Monday, February 25, 2008

Deep recession feared in U.S.

Deep recession feared in U.S.

Falling business sentiment fuels gloomy outlooks

Jacqueline Thorpe

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Economists are no longer talking about a U.S. recession but a deep recession after figures yesterday showed business sentiment continued to plummet in early February.

Forecasts for a more severe retreat came as CIBC World Markets forecast U.S. house prices would end up sliding 20% before the dust has settled on the American housing meltdown. CIBC estimated 50% of U.S. homeowners who took out below-prime mortgages in 2006 will end up in a negative-equity position -- owing more than their house is worth.

"There seems to be a sense of a very deep-seated collapse in the economy," said Michael Englund, chief economist at Action Economics.

The Philadelphia Federal Reserve's index of manufacturing activity in the U.S. Northeast dropped to -24.0 in February from January's already terrible reading of -20.9. Analysts had been expecting a bounce to about -10 after that sharp drop in January.

"As far as this indicator is concerned, a recession, and a severe one at that, is already underway," said Paul Ash-worth, of Capital Economics.

"The headline index is now consistent with a deep recession, if sustained at this level," said Ian Shepherdson, chief economist at High Frequency Economics, in a note.

The index is based on a survey of manufacturing firms by the Federal Reserve Bank of Philadelphia and their plans for general activity, shipments, new orders, employment and hours worked. It is one of the earliest monthly readings on the U.S. economy and has had a solid track record at predicting national manufacturing and future trends in actual output.

The collapse in the outlook for activity six months out was particularly worrisome, Merrill Lynch said. It posted the steepest decline in the 40-year history of this report, suggesting the United States is facing a recession on par with the early 1990s' downturn rather than the milder 2001 contraction.

Mr. Englund said that although the index measures only sentiment -- gauging what businesses say they will do rather than actual output -- it prompted him to reduce his forecast for first-quarter growth to 0.5% from 0.8%.

He said both consumer and business confidence turned dramatically south as the U.S. Federal Reserve slashed interest rates by 75 basis points in an emergency rate cut in late January.

"The sheer panic tone to the Fed may have actually fed a sense of panic, which is the very thing they were trying to quell with interest-rate reductions, " he said.

While private-sector interest rates were dropping nicely at the turn of the year, rising inflation expectations amid soaring commodity prices have forced rates higher again.

Applications for U.S. mortgages plunged by 11.5% last week as borrowing costs on 30-year fixed-rate mortgages rose by 37 basis points to 6.09%, the highest since late December.

The rise in borrowing costs will be a further constraint on the U.S. housing industry, which is only half-way through its "worst … housing meltdown in the postwar era," said Benjamin Tal, senior economist at CIBC World Markets, in a report.

He estimates 30% of below-prime mortgages taken out in 2006, including subprime and other exotic mortgages, are already in a negative-equity position and that could climb to 50%, prompting the urge to walk away from homes.

The Subprime Hangover

The Subprime Hangover

Here Comes The $739 Billion Taxpayer Bailout

By Mike Whitney

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“The SEC probe of the securitization of subprime mortgages into collateralized debt obligations (CDOs), announced last summer, has yielded no official enforcement cases....SEC chief, Christopher Cox, along with other top-level administration officials, has cautioned against quick-fire regulatory or enforcement responses to the worsening credit crisis, noting that the market instead should be left to work it out.” Nicholas Rummel, “SEC Drift Said to Prevent Action on Credit Crunch”, Financial Week

That's right. The biggest economic scandal in the last half century, the subprime fiasco, and the “business friendly” stooges at the SEC are still sitting on their hands reciting passages from Milton Friedman instead of dragging crooked banksters off to the hoosegow in leg-irons. Go figure? SEC Chairman, Christopher Cox, has come under withering attack from Senator Christopher Dodd who chairs the Banking Committee and who accuses the SEC of being “asleep at the switch”.

Dodd said the SEC “needs to help restore investor confidence in the markets by more vigorous enforcement, by more comprehensive regulation of credit rating agencies, and increased accountability and transparency of publicly traded companies.” (Financial Week)

“Accountability...transparency” in Bushworld? Nice try, Dodd, but its a losing cause. The Bush administration is not just philosophically opposed to oversight; they've handed over the entire financial system to a cabal of banking scalawags who've turned it into their personal fiefdom. This same cast of fraudsters engineered the subprime swindle and ripped off trillions of dollars from investors around the world. And, don't kid yourself; Bush is proud of the damage he's done by taking a wrecking ball the SEC. For him, it's like a good day at the races. He has no intention of reigning in the crooks or restoring the publics' confidence.

New York Governor Elliot Spitzer has joined Dodd in criticizing the so-called “regulatory agencies” for failing to determine whether any securities laws were broken. In a Washington Post article, Spitzer blasted the SEC's inaction saying that the Bush Administration would be judged by history as a “willing accomplice” to the subprime collapse.

But Spitzer and Dodd are wasting their breath. The culture of corruption from 7 years of Bush misrule has spread like Kudzu to every jag and eddy in Washington. If we were really a nation of laws rather than nincompoops, federal agents would be busy rounding up every investment banker and hedge fund sharpie on Wall Street so they could get to the bottom of the subprime boondoggle. Regulators still haven't even decided whether it was a case of overzealous marketing of dodgy securities or downright fraud. That should be "job one" for the SEC.

The reason all this talk about “regulation” is so important now is that the same banking giants who cooked up the subprime scam have just presented the Bush administration with a $739 billion bailout package they plan to unload on the American taxpayer. According to Sunday's New York Times:

“As losses from bad mortgages and mortgage-backed securities climb past $200 billion, talk among banking executives for an epic government rescue plan is suddenly coming into fashion. A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble. The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes. To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.”

What Bank of America is proposing is that the US government guarantee the shoddy mortgages that the banks issued to “unemployed shoe-clerks with bad credit” so they could peddle them as Triple A “securities” to unsuspecting investors. Now that subprimes are blowing up at a record pace, the banks need a government bailout before their balance sheets are reduced to cinders.

But what does the poor taxpayer get out of the deal besides soaring inflation, bulging fiscal deficits, and the “warm and fuzzy” feeling that he's helped some tasseled-shoed charlatan keep his larder in the Hamptons full of Dom Perignon and crab cakes?

The reason we're in this mess is because financial innovation and deregulation have driven the markets off a cliff. And that started with the bankers. Financial innovation has nothing to do with the efficient deployment of capital for productive activity. No way. In fact, it is the exact opposite. The financial innovations of the last decade have primarily focused on transforming the liabilities of dubious mortgage applicants into complex debt-instruments which are enhanced with massive amounts of leverage and exotically-named derivatives. The investments banks and brokerage houses fought hard to establish the present system which they call “structured finance”. They spent over $100,000 million lobbying congress to remove the legislative firewall which kept investment and commercial banks separate. Those laws, particularly Glass Steagall, made sure that the public was protected from the Ponzi-scams which proliferated just prior to the Great Depression. But, now, 30 years later, the same scams are back with a vengeance. The cult of free market orthodoxy and Reagan-era flim-flam has put us on track for another stock market crash ala 1929. That's why Bank of America and their buddies in the industry have turned to the administration for a way out. Their flagging balance sheets can't take another year of rising foreclosures and dwindling assets. They need Big Brother to cover their debts and rebuild their capital-base. Otherwise its curtains.

Other versions of the so-called “Rescue Bill” have been floating around Washington for the last three weeks, but they all follow the same basic guidelines. Under one of the plans, 600,000 subprime mortgage-holders, many of whom are already delinquent on their payments or in some stage of foreclosure, would be able to refinance their loans under the Federal Housing Authority (FHA) which would federally guarantee the mortgage in the event of default.

Great idea, eh? So, now the taxpayer is going to have to pay for the people who lied on their applications (and who really can't afford the homes they're in) so the banks can recoup their losses. This plan doesn't make sense.

Why on earth would the taxpayer want to buy 600,000 subprime mortgages at “current value” when housing prices are falling, inventory is soaring, sales are sagging, foreclosures are at historic highs, and millions of homeowners are expected to simply “walkaway” from their loans?

No thanks. Let the banks go under. They created this mess. Besides, all we're doing is rewarding the people who deliberately destroyed the system. They can fend for themselves. The first order of business should be to restore public confidence; not bail out crooks. “Credibility” matters in a market-based system; especially one that relies so heavily on the hocus-pocus of fractional banking. When trust is lost; the system crashes. End of story. That means it's time to clean house at the SEC. Give everyone a pink slip, two weeks pay and send them home. Then scour the countryside like Diogenes for a few honest men.

Second, people in positions of authority have to be held accountable for their crimes. Millions of investors have lost their life savings or retirement in the subprime/securitzation debacle. Someone's got to go to jail. Apologies just don't cut it. So far, not one CEO has been led off to the Paddy-wagon in handcuffs. It has all been swept under the rug by an administration that has filled every regulatory position in Washington with industry lobbyists, business-friendly tycoons and corporate “yes-men”. The results are just what any sane person would expect; disaster. The financial markets are completely unsupervised; the SEC is just a subsidiary of the multi-national corporations. It has no teeth. If it was really independent; then Cox and his goons would be storming the investment banks with tasers and truncheons. Instead, he spends most his time explaining why he won't enforce the laws and prosecute cases.

And there should be no doubt about who is really responsible for the subprime woes. The investment banks employ some of the country's “best and brightest”. These are sharp guys who have studied at some of our finest colleges and universities. Does anyone really believe that a Harvard MBA---who understands all the fine-points of high-finance--really thought that ignoring all of the standard criteria for prudent lending, and issuing trillions of dollars in loans to applicants who had no job, no collateral, bad credit, and were unable to come up with a few thousand dollars for a down-payment---was a great idea?

Of course not. It was a swindle from the get-go. The reason the banks looked the other way and issued these shaky mortgages was because they didn't really think there was any risk involved. After all, it wasn't their money. They simply repackaged the loans into bonds and sold them off to someone else. No worries. But, does that make them any less guilty?

Consider this: If the banks didn't know that the mortgages were bogus, than why are all the various types of mortgages; including Alt-As, piggybacks, home equity loans, ARMs, prime, and "interest only"---defaulting at the same time? It is not just subprime mortgages that are failing; it runs the gamut.

The reason is obvious; it's because the banks were making windfall profits and didn't want to rock the boat. They knew they were peddling garbage. How could they not know? The banker's primary task in life is to figure out who can pay him back "with interest". And they're pretty good at it, too. So why did they start handing out hundreds of billions of dollars to anyone who could fog a mirror? In fact, it got so out-of-hand that (according to The New York State Commission of Investigation) "a homeless woman earning $10 an hour was recently approved for a $470,000 adjustable rate mortgage". In a similar incident, two Hispanic migrant workers in Bakersfield, California, who made roughly $45,000 in combined income, were approved for a mortgage on a home valued at $725,000.

These aren't innocent mistakes. They're part of a broader pattern to fudge the paperwork so unqualified "high-risk" loan applicants would look like J. Paul Getty and secure a mortgage. That way, the banks could continue to rake in lavish origination fees and maximize their profits.

But then the plan hit a rough patch and the Gravy-train tipped over into the ditch. When the credit storm hit the markets in August, the mortgage securitization went into deep freeze and the easy money from Wall Street dried up. The banks got stuck holding billions of their own bad paper. Now every foreclosure eats into their capital so, they've turned to the government for a handout. Of course, they don't want the public to know what's really going on so they've asked the Bush administration to help them pull the wool over everyone's eyes. According to the New York Times one banking official summed it up like this:

“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market.”

Really? So, on top of everything else, the banks want the Bush administration to organize a public relations campaign that will make the multi-billion bailout look like it was designed to help struggling homeowners instead of crafty bankers. Unbelievable. No doubt Team Bush will do whatever they can to help out.

Bank of America's proposed $739 billion bailout is just the first of many hyper-inflationary, economy-busting trial-balloons we can expect to see in the near future. The banking system is in terminal distress; collapsing from hundreds of billions in worthless assets, bad bets, and poor decision-making. Their capital impairment problems were all brought on by themselves. And they should be forced to pay the consequences, whatever that may be. They managed to take a simple, revenue-generating activity like mortgage lending, and turn it into a textbook case of grand larceny. It's pathetic.

In their present condition, many of the banks will be back for another handout in a matter of months. Next will be commercial real estate (CRE) which is already slumping and on its way down. Then it'll be the $160 billion in private equity deals and leveraged buyouts (LBOs) which need refinancing. Then it'll be the maxed-out credit cards, and delinquent student loans and defaulting car loans all of which are failing at a faster and faster pace. It is not just the “structured investment” market that's unraveling now; it's the whole speculative paradigm of hyper-inflated assets, toxic bonds, over-priced equities and bizarre-sounding derivatives which are crashing down in one great debt waterfall. The investment banks are at the very center of the problems. They've played it fast and loose from the very beginning and now they've come up snake-eyes. Tough luck. Only they shouldn't count on a $700 billion freebie from Uncle Sam to make up for their own bad judgment.

Taxes to Bail Out Robert Rubin

Taxes to Bail Out Robert Rubin

By Dean Baker

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No one wants to pay higher taxes, but when the big banks are in trouble, who could be so heartless not to open their pocketbooks? That seems to be the consensus in the media in their discussion of the latest set of plans to bail out the Wall Street clowns who are losing hundreds of billions of dollars in the housing market meltdown.

Just to remind everyone, we are in the middle of a meltdown of an $8 trillion housing bubble. In the most recent data, house prices were declining at a 16 percent annual rate. This rate of price decline implies a loss of $3.2 trillion (more than $40,000 per homeowner) over the course of a year. This collapse is throwing the economy into a recession and leading millions of people to lose their homes.

As part of this story, most of the major banks have taken huge hits as a result of the fact that the financial wizards who guide them apparently didn't know what they were doing. Most of these banks have seen their stock prices tumble by 50 percent, or more, as they have taken write-downs of bad debt that now exceed $100 billion. Citigroup, the gargantuan bank that has former Treasury Secretary Robert Rubin near the helm, currently tops the charts with more than $20 billion in write-downs. Everyone agrees there is much more on the way.

Clearly these are desperate times, but fortunately the government is there to lend a helping hand. The Office of Thrift Supervision (OTS), the agency that supervises the country's savings and loan institutions (that's right, as in the huge bailout of the 80s), has come up with a brilliant plan to help the banks. They want to hand them tens of billions of dollars by having the government buy up bad mortgage debt.

Here's the deal: The foreclosure rate is at a record high and rising rapidly. The collapse of the housing bubble has left millions of homeowners with mortgages that are underwater, with the value of the mortgage exceeding the value of their house. This makes it more difficult for them to hang onto their homes if they want to, since homeowners have no equity against which they can borrow to pay their mortgages in bad times. This situation is aggravated by predatory mortgages that were peddled en masse in the bubble years.

Other homeowners may no longer want to keep their homes because they owe more than the value of their house. It doesn't necessarily make sense to pay off a $240,000 mortgage on a house that is worth $200,000. For this reason, millions of homeowners are simply allowing banks to foreclose on their homes, letting them eat large losses on their loans.

The OTS plan has the government come to the rescue in this crisis. It would have existing loans restructured so underwater mortgages would be broken into two parts. A new mortgage would be issued that is equal to the current market value of the house. This new mortgage is guaranteed by the government.

The other portion of the mortgage is turned into a certificate that is equal to the difference between the value of the original mortgage and the current value of the house. This certificate is a claim against the sale value of the house, if it exceeds the value of the new mortgage.

In the example used by the OTS, the original mortgage is $220,000 for a home that is now worth $200,000. In this case, the new guaranteed mortgage is equal to $200,000. The holder of the old mortgage gets a certificate for $20,000. This certificate gives the holder (it can be traded) a claim against any money the homeowner gets from selling the house, after paying off the mortgage, up to $20,000.

The OTS would have us believe this is a win-win for homeowners, investors and the public. While they may have convinced the born-yesterday crowd that reports the news, it's not hard to find the trick.

House prices are falling. The home appraised (do we have honest appraisers?) for $200,000 today is likely to be worth 15 percent to 30 percent less in a year or two. That means a very high portion of the mortgages guaranteed today will subsequently go bad, requiring the government to make good on the guarantee.

To use the OTS numbers, suppose we put up $100 billion to guarantee 500,000 mortgages ($200,000 per mortgage). Let's say 40 percent of the mortgages subsequently go bad, costing an average of 50 percent of the face value, since homes will have to be sold at large losses. That means the OTS scheme will cost taxpayers $20 billion.

Of course proponents of the OTS scheme will point out we still allowed 300,000 low- and moderate-income families to stay in their houses. That is not much to show for our $20 billion investment. First, a substantial number of these homeowners - say 100,000, or one fifth - would have kept their homes in any case. That means we spent $20 billion to keep 200,000 people as homeowners. That's $100,000 per homeowner.

Furthermore, the vast majority of these homeowners will sell their homes before they ever accumulate a dime in equity. And they will almost certainly pay far more in mortgage and property tax each month than they would pay to rent a comparable home. This is housing policy that only a hare-brained Washington bureaucrat could love.

Oh yeah, the policy is an effective way to get money to Citigroup and other troubled banks, so at least it will do some good.

Will American Empire End Before It Ends the World?

Will American Empire End Before It Ends the World?

By Paul Craig Roberts

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The hypocrisy of US government officials is boundless. On February 18, the US government inflamed Serbians by recognizing Muslim separatists in Kosovo, a historic province of Serbia, as an independent country. Two hundred thousand Serbs marched in protest and the US embassy in Belgrade was damaged. Is this surprising? No, not unless you are an official in the American Empire. The notorious Empire Neocon Counsel, Azlmay Khalilzad, Bush’s representative to the UN, declared: “I’m outraged by the mob attack.”

What’s an embassy building compared to a province of Serbia, a province that stirs nationalist sentiments associated with the Serbs long military struggles with the Turks? Had it not been for the Serbs, Europeans would probably be Turks.

To neocon Khalilzad a province of Serbia is nothing. It is merely real estate to be given away by US recognition bestowed on a break-away movement led by what some consider to be a gang of Muslim drug runners.

Secretary of State Condi Rice also found the Serbian response to the US giving away part of their country to be “intolerable.”

Former Assistant Secretary of State Richard Holbrooke also sees no reason for the Serbs to be upset that America gave away part of their country. He explained away the Serbian protests by declaring: “The Russians are behind this.”

We can understand why US diplomacy is a failure when we see our diplomats explaining that, had it not been for the Russians stirring them up, Serbians wouldn’t have noticed the loss of a historic part of their country.

Perhaps Kosovo should have its independence. However, the US government could not have handled the issue in a more provocative way.

Washington has been interfering in Serbian internal affairs since the Clinton administration. Told that Americans had to prevent genocide, few paid enough attention to Washington’s facilitation of the breakup of the Yugoslav state during the 1990s and to the Clinton administration’s bombing and murder of Serbian civilians in order to support Muslim separatists in Kosovo in 1999. Clinton used NATO as cover, but the bombing campaign was not backed by the UN Security Council. Bombs fell on Serbia for 78 days, taking out public infrastructure, bridges, factories, power stations, petrochemical plants, telecommunications facilities, markets, refugees, the Chinese Embassy and a passenger train. “Sorry honey, tell the kids I won’t be home tonight. President Clinton decided to bomb my train.” Cluster bombs and depleted uranium were used. Clearly, the US government and its NATO puppets were guilty of war crimes under the Nuremberg standard.

Americans were told by an obedient media that the bombings were necessary in order to prevent Yugoslav leader, Slobodan Milosevic, from committing war crimes against the separatists who were stealing part of his country. After Clinton’s bombings intimidated the Serbian political establishment, Milosevic was turned out of office and handed over to the Americans for a payment of several hundred million dollars and delivered to the Hague for trial as a war criminal.

Milosevic represented himself at his trial and was more than a match for the trumped up charges. Unfortunately, he died in prison. Many believe he was helped on his way by an embarrassed American Empire unable to convict him.

What is the US government’s secret agenda in the Balkans? Why is the US government on the side of Muslims intent on severing Kosovo from Serbia? What is being served by creating a new Muslim state closer to Europe?

Whose interests are being served by Washington? Clearly, not our own. Or Europe’s.

And, please, none of that BS about “building freedom and democracy.” As one of England’s most famous conservatives, Peregrine Worsthorne, wrote on February 20, America’s reputation as “the West’s conscience is fatally weakened.”

Supposedly our time is the era of globalism and one worldism. Ancient European nationalities are dissolving into the European Union, a new super state. US corporations now have transnational interests devoid of any national loyalties. Yet, the US is hard at work dissolving a small Balkan state into even smaller constituent parts. Why is this happening? Why did Bush order US puppets in Britain, France and Germany to instantly recognize the historic Serbian province as a new Muslim state?

Is the new state of Kosovo, as rumors would have it, Richard Perle’s payoff to the Turks, or is the explanation that Serbia, like Palestine, Iraq, and Iran, lacking any international media reach, was easy for Empire Neocons to demonize in order to establish the precedent that Washington decides what territory belongs to who and who rules it. Clinton’s bombing of Serbia was a precedent for Bush’s bombing of Afghanistan and Iraq and now Africa and tomorrow Iran and Syria.

The day the Empire Crazies bomb Russia or China, we are all fried.

Be a macho super patriot, believe your government, help to fry the world. It’s the American way.

The Tightening Noose: Gaza Under Hamas, Gaza Under Siege

The Tightening Noose: Gaza Under Hamas, Gaza Under Siege

By Jen Marlowe

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Images from Rafah flicker on my computer screen. Gazans blowing up chunks of the wall that stood between them and Egypt, punching holes in the largest open-air prison in the world and streaming across the border. An incredible refusal to submit.

I learn via email that my friend Khaled Nasrallah rented a truck in order to drive food and medicine from Egypt into the Gaza Strip. He was acting for no humanitarian organization. He's just a resident of Rafah, a Palestinian town which borders Egypt, with a deep need to help and an opportunity to seize.

Rarely does our media offer images so laden with the palpable despair that has become daily life in the Gaza Strip. The situation has bordered on desperate since the outbreak of the Second Intifada in October 2000, when Gazans could no longer work inside Israel and the attacks and incursions of Israel's military, the IDF, became a regular occurrence. Closures on the Strip progressively intensified.

On January 25, 2006, Hamas, an acronym for "the Islamic Resistance Movement," won the Palestinian Authority parliamentary elections, defeating the reigning secular, nationalist Fatah Party. Israel, the United States, and the European Union all refused to recognize the new Hamas government and many elements within Fatah also went to great lengths to ensure that it failed.

Tension and violence mounted between the Palestinian factions, culminating in June 2007 in Hamas' takeover of the Gaza Strip. Israel responded by sealing the Strip. On September 19, following the repeated firing of crude Qassam rockets from the Beit Hanoun neighborhood in the northern Gaza Strip into the Israeli town of Sderot, the Israeli government unanimously labeled all of Gaza a "hostile entity." Since then, restrictions by the IDF on who and what is permitted to enter Gaza have grown harsher still. There are not many witnesses to testify to the plight of Gazans these days. I was lucky: In early January, in order to visit the participants of a peace-building program I once worked for, I got in.

It was a brief visit, so I didn't stroll down largely empty supermarket aisles or visit hospitals to check on which supplies were unavailable. Instead, I used the time to talk to Gazans involved in responding to the international siege and the internal crisis that had led to it.

There were even rare moments when the dual crises faded into the background, such as the afternoon when I drank coffee in Rafah with Khaled Nasrallah, his brother Dr. Samir Nasrallah, and their wives and children. Rachel Corrie, a 23 year-old peace-and-justice activist from Olympia, Washington, had been killed on March 16, 2003 while standing in front of their home trying to prevent its demolition by an Israeli military bulldozer. Between October 2000 and October 2004, the IDF destroyed 2,500 homes in the Gaza Strip. Nearly two-thirds of them, like the Nasrallah's, had been the homes of refugees in Rafah.

Now double refugees, like so many residents of Rafah, they ushered me into the living room of the apartment they have occupied since their home was destroyed in 2004. It was sparsely furnished, but the family's spirit more than compensated. When, for instance, thin, quiet Dr. Samir saw an opportunity to make his young daughters or nieces smile, his own face lit up. He clowned around as pictures were taken, encouraging the girls to find ever sillier poses.

Only as I was leaving did the siege make its presence felt. I pulled a few chocolate bars and a carton of Lucky Strikes from my backpack, saying, "I understand these are hard to find these days."

Dr. Samir accepted the gifts with an odd solemnity. He then unwrapped a single bar of chocolate, carefully broke it into small pieces and distributed a section to each of the little girls. With an equal sense of gravity, they sat on the thin, foam mats that lined the room, slowly biting off tiny pieces, letting the chocolate melt in their mouths. They were still sucking on the final bits as I said goodbye.

Entering Gaza

When I first found out that I had permission to enter Gaza, I wondered what I should bring with me. How much could I carry? What did a people under siege need most? I imagined filling my backpack with bags of rice, coffee, sugar, beans ? until I called my friend Ra'ed in Beit Hanoun.

"Hey, Ra'ed. I'm coming to Gaza on Wednesday. What can I bring you?"

There was a short pause. "Can you bring cigarettes? Lucky Strikes?"

Requests from other friends started coming in. Could I bring a carton of Marlboros? Viceroy Lights? Rania requested chocolate. Ahmad asked for shampoo.

There was something tragic and yet comic in these requests. Were they a sign that the situation wasn't as desperate as I feared? Or maybe, given the sustained stress Gazans have been enduring, the need for psychological relief took priority even over the staples of survival?

Ra'ed called back with an additional request. "Can you bring one of those rechargeable florescent lights? The power's being cut off now for eight hours at a time and my kids have exams. They can't study without light."

Erez border is the only crossing point for internationals entering the Gaza Strip. The border between Rafah and Egypt had been sealed since the Hamas takeover. I arrived at Erez, struggling with my three brimming bags and two rechargeable lights. The terminal had been completely rebuilt since my last visit a year ago. The modest building housing a few soldiers and computers was gone and in its place was a slick, spotlessly clean, all-glass complex. It felt as if I were entering the headquarters atrium of a multi-million dollar corporation.

My passport was stamped and I continued along a maze of one-way revolving gates. Crossing through the final gate, I found myself in Gaza, the sleek glass building and its sanitized version of the Israeli occupation suddenly no more than a surreal memory. I was on a cracked cement pathway, covered by dilapidated plastic roofing, in the middle of an abandoned field filled with nothing but stones and rubble. Realities, even small ones, change so quickly, so grimly here.

The Siege

Soon, I was in Ra'ed's car heading south to Rafah with Rania Kharma, a coordinator for the Palestinian-International Campaign to End the Siege on Gaza. I handed her the chocolate bars she had requested. "Thanks, habibti [my dear]" she said. "You know how important chocolate can be for a woman." Normally remarkably passionate, Rania now spoke and moved with the air of someone smothered by wet blankets.

We passed carts piled with bananas and oranges. "So there's fruit here. What exactly is getting in?" I asked.

Before the siege, she explained, there used to be 9,000 different items allowed into Gaza. Now, the Israelis had reduced what could enter the Strip to 20 items or, in some cases, types of items. Twenty items to meet the needs of nearly 1.5 million people. It felt like some kind of TV fantasy exercise in survival: You're going to a deserted island and you can only bring 20 things with you. What would you bring?

Medicine was on the list, Rania told me, but only pre-approved drugs registered with the Israeli Ministry of Health. Frozen meat was permitted, but fresh meat wasn't (and there was a shortage of livestock in Gaza). Fruit and vegetables were allowed in, but - Ra'ed quickly inserted - less than what the population needed and of an inferior quality. It was, he felt, as if Israel were dumping produce not fit for their citizens or for international export into Gaza.

"I cut open an avocado last week and found the inside completely rotten," he added.

Diapers and toilet paper were allowed entry, as were sugar, salt, flour, milk, and eggs. Soap yes, but not laundry detergent, shampoo, or other cleaning products.

"I'm not sure about baby formula," Rania said. "Sometimes you can find it, sometimes you can't."

Tunnels under the Egyptian border, once used mainly to smuggle weapons into the Strip, were now responsible for a brisk black market trade. Hamas, which controlled the tunnels, reportedly earning a hefty profit from the $10 it now cost Gazans to buy a single pack of cigarettes. Chocolate couldn't be found, not even on the black market. A bag of cement that once cost about $10 reached $75, and, by the time of my visit, couldn't be found at all. All construction and most repair jobs had ground to a halt.

The Ramadan fast is traditionally broken with a dried date. A special request for dates was made to the Israelis and granted - but only as a substitute for salt. To get their Ramadan dates, Gazans had to sacrifice something else.

"Israel says they're not going to starve us," Rania remarked with a wry grin as we neared Rafah. "They're just putting us on a really tight diet."

I was traveling to Rafah in order to purchase handmade embroidery from the Women's Union Association, a women's fair-trade collective. I was planning to bring the embroidery back to the U.S. for the Olympia-Rafah Sister City Project, initiated after the death of Rachel Corrie and working to realize her vision of connecting the two communities.

Rafah's economy used to be based on agriculture and on the resale of goods from Egypt, according to Samira, the energetic program director of the association. Over the last seven years, however, most of the orchards and greenhouses in the town had been uprooted by Israeli military bulldozers. Then, once the siege began for real, Rafah's merchants could no longer obtain goods from Egypt. By the time I arrived, only about 15% of the population was working, most employed in government ministries.

Samira brought out a large plastic bag brimming with embroidered work. I fingered beautiful shawls and wall hangings as she eagerly described an exhibition of the women's hand embroidery held in Cairo last May. Every piece had sold out. The women had then stitched new pillowcases, bags, and vests at a frenetic pace for an exhibition in Vienna scheduled for September 2007. The Gaza Strip, however, was sealed in June. Neither the women, nor their embroidery could leave. That plastic bag contained what should have gone to Vienna. The project had already come to a standstill as the necessary raw materials, chiefly colored thread, were now unavailable. Once these pieces were sold, nothing would be left.

Samira encouraged Rania to try on a stunning, exquisitely stitched jacket, its joyous blaze of color strangely out of place in that bare office. It had taken a year to complete, she said proudly. I hesitated to buy it. It felt wrong, somehow, to remove that splash of color from decimated Rafah. But who else would be arriving in Rafah soon to buy from the collective? I asked Samira to prioritize which items she wanted me to purchase. She packed up the jacket, and as many other pieces as I could afford in that same plastic bag, and handed them over to me.

While Ra'ed and Rania argued energetically in Arabic on the drive back to Gaza City, I stared out the window, noting the green Hamas flags and banners that decorated nearly every street corner and intersection. As we neared our destination, I asked Rania if she wanted to join me that evening.

"I'd love to, habibti, but I have to get back to my apartment before 6:30. The electricity will be cut after that and then - no elevator. I live on the ninth floor and, since my knee injury a few years ago, it's really painful to walk up all those stairs."

Gaza in Darkness

Mahmoud Abo Rahma, a young man with intense green eyes, spent much of his time with me discussing Gaza's acute electricity crisis in his office at the Al Mezan Center for Human Rights. Israel's fuel restrictions were his primary concern. It wasn't just transportation that suffered when fuel was sanctioned, he explained. Without fuel for Gaza's sole power plant, the ensuing electricity shortage constrains health and education services, leading to an acute humanitarian crisis.

Mahmoud broke the situation down, jotting figures and connective arrows on a small sticky pad. Gaza needs 237 megawatts of electricity a day, 120 megawatts of which are supplied directly by Israel. The Gaza power plant used to supply 90 megawatts, which meant the Strip remained 27 megawatts a day short, even in what passed for "good times." Then, in June 2006 after the kidnapping of Israeli soldier Gilad Shalit, the Israelis bombed the power plant, truncating its capacity. With the siege and its acute fuel shortage, the plant could generate even less. Mahmoud feared that it might have to stop operating altogether. On top of this, he added, Israel was threatening to curtail the electricity it provides.

Sixty-eight people, he said, had already died as a result of the sanctions. Others had certainly suffered siege-related deaths in which multiple factors were involved. For those 68, however, a clear red line could be drawn directly to the siege - to disruptions in critical services or to the simple fact that someone couldn't reach Israel or Egypt for needed medical care unavailable in Gaza.

As Mahmoud scribbled down numbers and drew his arrows, my mind wandered from the 68 extreme cases to the thousands of day-to-day small sufferings that have become part of the fabric of life for Gazans. I imagined the Nasrallah family huddled under blankets trying to keep warm without a functioning electric heater, or Ra'ed's children studying for exams by candle or flashlight, or Rania climbing those nine flights of stairs on an injured knee.

The Hamas Takeover

Suhail is the director of the Rachel Corrie Cultural Center for Children and Youth in Rafah and its sister center in Jabalya Refugee Camp. Both centers are under the umbrella of the Union of Health Workers. "We are sometimes asked," Suhail told me, "how a children's center fits under the umbrella of a health organization, but the connection is very clear. According to the World Health Organization, health is not measured only by lack of illness. A healthy child is also healthy socially, emotionally, and mentally - and this is the role we play."

The obstacles to their work were large, he assured me. "Our activities are designed to help support children mentally, emotionally, but they don't want to leave the house. The kids are depressed. Everyone is depressed."

In 2005, the teens who made up the center's dabke troupe - dabke is a traditional Palestinian folk-dance - traveled to Britain, touring and performing in 15 cities. Now, they can't leave the Gaza Strip. "We want Al Jazeera to broadcast them performing in a local celebration," Suhail said. "The youth are also making their own movies, showing their daily realities. There are different ways to break a siege."

Their problems, Suhail made clear, didn't all stem from international isolation. "Yes, the siege makes everything much, much more difficult, but the internal crisis even more so. Religious conservatism is taking a stronger hold."

Nujud, a freckled young female student-volunteer, offered an example. "We used to have a mixed-gender community. There were even more girls participating than boys. Now, it's the opposite. Boys and girls are hesitant even to be in the same room with each other for fear of attack by Hamas." She pointed to a young male volunteer. "We have to be very cautious in our interactions with each other."

Suhail ended our meeting with the comment, "Making cultural change takes a lot of time. And it has a lot of enemies."

Samira, too, had indirectly brought up the impact of the Hamas takeover in Gaza. "After you leave here today," she said, "it's very likely that someone will come and ask about you. Who are you? What were you doing here?"

I sat a moment sipping sweet tea from a plastic cup and taking in her comment. "Did we put you in danger by coming today?"

"Nothing will happen to us," she answered. "They will just ask."

Samira sounded nonchalant. I felt less so. Comings and goings, it seemed, were being carefully, if unobtrusively, monitored.

New Levels of Violence

At the pristine offices of the Gaza Community Mental Health Program (GCMHP), Husam al Nounou and Dr. Ahmad Abu Tawahina brought into focus the degree to which the Hamas takeover had affected life in Gaza. Husam, the program's director of public relations, was soft-spoken and Dr. Abu Tawahina, its director general, was animated; both men radiated self-assurance and dignity.

By then, the large-scale, bloody political violence between Hamas and Fatah militants had ended. There were no longer shoot-outs on street corners. Military actions against Fatah-connected individuals were on-going, however. Dr. Abu Tawahina described cases of people leaving their houses only to find the body of a relative dumped on the street, or frantic Gazans calling police stations after a family member "disappeared," only to be told that there was "no information."

The margins of free speech, never large in Gaza, had decreased significantly, Husam told me. Direct or indirect messages of fear and intimidation are now regularly passed on to journalists and human rights workers. Fatah affiliates are beaten up, detained, their cars burned; Fatah-related organizations have been totally destroyed. I was reminded of Mahmoud's reply when I asked him if Al Mezan's ability to work, exposing human rights abuses to the people of Gaza, has been affected since the takeover.

"We are not changing our work at all," he said, choosing his words slowly. "We are not allowing ourselves to be intimidated."

Ideological and political differences between the movements have certainly played a major role in the internal fighting - Dr. Abu Tawahina carefully explained - as has the regional factor: Washington supports Fatah, while Hamas is backed by Syria and Iran. But, as Husam pointed out, other factors should not be ignored. "There is no tradition of democracy or transfer of power in Palestinian society," he said. "Fatah was not prepared to lose the January 2006 elections or give authority over to Hamas."

Add to this mix the adamant refusal of both the Bush administration and Ehud Olmert's government in Israel to recognize the democratically elected Hamas government, as well as their support for Fatah's attempts to sabotage it.

"What would have happened," I asked, "if Hamas had been given a chance to actually govern in the first place?"

After a long pause, Husam responded, "There's no way to know for sure. But I think there's a good chance that Hamas would have changed. There are lots of indications that they were initially willing to."

Dr. Abu Tawahina then widened the context of the discussion. Many Fatah officials had spent years in Israeli prisons, he commented, enduring torture at the hands of Israeli interrogators and soldiers. After signing the Oslo peace agreements in 1993, members of the Palestine Liberation Organization (in which Fatah is the most powerful faction) were permitted to establish a self-governing apparatus called the Palestinian Authority (PA). Israel put pressure on the PA to arrest those who opposed the Oslo process, particularly when opposition groups carried out attacks in Israel.

As a result, thousands of Hamas members, most of whom had not been involved in the violence, spent time in PA jails. Fatah interrogators then applied the same techniques to the prisoners in their hands as the Israelis had once used against them, even ramping the methods up a notch or two.

"In psychology, we refer to it as 'identification with the aggressor,'" Dr. Abu Tawahina told me.

Now, the very people Fatah abused in prison are in charge in the Gaza Strip and they are seeking revenge for a decade of mistreatment under Fatah. The phenomenon can be found in Gazan civil society as well. One hundred thousand Palestinian laborers used to work inside Israel, suffering daily humiliations at the hands of Israeli soldiers at the Erez crossing. If they directed their anger and frustration at their abusers, they would lose the permits that allowed them to work inside Israel. Instead, many erupted in rage at home at their wives or children, creating new victims.

The present level of internal violence in Gaza, however, has no precedent. Hamas took the detentions and torture that were part and parcel of Palestinian life under Israeli rule and later under the PA and added the previously unimaginable - Algerian-style executions and disappearances. These were something new as acts among Palestinians.

No one knows how many people have gone missing in these last months or the details of their torture. Hamas won't allow Gaza Community Mental Health Program staff to visit the prisons as they once did regularly. Human rights organizations are trying to compile lists of the missing, but there are no comprehensive statistics.

Meanwhile, frustration and anger inside the pressure cooker that is Gaza only mounts. Violence in the society as a whole, including domestic violence, is on the rise. New victims continue to be created.

"We attempted to work with the Fatah government when they were in charge," Husam said. "We tried to warn them of the long-term consequences their torture could bring. They didn't want to hear it."

Dr. Abu Tawahina tried to describe his fervent hope of one day building a community that would enjoy genuine democracy and the rule of law, no matter who was in charge. But in that office, his dream felt, at best, remote.

"Let's say," he added, "that Israel and the U.S. manage to overthrow Hamas and reinstall Fatah. Do you think that Fatah would now institute a program of reconciliation?"

Dr. Abu Tawahina let the question fill the room, unanswered. But from a barely perceptible shake of his head, I knew what his response was.

Society Unraveling

Because of an ever more traumatized population, the mental health program's services are desperately needed. The staff work feverishly, trying to develop new techniques to meet the catastrophe that is Gaza, but nothing, not telephone counseling, nor bringing in other NGOs, nor holding community meetings to give larger numbers of people coping tools can meet the escalating needs of the community.

"Peace is crucial for mental health services," Dr. Abu Tawahina said pointedly. "Our staff feel inadequate in helping our clients. When the source of someone's mental symptoms comes from physical needs not being met, then there is very little that therapeutic techniques can do."

At the moment, the community's most crucial resource - itself - is fraying. In Palestinian society, the extended family has always served as the center of a web of support and protection. Previously, the mental health project used this incredibly powerful social network as part of its outreach, making special efforts to educate family members in how to take care of each other.

With the split between Fatah and Hamas growing ever deeper, Dr. Abu Tawahina suggested that loyalty to political parties might be growing stronger than loyalty to family. In many families, the cracks are showing. Husam told me of families where one brother, loyal to Hamas, gave information to the Hamas leadership about another brother, active in Fatah, leading to his detention. I had even heard rumors of brother killing brother. The implications of this go far beyond the work of one mental health group. The very foundations of Palestinian endurance and survival are now threatened as the social fabric, their strength as a people, begins to unravel.

As our meeting was drawing to a close, Husam suddenly broached a new subject. "The level of hate towards those behind the siege - Israelis and Americans - is increasing. We need to show the human face of people from the U.S."

His comment reminded me that Samira and Suhail had also spoken about their desire to launch an Internet program between young people in Rafah and teenagers in Olympia, Washington, Rachel Corrie's hometown. In itself, there was nothing shocking about the fact that anger towards Americans, whose government strongly supported the siege and had also backed Fatah in the internecine struggle in Gaza, was on the rise. If anything, what was surprising, touching, and human was the urge of a few Palestinians to challenge that hatred and put a human face on Americans.

Dr. Abu Tawahina concluded with a sober warning. "Empirical studies show that collective punishment isn't limited to those who are directly subjected to the punishment. It affects the international community as well. What is happening now in Gaza may someday very well affect what happens later in Europe and the United States."

Small Hope

Now, back in the U.S., I stare at those images from just a few weeks ago of Gazans flooding into Egypt. I feel myself on some threshold between paralysis and hope - anguished by the unending desperation that led to the destruction of that wall and yet inspired by the way the Gazans briefly broke their own siege.

Dr. Abu Tawahina, I believe, is right. What we are allowing to occur in Gaza - and we are allowing, even facilitating, it - will come back to haunt us. Still, despite all the indicators of a society locked into an open-air prison giving in to violence and possibly fragmenting internally past the point of reconciliation, I hold onto a small hope. Perhaps those of us outside that prison will be affected by more than the explosive rage that inevitably comes from an effort to collectively crush 1.5 million people into submission. Perhaps we will also be affected by the Gazans who refuse to submit to their oppressors, be they from outside or within. Ultimately, I hope we'll choose to stand in solidarity with them.

The Calm Before the Conflagration

The Calm Before the Conflagration

By Chris Hedges

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The United States is funding and in many cases arming the three ethnic factions in Iraq - the Kurds, the Shiites and the Sunni Arabs. These factions rule over partitioned patches of Iraqi territory and brutally purge rival ethnic groups from their midst. Iraq no longer exists as a unified state. It is a series of heavily armed fiefdoms run by thugs, gangs, militias, radical Islamists and warlords who are often paid wages of $300 a month by the U.S. military. Iraq is Yugoslavia before the storm. It is a caldron of weapons, lawlessness, hate and criminality that is destined to implode. And the current U.S. policy, born of desperation and defeat, means that when Iraq goes up, the U.S. military will have to scurry like rats for cover.

The supporters of the war, from the Bush White House to Sen. John McCain, tout the surge as the magic solution. But the surge, which primarily deployed 30,000 troops in and around Baghdad, did little to thwart the sectarian violence. The decline in attacks began only when we bought off the Sunni Arabs. U.S. commanders in the bleak fall of 2006 had little choice. It was that or defeat. The steady rise in U.S. casualties, the massive car bombs that tore apart city squares in Baghdad and left hundreds dead, the brutal ethnic cleansing that was creating independent ethnic enclaves beyond our control throughout Iraq, the death squads that carried out mass executions and a central government that was as corrupt as it was impotent signaled catastrophic failure.

The United States cut a deal with its Sunni Arab enemies. It would pay the former insurgents. It would allow them to arm and form military units and give them control of their ethnic enclaves. The Sunni Arabs, in exchange, would halt attacks on U.S. troops. The Sunnis Arabs agreed.

The U.S. is currently spending hundreds of millions of dollars to pay the monthly salaries of some 600,000 armed fighters in the three rival ethnic camps in Iraq. These fighters - Shiite, Kurd and Sunni Arab - are not only antagonistic but deeply unreliable allies. The Sunni Arab militias have replaced central government officials, including police, and taken over local administration and security in the pockets of Iraq under their control. They have no loyalty outside of their own ethnic community. Once the money runs out, or once they feel strong enough to make a thrust for power, the civil war in Iraq will accelerate with deadly speed. The tactic of money-for-peace failed in Afghanistan. The U.S. doled out funds and weapons to tribal groups in Afghanistan to buy their loyalty, but when the payments and weapons shipments ceased, the tribal groups headed back into the embrace of the Taliban.

The Sunni Arab militias are known by a variety of names: the Iraqi Security Volunteers (ISVs), neighborhood watch groups, Concerned Local Citizens, Critical Infrastructure Security. The militias call themselves "sahwas" ("sahwa" being the Arabic word for awakening). There are now 80,000 militia fighters, nearly all Sunni Arabs, paid by the United States to control their squalid patches of Iraq. They are expected to reach 100,000. The Sunni Arab militias have more fighters under arms than the Shiite Mahdi Army and are about half the size of the feeble Iraqi army. The Sunni Awakening groups, which fly a yellow satin flag, are forming a political party.

The Sunni Arab militias, though they have ended attacks on U.S. forces, detest the Shiite-Kurdish government of Prime Minister Nouri al-Maliki and abhor the presence of U.S. troops on Iraqi soil. They take the money and the support with clenched teeth because with it they are able to build a renegade Sunni army, a third force inside Iraq, which they believe will make it possible to overthrow the central government. The Sunni Arabs, who make up about 40 percent of Iraq's population, held most positions of power under Saddam Hussein. They dominated Iraq's old officer corps. They made up its elite units, including the Republic Guard divisions and the Special Forces regiments. They controlled the intelligence agencies. There are several hundred thousand well-trained Sunni Arabs who lack only an organizational structure. We have now made the formation of this structure possible. These militias are the foundation for a deadlier insurgent force, one that will dwarf anything the United States faced in the past. The U.S. is arming, funding and equipping its own assassins.

There have been isolated clashes that point to a looming conflagration. A Shiite-dominated unit of the regular army in the late summer of 2007 attacked a strong Sunni Arab force west of Baghdad. U.S. troops thrust themselves between the two factions. The enraged Shiites, thwarted in their attack, kidnapped relatives of the commander of the Sunni Arab force, and American negotiators had to plead frantically for their release. There have been scattered incidents like this one throughout Iraq.

If the U.S. begins, as promised, to withdraw troops it will be harder to keep these antagonistic factions apart. The cease-fire by the radical Shiite cleric Moqtada al-Sadr, extended a few days ago, could collapse. And if that happens a civil war, unlike anything U.S. forces have experienced in Iraq, will begin. Such a conflagration, with the potential to draw in neighboring states and lead to the dismemberment of Iraq, would be the final chapter of the worst foreign policy blunder in American history.

Rescuing The Drowning Homeowners

Rescuing The Drowning Homeowners

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A new report from Moody's Economy.com states that 8.8 million homeowners, or 10.3 percent of the total, are "underwater," meaning they owe more on their homes than the homes are worth. Mark Zandi, the site's chief economist, observed, "The last time we saw so many homeowners with so many home values that were worth less than the amount of mortgage they owed was back in the Great Depression." As the housing crisis continues to slow the economy, effective solutions from the government are needed immediately. The 8.8 million figure is double the percentage of just a year ago, and by the end of 2008, as many as 15 million U.S. households may be underwater, according to Jan Hatzius of Goldman Sachs. This increase may "fuel an increase in foreclosures, erode prices and increase mortgage bond losses." As Sen. John Kerry (D-MA) writes today in the Boston Herald, "If we really want to address the economic anxieties of the average American, we must deal with the mortgage crisis and help hard-working families keep their homes."

ACTION IS NEEDED: "Our country faces a likely serious and possibly devastating economic downturn. Policymakers must act to stem the severity to the extent they can," notes John Podesta and Laura Tyson of Center for American Progress (CAP). Foreclosures jumped 75 percent nationally for all of 2007, and a recent report from the Joint Economic Committee estimates that over $100 billion in housing wealth will be lost through 2009. Housing prices have now declined for 11 consecutive months. Some observers seem remarkably cavalier about the enormous potential loss of American wealth, retirement, and education savings represented by plummeting home values for not merely subprime borrowers, but for whole communities, arguing that this is "just a natural correction of the market and that policy makers should let market forces play themselves out." President Bush continues to insistgreat danger of a over-correction with house prices in freefall. "The risks to the financial health of families are simply too high," notes CAP Senior Fellow Christian Weller. "The economy needs a dual solution. For one, income has to grow faster and families need to work out solutions for the mortgages that they cannot pay." The free-fall in home prices in many communities undermines refinancing options for all homeowners. CAP has also proposed a Great American Dream Neighborhood Stabilization Fund (GARDNS), along the lines of the recent proposal in Senate Majority Leader Harry Reid's (D-NV) Foreclosure Prevention Act legislation, moving funds to states and localities to acquire foreclosed properties quickly before neighborhoods deteriorate to the point of pricing collapse and blight.

NO MORE LIP SERVICE: Voluntary efforts and the limited interest rate moratorium offered by Secretary Paulson's Hope Now Alliance are too little, too late. Lawmakers are considering ways to aid the class of "underwater" borrowers, keep more people in their homes, and prevent prices from continuing to fall. The best proposals will ensure that those financial institutions that irresponsibly made credit available will take serious losses. This would not be a bailout, but instead would be a way to facilitate a transfer the loans to new lenders who can restructure these loans on sustainable terms. Senate Banking Committee Chairman Chris Dodd (D-CT) expressed interest in a plan to develop a new agency for this kind of transfer. House Financial Services Chairman Barney Frank (D-MA) is considering a variety of proposals. CAP Senior Fellow Michael Barr discussed the Saving America's Family Equity -- or SAFE loan plan -- inspired by the Home Owner's Loan Corporation created to deal with foreclosures in the Great Depression. To speed assistance to borrowers, the SAFE plan envisions using existing entities like the Federal Housing Administration, Fannie Mae, Freddie Mac, and Treasury to transfer the mortgages and offer new products for loans that better reflect the value of the homes and the borrower's capacity to repay.

STATES ACT: As they get hit by the housing crisis, states are demanding action, "calling on the Bush Administration to deliver a comprehensive solution to the ongoing mortgage crisis." Govs. Martin O'Malley (D-MD), Eliot Spitzer (D-NY), and Jon Corzine (D-NJ) said the two plans offered by the Bush Administration "exclude the majorityprovide money quickly and efficiently to local nonprofits or cities to buy foreclosed or vacant absentee-owned homes and offer them, as quickly as possible, for sale to qualified low- and moderate-income families on affordable terms."
that the economy is fine. Conservative housing experts like the American Enterprise Institute's Alex Pollack even agree there is of homeowners who need help." "The Administration should also take responsibility for the role of federal regulators and national banks in this crisis, and engage in greater collaboration with states in the development of a solution to this problem and a preventive strategy for the future," they said. Neil Pierce today says the GARDNS proposal is "appealing," as it would "

It's Also the Congress, Stupid

It's Also the Congress, Stupid

By David Sirota

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Empowering Capitol Hill progressives is just as important as presidental campaign platforms.

During one of the mind-numbing arguments between the candidates, Sen. Barack Obama (D-Ill.) was fighting off the claim that his universal healthcare proposal might not cover up to 15 million Americans. As an academic issue, it was an important exchange. But I suddenly realized: In real-world terms, the back-and-forth didn't much matter.

In this epic race for the Democratic nomination, the most minute policy differences are extrapolated into bombastic TV ads, direct mail pieces and debate one-liners. Amid the noise, few remember that what candidates say or propose can bear little resemblance to what ends up happening once they are in the Oval Office.

As proof, look no further than candidate Bill Clinton who said, "I'd be for [the North American Free Trade Agreement] but only - only - if [Mexico] lifted their wage rates and their labor standards and they cleaned up their environment so we could both go up together instead of being dragged down." And yet, hesubsequently steamrolled NAFTA through Congress.

Of course, every presidential election is, in that way, a leap of faith. But we can make an educated guess about what the different candidates' relationship to Congress will likely be-and that relationship dictates the possibilities for progress far more than any campaign promises. For example, in 2000 and 2004, a vote for Bush was a vote to centralize more government power in the hands of the White House, and, just as importantly, to create a rubber stamp for an extremist Republican Congress. With Bush vetoing the fewest bills of any president since the Civil War, movement conservatives were emboldened by the Bush administration to wield as much raw legislative power as the president himself.

For voters trying to distinguish between Sen. Hillary Clinton (D-N.Y.) and Obama, the question should be who is more apt to empower a Democratic Congress whose seniority and power rests in the hands of committed progressives.

Seniority and Ideology

A look across the committee structure on Capitol Hill highlights a unique opportunity for exponential change under a Democratic president.

In the House, progressives are concentrated in two clusters: New members swept in by the recent wave of anti-Bush sentiment, and senior lawmakers elected in the more progressive, pre-Reagan era.

Liberal Reps. David Obey (D-Wis.) and Charles Rangel (D-N.Y.) chair the two most powerful panels in Congress: the House Appropriations Committee, which oversees federal spending, and the Ways and Means Committee, which oversees taxes.

Another liberal, Rep. George Miller (D-Calif.), heads the Education and Workforce Committee that will be charged with reforming No Child Left Behind and strengthening labor laws. And progressive stalwart Rep. John Conyers (D-Mich.) heads the Judiciary Committee that could reform or scrap the Patriot Act.

In the Senate, the situation is much the same. Though many mid-level members of the Democratic caucus are rooted in the mealy-mouthed politics of mid-'90s Clintonism, progressive backbone is found among freshman populists like Sen. Sherrod Brown (D-Ohio) and, more importantly, among committee chairs like Sens. Barbara Boxer (D-Calif.), Ted Kennedy (D-Mass.) and Pat Leahy (D-Vt.). These three, respectively, run the Senate's Environment and Public Works Committee overseeing climate change legislation; the Health, Education, Labor and Pensions Committee involved in most domestic policies; and the Judiciary Committee impacting both civil liberties and nominations to the federal bench.

The less these progressives are inhibited by the executive branch and the threat of presidential vetoes, the more progressive change will come from Washington. In other words, the more Ted Kennedy is allowed to be Ted Kennedy, the better.

Clinton: "Hands-On"

Clinton has promised to be a "hands-on" president and criticized Obama for being vague about his policy prescriptions - a surefire sign that her administration would mean heavy executive branch influence over Congress. As political theorist James David Barber might say, Clinton would be an "active" archetype, involved in the most granular details of the legislative process.

In and of itself, this is not a negative. Passing some of American history's most important legislation has required such presidential engagement, from the New Deal program of Franklin Delano Roosevelt to the landmark bills of the '60s shepherded through Congress by Lyndon Johnson.

A domineering executive branch under Clinton, however, poses a potential problem, best summed up by one word: triangulation.

The first Clinton administration would position itself against Democrats in Congress when it believed doing so was politically opportune. In a Republican Congress, such triangulation meant the Clinton White House worked with the right to pass initiatives like NAFTA and welfare reform, to name just two.

In a Democratic Congress today, triangulation could mean stopping the passage of progressive legislation, with a President Hillary Clinton vetoing bills as a way to burnish her so-called "centrist" credentials.

Couple Clintonism's ideological affinity for triangulation with Hillary Clinton's public defense of corporate lobbyists, and the perils come into full relief. It would be no stretch to imagine a Democratic Congress passing some form of single-payer universal healthcare measure, only to have it crushed by a triangulating Clinton veto (or veto threat). The plaudits for such "toughness" would come from both the faux "centrists" in the Washington press corps and the health industry that has given more money to Clinton than to any other candidate.

Obama: Alinsky and Lawmaking

The Nation's Chris Hayes recently wrote that Obama's overarching "diagnosis of what's wrong with politics is the way it is conducted rather than for whom." Put another way, it's not the "what" but the "how." Fix how politics is waged-build a "working majority," as Obama says-and solutions to big problems will come.

This is a theme of famed activist Saul Alinsky, whose community organizations Obama worked with as a young man in Chicago.

As Alinsky wrote in Rules for Radicals, the best organizers possess "a belief that if people have the power to act in the long run, they will, most of the time, reach the right decisions." A President Obama would probably apply such a principle to Congress.

Thanks to Obama's nonconfrontational message of hope and "unity," he would be elected less with a mandate to enact anything specific than a mandate to get things done-almost irrespective of what those things are.

In James David Barber's terms, Obama would be a more "passive" president, like the one he credited with political acumen: Ronald Reagan.

The Gipper spent his political capital outlining overarching themes-and he avoided Capitol Hill brawls. A Democrat in that Reagan mold working with an assertive Democratic Congress clearly has more potential upsides than downsides.

Certainly, Obama has, on occasion, rhetorically triangulated against fellow Democrats. He once appeared on NBC's "Meet the Press" to publicly lambaste proposals to withdraw troops from Iraq. However, his concrete legislative actions (votes, bill sponsorships, etc.) have been solidly progressive, suggesting his general aversion to conflict-charged vetoes would be most pronounced when dealing with progressive legislation.

To again cite the healthcare hypothetical, it is easy to imagine a President Obama calling for universal healthcare with certain broad parameters, letting Democratic congressional leaders wage the trench warfare needed to pass it, and then signing a final bill - even if it ended up being more progressive than what he had in mind.

Admittedly, predicting future presidential behavior is all conjecture, and the known qualities of the candidates could produce far different results. Clinton's "hands on" style could result in a string of legislative victories for progressives that would have been impossible without that leadership style. Likewise, Obama's potential aversion to the veto pen might halt him from obstructing progressive bills, but it may also prevent him from stopping conservative ones that should be blocked.

Though the media's obsessive focus on presidential politics may lead us to believe the White House is all-powerful, Congress has been central to most of history's great reforms.

That means this race is not just about which candidate appears more progressive-but also about which candidate will allow progressives in Congress to be strongest.