggression;

* claims by right-wing Republican officials and unreliable foreign exiles regarding a foreign government’s military capabilities are a more legitimate basis for analyzing possible security threats than are empirical studies by independent arms control analysts and United Nations inspectors;

*concerns expressed by scholars and others knowledgeable of the likely reaction by the subjected population to a foreign conquest and the likely complications that would result should be ignored and faith should instead be placed on the occupation policies forcibly imposed upon that population by a corrupt right-wing Republican administration.

There are also a number of reasons to suspect that, if elected president, Senator Clinton could lead the United States into yet another disastrous war:

* she has refused to apologize for her vote to authorize the invasion, indicating her willingness to support another aggressive war in the future

* she has repeatedly threatened the use of military force against Iran and voted in favor the Kyl-Lieberman amendment, which many fear the administration could use as justification for launching military action against that country

* just as she falsely claimed Iraq had a nuclear weapons program back in 2002, she also falsely claimed just last year that Iran had a nuclear weapons program, even though International Atomic Energy Agency and independent arms control specialists at that time, as well as a subsequent NIE report, indicated that this was untrue

As a result, Senator Clinton’s October 2002 vote to authorize the invasion of Iraq is not simply “water under the bridge.” It is very relevant and says a lot about what kind of president she would be.

Diplomacy For War

Diplomacy For War

By Daniel M Pourkesali

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Reuel Marc Gerecht's opinion piece in the New York Times, titled 'Attack Iran, With Words' advocating diplomacy with Iran may have taken some readers including this one by surprise given his resident fellowship credentials at the American Enterprise Institute. Not that there is anything new and earth shattering about the concept of engaging in dialog in order to resolve differences between nations. But is it possible that these people finally got a whiff of what the rest of us call 'Common Sense'?

Well, after reading the article the answer is still a resounding 'no'.

The current administration has paid a lot of lip service in the last few years to the notion of a diplomatic solution while continuously preparing public opinion through media spin on a path toward war with Iran. But that was three months and one very damaging National Intelligence Estimate ago. Strangely enough, the new neo-con strategy seems to be calling for real diplomacy not for the sake of preserving peace but rather to revive the vanishing and increasingly unpopular idea of using military force because as Gerecht puts it "the current approach isn't working". He goes on to suggest that "we must find a way to restore the resolve of all those parties [China, Russia, Germany, Britain and Germany] to hit Iran with a tsunami of sanctions if we are to diminish the victorious esprit in Tehran and the centrifuge production at Natanz."

And as for those "praying for the clerical regime to do something stupid" he dashes such hopes by stating that "[Iranians] will likely play it sufficiently cool to make it difficult for the United States to strike them pre-emptively. Thus the best reason to offer to begin talks with Tehran is that the regime will almost certainly refuse any offer to normalize relations."

So his recommendations for talking is not for the old cockamamie idea of engaging Iran in a wide-ranging dialog that would recognize its regional role or address any security or geo-strategic concerns, but "something that must be checked off before the next president could unleash the Air Force and the Navy."

And if you still have any doubt as to what he is exactly suggesting, he spells it out in black and white for you: "To make the threat of force against clerical Iran credible again, there needs to be a consensus among far more Democrats and Republicans that a nuclear-armed Iran is intolerable. If the White House tried more energetically to find a diplomatic solution to the nuclear threat, if it demonstrated that it had reached out to Iranian "pragmatists" and "moderates," and that again no one responded, then the military option would likely become convincing to more Americans."

Well this writer is certainly convinced. After 6 years of saber rattling and refusing to talk, except for making threats, moving a third of the U.S. naval arsenal to the Persian Gulf and accusing Iran of helping Iraqi insurgents without presenting a shred of evidence, who knew diplomacy could be such a powerful tool for war.

Canada, U.S. Agree To Use Each Other's Troops In Civil Emergencies

Canada, U.S. Agree To Use Each Other's Troops In Civil Emergencies

By David Pugliese
Canwest News Service

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anada and the U.S. have signed an agreement that paves the way for the militaries from either nation to send troops across each other's borders during an emergency, but some are questioning why the Harper government has kept silent on the deal.

Neither the Canadian government nor the Canadian Forces announced the new agreement, which was signed Feb. 14 in Texas.

The U.S. military's Northern Command, however, publicized the agreement with a statement outlining how its top officer, Gen. Gene Renuart, and Canadian Lt.-Gen. Marc Dumais, head of Canada Command, signed the plan, which allows the military from one nation to support the armed forces of the other nation during a civil emergency.

The new agreement has been greeted with suspicion by the left wing in Canada and the right wing in the U.S.

The left-leaning Council of Canadians, which is campaigning against what it calls the increasing integration of the U.S. and Canadian militaries, is raising concerns about the deal.

"It's kind of a trend when it comes to issues of Canada-U.S. relations and contentious issues like military integration. We see that this government is reluctant to disclose information to Canadians that is readily available on American and Mexican websites," said Stuart Trew, a researcher with the Council of Canadians.

Trew said there is potential for the agreement to militarize civilian responses to emergency incidents. He noted that work is also underway for the two nations to put in place a joint plan to protect common infrastructure such as roadways and oil pipelines.

"Are we going to see (U.S.) troops on our soil for minor potential threats to a pipeline or a road?" he asked.

Trew also noted the U.S. military does not allow its soldiers to operate under foreign command so there are questions about who controls American forces if they are requested for service in Canada. "We don't know the answers because the government doesn't want to even announce the plan," he said.

But Canada Command spokesman Commander David Scanlon said it will be up to civilian authorities in both countries on whether military assistance is requested or even used.

He said the agreement is "benign" and simply sets the stage for military-to-military co-operation if the governments approve.

"But there's no agreement to allow troops to come in," he said. "It facilitates planning and co-ordination between the two militaries. The 'allow' piece is entirely up to the two governments."

If U.S. forces were to come into Canada they would be under tactical control of the Canadian Forces but still under the command of the U.S. military, Scanlon added.

News of the deal, and the allegation it was kept secret in Canada, is already making the rounds on left-wing blogs and Internet sites as an example of the dangers of the growing integration between the two militaries.

On right-wing blogs in the U.S. it is being used as evidence of a plan for a "North American union" where foreign troops, not bound by U.S. laws, could be used by the American federal government to override local authorities.

"Co-operative militaries on Home Soil!" notes one website. "The next time your town has a 'national emergency,' don't be surprised if Canadian soldiers respond. And remember - Canadian military aren't bound by posse comitatus."

Posse comitatus is a U.S. law that prohibits the use of federal troops from conducting law enforcement duties on domestic soil unless approved by Congress.

Scanlon said there was no intent to keep the agreement secret on the Canadian side of the border. He noted it will be reported on in the Canadian Forces newspaper next week and that publication will be put on the Internet.

Scanlon said the actual agreement hasn't been released to the public as that requires approval from both nations. That decision has not yet been taken, he added.

Health Net Ordered to Pay $9 Million After Canceling Cancer Patient's Policy

Health Net Ordered to Pay $9 Million After Canceling Cancer Patient's Policy

By Lisa Girion

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The punitive damage award is the first of its kind and has prompted the giant medical insurer to scrap practices that have recently come under fire.

One of California's largest for-profit insurers stopped a controversial practice of canceling sick policyholders Friday after a judge ordered Health Net Inc. to pay more than $9 million to a breast cancer patient it dropped in the middle of chemotherapy.

The ruling by a private arbitration judge was the first of its kind and the most powerful rebuke to the state's major insurers whose cancellation practices are under fire from the courts, state regulators and elected officials.

Calling Woodland Hills-based Health Net's actions "egregious," Judge Sam Cianchetti, a retired Los Angeles County Superior Court judge, ruled that the company broke state laws and acted in bad faith.

"Health Net was primarily concerned with and considered its own financial interests and gave little, if any, consideration and concern for the interests of the insured," Cianchetti wrote in a 21-page ruling.

Patsy Bates, a 52-year-old grandmother, was at work at the Gardena hair salon she owns when her lawyer William Shernoff called with the news. Bates said she screamed and thanked the lawyer.

Then, "I thanked God," she said. "I praised the Lord."

Bates called the arbitration judge "an angel . . . a real stand-up kind of judge."

When Health Net dropped her in January 2004, Bates was stuck with more than $129,000 in medical bills and was forced to stop chemotherapy for several months until she found a charity to pay for it.

Health Net Chief Executive Jay Gellert ordered an immediate halt to cancellations and told The Times that the company would be changing its coverage applications and retraining its sales force.

"I felt bad about what happened to her," he said. "I feel bad about the whole situation."

Gellert said he would move quickly to "give people the confidence that they can count on their policy." Specifically, he pledged to stop all cancellations until an external review process could be established to approve all cancellations.

Other insurers were considering changing their own practices. A spokeswoman for WellPoint Inc., which operates Blue Cross of California, the state's largest for-profit insurer, said the company was in favor of such an idea. Blue Shield of California declined to comment.

Until Friday, the companies had uniformly defended cancellations, saying they were necessary to hold down costs by weeding out people who may have failed to disclose pre-existing conditions on applications for coverage. They say cancellations happen infrequently.

The judge's strong denunciation of the way Health Net carried out Bates' cancellation and big money award stunned and pleased regulators and patient advocates.

State Insurance Commissioner Steve Poizner applauded the judge, saying "health insurers simply cannot hold out the promise of insurance for their consumers and then snatch it away just when people need it most. That is illegal, immoral and will not be tolerated."

Earlier, Health Net had defended its actions, saying it never would have issued Bates a policy in the first place if she had disclosed her true weight and a preexisting heart condition on her application.

Bates said a broker filled out the application while she was styling a client's hair on a busy day in her shop. She said she answered his questions as best she could.

Bates said she already had insurance and wasn't in the market until the broker came by and told her that he thought he could get her a lower monthly premium if she switched to Health Net.

At the arbitration hearing, internal company documents were disclosed showing that Health Net had paid employee bonuses for meeting a cancellation quota and for the amount of money saved.

"It's difficult to imagine a policy more reprehensible than tying bonuses to encourage the rescission of health insurance that keeps the public well and alive," the judge wrote.

The majority of the award - $8.4 million - was punitive damages, which are designed to teach the defendant a lesson. Such awards are highly unusual in private arbitration, the forum chosen by insurers and other companies to settle disputes.

Health Net's lawyers had argued that Bates' suffering was minimal, a position that infuriated the judge.

"It's hard to imagine a situation more trying than the one Bates had to endure," Cianchetti wrote. "She had valid health insurance, thinks she's making a change when the rug was pulled from underneath and that occurred at a time when she is diagnosed with breast cancer, one of the leading causes of death for women."

The case was heard by a private judge, rather than a jury, because Health Net required Bates to agree to binding arbitration, a practice common among insurers.

"That's the point," said Carl Tobias, a law professor at the University of Richmond in Virginia. "Those kind of agreements that mandate arbitration tend to favor the bigger party or the interest with more economic clout."

The size of the award will require other insurers to take notice, he said.

"It sounds like he was just outraged," Tobias said of the judge. "He is sending a message."

Cindy Ehnes, director of the state Department of Managed Health Care, which oversees health maintenance organizations, said she was "pleased the courts are joining us, along with the public, the media, other regulators and elected officials in demanding the industry clean up its act."

Shernoff, Bates' lawyer, said Gellert's pledge to change showed that a "punitive damage award will do more than anything else to stop the shameful practice of canceling health insurance after people become seriously ill."

Health Net's legal woes are far from over. The company has three other cancellation lawsuits pending in California, including a proposed class action mounted by Shernoff. That case seeks damages on behalf of 1,600 people whose policies were allegedly illegally canceled over the last four years.

Los Angeles City Atty. Rocky Delgadillo on Wednesday sued Health Net over its cancellation practices.

"We intend to vigorously pursue the lawsuit we filed and to pursue our criminal investigation into the company's bonuses scheme, to ensure that Health Net's unlawful, unfair, and fraudulent practices are fully and permanently enjoined, and that restitution is provided to all its past victims," Delgadillo said Friday.

For her part, Bates said she hoped that Health Net followed through on its pledge to change the way it treats sick policyholders so that no one has to go through what she endured.

Bates said she wanted to buy a house with part of the award. She also said she was considering taking a day off work today.

After spending Friday afternoon in her lawyer's Beverly Hills office answering reporters' questions and posing for photographs, Bates planned to go home and make a birthday dinner for her daughter.

"I have to celebrate - her birthday," she said.

Loophole Irks Contract Watchdogs

Loophole Irks Contract Watchdogs

By Lara Jakes Jordan

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Washington - A multibillion-dollar loophole slipped into a proposed crackdown on contract fraud has drawn the ire of a key Republican senator and the government's top watchdog of U.S. spending in Iraq.

The loophole would allow companies performing government work overseas to avoid having to report contract abuse. A review of documents shows it was added by Bush administration policy-writers after they received a draft of the proposed rule from the Justice Department.

Officials at the White House and the president's Office of Management and Budget, which oversees federal procurement policy, have declined repeated requests for information about the exemption for overseas contracts.

The proposed rule is part of a crackdown on contract fraud that the Justice Department estimates has cost taxpayers $14 million in bribes alone over the past five years.

"It's important for the loophole to be closed in order to ensure good government oversight," said Kristine Belisle, spokeswoman for the office of the Special Inspector General for Iraq Reconstruction.

Doing so "would be an additional tool for us and make the actions of the contracting company more transparent," Belisle said in an interview this week.

Sen. Charles Grassley of Iowa, top Republican on the Senate Finance Committee, called it "a disservice to taxpayers to exempt overseas contracts when holding bad actors accountable."

"And it could be a green light for fraud and abuse," Grassley said.

The loophole, first reported earlier this month by The Associated Press, was written into rules proposed by the Justice Department to use against businesses that fail to root out internal waste and abuse of government contracts.

An estimated $350 billion is spent on government contracts annually. Studies indicate at least $102 billion has been spent since 2003 on postwar contracts in Iraq and Afghanistan alone, where the Justice Department so far has charged 44 people as a result of investigations into kickbacks, bribes and other abuses of taxpayer's money.

For decades, contractors have been asked to report internal fraud or overpayment on government-funded projects. Compliance has been voluntary, and over the past 15 years the number of company-reported fraud cases has declined steadily.

Now, the Justice Department wants to force companies to notify the government if they find evidence of contract abuse of more than $5 million. Failure to comply could make a company ineligible for future government work.

The proposed rule, as written by policy-writers who are reviewed by the OMB, specifically exempts "contracts to be performed outside the United States." The rule was published in the Federal Register in November.

The Justice Department's request for the rule - dated May 23, 2007 - does not mention an exemption for overseas contracts. The request signed by Assistant Attorney General Alice Fisher suggests that some leeway could be given to small businesses only, but noted sternly that "the proposal does not relieve such contractors from the duty to report fraud."

"We believe all contractors, regardless of size, should be expected to report fraud when they become aware of it," Fisher wrote in the proposal, a copy of which was obtained by the AP.

The White House has repeatedly refused comment about the loophole. Jane Lee, a spokeswoman for the Office of Management and Budget, which oversees federal procurement policy, said it was inappropriate to discuss how or why the overseas exemption was included before the new rule becomes final. The rule is expected to become final later this year.

"All public comments will be reviewed and considered in response to this proposed rule," Lee said.

Additionally, officials with the Defense Department and the U.S. General Services Administration, which helped write the proposed policy, said they could not comment while the rule was still being considered.

The government has received more than 40 comments about the rule, mostly from businesses that oppose it and inspectors generals from federal agencies who support it.

Belisle, the spokeswoman for the Iraq inspector general, said her office was joining other agency watchdogs that have voiced concerns about the overseas loophole.

Viki Reath, a GSA spokeswoman, said the comments are being reviewed.


On the Net:

The contract fraud rule published in the Federal Register can be found at:

Iraq Protests Turkish Military Incursion

Iraq Protests Turkish Military Incursion

By Daniel Schearf

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Iraq's central and regional governments have protested the Turkish army's incursion into Iraq to attack Kurdish rebels. Iraqi authorities say military action will not solve the Kurdish rebel problem and have called for diplomatic pressure on Ankara to withdraw its forces and use diplomacy instead. Daniel Schearf reports for VOA from Irbil, the capital of Iraqi Kurdistan.

Irbil - Iraq's Foreign Minister Friday summoned the Turkish ambassador to protest Ankara's military incursion into northern Iraq.

Turkish media reports tanks and hundreds of Turkish troops crossed into Iraqi Kurdistan late Thursday in an effort to sweep out rebels from the Kurdistan Worker's Party (PKK).

The action followed an intense bombardment by Turkish artillery and warplanes on suspected PKK bases inside Iraq.

Falah Mustafa Bakir is head of foreign relations for the largely autonomous Kurdistan Regional Government. He says the Turkish army has reached areas previously thought safe from the conflict and already destroyed two bridges important to villagers.

"We believe that it's the responsibility of the United States, of the federal Iraqi government, and the international community to put pressure on Turkey so that we find a different way of handling this problem," he said. "We understand that this is a problem, but it cannot be solved through military operations."

In Washington, State Department officials called on Turkey to limit the scope of its ground incursion in northern Iraq and bring it to an early conclusion. The United States considers the Kurdistan Workers Party (PKK) a terrorist organization, but wants the Ankara government to limit its latest military drive against the Kurdish group out of concern for the broader security situation in Iraq.

Turkey has been fighting a decades-long battle with Kurdish rebels in southeast Turkey who want to form an independent Kurdistan. Tens of thousands have been killed in the fighting.

Turkey says the PKK has been using bases in Iraqi Kurdistan to launch attacks into Turkey and that the Iraqi authorities are not doing enough to stop them.

Bakir disagrees and says the Kurdistan Regional Government (KRG) has taken a number of measures since last year to limit the movement of the PKK.

"We have tightened the control at the checkpoints, at the airports, at the hospitals, supply routes," he added. "All of these measures have been taken by the KRG in order to show our goodwill to the Turkish side that we are not part of the problem and our people should not pay a price for a problem that they have nothing to do with, because the PKK is an internal Turkish issue."

Bakir says he cannot confirm claims by the PKK that they killed two Turkish soldiers and wounded eight more during the fighting.

The European Union has also urged Turkey to limit its military actions in Iraq.


McCain Disputed on 1999 Meeting

By James V. Grimaldi and Jeffrey H. Birnbaum

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Broadcaster recalls urging FCC contact.

Broadcaster Lowell "Bud" Paxson yesterday contradicted statements from Sen. John McCain's presidential campaign that the senator did not meet with Paxson or his lobbyist before sending two controversial letters to the Federal Communications Commission on Paxson's behalf.

Paxson said he talked with McCain in his Washington office several weeks before the Arizona Republican wrote the letters in 1999 to the FCC urging a rapid decision on Paxson's quest to acquire a Pittsburgh television station.

Paxson also recalled that his lobbyist, Vicki Iseman, likely attended the meeting in McCain's office and that Iseman helped arrange the meeting. "Was Vicki there? Probably," Paxson said in an interview with The Washington Post yesterday. "The woman was a professional. She was good. She could get us meetings."

The recollection of the now-retired Paxson conflicted with the account provided by the McCain campaign about the two letters at the center of a controversy about the senator's ties to Iseman, a partner at the lobbying firm of Alcalde & Fay.

The McCain campaign said Thursday that the senator had not met with Paxson or Iseman on the matter. "No representative of Paxson or Alcalde and Fay personally asked Senator McCain to send a letter to the FCC regarding this proceeding," the campaign said in a statement.

But Paxson said yesterday, "I remember going there to meet with him." He recalled that he told McCain: "You're head of the Commerce Committee. The FCC is not doing its job. I would love for you to write a letter."

McCain attorney Robert S. Bennett played down the contradiction between the campaign's written answer and Paxson's recollection.

"We understood that he [McCain] did not speak directly with him [Paxson]. Now it appears he did speak to him. What is the difference?" Bennett said. "McCain has never denied that Paxson asked for assistance from his office. It doesn't seem relevant whether the request got to him through Paxson or the staff. His letters to the FCC concerning the matter urged the commission to make up its mind. He did not ask the FCC to approve or deny the application. It's not that big a deal."

The Paxson deal, coming as McCain made his first run for the presidency, has posed a persistent problem for the senator. The deal raised embarrassing questions about his dealings with lobbyists at a time when he had assumed the role of an ethics champion and opponent of the influence of lobbyists.

The two letters he wrote to the FCC in 1999 while he was chairman of the Senate Commerce Committee produced a rash of criticism and a written rebuke from the then-FCC chairman, who called McCain's intervention "highly unusual." McCain had repeatedly used Paxson's corporate jet for his campaign and accepted campaign contributions from the broadcaster and his law firm.

McCain himself in a deposition in 2002 acknowledged talking to Paxson about the Pittsburgh sale. Asked what Paxson said in the conversation, McCain said that Paxson "had applied to purchase this station and that he wanted to purchase it. And that there had been a numerous year delay with the FCC reaching a decision. And he wanted their approval very bad for purposes of his business."

The deposition was taken in litigation over the McCain-Feingold campaign finance law filed by Sen. Mitch McConnell (R-Ky.). The contradiction in the deposition was first reported by Newsweek yesterday afternoon.

"I said I would be glad to write a letter asking them to act," McCain testified, recounting the conversation with Paxson. "But I cannot write a letter asking them to approve or deny, because then that would be an interference in their activities."

Iseman's connections to McCain have come into question this week after a longtime associate of McCain's said that he had asked Iseman to distance herself from McCain and his 2000 presidential campaign to protect McCain's reputation for independence from special interests.

McCain acknowledged during a news conference on Thursday that Iseman was a friend, but he denied doing anything improper for her or her telecommunications clients.

Paxson defended Iseman as a complete professional and said she was at her best when she worked on the Pittsburgh deal. He said they turned to McCain often when they ran into interference at the FCC, but Paxson added that McCain did not always agree with him. In three other major issues, Paxson said, McCain took the opposing viewpoint.

Paxson had used Alcalde & Fay as his lobbying firm in the 1980s when he founded and ran the Home Shopping Network, an enterprise that he later sold. In the mid-1990s, when he launched a plan to create a new national network, he stayed with Alcalde & Fay. In the early 1990s, when Iseman joined the firm, she became Paxson Communications' chief lobbyist, Paxson said. Paxson, now known as ION Media Networks, has paid Alcalde & Fay more than $1 million dollars since 1998.

Paxson saw no particular significance in the meeting with McCain before his penning the FCC letters. "Vicki Iseman, probably between myself and [Paxson Communications President] Dean Goodman at that time, took us in to see a thousand senators and congressmen," Paxson said. "She was our lobbyist. She was there and helped."

Paxson said Iseman had a personal interest in the Pittsburgh transaction because she grew up in the area.

Iseman, 40, was raised on a farm outside of Homer City, Pa., and attended Indiana University of Pennsylvania, graduating in 1990 with a degree in elementary education.

She went to Washington and got a job as a receptionist at Alcalde & Fay in Northern Virginia. Within a year, she had risen to special assistant to the firm's president. She was later promoted to lobbyist and was made the youngest partner in the firm in the late 1990s. She specialized in telecom issues, and one of her primary clients was Florida-based Paxson, which was rapidly purchasing a series of broadcast stations to create a national network.

Statements from McCain's office said Iseman met only with staff and indicated that a staff member was involved in drafting and sending the letter. Thursday's statement went to lengths to say why McCain could not have met with Paxson.

"Senator McCain was actively engaged in a presidential campaign in 1999-2000, and according to his calendar, the last day he conducted business in the Senate was November 8, 1999, and was frequently absent from the Senate prior to that," the statement said. "Between November 22, 1999 and Christmas, the Senator did not return to the Senate for any substantive meetings as he was involved in a national book tour and a presidential campaign."

But according to Paxson, the issue at hand when he met with McCain in his office in the fall of 1999 was the acquisition of a television station. Paxson had purchased 60 non-network broadcast television stations across the country, most of them UHF stations that were less desirable than the VHF stations typically favored by networks.

In 1998, Paxson launched PaxTV, his national network, which featured reruns of "Touched by an Angel" and other family-friendly fare. There was a major hole he wanted to fill in his network: Paxson had no presence in one top-20 market - Pittsburgh.

The transaction called for the Christian broadcaster Cornerstone TeleVision of Wall, Pa., to take over the noncommercial license of WQEX, the sister station to public broadcaster WQED. Cornerstone would then sell its commercial license to Paxson for $35 million. The money would be split between Cornerstone and WQED, which was operating in the red.

The proposed station swap was highly contentious in Pittsburgh and involved a multi-pronged lobbying effort by the parties to the deal. Local activists and some community leaders had objected to one of their public TV stations being turned over to a religious channel.

The public opposition caused a long delay at the FCC, and by late 1999, it had been 30 months since the deal was offered for FCC approval. "What you had was the FCC normally taking a year to approve the transfer of stations, but they took two years," Paxson said.

Lobbyists for Paxson and WQED gathered to plan a strategy to put pressure on the FCC. The group decided to ask McCain for a letter, and Iseman volunteered to get it, according to a participant in the meeting who asked to remain anonymous because of the sensitivity of the issue. Lobbyists say Iseman regularly talked about her access to McCain and his office.

Lanny Davis, a member of that group and a former aide to President Bill Clinton, said the lobbyists wanted a strong letter urging that the commission approve the deal.

McCain's letters did not go that far but were considered an anomaly for a senator who has become an advocate of ethical boundaries. McCain, as head of the committee overseeing the FCC and its budget, had significant sway.

On Nov. 17, McCain sent a letter to FCC Chairman William E. Kennard saying, "I write today to express my concern about the Commission's continuing failure to act" on the three-station deal involving Paxson.

McCain had flown on Paxson's corporate jet four times to appear at campaign events and had received $28,000 in campaign donations from Paxson and its law firm.

The second letter came on Dec. 10, a day after the company's jet ferried McCain to a Florida fundraiser aboard a yacht in West Palm Beach, Fla. The fundraiser was arranged by Hector Alcalde of Alcalde & Fay and was hosted by a cruise line that Alcalde had represented, Paxson said. Paxson said he attended the fundraiser.

The second letter was sent to other members of the FCC after McCain had not received a reply from Kennard.

"The sole purpose of this request is to secure final action on a matter that has now been pending over two years," McCain wrote. "I emphasize that my purpose is not to suggest in any way how you should vote - merely that you vote."

This letter was crucial because the deal among Paxson and the two other parties was set to expire. Without action by mid-December, the deal could be dead, Paxson said.

McCain wrote that he expected the commissioners "to advise me in writing no later than close of business Tuesday, December 14, 1999."

On Dec. 14, Kennard wrote back, warning McCain that he had breached FCC policy.

"Your letter," Kennard wrote, "comes at a sensitive time in the deliberative process as the individual commissioners finalize their views and their votes on this matter. I must respectfully note that it is highly unusual for the commissioners to be asked to publicly announce their voting status on a matter that is still pending."

Another commissioner, Gloria Tristani, who now practices law in Washington, said McCain's interference was offensive. She noted that, in the Paxson matter, the commission was serving as a quasi-judicial body.

"It was just not proper," Tristani said. "It is like going to a court and saying, 'Tell us before it is final how you voted.' "

McCain's request for a vote by a certain date also rankled. "It was highly contentious and could impinge on the process," Tristani said. "It was very controversial."

After the letters became public in 2000, they were widely criticized. Kennard's predecessor, however, defended McCain, saying he did not find the letters objectionable. A subsequent review by the FCC General Counsel's Office determined that McCain had violated the commission's ex parte rules, though the breach was deemed inadvertent.

Five days after McCain's second letter, the FCC voted 3 to 2 to approve the deal. The commission also imposed a condition prohibiting Cornerstone from "proselytizing." Cornerstone would not agree to those terms, and the deal collapsed.