Wednesday, March 5, 2008

Democracy is ill served by its self-appointed guardians

Democracy is ill served by its self-appointed guardians

Our sonorous moralising lies behind so much bloodshed in the past 50 years. A sense of history surely counsels humility

By Simon Jenkins

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This week's Russian elections were "limited" and "less than free and fair", according to western monitors. The last elections in Iraq, by contrast, were "a triumph for democracy". The forthcoming elections in Zimbabwe and Iran have been pre-emptively dismissed as a travesty. Those in Pakistan were, by general consent, an affirmation of freedom.

Democracies are like two-year-olds: adorable when they belong to you, but you never see them as others do. Downing Street had a problem with the new Russian president, Dmitry Medvedev, since the procedure by which he was chosen was little short of feudal. Yet Gordon Brown could hardly slap him on the back as the victor in some great electoral tourney. Medvedev might hit back with a joke about western leaders also being slid into office by friends and predecessors - and at least he had an election of sorts. The British prime minister wisely muttered something noncommittal and put down the phone.

We are in the midst of an astonishing festival of elections in countries as diverse as Russia, Pakistan, Iran, Taiwan, Kenya, Georgia, Armenia, Cyprus, Thailand, Serbia, Zimbabwe, Spain and Italy. And then there is the daddy of them all, America's primaries. Only one generalisation can be made of them, that no generalisation applies.

Democracy is the new Christianity. It is the chosen faith of western civilisation, and carrying it abroad is the acceptable face of the Crusader spirit. In reinterpreting Tony Blair's interventionism, the foreign secretary, David Miliband, spoke recently of the west's "mission" to promote democracy, even by economic and military warfare. With his eyes fixed on Iraq and Afghanistan, Miliband contrived both to assert that "we cannot impose democratic norms" and then demand that we do just that.

The truth is that neither Blair nor Miliband, nor the rest of us, has any idea of what we are about. We expect far too much of democracy, and of others who claim to espouse it. We treat it as a rigid set of rules from which no wavering is tolerable. The ballot is a sacred rite and any contamination is blasphemy. We incant the Nicene creed when we should stick to the Sermon on the Mount.

Let us upend the customary analysis. At one extreme stands an ideal: democracy as the full table d'hôte of secret ballots, civil rights, a free press, freedom of assembly, balance of power and discretionary local government. It applies in pathetically few states, even in the supposedly democratic west. Menken reasonably dismissed it as "a dream, to be put in the same category as Arcadia, Santa Claus and Heaven".

At the other, more crowded extreme is a rough and ready electoral process exerting some form of restraint on a ruling elite. One of Africa's nastiest dictators, Zimbabwe's Robert Mugabe, regards as a genuine threat the electoral challenge of his former finance minister, Simba Makoni, in an election Mugabe feels he cannot avoid. In Kenya what is significant is not that the leadership rigged an election but that the outcome was denied popular consent, and order collapsed as a result. The same happened in Serbia in 2000. Even Hugo Chávez, hero of Venezuela, had to concede defeat last autumn after a referendum denied his bid to rule for life.

Likewise Pakistan's military dictator, Pervez Musharraf, felt obliged to hold reasonably open elections, despite the likelihood that they would lead to his downfall. In Iran, thoroughly polluted elections still threaten to undermine the president, Mahmoud Ahmadinejad, who is milking the popularity bonanza America has handed him in Iraq.

In all these cases some ideal of democracy is exerting its mystic force. Even where consent is presumed, as in Russia, the ballot is the ghost in the machine. It is the ultimate legitimiser, the point to which all power aspires and from which it measures its own backsliding.

Russia's elections were imperfect, their casual and crude corruption by Vladimir Putin yet another way of displaying his autocratic machismo. He may have failed to live up to the standards the west "expects". But he appears to have correctly read the mood of his people, who simply want a strong hand on the wheel for as long as possible.

I cannot see what purpose is therefore served by hurling abuse at these states. Russia's path to political emancipation is tentative, if not in reverse. That country has never ticked more than a handful of democracy's boxes, yet is still incomparably freer than under communism. Its pastiche of monopoly capitalism - Putin's "managed democracy" - so contrasts with the chaos of the 1990s that even sophisticated Russians tell western interviewers that they would happily buy stability and discipline at the expense of another such gamble. We can tell them they are wrong until the cows come home. But we did not live in Russia in the 1990s.

Western leaders, as they beat a cringing path to the door of China's dictators, buy this argument from Beijing. Why do they expect Moscow to behave differently? The famous "raising of human rights issues" by western visitors to China, before talking hard cash, now has the familiarity of a tea ceremony. It is these same leaders who, having destroyed order in Iraq and Afghanistan, hail them as democracies when in reality they are anarchies, failed states. To vote for a ruler in a fortress is not to participate in a democracy.

There is just no point in the sonorous moralising of western NGOs characterised by the (normally admirable) Human Rights Watch. It complains that "by allowing autocrats to pose as democrats, without demanding they uphold the civil and political rights that make democracy meaningful, influential democrats risk undermining human rights".

What are these words "allowing ... demanding ... undermining"? Their major premise is not just western superiority, to which I might subscribe, but western potency and, most extraordinary (and illegal), a western right to global sovereignty. The assumption behind "demand" has lain at the root of so much useless bloodshed over the past half century that a sense of history might surely counsel humility. And this from a Europe whose rulers in Brussels propose using opinion polls as the basis for their legislative legitimacy, without a peep of complaint from democracy's self-appointed guardians.

Democracy is an invitation to hypocrisy. Let us practise it ourselves and, if we must preach, preach by example.

The Malign Magic of Misdirection

The Malign Magic of Misdirection

By Terry J. Allen

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It’s the oldest trick in the book. The magician flashes the shiny object to misdirect the audience’s attention from the real action. In the theater of politics and economics, the magic consists in getting people to focus on poor options so as to shift their sight from wider, more fundamental possibilities for reform. Distracted by half-truths and seduced by shortsighted strategies, we squander time, energy and political capital.

Think of it as the plastic vs. paper bag choice at the grocery store checkout line. Forget about parsing the relative carbon footprints and recycling potentials. Even if one bag is marginally less worse for the environment, both paper and plastic are lousy solutions. Reusable bags are the way to go.

Misdirection proliferates: We are distracted by arguments over such fundamentally flawed propositions as whether it is unhealthy to drink milk from cows dosed with bovine growth hormones (BGH) or eat meat from cloned cows.

Or whether increasing gas mileage of cars, substituting alternative fuels and switching to hybrids are effective strategies for countering global warming.

Should we help the environment by consuming Midwest lamb rather than chops all the way from New Zealand?

How can we alter lifestyle choices to lower cancer risks?

Is irradiated food toxic?

Is Sen. Hillary Clinton’s or Sen. Barack Obama’s proposal the better solution to America’s healthcare crisis?

Although each of these misdirections glitters with argumentative allure, they give aid and comfort to sloppy thinking and relatively trivial positions. The wrong question is unlikely to yield the right answer.

The problem with cloned meat, BGH milk and irradiated food is not the danger to personal health. Even if real, these risks pale in comparison to economic and environmental effects.

Safe to eat or not, meat from cloned animals should be banned because the proliferation of such herds would strengthen the worst aspects of factory farming and weaken the genetic pool. Cloned herds would take enormous up-front costs and become a monoculture crop of genetically identical animals susceptible to the same stresses and diseases.

The key harm from treating a dairy herd with BGH is not to us, but to cows and independent farmers. The treated cows burn out quickly and get sick; the farmers become economically dependent on chemical companies for the next fix of the drug.

And the larger impact of irradiated food is to allow manufacturers to sell fecal matter-laced foods, create a market for nuclear waste, and endanger workers and the environment. The argument over whether irradiated food is safe to eat is largely a distraction.

While raising fuel economy for the family car is a good thing, it is no substitute for an extensive public transportation system. Nor is the switch to biofuels—which raises global food prices by diverting farms from food production, encourages clearing new land and, in the case of palm oil production, devastates communities and the environment. Rather than providing an economically and environmentally sound solution to the oil crisis and global warming, these short-sighted choices allow us to perpetuate an insane system.

As for the lamb chops: It turns out that the carbon foot (hoof?) print of New Zealand lamb, which graze in open pastures, is lower than that of Midwest sheep that rely on factory farming, drugs, and grain raised with pesticides and chemical fertilizers. But the distinction is tiny. The critical problem centers around the amount of meat we eat and the way we raise animals.

When it comes to cancer, until research money goes into examining the effects of carcinogens in the environment, and until we ban the poisons, lifestyle tinkering will do little to lower most cancer rates. (Smoking being the big exception.) But eliminating environmental carcinogens is less profitable than treatment—and far less attractive to pharmaceutical companies or to politicians reaping largess from polluting corporations.

And finally, neither the Obama nor the Clinton health insurance plan does the one thing essential to lowering costs and improving access to quality healthcare: Eliminate profit from the system by cutting out the insurance companies and for-profit hospitals. By shying away from fully funding healthcare with tax money, both plans diddle around the edges of the problem and create convoluted systems that diffuse demands for fundamental change.

When the magician is waving the shiny object, it is sometimes hard to focus on the other hand that is quietly picking our pockets and stealing our future.

Hamas Controls the Game

Hamas Controls the Game

By Jean-Marcel Bouguereau

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Israel is once again confronted with the choice between two bad solutions. Since Hamas - which has continuously bombarded the little town of Sderot - has extended its targets to Ashkelon, a coastal city of 110,000 inhabitants 65 kilometers from Tel Aviv, the Israelis may not sit idly by. But at what a price: Saturday alone, Israeli reprisals killed 63 people in Gaza, the organizers of that rocket fire, but also numerous civilians, including women and children, inciting the world's general indignation. Now everything indicates that this deadly operation could be the first of a series that could end up with the invasion of the Gaza Strip, the closing and control of the wall between Gaza and Egypt through which pass the rockets Iran furnishes Hamas and, undoubtedly, an out-and-out "cleansing" of this narrow band of territory. This recalls the slogan once invented by Yitzhak Rabin - Israel will fight terror as though there were no peace process and pursue the peace process as though there were no terror. That strategy is now less appropriate than ever.

"Israel behaves like a blind Goliath that strikes hard, with no political objective. (É) It's a mistaken concept, denuded of any strategic reflection, that leads nowhere," deems Professor Menachem Klein of Bar Ilan University. This specialist considers that "this whole operation has been counterproductive. It has not stopped the rocket fire; it has considerably weakened Mahmoud Abbas" who could not under any circumstances continue the peace negotiations. Nonetheless, having learned some lessons from the fiasco in southern Lebanon, people worry: what would the goals of such an operation be? According to good sources, people are talking about bombing - not targeted, but "indiscriminate" - around a two kilometer area from the point of rocket launches, or - another option - having the Army penetrate Gaza for a "two- to three-month" long operation to dismantle Hamas's military networks. With the IDF bogged down in a new quagmire and a peace process already in serious trouble. And with the possibility that Israel be caught between two fronts, should Iran activate Hezbollah in the North. Even as one IAEA official has just presented extremely alarming data with respect to Iran, most notably about the manufacture of a nuclear warhead.

Inescapable Hamas

Inescapable Hamas

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Three months after the international meeting the United States organized in Annapolis on November 27, 2007, can we still talk about an Israeli-Palestinian peace process? After seven years of subcontracting the Palestinian issue to the Israeli authorities, with the success we see before us, George Bush, supported by the Europeans, had imagined a last-minute re-engagement to save a regional policy shipwrecked in Iraq.

Taking advantage of the bloody rupture between Hamas's Islamists - sole masters of Gaza - and President Mahmoud Abbas's Fatah, Washington had conceived the following plan: favor the Fatah-controlled West Bank and make it the laboratory for the state-to-come, irrigated by donations gathered during the December 2007 Paris conference, so that Hamas, isolated in Gaza, should become the target of Palestinian anger and frustration and so that Palestinian public opinion would turn away from that organization.

For this plan to succeed, however, it would have been necessary for the Gaza Strip, under siege by the Israeli Army since its unilateral withdrawal in September 2005, to disappear into oblivion, preserved by UN transfusions. That was not the case, given Palestinian rocket fire that has spectacularly reversed the scale of deterrence during the last two years of a second Intifada that was too quickly deemed an indisputable Israeli military victory. Twice in the last several weeks, Israeli attempts to put a halt to that rocket fire - which primarily affects civilians, even if it is less deadly than the attacks of armed Palestinian groups during the 2001 to 2004 period - have turned to the Israelis' disadvantage.

First of all, the embargo Labor Defense Minister Ehud Barack wanted sparked the January dynamiting of a part of the border guarded by the Egyptian Army - which is very mistrustful of Hamas, a successor organization to the Muslim Brotherhood Hosni Mubarak's regime continues to incarcerate. The return of Israeli tanks to the alleys of the Jabaliya refugee camp March 1 and 2 was no more fruitful than previous attempts, decimating trapped Palestinian civilians without stopping the rocket fire. From this perspective, the outcome is proving catastrophic even, since the Israeli town of Ashkelon, ten kilometers north of Gaza, is now under fire from Palestinian weaponry more sophisticated than in the past and, according to Jerusalem, acquired thanks to Iran's support.

Consequently, the "West Bank First" plan has achieved precisely what it was supposed to avoid: installing Hamas at the center of the game and to such a degree that the pertinence of Israel, the United States, and the Europeans boycotting a radical organization that is also capable of pragmatism is more than ever open to question.

Hope When?

Hope When?

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A report issued Monday by Hope Now, the White House-backed mortgage industry group formed to help hard-pressed homeowners, makes one thing clear: homeowners aren’t getting the help they need.

From July 2007 through January, Hope Now helped 638,000 subprime borrowers. But nearly 70 percent of them were simply given a chance to catch up on late payments — a quick fix that means borrowers can easily fall behind again, especially if interest rates rise.

The remaining 195,000 borrowers received loan modifications. Hope Now did not specify how the loans were altered. If, say, the loans’ introductory rates were extended briefly, a common fix according to borrower advocates, homeowners may simply default later. For those who owe more on their mortgages than their houses are worth, rate adjustments may not be the best medicine.

In a speech on Tuesday, Federal Reserve Chairman Ben Bernanke recommended reductions in principal for such borrowers as a possibly "more effective means of avoiding delinquency and foreclosure." Unfortunately, the White House isn’t pushing lenders to take any specific steps — not even what the Fed chairman recommends.

The report’s lack of specificity clouds even its good news. In January, the pace of modifications picked up, to 45,320. If the acceleration continues and if the loans are modified in ways that make them affordable for the long run, Hope Now could make a lasting dent. Those are big ifs. More than one million subprime borrowers are now behind in payments and an estimated three million could end up in foreclosure over the next several years.

Industry’s (and the administration’s) latest claim is that lower interest rates are fixing the problem. In a speech on Monday, Treasury Secretary Henry M. Paulson Jr. credited "lower rates, rather than loan modifications," for helping borrowers cope with their junk loans.

But lower rates are just a reprieve. The loans are still debt traps, wired to adjust upward explosively if and when rates rise again. As such, they still need to be modified.

Lenders knew or should have known that the subprime loans of the bubble years were unsuitable for many of the targeted borrowers. People who invested in those loans also should have known better. But they all piled in because it was profitable while it lasted. Now they are not doing enough to clean up the mess they created. And the administration is enabling their inadequacy.

Bush officials: Congress irrelevant on Iraq

Bush officials: Congress irrelevant on Iraq

By William h. Mcmichael

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The Bush administration says the 2002 congressional authorization to go to war in Iraq gives it the authority to conduct combat operations in Iraq and negotiate far-reaching agreements with the current Iraqi government without consulting Congress.

The assertion, jointly made Tuesday by U.S. Ambassador David Satterfield and Assistant Secretary of Defense for International Security Affairs Mary Beth Long, drew an incredulous reaction from Democrats on a Joint House committee during a hearing on future U.S. commitments to Iraq.

“It's the view of the administration that as long as there’s trouble in Iraq that you have authorization of this Congress to continue there in perpetuity and define trouble as you desire?” asked Rep. Gary Ackerman, D-N.Y.

“We have authorization to defend the national security of the United States against the continuing threat posed by Iraq,” Satterfield replied. “The situation in Iraq continues to present a threat to the United States.”

The Bush administration also feels it does not need to seek the authorization of Congress to ratify two pending agreements with Iraq: a “Strategic Framework” that would govern “normalized” relations with the U.S., and a Status of Forces Agreement that would govern the “authorities and protections” of U.S. troops in Iraq past Dec. 31, the expiration of a U.N. resolution that the administration says authorizes their presence.

The agreements will “not tie the hands of the next president or, indeed, this president,” Satterfield said. “They will ensure that every policy option remains on the table. The size of the U.S. presence in Iraq, the missions to be performed by such forces, if forces are present, are decisions for the president and for the next president to make.”

And the president, the two officials said, can negotiate those agreements with the government of Iraq.

“You don’t intend to submit this particular Status of Forces Agreement with its authority to fight to the Congress for its approval?” asked Rep. Bill Delahunt, D-Mass.

“The secretary of defense has already testified, and I believe Secretary [of State Condoleezza] Rice has reiterated, that it is our intent and our obligation to coordinate with the members,” Long replied.

“Coordination is a lovely word, and I know consultation and notification are also words that are being used and will be used,” Delahunt said. “But I used the word, authorization,’ ” Delahunt said. “It’s the position of this administration that they do not need to come before Congress to receive authorization?

“That’s correct,” Long said.

“That’s correct,” Satterfield echoed.

During a combative exchange with Ackerman, Satterfield sought to allay the fears of critics who say the administration is trying to position itself to lock in a permanent U.S. presence in Iraq.

“The framework and the Status of Forces Agreement will not include a binding commitment to defend Iraq or any other security commitments that would warrant Senate advice and consent,” Satterfield said. “I wish to be clear: They will not establish permanent bases in Iraq, nor will they specify in any fashion the number of American forces to be stationed there. Congress will be consulted throughout the process.”

But Ackerman pointed out that if language in the November 2007 U.S.-Iraq Declaration of Principles is adopted, it would give U.S. troops in Iraq the authority to defend Iraq against an attack — which he said amounts to a license to wage war.

The principles, Ackerman pointed out, state that the U.S. and Iraq “intend to negotiate agreements” in which the U.S. would “provide security assurances to the Iraqi Government to deter any external aggression and to ensure the integrity of Iraq's territory.”

Satterfield said the Strategic Framework will not include any such commitment. At the same time, he said, “As would be the case of an attack on any friend and partner of the United States, the administration would have to consider, in consultation with the Congress, what would be the best measures to take in defense of United States’ interests in such an eventuality.”

“If Iraq is attacked, are you stating uncategorically that the administration will take no action?” Ackerman said.

“I can only state that the administration is responsible for the defense of the interests of the United States,” Satterfield said. “It will act in accordance with those interests, but I cannot and will not speculate on hypotheticals.”

The president cannot make an international agreement that exceeds his own constitutional authority, said Oona Hathaway, an associate professor of law at Yale University who took part in a follow-on panel. “If he acts in absence of a congressional grant, he can only rely on his own independent constitutional powers,” she said.

A typical SOFA is negotiated by the president, she noted. But anything that includes an authority to fight, as this proposal appears to do, she said, “Becomes an agreement that really must be submitted to Congress for approval either as a treaty or as a congressional-executive agreement.”

The dollar has been in a bear market since 2002

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The gold and energy markets are in rally mode mostly due to our weakening economy, the prospect for the Fed to continue to lower rates and the impact that is having on the doller. (Most of this article was put together yesterday and this morning, gold and oil are down as this Update goes out).


The dollar has been in a bear market since 2002. Here is a long-term chart:

[Image 1]

There is a concept in technical analysis called fanning where a trend goes through three accelerations in a long-term trend, fanning.

The first dark trend line is the first fan and they normally have the fastest acceleration. The second fan, the broken line, has a slower acceleration. The third fan is normally the last fan and is a sign the trend may reverse or may be over. Prices would normally have to base for there to be a reversal.

If we get a rally, short covering in the dollar, a third fan could start. From a technical stand point, the bear market in the dollar may be about 2/3s over.

We stated in past Updates that it was likely that the dollar would fall through the 75 level and head towards 70. It looks like the dollar is following this scenario. It would probably find support at this area.

If the dollar falls to 70, that would be about a 6.7% drop from its support of 75. Gold would have to move to $1,000 to break even if the dollar was hedged with gold. Oil would have to go to about $107 for a breakeven to hedge the dollar.

Of course, there are other variables driving gold and oil besides the bear market in the dollar.


Gold is up about 4 times since its low.

Again, the drop in the dollar is the main fuel for the current gold rally. Here is a long-term chart for gold:

[Image 2]

The fanning principle doesn't quite fit gold, yet, as normally the fans get weaker during a bull market. In the chart above the last rally has accelerated. This means there is not a red flag for gold long-term (according to the fanning principle), but the current acceleration line in gold is a red flag short-term. We would expect some profit taking and consolidation at the $1,000 level, technically speaking.

Again, there are other variables driving the price of gold, supply demand issues, geopolitical threats, and potential global financial disruptions.


Oil is up about 5 times since 2000 and 10 times since the low in 1998.

Besides the lower dollar, oil has rallied due to increased tensions between major oil producer Venezuela and its neighbor Columbia.

Below is a long-term chart for oil:

[Image 2]

Oil has a similar pattern as gold, but it seems as though prices are starting to consolidate around the $100 area.

Oil does have some bearish fundamentals that will probably weigh on prices. Our good friend Tom McClellan from the McClellan Market Report sent us a chart showing that demand is falling due to higher prices and a slowing economy that we posted in a recent Update.

Yesterday the Wall Street Journal posted an article " Americans Start to Curb Their Thirst for Gasoline" Click here to read the article if you're a subscriber.

Here is a chart from the article:

[Image 4]

The graph does show the correlation between high gas prices and demand

Longer-term the forces of supply and demand should take gold and energy prices higher.

Lower energy demand and the counter forces of a weak dollar will continue to make the energy markets volatile.

Foreclosure Plans Benefit Banks, but Do Little for Homeowners

Foreclosure Plans Benefit Banks, but Do Little for Homeowners

By Dean Baker

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Taxpayers foot the bill to finance bailout plans.

Washington DC - Many of the recent proposals to help homeowners facing foreclosure provide little relief for most of the families at risk of losing their home, according to a report from the Center for Economic and Policy Research. Under these rescues, taxpayers end up underwriting a bailout that could reap billions of dollars in profit for banks and mortgage holders.

The report, "Subprime Rescue Plans: Backdoor Bank Bailouts," examines the basic logic of these plans, focusing on the proposal offered by the Office of Thrift Supervision (OTS), to illustrate which parties stand to gain most if the government buys or guarantees bad mortgage debt.

"House prices have been falling at a 16 percent annual rate and will likely continue to fall. This means homeowners will build little or no equity throughout the duration of plans like this," said Dean Baker, author of the report.

This study shows that under these plans, homeowners will get to keep their house, but will be paying 85 percent more than if they rented a similar property. They will have little hope of accruing equity in a house that is falling in price and in which the initial terms of the mortgage have already put them underwater. Furthermore, depending on the rate of foreclosure, taxpayers could plausibly end up paying as much as $75,000 for each homeowner who stays in their home.

Under the OTS plan, falling house prices are particularly problematic, since a homeowner would need to accumulate enough equity to offset the bank's loss on the initial mortgage before they can claim a dime for themselves. Since most moderate-income homeowners only stay in their house for relatively short periods of time (the median is four years), most will accumulate no equity at all.

CEPR's analysis of these plans can be found here.

The Center for Economic and Policy Research is an independent, nonpartisan think tank that was established to promote democratic debate on the most important economic and social issues that affect people's lives. CEPR's Advisory Board of Economists includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Richard Freeman, Professor of Economics at Harvard University; and Eileen Appelbaum, Professor and Director of the Center for Women and Work at Rutgers University.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.

Carlyle Group, JPMorgan, and IMF plot strategy to protect wealth funds

Carlyle Group, JPMorgan, and IMF plot strategy to protect wealth funds

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Sovereign wealth funds are teaming up with the private equity industry, business trade associations and major financial institutions to strategize a defense against the growing political scrutiny of the $3 trillion funds.

Last week, about 30 lawyers and lobbyists — organized, according to one attendee, by a representative from private equity firm The Carlyle Group — conferred at JPMorgan’s New York offices to discuss their role in the growing political issue.

Congress, the Treasury Department, the International Monetary Fund and the European Union are questioning the government-backed investment funds that have made several high-profile investments in Western financial institutions in recent months.

Two subcommittees of the House Financial Services Committee plan to hold a joint hearing Wednesday to discuss the role of foreign governments’ investments in the United States.

According to an attendee of last week’s New York meeting, most in the group rejected the idea of starting a trade association. Many in the group worried that a formalized association would project the wrong image.

“I don’t think the funds think the answer to the problem is to look like [the Organization of the Petroleum Exporting Countries] or the Trilateral Commission or something coordinated and scary,” said another attendee. “I think the point is that they are going to work under the umbrellas of their government agencies or multilateral institutions.”

The funds themselves, say others, are also reluctant to join forces. Each fund, run by a host of diverse countries, carries its own geopolitical challenges. For instance, Norway, which boasts one of the oldest and most transparent funds, does not want to be lumped together with the more controversial China Investment Corp.

Many of the funds have hired their own lobbyists and public relations specialists, who informally discuss the issue. They also work through existing diplomatic channels, including embassies and congressional trips abroad.

That hasn’t stopped others from trying to start a trade association. In the past few weeks, a small group of mostly Republican lobbyists founded the Sovereign Investment Council, a membership association for the sovereign wealth funds and their domestic financial institution partners. Membership fees range from $200,000 to $1 million.

The council has attracted no funds as members, according to lobbyists close to the issue. “It’s an entrepreneurial group of lobbyists just trying to raise money,” explained one business lobbyist.

Council board members did not return calls for comment.

Over the past weeks, lawmakers have launched a series of inquiries into the funds. The IMF estimates that more than 20 of the funds, financed mostly by petrodollars and excess foreign exchange reserves, manage as much as $2.9 trillion — more money than either hedge funds or the private equity industry.

Last week, Virginia Reps. Jim Moran, a Democrat, and Tom Davis, a Republican, created a new task force to explore the funds’ ability to affect the international economy.

Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking, Housing and Urban Affairs Committee, held a hearing last November and plans a second. Committee staff members met with fund representatives from the United Arab Emirates and Singapore.

Executives from two of the largest sovereign-wealth funds — the Abu Dhabi Investment Authority and the Government of Singapore Investment Corp. — met two weeks ago with Clay Lowery, the assistant treasury secretary for international affairs. The administration is supporting IMF efforts to create a voluntary code of conduct.

For policymakers, regulating the funds is a delicate balancing act. On one hand, fund investments have propped up financial institutions, bringing in much-needed capital and creating jobs during a period of economic anxiety. Over the past 11 months, the funds infused about $69 billion into financial institutions sapped by the subprime mortgage crisis, according to some estimates.

But some lawmakers wonder whether foreign governments are more interested in making money or gaining political influence. Former Treasury Secretary Larry Summers warns that government-related investment entities could politicize the economics of corporations.

“If you think of an investment made by a state fund, there could be multiple motives. Perhaps we want the airline to fly to our country. Perhaps we want the bank to do extensive business in the country. Suppose we want suppliers in our country to be sourced. Perhaps we want some disablement of a competitor for our country’s national champion,” he said at a session on the issue at the World Economic Forum in Davos, Switzerland.

Voters also question the fund’s true motives. A survey conducted last week by Public Strategies Inc. found that 55 percent of registered voters thought sovereign-wealth fund investments would hurt national security, and 49 percent believed that investments would negatively affect the U.S. economy.

Sen. Evan Bayh (D-Ind.), chairman of the Senate Security and International Trade and Finance Subcommittee, argues that the government funds — particularly those owned by China and Russia — raise serious national security questions. Last week, he met with fund managers in Qatar, Saudi Arabia and Abu Dhabi.

Bayh and others would like stronger legislation limiting how much control the funds have over the domestic company and forcing the funds to be more transparent about their own business.

The debate is reminiscent of one that occurred two years ago, when a United Arab Emirates-owned company, Dubai Ports World, purchased a British-owned shipping company and gained control over parts of several U.S. port facilities.

Congress held a series of high-profile hearings on the issue and eventually passed legislation strengthening the Committee on Foreign Investment in the United States, the multiagency federal panel that evaluates foreign deals that raise national security concerns.

The foreign investment issue has returned to the spotlight over the past few months, as state-owned funds bought a series of passive but high-profile stakes in iconic Western brands including Carlyle, Citigroup, Merrill Lynch and Blackstone.

Last week, U.S. private equity firm Bain Capital and China’s Huawei Co. withdrew their application seeking approval for a planned $2.2 billion buyout of technology company 3Com Corp. after concerns that it would be rejected by CFIUS. They plan to restructure the deal to limit Huawei’s access to some critical U.S.-related Ethernet technologies.

The business community says that the withdrawal of the 3Com deal proves that the United States can effectively monitor foreign investment in sensitive industries.

“When Congress takes a second look at the law they passed last year, they’ll find it’s exactly the right tool to deal with that subset of investment that might deal with national security but also allows us to have an open investment environment that welcomes investment,” said Todd Malan, CEO of the Organization for International Investment.

Some members of Congress aren’t convinced. In testimony last month, Bayh described CFIUS as a “toothless watchdog” willing to “sacrifice our nation’s security on the altar of both ideology and monetary gain.”

And with the economy struggling and with the pressing presidential campaign, few expect Congress to leave the issue alone.

“One of the funds will ignore the advice of all the counselors and do something in the midst of an election and become the next Dubai Ports,” said one business lobbyist working on the issue. “That and a dicey economic situation will create the political atmosphere for something to happen next year.”

Crimes by Homeland Security agents stir alert

Crimes by Homeland Security agents stir alert

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U.S. Customs and Border Protection is supposed to stop these types of crimes. Instead, so many of its officers have been charged with committing those crimes themselves that their boss in Washington recently issued an alert about the ''disturbing events'' and the ``increase in the number of employee arrests.''

Thomas S. Winkowski, assistant commissioner of field operations, wrote a memo to more than 20,000 officers nationwide noting that employees must behave professionally at all times -- even when not on the job.

''It is our responsibility to uphold the laws, not break the law,'' Winkowski wrote in the Nov. 16 memo obtained by The Miami Herald.

Winkowski's memo cites employee arrests involving domestic violence, DUI and drug possession. But court records show Customs officers and other Department of Homeland Security employees from South Florida to the Mexican border states have been charged with dozens of far more serious offenses.

Among them: A Customs and Border Protection officer at Fort Lauderdale-Hollywood International Airport was charged in February with conspiring to assist a New York drug ring under investigation by tapping into sensitive federal databases.

Winkowski, a former director of field operations in Miami, called the misconduct ''unacceptable.'' He told The Miami Herald that while he wrote the memo because of an uptick in employee arrests last fall, he didn't believe the problem was pervasive.

''Do I believe this is widespread in our organization? No, I do not,'' he said in an interview Tuesday. ``Are there examples where we fall short? Yes.''

Two highly controversial issues, illegal immigration and national security, have thrust the Department of Homeland Security into the public eye as it labors to prevent another terrorist attack in the post-9/11 era.

The bureaucratic behemoth grew out of a controversial consolidation five years ago of several agencies, including the U.S. Customs Service and Immigration and Naturalization Service.

Employees of both joined either Customs and Border Protection or Immigration and Customs Enforcement, known for their acronyms CBP and ICE.

CBP handles the border, airports and seaports, while ICE investigates immigration and customs law violators.

''We as an agency are constantly policing ourselves so that the public trust is not diminished as a result of inappropriate activity, whether it's on the job, off the job, criminal or not criminal,'' said Zachary Mann, a special agent and spokesman for Customs and Border Protection in Miami.

Some Immigration and Customs Enforcement employees also have been caught up in episodes of alleged misconduct. But Anthony Mangione, the special agent in charge of Immigration and Customs Enforcement in Miami, said he was not aware of any increase in criminal or administrative actions ``even though we have had a substantial increase in personnel since the merger.''


Federal authorities normally keep administrative incidents quiet. But officials cannot control publicity in the event of serious criminal behavior, like the February case involving the Border Protection officer at Fort Lauderdale-Hollywood International Airport.

Elizabeth Moran-Toala, a six-year veteran, allegedly accessed an electronic database known as Treasury Enforcement Communications System, a tool to stop illegal drug imports.

According to an indictment, she is accused of tapping into the system several times to pass along information to a Delta Airlines baggage handler who was conspiring with a drug ring to transport cocaine and heroin from the Dominican Republic to New York. Moran-Toala, 36, was transferred to New York in February for prosecution.

Other recent South Florida cases -- mirroring a pattern along border states -- have involved officers and agents accepting payoffs for migrant smuggling, drug trafficking, witness tampering, embezzlement and rape.

Agency managers say these cases reflect individual criminal behavior, not the culture of the agencies.

But some longtime employees said administrative incidents, like hostile confrontations or heavy drinking, may reflect the low morale and intense rivalries following the merger of federal agencies under Homeland Security.

Some employees from the old Immigration and Naturalization Service are the most vocal in their complaints. They bitterly denounce employees who came from the old Customs Service for ''seizing control'' of both CBP and ICE, ''lording it over'' former INS employees and showing disdain toward immigration-related work.

Expected to improve efficiency, the merger has instead spawned tension. Both Border Protection and Customs Enforcement scored near the bottom in a 2007 survey of employee satisfaction at 222 federal government agencies.

''It's become a cultural clash, tensions between officers from the merged agencies,'' said a Customs and Border Protection officer who asked not to be identified because he did not have authorization to speak publicly. ``There's low morale and tension. Some people drink; others take it out on their colleagues or supervisors. It's no fun anymore.''

Mangione dismissed the notion that employee misbehavior is a result of post-merger friction. ``It's somebody being a criminal.''

Mangione, who came from Customs, noted Gabriel Garcia, second-in-command in the Miami Immigration and Customs Enforcement office, came from INS.


The tension may have been a factor in a Jan. 11 brawl between two ICE employees at a Broward police association hall. During a retirement party, an ICE supervisor with a Customs background allegedly attacked an ICE agent with an INS background.

According to an internal document on the episode obtained by The Miami Herald, ICE group supervisor Mack Strong assaulted ICE senior special agent Francisco Meneses at the party.

The altercation began when Strong used profanity to refer to another officer, also from INS, and Meneses asked Strong not to use such an expletive.

''Strong came at me again, grabbing me and throwing me down to the floor, where he continued to physically strike me with his fists,'' Meneses wrote in a memo that went to Mangione.

Neither Meneses nor Strong wanted to speak on the record.

Mangione said the case is being investigated: `` It was turned over to the Office of Professional Responsibility and there it lies.''

Iran Sanctions Vote Signals a Global Rift

Iran Sanctions Vote Signals a Global Rift

By Howard LaFranchi

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Some developing nations may be starting to sour on push by world powers to control lucrative nuclear technology.

United Nations, NY - The passage this week by the United Nations Security Council of a third set of sanctions against Iran places a spotlight on two trends in the international community's dispute with Tehran's nuclear program.

Perhaps most striking is the relative retreat by the United States from leading status among Iran's accusers, with European powers taking over the helm.

But there is also an emerging rift between some of the world's developing countries and the big developed powers at the forefront of the effort to impose punitive measures against Tehran. For countries like Indonesia, South Africa, and Libya, which questioned the timing of the new resolution, Iran's claim of victimhood at the hands of arrogant world powers seeking to control access to vital and lucrative technologies may be starting to resonate.

The mixed views of some developing countries were reflected in the Council vote. At 14 yeas and one abstention, it marked a retreat from the unanimous vote achieved on the second Iran resolution, which was approved last year. (The first resolution, approved in 2006, passed on a 14-to-1 vote, with Qatar voting "no.")

The abstention Monday came from Indonesia. In a Western-powers push at the end of last week to avoid other abstentions or "no" votes, language noting Iran's cooperation on the nuclear issue over recent months was added at the insistence of other developing countries.

"South Africa does not want to see [either] a nuclear Iran or a country denied peaceful technology," said Dumisani Kumalo, South Africa's ambassador to the UN, in a postvote statement. Ambassador Kumalo said South Africa, which once threatened to vote "no" or abstain, voted "yes" based on Iran's failure to comply with earlier resolutions.

But reflecting the view of other rotating Council members, including Vietnam and Indonesia, Kumalo said South Africa would have preferred to put off the vote and leave further deliberations on the Iranian nuclear program to the International Atomic Energy Agency (IAEA), the UN's nuclear watchdog.

In a statement, Iran played to concerns of developing countries that the world's developed powers seek to prolong their control of top lucrative technologies. "No country ... can solely rely on others to provide it with the technology and materials that are becoming so vital for its development and for the welfare of its people," said Mohammad Khazaee, Iran's ambassador to the UN. "Peoples across the globe have lost their trust in the Security Council" and see it as the work of "a few powers to advance their own agenda," he added.

The months-long debate over the merits of a third resolution, and the way in which the resolution was watered down to achieve passage, suggest the degree to which developing countries fear that the UN process could lead to military strikes against Iran.

Indonesia's ambassador to the UN, R.M. Marty Natalegawa, said it abstained to express how the resolution did not reflect the "mixed picture" of Iran's cooperation with international agencies. The resolution risks rendering Iran even less cooperative with the IAEA, he said.

The Security Council passed the third set of sanctions against Iran over its pursuit of uranium enrichment, a process the international community fears could lead to development of a nuclear weapon. In response, a defiant Iran promised to press forward with its nuclear program, including uranium enrichment. Iran "cannot and will not accept a requirement which is legally defective and politically coercive," Ambassador Khazaee said in a speech to the Council before the vote.

The resolution is considered an "incremental" increase in pressure on Tehran to halt its enrichment program, according to US officials. It is not expected to force a quick change of heart by Iran.

Yet there has been a shift of sorts in the international community: Recent diplomatic efforts concerning Iran's nuclear program reflect how the lead in pursuing punitive measures has been largely taken over by European countries.

Western powers have long agreed to play down the US role in the pressure on Iran, some analysts note, to avoid the appearances of a duel between longtime antagonists. "They want to emphasize that it's not the US versus Iran," says Ray Takeyh, an Iran expert at the Council on Foreign Relations in Washington.

But there are other reasons the Europeans are stepping up to the plate more emphatically, analysts say.

One is a matter of urgency mixed with proximity. Documents unveiled last week at the IAEA suggest that Iran, at least at one point, was seeking to build a nuclear warhead. With Iran also developing a long-range missile capable of reaching continental Europe, France and Germany want to avoid a world where they would fall within Iranian nuclear range.

In a statement following the vote on behalf of the foreign ministers of the Britain, France, Germany, the US, China, and Russia, Britain's ambassador to the UN, Sir John Sawers, said the resolution reflects the "ongoing serious concerns about the proliferation risks of the Iranian nuclear program."

The US role in efforts to pressure Iran has also been muddied by the National Intelligence Estimate, publicly released last December. The report concluded that Iran suspended its nuclear weaponization program in 2003. The intelligence estimate confused many countries about the US position and has led to divisions among US agencies and within the White House, some analysts say.

Those internal divisions have only put more emphasis on Europe's leadership role. Europe's strong concerns about Iran were initially expected to be reflected in a separate resolution that Britain, France, and Germany had proposed bringing up this week with the IAEA's board of governors in Vienna. But the proposal ran into a brick wall from nonaligned countries - that is, developing nations expressing views independent of Western powers - and was dropped Tuesday.

An IAEA resolution critical of Iran's actions and its lack of full transparency would have marked the first such action on Iran by the board since the Iran dossier was referred to the Security Council in 2006. But representatives of the Non-Aligned Movement said in Vienna Tuesday that they were adamantly opposed to any action by the board of governors.

"We don't think that there is any need for a draft resolution," said Norma Goicochea Estenoz, Cuba's ambassador to the IAEA and chair of the nonaligned countries' bloc of nations within the IAEA. "In our opinion, it would damage the environment of cooperation and confidence-building between the Islamic Republic of Iran and the agency."

Despite that setback for the Europeans, passage of the new Security Council resolution is expected to pave the way to passage of tougher sanctions by the European Union. The EU last year approved measures that were designed to promote implementation of the second Security Council resolution, but it has not before acted beyond UN measures.

More Starch in UN Sanctions

December 2006: United Nations Security Council first imposes sanctions, ordering all countries to stop supplying Iran with materials and technology that could contribute to its nuclear and missile programs. It also orders countries to freeze the assets of 10 Iranian companies and 12 individuals.

March 2007: Security Council votes to toughen sanctions after Iran expands its enrichment program. It bans Iranian arms exports and orders countries to freeze the assets of 28 additional individuals and organizations.

March 2008: The Council's third resolution, approved Monday, does the following:

  • Introduces monitoring of two banks with suspected links to proliferation activities, Bank Melli and Bank Saderat.
  • Calls on all countries "to exercise vigilance" in entering into new trade commitments with Iran.
  • Orders countries to freeze the assets of 12 additional companies and 13 individuals linked to Iran's nuclear or ballistic-missile programs.
  • Bans travel abroad by five individuals linked to Iran's nuclear effort.
  • For the first time, bans trade with Iran in goods that have both civilian and military uses and authorizes inspections of shipments to and from Iran by sea and air that are suspected of carrying banned items.

Ballot Shortages Plague Ohio Election Amid Unusually Heavy Primary Turnout

Ballot Shortages Plague Ohio Election Amid Unusually Heavy Primary Turnout

By Ian Urbina

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A federal judge in Ohio granted a request late Tuesday from Senator Barack Obama's campaign to extend the voting hours in 21 precincts in Cleveland by an extra 90 minutes because of a lack of paper ballots.

But because the order arrived after the polls had already closed, election officials were only able to reopen 10 polling stations, according to the Ohio secretary of state, Jennifer Brunner. That resulted in five additional votes being cast, Ms. Brunner said.

After a recent state review of touch-screen machines that raised concern about them, paper ballots were made available at all precincts for those voters who wanted to use them. Many more voters took advantage of the option than officials had predicted. The shortages of ballots were also caused by an unusually heavy turnout, officials said.

The federal judge, Solomon Oliver, denied a similar request for other precincts in Cuyahoga County, home to Cleveland, and for all precincts in Franklin County, where the capital, Columbus, is located.

Ms. Brunner said that in Clermont and Summit Counties, paper ballots ran out mostly due to a large number of independent and Republican voters crossing over to vote in the Democratic primary. In both counties, only the Democratic ballots ran out.

Heavy rain, sleet and ice forced at least 10 precincts to request permission to move, yet the weather did not decrease turnout statewide. Voting officials predicted that turnout would exceed 50 percent, which, they said, was at least 10 percent more than the turnout in the last two presidential primaries.

The number of requests for absentee ballots more than tripled those requested in the May 2007 primary, to roughly 187,000, according to election officials.

The counting of ballots promised to be slow in part because of the shift away from touch-screen machines and toward paper ballots.

In Texas, where voters faced clear skies and long lines, the campaign of Mr. Obama's rival for the Democratic nomination, Senator Hillary Rodham Clinton, held a stormy conference call on Tuesday night to sound the alarm about what officials said were numerous examples in Texas where "Obama supporters have taken over the caucus and locked out Clinton supporters who were waiting in line" and had done other things to circumvent party rules. The contest in Texas involved a primary and caucuses.

Contributing to the circus atmosphere of the call, which was full of denunciations against Obama supporters and proclamations about the democratic process, Bob Bauer, a lawyer for the Obama campaign, unexpectedly got on the line and heatedly challenged Mrs. Clinton's communications director, Howard Wolfson, who responded in kind.

Hector Nieto, a spokesman for Texas Democratic Party, dismissed the charges of widespread problems. Mr. Nieto said the party had revamped its electoral and caucus system specifically to address concerns mentioned by the Clinton campaign. There was a call bank at the party's headquarters staffed by 200 volunteers and a dozen lawyers, he said; by late Tuesday, it had fielded just 12 calls from people complaining about specific problems with the caucus system.

Nonetheless, there were many reports of overcrowded and chaotic caucuses, which began when the balloting ended. At one caucus in Austin, well over 300 people jammed into the Maplewood Elementary School cafeteria, quickly overwhelming the space filled with low-slung institutional tables and benches and a sign that said "Increase the Peace," a message heeded by the mellow crowd.

Workers there ran out of sign-in sheets and had to hastily copy more. Steve Wilson, a writer and editor who signed in for Mr. Obama, said he had expected a crowd but not one so large.

"They call this the Texas Two-Step, but it's more like the Cotton-Eyed Joe," Mr. Wilson said, referring to an old-fashioned line dance that is quite a bit more complicated than a two-step.

Turnout in Texas was projected to be above 26 percent, and there were widespread reports of long lines remaining at closing time for the polls. Over three million voters went to the polls, according to state election officials, and more Democrats cast early ballots this year than voted in the entire primary four years ago.

A national voter hot line run by the Election Protection Coalition received 30 to 40 calls from Texas voters who had been turned away from caucus sites. Some were rebuffed by fire marshals because of overcrowding, while others reported being told by people patrolling the front doors of the sites that they had to show proof of having voted to enter the location.

The order by the judge in Ohio to keep the polls open late seemed to have little effect because so many of the voting places had shut down. At Giddings Elementary School on the east side of Cleveland, workers had packed up the voting machines when the order was issued.

Not far away, Patricia Adams, 29, said she received a telephone call at home from the Obama campaign reminding her to vote and telling her that her polling place at the Lonnie Burton Recreation Center would stay open late until 9 p.m. But when she got there at 8:45 p.m., Ms. Adams said, the lights were off and no one was there.

"I was real disappointed," she said. "I feel like they took my voice away."

Of the more than 1,200 calls received by the election coalition's free hot line, about 60 percent were from Ohio and 40 percent were from Texas, said Jonah Goldman, a lawyer with the coalition. Most were from voters who wanted to find out their polling location or who were confused about registration requirements.

Mr. Goldman said that the polling place at the Orchard Elementary School in Cleveland ran out of ballots by 5:30 p.m. and that poll workers started handing out ballots from another district that included candidates in a different Congressional race.

Various precincts in Sandusky County ran out of ballots, and about 300 to 400 voters were turned away. All polling places stayed open there until 9 p.m., said Ms. Brunner, the Ohio secretary of state. She added that the ballot printing devices in the county elections office broke down, so new ones could not be supplied.

Ohio has experience with counting delays. In the 2004 general election, voters waited more than a month for final results, and in the 2006 primary, when absentee ballots had to be counted by hand, the tally took over five days.

A bomb threat at one school in Madison closed its polling place for an hour. A power failure at a polling place in Lake County was taken in stride, as poll workers ran extension cords from a nearby building and used flashlights to usher voters along.

Jeff Ortega, a spokesman for the secretary of state's office, said the reason for the increased absentee balloting was that more voters had become acquainted with a 2005 law that eliminated restrictions that previously required an excuse, like being ill, for people to be permitted to cast an absentee vote.

In Cuyahoga County, the secretary of state decided to count the ballots at a central location. The county has had a long history of voting scandals, including the conviction of several election workers on tampering charges after the 2004 presidential election and lines hours long to vote that year.

A Clean, Fair Fight

A Clean, Fair Fight

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If recent history is any guide, this fall's presidential election will be marred by vote suppression and cynical dirty tricks. Congress still has time to stop some of the worst offenses. The Senate is considering two bills, one to outlaw so-called vote caging and another to rein in duplicitous robo-calls. Congress should pass both bills well before Election Day.

Vote caging is a little-known but pernicious technique. Political operatives mail letters to voters, targeting areas where the opposing party is strong. If a letter is returned as undeliverable, the voter's name is put on a list to be challenged at the polls. The challengers try to persuade election officials not to let the person vote, or only to let them cast a provisional ballot. Some voters end up disenfranchised. No matter how the challenges turn out, they often create confusion and long lines, reducing turnout in the targeted precincts.

Minority voters have been especially victimized. In an infamous case in Louisiana, a Republican political operative boasted that a vote-caging program "could keep the black vote down considerably." Vote caging is sometimes defended as a way of removing ineligible voters from the rolls. But there are many reasons letters are returned, including errors in names and addresses, which are common on direct-mail lists.

Senator Sheldon Whitehouse, Democrat of Rhode Island, has sponsored a good bill that would require operatives to present better evidence when they challenge a voter's eligibility, such as verifiable proof that a prospective voter has moved or died. The bill would not deter legitimate efforts to keep ineligible people from voting, but it should greatly reduce the use of voter challenges as an Election Day dirty trick.

Political robo-calls are another tactic desperately in need of regulation. In the 2006 election, voters described being harassed by automated telephone calls - which called back as many as eight times after the recipient hung up. In some cases, the recordings began by saying that they included important information about one candidate, although they were really placed by the other side. The caller would then blame the wrong candidate.

Senator Dianne Feinstein, Democrat of California, has introduced legislation that would restrict political robo-calls in the run-up to an election, limiting an organization to no more than two such calls to the same phone in a single day. It would also require the call to begin with a clear disclosure of the group that was placing it.

Almost invariably on Election Day, there are reports of skulduggery followed by cries for reform. Once the election is over, however, the damage has been done. This year, Congress should take strong action to prevent the dirty tricks before they occur.

UK banks write off record £6.8bn in household debt

UK banks write off record £6.8bn in household debt

By Edmund Conway

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Britain's banks have been forced to write off a record chunk of household debt in the past year in the latest sign that families are struggling to keep up their repayments.

Lenders from around the country wrote off some £6.8bn in individual debts last year, statistics from the Bank of England reveal. It is the biggest annual total since records began in 1993, more than doubling in the past five years.

The news coincides with figures from Nationwide showing house prices are now suffering their worst streak since 2000, after falling for a fourth month in February.

With the credit crunch making it harder than ever for banks to seek funding in the City's money markets, they are clamping down on borrowers both by raising their mortgage rates and increasing the pressure on borrowers to pay back their debts.

Alan Clarke, UK economist at BNP Paribas, said: "This is certainly a sign that households are already struggling. The debt burden is high, and you would expect write offs to rise as a result.

"But it's still early days and there's more bad news in the pipeline. We haven't yet seen arrears starting to bite, and if these numbers look bad now, they'll look even worse in a year's time. There are plenty more dead bodies out there."

Experts said the increase in write-offs could also be a consequence of the new insolvency arrangements which came into place a few years ago.

The figures showed that banks classified a total of £2.1bn as bad debt in the final quarter of 2007, of which £1.6bn was consumer debt. Only a small fraction of this was mortgage debt, with the majority accounted for by credit card and other unsecured debts.

Although the number of families having their homes repossessed remains low in comparison with the peaks reached in the crash of the early 1990s, it has been rising fast in recent years. With families facing the biggest squeeze for more than 25 years by a combination of higher mortgage rates, rising food prices and the increasing tax burden, experts anticipate a coming wave of defaults.

Capital Economics said its own measure of bad debts, which takes into account the Bank's figures as well as business write-offs, had fallen towards the end of last year - largely because of an improvement in the corporate figures. However, analyst Vicky Redwood said they would soon start to rise again

In a further sign of the housing market's continued weakness, the Bank also revealed that the number of new mortgages being approved for homebuyers in January remained close to the recent nine-year low they plumbed in December. Lenders handed out 74,000 loans for house purchase - the second lowest since records began in January 1999, and only 2,000 higher than the previous month.

The pound slipped to a new low against the single European currency, with one euro costing 76.31p by the end of the day. However, the dollar's continued weakness meant it remained close to the $2 mark.

Philip Shaw, chief economist at Investec said: "This confirms the weakness of the housing market. It's a message we'll have to get used to because the market is likely to deteriorate further."

The total amount of mortgage debt lent by banks in January dropped to £7.4bn - the lowest figure since July 2005.

Nationwide said house prices dropped by 0.5pc in February, taking the annual rate of growth to just 2.7pc - the lowest since late 2005.

Gulf investors may not save Citigroup, Dubai executive says

Gulf investors may not save Citigroup, Dubai executive says

By Mirna Sleiman and Andrew Critchlow

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Mideast sovereign wealth funds may fail to save troubled U.S. banking giant Citigroup Inc. unless more cash is pumped into the lender, the head of a $13 billion Dubai-owned investment firm said Tuesday.

Sameer Al Ansari, Chief Executive of Dubai International Capital told delegates at a private equity conference that it will take more than the combined efforts of the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi investor Prince Alwaleed bin Talal to save the bank.

"It's going to take more than that to rescue Citi," Ansari said. He added that more write downs are expected and that Gulf investors would be required to bolster Citi.

The Abu Dhabi Investment Authority, or ADIA, a sovereign wealth fund owned by the world's fourth-largest oil exporter, last year bought a 4.9% stake in Citigroup.

The Kuwait Investment Authority also said in January it would invest $3 billion in Citigroup.

Al Ansari said "it would take a lot more money to rescue Citigroup." A spokesperson for Citi was unable to comment immediately when called Tuesday.

Dubai International Capital, an investment firm controlled by Dubai's ruler Sheikh Mohammed bin Rashid al Maktoum, owns a stake in HSBC Holdings PLC (HSBA.LN), bought 3.12% in European Aeronautic Defence & Space Co last year. The company also owns a stake in Standard Chartered PLC (STAN.LN), according to Zawya Investor.

The intervention of sovereign funds such as ADIA, which pumped $7.6 billion into Citi, has failed to stem a decline in the bank's share price that was first triggered by the emergence last year of an $11 billion sub-prime write-down that led to the resignation of the then embattled chief executive Charles 'Chuck' Prince.

Citi's share price has fallen by more than 33% since late November, when the ADIA stake purchase was first reported, till date to close at $23.09 Tuesday.

The bank said in January that it lost $9.83 billion in the fourth quarter spurred by $18 billion in write-downs. To stem the losses Citi said it planned to raise $14.5 billion in capital by selling stakes to investors including Saudi's Prince Alwaleed, the lenders largest single shareholder.

Since coming out in support of former chief executive Prince prior to his resignation billionaire Alwaleed has commented little on Citi's current travails.

A spokesperson for Prince Alwaleed's office didn't answer calls on Tuesday.

Middle East sovereign funds flush with cash from record oil earnings are looked upon as possible saviors for many international lenders reeling from continued U.S. sub-prime losses.

Sheikh Hamad bin Jassem Al Thani, chief executive of the Qatar Investment Authority, QIA, told Zawya Dow Jones in January that the emirate's sovereign wealth fund planned to invest up to $15 billion buying stakes in up to 12 blue-chip U.S. and European banks.

The Qatari fund said last month that it had built a significant stake in Credit Suisse Group . The Swiss lender later said it had incurred a $2.85 billion hit from bad trading.

House Dems Near Surrender on Bush Spying

House Dems Near Surrender on Bush Spying

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Tuesday's Washington Post reports that House Democrats are close to granting all of President Bush's demands for more domestic spying powers and telecommunications amnesty, in exchange for, well, nothing:

House and Senate Democratic leaders [say they are close to a bill giving the President] more domestic surveillance powers and grant[ing] phone companies some form of immunity for their role in the administration's warrantless wiretapping program...

Unlike the Senate leadership, senior House Democrats have been fighting Bush's demand that telecommunications companies receive blanket amnesty for warrantless surveillance. Even when Bush refused to sign an extension of the surveillance bill without amnesty, the Democrats held firm and let the measure expire, drawing attack ads and fear-mongering from the G.O.P. By surrendering now, Democrats would not only ratify the administration's assault on the rule of law. They would also be practicing a self-destructive brand of political cannibalism that thins their ranks and enervates their base. Salon's Glenn Greenwald explains it in crushing detail, which I think is worth quoting at length:

The signs are unmistakably clear that what was always inevitable -- full compliance by the House Democratic leadership with Bush's demands on warrantless eavesdropping and telecom amnesty -- is now imminent... There's very little point anymore in writing about how the Congressional Democratic leadership is complicit in all of the worst Bush abuses, or about how craven they are. All of that is far too documented....But what is somewhat baffling in all of this is just how politically stupid and self-destructive their behavior is. If the plan all along was to give Bush everything he wanted, as it obviously was, why not just do it at the beginning? Instead, they picked a very dramatic fight that received substantial media attention. They exposed their freshmen and other swing-district members to attack ads. They caused their base and their allies to spend substantial energy and resources defending them from these attacks.

And now, after picking this fight and letting it rage for weeks, they are going to do what they always do -- just meekly give in to the President, yet again generating a tidal wave of headlines trumpeting how they bowed, surrendered, caved in, and lost to the President. They're going to cast the appearance that they engaged this battle and once again got crushed, that they ran away in fear because of the fear-mongering ads that were run and the attacks from the President. They further demoralize their own base and increase the contempt in which their base justifiably holds them (if that's possible). It's almost as though they purposely picked the path that imposed on themselves all of the political costs with no benefits.

The Post even floats one Democratic ploy to hide the ball: a "procedural move would allow many Democrats to vote against immunity but still make its approval all but certain." I don't think Democratic voters will be fooled by that "move." Even if you don't follow the floor rules closely -- and Speaker Pelosi can prevent most of Bush's demands from coming to a vote at all -- it's obvious when the Democratic Congress caves. It's especially striking on issues like Constitutional rights and Iraq, where Democrats cave after loudly declaring their commitment to fight. Back in October, I wrote about this tendency to "Rage and Cave":

If you believe the papers, Congressional Democrats have spent the better part of the past seven years vacillating between shock and outrage. They are thunderstruck by every White House scandal, stunned to discover another lie from the Bush Administration and positively livid each time they realize Bush is negotiating in bad faith. That is, of course, until they cave again. The Democrats' current rush to pass the President's intelligence bill repeats this sorry pattern. After roughly three years of outrage over illegal domestic spying--complete with [Sen. Pat Leahy's] roars of "Shame on us!"--Democrats are now pushing legislation to validate more warrantless surveillance of American citizens.

It's only gotten worse since October. Just this week, Bush's attorney general flatly refused to enforce contempt citations issued by Congress to investigate allegations of criminal conduct by White House officials. House Democrats say they are outraged and they will fight the attorney general. But the spying bill grants the attorney general new powers to prevent courts from reviewing the administration's conduct.

In the end, the Democrats have not offered a coherent explanation for this policy or their political surrender. After following this issue closely, I can't explain it either. As Greenwald writes, even on the most cynical terms, this was the worst possible route. And on principal, of course, there is no defense for retoractive amnesty, which stymies court oversight and undermines the rule of law.