Wednesday, March 26, 2008

Taxpayers May Be Liable for Billions in Fed, Treasury Mortgage-Rescue Bid

Taxpayers May Be Liable From Bear, Mortgage Rescue

By Craig Torres and James Tyson

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March 26 (Bloomberg) -- Even as the Bush administration insists it won't risk public funds in a bailout, American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.

History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns Cos., said Joe Mason, a Drexel University professor who has written on banking crises. Treasury's push to have Fannie Mae and Freddie Mac buy more mortgage bonds reduces the capital the government-chartered companies hold in reserve at a time when foreclosures and defaults are surging. Senators are promising to investigate.

Officials ``are playing with fire,'' said Allan Meltzer, a Fed historian and economics professor at Carnegie Mellon University in Pittsburgh. ``With good luck, none of these liabilities will come due. We can't expect that good luck, and we haven't had it.''

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson were forced to respond after capital markets seized up and Bear Stearns faced a run by creditors. In an emergency action that jeopardizes the dividend it pays the Treasury, the Fed authorized a $29 billion loan against illiquid mortgage- and asset-backed securities from Bear Stearns that will be held in a Delaware corporation. JPMorgan Chase & Co. contributed $1 billion.

Grassley, Baucus

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, and Charles Grassley of Iowa, the committee's ranking Republican, gave Fed officials and JPMorgan executives a March 28 deadline to describe the assets involved in the transaction.

``Americans are being asked to back a brand-new kind of transaction, to the tune of tens of billions of dollars,'' Baucus said in a statement today. ``It's the Finance Committee's responsibility to pin down just how the government decided to front $30 billion in taxpayer dollars for the Bear Stearns deal, and to monitor the changing terms of the sale.''

The Delaware company will liquidate the assets over 10 years, with JPMorgan absorbing the first $1 billion in losses, with the Fed bearing any that remain. Any such losses would hurt the Fed's balance sheet, and ultimately the taxpayer, because they would reduce the stipend the Fed pays to the Treasury from earnings on its portfolio. The dividend was $29 billion in 2006.

Pushed to Front

``The fact that Treasury and Congress have been unwilling or unable to be proactive and provide a solution that involves putting taxpayer money at risk means that the Fed has had to take more measures itself, also putting taxpayer money at risk,'' said Laurence Meyer, a former Fed governor, and now vice chairman of Macroeconomic Advisers LLC in Washington.

The Treasury is counting on voluntary loan restructurings and $117 billion in tax rebates to support the economy through the worst housing recession in a quarter century.

Treasury spokeswoman Jennifer Zuccarelli referred to remarks Paulson made March 16 that he is ``looking very carefully'' at additional proposals, ``but all the ones I've seen call for much more government intervention.''

A day earlier, President George W. Bush said some of the ``sweeping government solutions'' proposed in Washington ``would make a complicated problem even worse.''

McCain Position

Republican presidential candidate John McCain said in a speech yesterday that ``when we commit taxpayer dollars as assistance, it should be accompanied by reforms'' to ensure ``transparency and accountability.''

The average recovery on failed bank assets is 40 cents on the dollar over a six-year period, according to Drexel's Mason, a former official at the Treasury's Office of the Comptroller of the Currency. Nobody knows if that historical benchmark will hold for the Fed portfolio because the assets haven't been disclosed, they have already been marked down and the Fed has 10 years to recover value.

``Over 10 years, you might eventually get your money back,'' said Janet Tavakoli, president of Tavakoli Structured Finance Inc. in Chicago.

Still, ``that isn't costless to the Fed, it isn't the same as holding Treasuries,'' she said. On some low-documentation loans, ``you are going to be lucky to get 40 percent.''

Paulson reversed Treasury's stand of the previous three years in approving the decision to direct Fannie Mae and Freddie Mac to expand their $1.5 trillion mortgage assets. Previously, Treasury and the Fed had called for cuts in the portfolios held by the government-chartered companies.

Raising Capital

Fannie Mae and Freddie Mac will buffer against more risk by raising ``significant'' capital, Fannie Mae Chief Executive Officer Daniel MuddRichard Syron said at a press conference with James Lockhart, director of the Office of Federal Housing Enterprise Oversight that regulates the two companies. and Freddie Mac Chief Executive Officer

The companies reported record fourth-quarter losses totaling $6 billion and warned days before announcing the additional purchases that credit losses will rise this year.

Lockhart dismissed the view that taxpayers could be liable for such losses. ``Certainly not,'' he said. The companies ``have the capital, they support their own'' mortgage-backed securities.

Yet the Treasury's authority to buy $2.25 billion in each of the companies' securities has created investor expectations that the firms hold an implicit federal guarantee against losses.

Lenders allow Fannie Mae and Freddie Mac to borrow more cheaply than rival companies because they expect Treasury would provide a bailout before letting them default.

Because Fannie Mae and Freddie Mac own or guarantee about 40 percent of the $11.5 trillion home loan market, the cost of a bailout would be ``in the hundreds of billions of dollars,'' said Andrew Laperriere, managing director at International Strategy & Investment Group in Washington. ``Taxpayers should be increasingly concerned about the contingent liability.''

Goldman Sees $1.2 Trillion Global Credit Loss

Goldman Sees $1.2 Trillion Global Credit Loss

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Goldman Sachs forecasts global credit losses stemming from the current market turmoil will reach $1.2 trillion, with Wall Street accounting for nearly 40 percent of the losses.

U.S. leveraged institutions, which include banks, brokers-dealers, hedge funds and government-sponsored enterprises, will suffer roughly $460 billion in credit losses after loan loss provisions, Goldman Sachs economists wrote in a research note released late on Monday.

Losses from this group of players are crucial because they have led to a dramatic pullback in credit availability as they have pared lending to shore up their capital and preserve their capital requirements, they said.

Goldman estimated $120 billion in write-offs have been reported by these leveraged institutions since the credit crunch began last summer.

"U.S. leveraged institutions have written off less than half of the losses associated with the bursting of the credit bubble," they said. "There is light at the end of the tunnel, but it is still rather dim."

Of the cumulative losses expected by these leveraged players, bad residential home loans will represent about half, while poor-performing commercial mortgages will represent 15 percent to 20 percent.

The rest of the losses will come from credit card loans, car loans, commercial and industrial lending and non-financial corporate bonds, Goldman economists said.

Facing more credit losses, leveraged institutions have raised about $100 billion in new capital from domestic and foreign investors and reduced dividend payouts. This amount is more than three-quarters of the write-offs to date, the report said.

FEMA Takes Over Town In Prep For The Unthinkable

FEMA Takes Over Town In Prep For The Unthinkable

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A once-abandoned town in the middle of the New Mexico desert now is victim to "more bombings than Jerusalem ... more terrorist attacks that Baghdad," the Associated Press reports.

A video report profiles Playas, NM, a full-scale training ground for Federal Emergency Management Agency classes that give law enforcement agencies experience dealing with all manners of disasters.

"Just a few years ago it was a ghost town abandoned after a large mining company pulled out," the AP's Rich Matthews reports. "Today, it's a training ground for the unthinkable: Nuclear attacks, invasions and suicide bombings in the United States."

At one point about a thousand people lived in Playas, most of whom worked at a nearby copper plant owned by the Phelps Dodge company. Now only 25 families call Playas home, after the company shut down the copper plant in 1999. Of those, five aren't even related to the FEMA training operations, Matthews reports.

The Center for Land Use Interpretation says the demand for terror training has helped the town.

In 2004 New Mexico Tech (NMT) purchased Playas outright from Phelps-Dodge, using a $5 million grant from the Department of Homeland Security to begin converting the town into the nation’s primary counter-terrorism training facility. Training will include first responder and hostage negotiation, urban warfare and WMD exercises (including simulated nuclear, chemical and biological attacks) as well as terrorism related border security programs. Citizens of Playas and surrounding areas, indeed much of New Mexico, are thrilled at this much needed inflow of cash and jobs. The nation’s burden of war and debt has a direct, positive effect on this corner of the union.

Life for these families isn't quite normal, but they tell the AP they're adjusting OK.

"We have helicopters in the middle of the night flying overhead and explosions that can take place at all hours," resident Kim Kvame says. "It gets to be a part of the background noise that just lets you know you're home after a while."

This video is from The Associated Press, broadcast March 26, 2008.

Home prices, consumer confidence plunge in US

Home prices, consumer confidence plunge in US

By Joe Kay
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In continued signs of economic recession in the US, figures released on Tuesday show home prices and consumer confidence falling sharply.

The Conference Board, a business-backed research group in New York, reported that its index of consumer confidence fell to a five-year low in March, to 64.5 from a revised 76.4 in February. The reading was far below Wall Street expectations of 73.0.

The index is a relative measure, with confidence in 1985 set at 100. The overall index is at its lowest level since the early 1990s, except for a brief period in 2003.

The Conference Board noted that there was a particularly sharp drop in the index measuring expected future confidence, to 47.9 from 58.0. “The Expectations Index, in fact, is now at a 35-year low (Dec. 1973, 45.2), levels not seen since the Oil Embargo and Watergate,” a press release noted.

The collapse of consumer confidence is a reflection of the increasing economic strain felt by millions of Americans, who have been hit by high commodity prices, declining wages, and increasing unemployment. In February, employment fell by 63,000 jobs, the second consecutive monthly decline and the worst figure since 2003.

A major factor in the decline in consumer confidence is the continued atrophy of the housing market. High home prices had allowed many workers to sustain spending under conditions of economic stagnation. As housing prices drop, many homeowners are finding that they now have more debt than their homes are worth, leading to a surge of foreclosures.

US home prices recorded a huge drop in January, according to the Standard & Poor’s/Case-Schiller Index. A 20-city composite index saw an annual decline of 10.7 percent, the sharpest fall since the index was begun in 1983.

Price declines were most severe in cities where the housing bubble has been most pronounced, including Las Vegas, Nevada (-19.3 percent); Miami, Florida (-19.3 percent); Phoenix, Arizona (-18.2 percent); San Diego, California (-16.7 percent); and Los Angeles, California (-16.5 percent).

In Detroit, Michigan, home prices fell by over 15 percent, reflecting the ongoing economic decline of the center of the American auto industry. The average price for a house in the city of Detroit (excluding suburbs) fell 54 percent from a year ago, according to the Detroit Board of Realtors.

The sharpest drops have occurred in cities where the foreclosure rate is the highest. According to an article in the Wall Street Journal on Tuesday, foreclosure-related sales have accounted for more than 40 percent of all sales in many cities, including Las Vegas and San Diego.

Among the cities included in the index, only Charlotte, North Carolina, saw an increase in home prices, by 1.8 percent.

David Blitzer, chairman of the Index Committee at Standard & Poor’s, commented, “Unfortunately, it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007... The monthly data show that every one of the MSAs [Metropolitan Statistical Areas] has now declined every month since September 2007, marking five consecutive months. On top of that,” he noted, “the declines have increased through time, in general, as 13 of the 20 MSAs reported their single largest monthly decline in January.”

This means that the housing market still has a long way to go before prices start to stabilize. Figures released on Monday show that the median price of existing homes being sold in February fell by 8.2 percent.

The US housing market has been a significant factor in the financial crisis on Wall Street, where several large banks have speculated heavily in mortgage-related securities.

On Monday, New York City’s independent budget office estimated that 20,000 people will lose their jobs on Wall Street over the next two years. This figure, which does not take into account the recent crisis at Bear Stearns, likely significantly underestimates the number of job losses. According to Bloomberg News, some 34,000 jobs in the financial sector have been lost in the last nine months alone, including 6,200 jobs at Citigroup, 4,990 at Lehman Brothers, and 2,940 at Morgan Stanley. Bear Stearns may shed as many as 8,000 jobs as part of its restructuring after being purchased by JPMorgan Chase.

One week ago, in order to stave off a financial meltdown, the Federal Reserve supported the move by JP Morgan Chase to purchase Bear Stearns. At the same time, the Fed announced an unprecedented move to shore up other investment banks by opening its lending discount window. Previously, only commercial banks were allowed to borrow at special discount rates offered by the Fed.

Investment banks have been quick to seize on the Fed’s offer, indicating that they are in deep financial trouble and eager for cash. Close to $30 billion has been borrowed so far.

In another sign of a continued crisis among investment banks, JPMorgan Chase and UBS AG announced on Tuesday that they are cutting their earnings forecast for Merrill Lynch. Next to Bear Stearns, Merrill Lynch is considered to be the most exposed of the major investment banks to the housing market collapse. JPMorgan Chase analysts predicted that Merrill would have to write down an additional $2.1 billion of subprime debt.

U.S. consumer confidence at 5-year low: survey

U.S. consumer confidence at 5-year low: survey

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NEW YORK -- U.S. consumer confidence sank to a five-year low in March as tight credit markets, rising prices and worsening job prospects deepened worries that the economy has fallen into recession.

The Conference Board, a business-backed research group, said Tuesday that its Consumer Confidence Index plunged to 64.5 in March from a revised 76.4 in February. The March reading was far below the 73.0 expected by analysts surveyed by Thomson/IFR.

Meanwhile, a widely watched index of U.S. home prices fell 11.4 percent in January, its steepest drop since data for the indicator was first collected in 1987. The decline reported Tuesday in the Standard & Poor's/Case-Shiller index means prices have been growing more slowly or dropping for 19 consecutive months.

The weak readings depressed share prices on Wall Street. The Dow Jones industrial average dropped 74.37, or 0.6 percent, to 12,473.91 in morning trading. The Standard & Poor's 500 index and the Nasdaq composite index also fell.

The Consumer Confidence Index has been weakening since July, and is watched because lower consumer confidence tends to result in lower consumer buying, which is a drag on the economy.

Lynn Franco, director of the Conference Board's research center, said the latest index reading was the lowest since 61.4 in March 2003, just ahead of the U.S. invasion of Iraq.

"Consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon," she added.

Economist Bernard Baumohl, executive director of The Economic Outlook Group in Princeton Junction, N.J., said consumers' pessimism "reflects the great anxiety that households have because there are just so many uncertainties that everyone faces."

These include the weakening job market, the fact that incomes haven't kept pace with inflation and "growing recognition that households are less wealthy now than a year ago because of both the decline in home prices and in the value of their financial investments," he said.

Baumohl believes the economy fell into recession in the current quarter and that growth probably won't resume until the second half of the year, after government stimulus programs have had a chance to work. These include measures by the Federal Reserve to boost credit markets and the plan by the Bush administration to distribute tax rebates starting this summer to encourage consumer spending.

The Fed on Tuesday said it had received bids of nearly $89 billion for $50 billion in short-term loans offered in its latest auction to banks. So far, the Fed has made $260 billion in such loans since December to help ease credit conditions.

Baumohl said government actions should help the economy resume growth later this year, but that the recovery could be weak.

"Even if we emerge from recession sometime this summer, the second half of the year is going to feel bad," he said. "For most people, they won't be able to tell if the economy is growing 1 percent or shrinking 1 percent."

The Conference Board said were steep declines in two companion indexes.

The present situation index, which looks at current conditions, slumped to 89.2 in March from 104.0 the month before. The expectations index, which looks ahead, dropped to a 35-year low of 47.9 in March from 58.0 in February. The last time the reading was that depressed was in December 1973, when it registered 45.2 amid the Arab oil embargo and Watergate scandal, the Conference Board said.

In the expectations appraisal, a growing number of consumers said they expected business conditions to worsen over the next six months. On the labor market, consumers expecting fewer jobs increased to 29 percent in March from 28 percent in February, while those expecting more jobs declined to 7.7 percent from 8.9 percent.

The survey by the New York-based Conference Board is based on a sample of 5,000 U.S. households.

If the bailout comes, watch for a dollar dive

If the bailout comes, watch for a dollar dive

By James Saft

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LONDON (Reuters) - If the United States bails out the financial system by buying mortgage debt directly, the price just might be surging inflation and a dollar crisis.

Calls are increasing for the government, either directly or via the Federal Reserve, to cut the knot of the credit crisis at a stroke by buying up mortgages that banks and investment banks are finding difficult to finance.

If the United States bought mortgage debt at or very near 100 cents on the dollar, despite the fact that much of it is trading well below that, it would allow banks to pay back loans used to finance these holdings.

If done in sufficient size, say $800 billion (400 billion pounds) or $1 trillion, it would relieve the terrible pressure on bank balance sheets and allow other credit markets, like those for corporate loans, to return to something approaching equilibrium.

That in turn would make Fed monetary policy more effective in the sense that banks would be able to increase lending and pass on interest rate reductions.

Of course this is a radical step, and way beyond the Fed's already extraordinary policy of swapping mortgages held by banks and some investment banks for easy to finance Treasuries.

It is also hugely risky in terms of the Fed's obligation to maintain stable prices. Putting aside moral hazard -- many foolish borrowers and lenders would thus be given a free ride -- and depending on how such a bailout was done, it could stoke inflation to levels intolerable to foreign creditors, provoking a sharp fall in the dollar as they sought safety elsewhere.

Such a bailout would either have to be paid for by taxes, which seems unlikely, or would involve issuing more government debt or effectively expanding the money supply.

"There would be an inflationary impact because of the huge introduction of credit," said Philip Gisdakis, strategist at Unicredit in Munich.

"It's not $50 billion; we are talking about more like $1 trillion. This injection of capital you need will have consequences for the U.S. economy."

A bailout of that size is very likely to stoke inflation, which is already uncomfortably high, by effectively creating more dollars and putting them into circulation.

"If it's too big there will have to be an element of monetisation, with the Fed financing it," said Tim Drayson, economist at ABN AMRO in London.

"Monetisation is rising from what was a small likelihood to what is now an increasing risk."

To be sure, there is no political consensus for a major bailout, which is openly opposed by the Bush administration and would face serious difficulties gaining agreement in an election year. The U.S. Treasury said on Wednesday that proposals it had seen would do more harm then good.

That is partly why there has been such a startling turn around on allowing Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) to take on more risk and buy more mortgages. While their debt has an implicit government guarantee, they are shareholder owned.

But the $200 billion in new lending allowed to Fannie and Freddie by their regulator, The Office of Federal Housing Enterprise Oversight, might not prove enough.


The Fed's current policy of financing mortgage bonds, involving another $200 billion, has its limits as well. When that sum is exhausted, analysts estimate that it will have $300-400 billion of balance sheet capacity left before it either has to issue debt or purchases become inflationary.

If that happens, it would undoubtedly be with explicit approval of the Treasury.

"That would be a big expansion in the monetary base, which would have serious inflation consequences, not least foreigners' perception of the U.S. and the credibility of the Fed," said Drayson.

"You could see widespread dumping of dollar assets which would make the inflation self-fulfilling."

The question of how deep a dollar fall that implies is really in the hands of the United States' foreign creditors, like China and the Gulf states. Because they peg their own currencies to the dollar, exporting more to the United States than they import, they are regular dollar buyers.

A falling dollar causes inflation for them, a price thus far they have been willing to bear as a cost of a profitable trading relationship.

But eventually, if inflation and a dollar fall interact toxically, support from abroad might just dry up.

"If (foreign creditors) decide that they are not going to accept the inflationary policies of the Fed, you could see a pretty disorderly collapse," said Drayson.

"If we are talking a trillion dollars plus (bailout), it will be quite hard to avoid inflation as a consequence of that."

There are, of course, also consequences to the alternative course, which may lead to a round of failures by financial institutions.

In either event, the stakes are high.

The Fed and Crony Capitalism

The Fed and Crony Capitalism

By Thomas Palley
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The Federal Reserve’s recent decision to grant Wall Street access to special borrowing facilities smells of special dealing for special interests. The decision subsidizes the biggest most powerful investment banks, thereby distorting financial markets in their favor. Behind the decision lies the problem of excessive representation of Wall Street interests within the Fed.

The Fed’s response to the crisis, combined with its earlier massive policy failure to address asset price bubbles, raise grave questions about its independence and judgment. At this stage, Congress should launch formal hearings into the governance of the Fed, which has remained largely unchanged since the 1930s.

The Fed’s new Primary Dealer Credit Facility (PDCF) effectively gives Wall Street’s primary government securities dealers, which includes all the large investment banks, access to discount window borrowing. That means access to funding at the bargain basement interest rate of 2.5 percent, and all that is asked is borrowers post some form of investment grade collateral.

This arrangement constitutes a massive subsidy, which would be large in normal times. However, it is especially large at a time of market uncertainty and liquidity shortage. While other market participants are being forced to de-lever at fire-sale prices, the Fed’s friends are being given near-free government money to snap up assets.

Wall Street has been quick to embrace the facility, and within four days borrowing reached $29 billion. Erin Callan, Chief Financial Officer of Lehman Brothers, enthusiastically declared the facility to be "incredibly attractive... Our ability to access that form of financing to do more business for clients is incredibly interesting."

Morgan Stanley Chief Financial Officer Colm Kelleher described the facility as being "there for normal business. It’s not meant to be there as a last-recourse thing." A Goldman Sachs spokesman declared "we think the Fed window provides a good alternative to the secured funding markets and we welcome the initiative."

The new facility represents a complete break with the past. Previously, discount window borrowing was restricted to regulated depository institutions, and access was always described as "a privilege and not a right." That meant banks could only get access to cover seasonal shortfalls of funds or dire emergency needs, and any borrowing was subject to regulatory disapproval - so-called Federal Reserve "frown" costs. Now, the Fed has apparently made the discount window available to Wall Street as a source of ordinary business finance.

This means the Fed is providing risk capital to the likes of Goldman Sachs at paltry interest rates that confer a significant subsidy. Moreover, the mere right of access enables them to borrow more cheaply from other lenders because of the back-stop reassurance provided by discount window access. It also establishes incentives for future excessive risk-taking.

These subsidies are a travesty. Goldman Sachs, Lehman Brothers, and Morgan Stanley are extraordinarily profitable companies. They have also been the drivers of the worst trends in the American economy over the past generation, pushing excessive CEO pay that has spread like a cancer throughout corporate America, even reaching into universities and non-profits. Additionally, they have pedaled the shareholder value paradigm, that has pushed companies to emphasize short-term gain over long-term investment, and contributed to ripping up America’s social contract. Meanwhile, their business model has promoted speculation that is behind repeated asset and commodity price bubbles.

Subsidizing these firms is an insult to Main Street. Many families are losing their homes as part of the mortgage crisis. If they had access to 2.5 percent financing that would not be happening. Likewise, manufacturing firms are being forced to close because of lack of affordable capital, which is destroying jobs and the economic foundation of communities.

The Fed will claim it had to institute these measures to calm Wall Street. That is nonsense. The fair and economically efficient way to deliver emergency liquidity to Wall Street is through an auction facility that is open to all financial firms, and in which participants supply good collateral. Those who need the funds most will bid the highest. That way, taxpayers get properly paid for their support, and the funds go to those who need them most.

Geologists say they learn the most from extreme events like earthquakes that reveal the reality of the earth’s crust. For the past twenty-five years, critics of the Fed have been dismissed, and the Fed’s high standing has blinded the reality of its revolving door with Wall Street and its class-based conduct of policy. Now, the Fed’s response to Wall Street’s panic has revealed the reality of its crony capitalist world. That provides an opening for long-needed reform.

Thomas Palley is the founder of the Economics for Democratic & Open Societies Project. Read more of his work at

Pentagon Holds Thousands of Americans 'Prisoners of War'

Pentagon Holds Thousands of Americans 'Prisoners of War'

By Penny Coleman
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Sgt. Kristofer Shawn Goldsmith was one of the many soldiers and Marines, veterans of Iraq and Afghanistan, who gave testimony at last weekend's Winter Soldier investigation. They spoke from personal experience about what the American military is doing in those countries. They gave examples of what they had done, what they had been ordered to do, what they had witnessed, how their experiences had wounded them, both physically and psychically, and what kind of care and support they have, or most often have not gotten since coming home. The panel Goldsmith was on was called "The Breakdown of the U.S. Military," so he surprised the audience when he said that he was going to talk about prisoners of war.

He was not, however, going to talk about the three soldiers listed as missing in action on the Department of Defense website. He was referring to those who have been the victims of stop-loss, the device by which the president can, "in the event of war," choose to extend an enlistee's contract "until six months after the war ends." The "War on Terror" is this president's excuse for invoking that clause. Because that war will, by definition, continue as long as we insist that there is a difference between the terror inflicted on our innocents and the terror inflicted on theirs, American soldiers are effectively signing away their freedom indefinitely when they join the military. They are prisoners of an ill-defined and undeclared war on a tactic -- terrorism -- that dates back to Biblical times and will be with us indefinitely.

According to U.S. News and World Report, there are at least 60,000 of them.

"I was a great soldier once upon a time," Goldsmith says. He graduated at the top of his class in basic training and was on the commandant's list in the Warrior Leadership Course with a 94.6 percent average. He aced every test, mental and physical, received commendations and medals and promotions, but by the end of his first deployment he knew he was in serious trouble. His CSM (command sergeant major) Altman, however, had told his battalion, "If any of you go try to say you're depressed and thinking about killing yourself, you're going to get deployed anyway, and when we get there, you'll get to be my personal I.E.D. (improvised explosive device) kicker!" So he self-medicated; he drank. A lot. "All I wanted to do was black out."

What kept him going was the end that was in sight. He just had to hang on till his contract was up, and then he could go home, go back to school, and finally be a 20-year-old kid. Then days before he was scheduled to get out, his unit was locked down, stop-lossed as part of the surge. He was looking at another 18-month deployment.

At first he thought he was having a heart attack. It turned out to be a panic attack. He was diagnosed with depression, anxiety disorder and adjustment disorder, given a lot of pills and told he'd be fine. Or at least fine enough to go back.

The day before his unit was to deploy, Memorial Day 2007, he went out onto the memorial field at Ft. Stewart, where trees are planted for every soldier from 3rd Infantry Division killed in Iraq. He mixed pills and vodka, and tried to die.

He woke up handcuffed to a gurney and spent a week in a mental ward. His commanding officer tried to rip off his stripes and threatened to prosecute him for malingering, a court martial offense: He had tried to kill a U.S. Army soldier. Ultimately, he was given two Article 15s (nonjudicial punishment), one for malingering and one for missing movement (not deploying on time) and separated from the service with a general discharge stamped in big letters: "misconduct: serious offense." Under a general discharge, he lost all his educational benefits.

Sgt. Goldsmith's story is not necessarily more devastating than others I heard over the course of the four-day gathering. There were many that were told with equal courage and clarity, and that were equally revealing of important issues. But at some point as I listened to him speak, I realized that I was no longer listening as a journalist, I was listening as a mother. In 1971, the original Winter Soldiers were my age. This new generation are my children's. And this young soldier framed everything he had to say with a mother's worst nightmare: the death of a child.

The first picture Goldsmith showed was of a 10-year-old boy in "cammies," with dog tags on a chain around his neck, proudly offering his best boy scout salute. "That boy died in Iraq, " he says.

Another picture flashed on the screen, this time of a young soldier in real military camouflage, leaning out of a jeep and flashing a shit-eating boyish grin. It was a good day, the first day of his deployment to Iraq in 2005. That boy, too, Goldsmith told us, is dead.

Three years after that picture was taken, Sgt. Goldsmith doesn't look any older. In fact, sitting on the speakers' platform between two big Marines, he almost looks fragile. Even the Mohawk haircut doesn't come off as particularly tough. He may be fragile, but there is nothing, absolutely nothing fragile about what he has to say. Or the way he says it.

Goldsmith is from Bellmore, Long Island. On Sept. 11, 2001, he could see the smoke from the towers from his home. Like many Americans, he wanted to join the military to protect his country. He signed on as a forward observer, perhaps the most dangerous position on the battlefield.

In Iraq, he was stationed in Sadr City, one of the poorest and angriest of Baghdad's neighborhoods. Electricity was available for only 2-4 hours a day, sewage contaminated the water system, and the outside temperature often topped 130 degrees. American soldiers were charged with enforcing a curfew that kept locals locked inside their homes, away from the coffee shops or the rooftops or their neighbors' yards, for the only cool hours of the day.

Essentially rendering 3.2 million Iraqis prisoners of war. Goldsmith was among the prisoners guarding other prisoners.

Among the stories Goldsmith told was one about a little boy on a rooftop with a stick, pretending it was an AK47. He was yelling down at the Americans, angry, acting tough and posturing defiantly. Goldsmith trained his weapon on the kid and almost fired. Something made him stop, but when he told the story last weekend, you could hear the disbelief in his voice: "I almost took out a 6-year-old boy. I almost killed someone's son."

When a mass grave was discovered, he was ordered to take pictures of the dead. One after another, horrific images of death in partial decay went up on the screen. "Every one of these pictures is burned into my mind," he says. "I could draw them." And he remembers the flies. The flies had no particular preference for the living or the dead. They were "landing on the corpses ... And then they would land on my lips. They would land on my eyes. They would crawl up my nose. And I felt so violated and emotionally raped." It did not help to know that those images, ostensibly for identification purposes, were never shared with Iraqis hoping to find a missing loved one. They were trophies for a few armchair warriors who used them to "boost morale," to prove that Americans were really kicking haji butt. But for Goldsmith, the horror is indelible. It will never go away.

When they wanted him to go back for more, he despaired and tried to kill the 21-year-old he had become. Nothing made sense anymore.

I find it so painfully ironic that as other excuses for the war have been proven false, (weapons of mass destruction, U.N. sanctions, ties to Al-Queda, etc.) the administration has fallen back on the most unbelievable of all: freedom. While George Bush insists that Iraqis accept freedom, American style, one out of every 100 of our own citizens are in prison. Almost twice as many as the runner-up, China. Iraq is 62 on the list, though it is unclear whether that includes those being held by Americans. In this country, there are 2,258,983 in prison. That figure does not include the 723,000 locked up in local jails. Or the 60,000 stop-lossed soldiers.

Pentagon studies have shown that each deployment leaves a soldier 60 percent more likely to suffer serious mental health problems. In support of that, as this president sends soldiers back into combat as many as five times in as many years, the U.S. Army Medical Command Suicide Prevention Action Plan acknowledges that suicides among active-duty soldiers in 2007 were up 20 percent from 2006, their highest level since the Army began keeping such records in 1980. And the number of suicide attempts has increased sixfold since the Iraq war began. There were several in the I-30 Infantry Battalion, and Goldsmith holds his sergeant major responsible. Like Goldsmith, these young soldiers are being told not only that they are prisoners, but that they are disposable. They are our children, and their deaths are on the hands of those who hold their freedom hostage.

Congress could put an end to this.

Penny Coleman is the widow of a Vietnam veteran who took his own life after coming home. Her latest book, Flashback: Posttraumatic Stress Disorder, Suicide and the Lessons of War, was released on Memorial Day, 2006. Her website is Flashback.

US Supreme Court rejects international law, ruling against Mexicans on death row

US Supreme Court rejects international law, ruling against Mexicans on death row

By Bill Van Auken
Go To Original

In an extraordinary ruling that epitomizes the lawlessness and arrogance of Washington’s conduct on the world stage, the US Supreme Court rejected an appeal on behalf of 51 Mexican nationals, most of them condemned to death, finding that American state courts are not bound by international law.

In its 6-3 ruling, which clears the way for dozens of executions, the Court’s majority decided that the Texas state courts do not have to comply with a decision by the International Court of Justice (ICJ), and that the US president does not have the authority to order them to do so.

Mexico, which does not have a death penalty, brought the case to the international court in 2003, citing the Vienna Convention, which affirms the right of foreign nationals arrested in any country to obtain assistance from their government’s consulates and requires the authorities to inform them of this right.

The case was brought on behalf of Jose Ernesto Medellin, convicted in Texas in 1994 of rape and murder when he was 18. It also covered 50 other Mexicans imprisoned in the US. Forty-four of those included in the international appeal face execution, 14 of them in Texas. One had his death sentence commuted to life in prison, because he was a minor.

The World Court ruled in favor of the condemned Mexicans, finding that the courts in the US should grant them appeal proceedings to determine if their being denied this right had deprived them of a fair trial.

President Bush responded to the decision by withdrawing the US from the optional protocol giving the World Court jurisdiction over the Vienna Convention, thereby asserting his own rejection of international law and preventing Mexico or anyone else from appealing future death penalties on the grounds of denial of the right to consular assistance.

However, Bush urged the state courts to comply with the ruling retroactively in the cases on which the international court had ruled. He issued a memorandum to that effect in 2005.

The memo was meant to short-circuit any Supreme Court ruling on the matter and to pave the way for the US government’s pulling out of the optional protocol granting the World Court jurisdiction.

The state courts in Texas and elsewhere rejected the appeals on procedural grounds—citing the fact that Medellin’s attorney had not raised during his trial the denial of access to the Mexican consulate.

A Texas appeals court subsequently ruled that Bush had "exceeded his constitutional authority by intruding into the independent powers of the judiciary" in ordering the state courts to review the Medellin conviction, while the state’s supreme court held that "neither the [World Court decision] nor the President’s Memorandum constitutes directly enforceable federal law that pre-empts limitations on the filing of successive habeas petitions."

The Court’s majority decision, written by Chief Justice John Roberts, essentially upheld the position of the Texas courts. It went further, however, calling into question the validity of all treaties entered into by the US government.

The International Court of Justice was established under the United Nations Charter in 1945, and the United States accepted its jurisdiction in 1946. In 1985, Washington withdrew its acceptance of the court’s general jurisdiction, after it was found guilty of violating international law by waging a CIA-organized war against the Sandinista government in Nicaragua. However, it continued to accept jurisdiction in relation to the Vienna Convention, governing consular matters. After the court’s ruling regarding the Mexicans on death row, the Bush administration withdrew from that jurisdiction as well.

"Not all international obligations automatically constitute binding federal law enforceable in United States courts," Chief Justice Roberts wrote in the majority decision. He was joined by the Justices Antonin Scalia, Clarence Thomas, Anthony Kennedy and Samuel Alito.

The Court’s majority, based on a specious interpretation of the language contained in the relevant treaties, found that they were "non-self-executing," meaning that, even though they had been ratified by a two-thirds vote of the Senate and signed by the president, they were not enforceable as domestic law because the Congress had not implemented their provisions in the form of separate new legislation.

The decision also revealingly suggests that the US government never intended to subordinate itself to the decisions of the ICJ in any case. Instead, the court majority said, it saw the only means of enforcement of the World Court’s decisions being actions by the United Nations Security Council, where "noncompliance with an ICJ judgment through exercise of the Security Council veto [was] always regarded as an option."

Justice John Paul Stevens wrote separately concurring with the outcome of the majority decision, but not its arguments. Stevens held that, while Bush lacked the power to order the Texas courts to comply with the ICJ ruling, Texas should do so of its own volition, acting to "shoulder the primary responsibility for protecting the honor and integrity of the Nation."

Needless to say, the Republican authorities in Texas have no intention whatsoever of assuming such a responsibility. Rather, they celebrated the high court’s decision as a declaration of US immunity from international law and a victory for states’ rights.

Texas Solicitor General Ted Cruz, who argued the case before the Supreme Court, declared that the ruling "categorically prohibits foreign courts from undermining American sovereignty and independence."

Others tried to suggest that the right-wing court’s decision represented some kind of rebuke for Bush in his continuous attempt to assume unfettered executive powers.

It was ironic that the Bush White House found itself arguing in favor of the Medellin appeal. It was a peculiar position, to say the least, for Bush, who as Texas governor had presided with apparent relish over 152 executions. Indeed, while running for president in 2000, Bush approved the execution of Mexican national Miguel Flores, 31, rejecting appeals from Mexico and international human rights organizations, which argued that he had been denied his right under the Vienna Convention to contact the Mexican consulate.

Filing amicus briefs in the case were a large number of prominent former State Department officials as well as experts in international law. The clear fear within these circles was that the outright repudiation of the ICJ’s decision would call into question US commitment to any treaty obligation that it found inconvenient, including agreements covering commercial and trade matters upon which vast profits depend.

In addition to Mexico, 12 Latin American countries and 47 member states of the European Union and Council of Europe also participated in the Supreme Court proceedings with briefs supporting the Medellin appeal.

In a dissenting opinion, Justices Stephen Breyer, Ruth Bader Ginsburg and David Souter warned that the Court’s decision would "increase the likelihood ... of worsening relations with our neighbor Mexico, of precipitating actions by other nations putting at risk American citizens who have the misfortune to be arrested while traveling abroad, or of diminishing our Nation’s reputation abroad as a result of our failure to follow the ’rule of law’ principles that we preach."

There is no doubt that the American high court’s decision will be seen worldwide in the context of Washington’s more infamous acts repudiating international law in practice, ranging from the war of aggression against Iraq, to the use of "extraordinary rendition," illegal detention and torture.

In the final analysis, the Supreme Court’s ruling represents not a protection of the separation of powers or independence of the judiciary, but rather the defense of the barbaric use of the death penalty and an arrogant dismissal of an increasingly horrified world public opinion.

Its immediate impact will be to tear away the last protection for scores of Mexican immigrants held on death row, hastening their state executions.

Cheney’s tour of Middle East raises tensions with Iran

Cheney’s tour of Middle East raises tensions with Iran

By Peter Symonds
Go To Original

The overriding theme of US Vice President Dick Cheney’s now-concluded trip to the Middle East was to marshal support for the Bush administration’s menacing stance against Iran. Referring to Tehran as the “darkening cloud” over the region, Cheney left no doubt that the Bush administration has not resiled from its oft-repeated threat to keep all options—including the military one—on the table.

Publicly Cheney repeated the mixture of lies and half-truths about Iran’s nuclear programs and its support for “terrorism” that provide the pretexts for imposing sanctions and threatening military strikes against Tehran. Privately, particularly in Israel, the conversations unquestionably dealt more specifically with the Bush administration’s plans for action against Iran.

All the countries on the nine-day itinerary—Iraq, Afghanistan, Oman, Saudi Arabia, Israel, the Occupied Territories and Turkey—are either key US allies in the region, or would play a critical role in any attack on Iran. Especially ominous was the visit to Oman, which not only provides logistical support for the US military in the region, but occupies the southern coastline of the strategic Strait of Hormuz. The narrow waterway in the Persian Gulf is a central preoccupation for Pentagon’s military planners in any conflict with Iran.

During his two-day stop in Israel last weekend, Cheney met with senior Israeli political figures as well as Palestinian leaders. While the visit to Israel was nominally aimed at assisting US attempts to restart the peace process, no initiatives were announced and no progress was made. Instead, Cheney used the opportunity to accuse Iran and Syria of “doing everything they can to torpedo the peace process”.

Cheney made absolutely clear, however, that the Bush administration would do nothing to restrain Israel’s provocative attacks in Gaza and the West Bank or in the broader region. Speaking during a press conference with Israeli Prime Minister Ehud Olmert, the vice president declared: “America’s commitment to Israel’s security is enduring and unshakeable... The United States will never pressure Israel to take steps to threaten its security.”

In comments to ABC News on Monday, Cheney again raised the Iranian spectre, declaring concern over “everything from their support for Hezbollah, their efforts—working through the Syrians, for example to interfere in the political process inside Lebanon, they’ve supported Hamas, with the intention, I believe, of trying to disrupt the peace process.

“Obviously, they’re also heavily involved in trying to develop nuclear weapons enrichment, the enrichment of uranium to weapons grade levels. So if you put all of that together, and you see that range of activity that Iran is engaged in, it’s very disturbing to many leaders in the region.”

There is no evidence that Iran is trying to produce weapons-grade enriched uranium. The Iranian regime has repeatedly denied that it is seeking to build a nuclear bomb. Its enrichment facilities continue to be inspected by the International Atomic Energy Agency (IAEA), which has reported that uranium has been enriched only to the low levels required to fuel Iran’s nuclear power reactor.

Cheney, of course, provided no proof that Iran has a secret nuclear weapons program. Like Bush’s deliberate lie last week that the Iranian government has “declared that they want to have a nuclear weapon to destroy people—some in the Middle East,” Cheney’s remarks are aimed at heightening tensions.

Behind the scenes, Cheney clearly discussed the possibility of a military strike on Iran with Israeli leaders. While the vice president was relatively guarded in his statements, his Israeli counterparts were not. Opposition leader Benjamin Netanyahu put the matter most bluntly, telling the Israeli press: “I spoke to him about the need to remove the Iranian threat before [Tehran] arms itself with a nuclear bomb.”

Israeli Defence Minister Ehud Barak reportedly told Cheney that Israel supported financial sanctions against Iran but “none of the options should be taken off the table”. Following his meeting with Cheney, Israeli President Shimon Peres chided the US and Europe for ignoring Iran’s development of ballistic missiles. “Iran’s only intentions in developing missiles with nuclear warheads are to destroy Israel and threaten the entire world,” Peres said.

Iran was also high on the agenda in Saudi Arabia. The Saudi monarchy is a longstanding rival of the Iranian regime for regional influence, but in recent months has hosted Iranian President Mahmoud Ahmadinejad on several occasions. One factor in this more conciliatory approach was the release in December of the National Intelligence Estimate (NIE) compiled by US intelligence agencies, which concluded that Iran had ended its nuclear weapons programs in 2003.

While in Oman, Cheney effectively dismissed the NIE findings, declaring it was not known whether or not Iran had restarted a nuclear weapons program. Undoubtedly he repeated a similar message in Saudi Arabia in order to scotch any suggestion that the NIE meant a reduction of the US military threat against Iran. Cheney held lengthy talks with King Abdullah over a range of issues, including Iran and global energy market. Washington is seeking a boost in Saudi oil production not only to ease current record oil prices, but with an eye to the potential impact on energy supplies of any military confrontation with Iran.

On the final leg of his trip in Turkey on Monday, Cheney again declared his concerns about Iran’s nuclear program in a meeting with Prime Minister Recep Tayyip Erdogan. He also met with the Turkish President Abdullah Gul and military chief Yasar Buyukanit. Virtually nothing was reported of the discussions, which included a US request for Turkish troops to be deployed in Afghanistan, energy supplies and last month’s Turkish military incursion into northern Iraq against the separatist Kurdistan Workers Party (PKK).

Washington has been concerned that its NATO ally has been establishing closer economic and political ties with Iran. Turkish and Iranian forces have cooperated over the past year in operations against Kurdish rebels in northern Iraq. Cheney reiterated American support for Turkish actions against the PKK, but was no doubt looking for a quid pro quo from Ankara—on Iran in particular. If nothing else, by ratchetting up tensions over Iran, the US will force Turkey and other US allies to think twice about expanding relations with Tehran.

The precise nature of Cheney’s discussions in the Middle East about the Bush administration’s war plans is unknown. But one rather chilling exchange took place on Monday during a roundtable interview between Cheney and the accompanying press corps in Jerusalem.

As a final question, an American reporter asked: “You said, when you were standing with Prime Minister Olmert, that you would never do anything that would threaten their own security. And I’m wondering, if they came to you and the President and said, we need to strike Iran to maintain our own security, would you try to stop them?”

After Cheney dismissed the question as hypothetical, the reporter responded by asking: “Did they come to you and [ask]?” Cheney again dismissed the question as hypothetical, but he did not deny the suggestion outright. The whole exchange was accompanied by laughter.

As everyone present was well aware, such a scenario is far from hypothetical. Israel has repeatedly warned that it would not allow Iran to develop its nuclear capacities and the matter may well have been discussed with Cheney during his visit.

Taking Stock of the War on Terror: A Defeat Only American Power Could Have Brought About

Taking Stock of the War on Terror: A Defeat Only American Power Could Have Brought About

By Mark Danner

Go to Original

[This essay was adapted from an address first delivered in February at the Tenth Asia Security Conference at the Institute for Security and Defense Analysis in New Delhi.]

To contemplate a prewar map of Baghdad - as I do the one before me, with sectarian neighborhoods traced out in blue and red and yellow - is to look back on a lost Baghdad, a Baghdad of our dreams. My map of 2003 is colored mostly a rather neutral yellow, indicating the "mixed" neighborhoods of the city, predominant just five years ago. To take up a contemporary map after this is to be confronted by a riot of bright color: Shia blue has moved in irrevocably from the East of the Tigris; Sunni red has fled before it, as Shia militias pushed the Sunnis inexorably west toward Abu Ghraib and Anbar province, and nearly out of the capital itself. And everywhere, it seems, the pale yellow of those mixed neighborhoods is gone, obliterated in the months and years of sectarian war.

I start with those maps out of a lust for something concrete, as I grope about in the abstract, struggling to quantify the unquantifiable. How indeed to "take stock" of the War on Terror? Such a strange beast it is, like one of those mythological creatures that is part goat, part lion, part man. Let us take a moment and identify each of these parts. For if we look closely at its misshapen contours, we can see in the War on Terror:

Part anti-guerrilla mountain struggle, as in Afghanistan;

Part shooting-war-cum-occupation-cum-counterinsurgency, as in Iraq;

Part intelligence, spy v. spy covert struggle, fought quietly - "on the dark side," as Vice President Dick Cheney put it shortly after 9/11 - in a vast territory stretching from the southern Philippines to the Maghreb and the Straits of Gibraltar;

And finally the War on Terror is part, perhaps its largest part, Virtual War - an ongoing, permanent struggle, and in its ongoing political utility not wholly unlike Orwell's famous world war between Eurasia, East Asia, and Oceania that is unbounded in space and in time, never ending, always expanding.

Snowflakes Drifting Down on the War on Terror

President Bush announced this virtual war three days after September 11, 2001, in the National Cathedral in Washington, appropriately enough, when he told Americans that "our responsibility to history is already clear: to answer these attacks and rid the world of evil."

Astonishing words from a world leader - declaring that he would "rid the world of evil." Just in case anyone thought they might have misheard the sweep of the President's ambition, his National Security Strategy, issued a few months later, was careful to specify that "the enemy is not a single political regime or person or religion or ideology. The enemy is terrorism - premeditated, politically motivated violence perpetrated against innocents."

Again, a remarkable statement, as many commentators were quick to point out; for declaring war on "terrorism" - a technique of war, not an identifiable group or target - was simply unprecedented, and, indeed, bewildering in its implications. As one counterinsurgency specialist remarked to me, "Declaring war on terrorism is like declaring war on air power."

Six and a half years later, evil is still with us and so is terrorism. In my search for a starting point in taking stock of those years, I find myself in the sad position of pondering fondly what have become two of the saddest words in the English language: Donald Rumsfeld.

Remember him? In late October 2003, when I was in Baghdad watching the launch of the so-called Ramadan Offensive - five simultaneous suicide bombings, beginning with one at the headquarters of the Red Cross, the fiery aftermath of which I witnessed - then Secretary of Defense Rumsfeld was in Washington still denying that an insurgency was underway in Iraq. He was also drafting one of his famous "snowflakes," those late-night memoranda which he used to rain down on his terrorized Pentagon employees.

This particular snowflake, dated October 16, 2003 and entitled "Global War on Terrorism," reads almost poignantly now, as the Defense Secretary gropes to define the war that it has become his lot to fight: "Today we lack metrics to know if we are winning or losing the global war on terror," he wrote. "Are we capturing, killing or deterring and dissuading more terrorists every day than the madrassas and the radical clerics are recruiting, training and deploying against us?"

Rumsfeld asks the right question, for beyond the obvious metrics like the number of terrorist attacks worldwide - which have gone up steadily, and precipitously since 9/11 (for 2006, the last year for which State Department figures are available, by nearly 29%, to 14,338); and the somewhat subtler ones like the percentage of those in the Middle East and the broader Muslim world who hold unfavorable opinions of the United States (which soared in the wake of the invasion of Iraq and have fallen back just a bit since) - apart from these sorts of numbers which, for various and obvious reasons, are problematic in themselves, the key question is: How do you "take stock" of the War on Terror? At the end of the day, as Secretary Rumsfeld perceived, this is a political judgment, for in its essence it has to do with the evolution of public opinion and the readiness of those with certain political sympathies to move from holding those opinions to taking action in support of them.

What "metrics" do we have to take account of the progress of this "evolution"? Well, none really - but we do have the guarded opinions of intelligence agencies, notably this rather explicit statement from the U.S. government's National Intelligence Estimate (NIE) of April 2006, entitled "Trends in Global Terrorism: Implications for the United States," which reads in part: "Although we cannot measure the extent of the spread with precision" - those metrics again - "a large body of all-source reporting indicates that activists identifying themselves as jihadists, although still a small percentage of Muslims, are increasing in both number and geographic distribution. If this trend continues, threats to U.S. interests at home and abroad will become more diverse, leading to increasing attacks worldwide."

Dark words, and yet that 2006 report looks positively sanguine when set beside two reports from a year later, both leaked in July 2007. A National Intelligence Estimate entitled "The Terrorist Threat to the US Homeland" noted that al-Qaeda had managed - in the summary in the Washington Post - to reestablish "its central organization, training infrastructure and lines of global communication," over the previous two years and had placed the United States in a "heightened threat environment… The U.S. Homeland will face a persistent and evolving terrorist threat over the next three years."

This NIE - the combined opinion of the country's major intelligence agencies - only confirmed a report that had been leaked a couple days before from the National Counterterrorism Center, grimly entitled "Al Qaeda Better Positioned to Strike the West." This report concluded that al-Qaeda, in the words of one official who briefed its contents to a reporter for the Christian Science Monitor, was "considerably operationally stronger than a year ago," "has regrouped to an extent not seen since 2001," and has managed to create "the most robust training program since 2001, with an interest in using European operatives." Another intelligence official, summarizing the report to the Associated Press, offered a blunt and bleak conclusion: al-Qaeda, he said, is "showing greater and greater ability to plan attacks in Europe and the United States."

Given these grim results, one must return to one of the more poignant passages in Secretary Rumsfeld's "snowflake," released to flutter down on his poor Pentagon subordinates back in those blinkered days of October 2003. Having wondered about the metrics, and what could and could not be measured in the War on Terror, the Secretary of Defense posed a critical question: "Does the U.S. need to fashion a broad, integrated plan to stop the next generation of terrorists?"

For me, the poignancy comes from Mr. Rumsfeld's failure to see that, in effect, he and his boss had already "fashioned" the "broad, integrated plan" he was asking for. It was called the Iraq War.

General Bin Laden

That the Iraq War is "fueling the spread of the jidahist movement," as the 2006 National Intelligence Estimate put it, has been a truism of intelligence reporting from the war's beginning; indeed, from before it began. "[T]he Iraq conflict has become the cause célèbre for jihadists, breeding a deep resentment of U.S. involvement in the Muslim world and cultivating support for the global jihadist movement" - this point from the 2006 NIE is truly an example of a "chronicle of a war foretold" (to borrow from Garcia Marquez). In fact, that NIE cites the "Iraq jihad" as the second of four factors "fueling the jihadist movement," along with "entrenched grievances, such as corruption, injustice, and fear of Western domination, leading to anger, humiliation, and a sense of powerlessness"; "the slow pace of real and sustained economic, social, and political reforms in many Muslim majority nations"; and "pervasive anti-US sentiment among most Muslims."

Any attempt to "take stock of the War on Terror" must begin with the sad fact that the story of that war has largely become the story of the war in Iraq as well, and the story of the Iraq War (all discussion of the so-called Surge aside) has been pretty much an unmitigated disaster for U.S. security and for the United States position in the Middle East and the world. Which means that telling the story of the War on Terror, a half dozen years on - and "taking stock" of that War - merges inevitably with the sad tale of how that so-called war, strange and multiform beast that it is, became subsumed in a bold and utterly incompetent attempt to occupy and remake a major Arab country.

That broader story comes down to a matter of two strategies and two generals: General Osama bin Laden and General George W. Bush. General bin Laden, from the start, has been waging a campaign of indirection and provocation: that is, bin Laden's ultimate targets are the so-called apostate regimes of the Muslim world - foremost among them, the Mubarak regime in Egypt and the House of Saud on the Arabian peninsula - which he hopes to overthrow and supplant with a New Caliphate.

For bin Laden, these are the "near enemies," which rely for their existence on the vital support of the "far enemy," the United States. By attacking this far enemy, beginning in the mid-1990s, bin Laden hoped both to lead vast numbers of new Muslim recruits to join Al Qaeda and to weaken U.S. support for the Mubarak and Saud regimes. He hoped to succeed, through indirection, in "cutting the strings of the puppets," eventually leading to the collapse of those regimes.

In this sense, 9/11 proved the culmination of a long-term strategy, following on a series of attacks of increasing lethality during the mid to late 1990s in Riyadh, Nairobi, Dar es Salaam, and Aden. The 9/11 attackers used as their climactic weapon not transcontinental airliners or box cutters but the television set - for the image was the true weapon that day, the overwhelmingly powerful image of the towers collapsing - and used it not only to "dirty the face of imperial power" (Menachim Begin's description of what terrorists do), but also to provoke the United States to strike deep into the Islamic world.

It is clear from various documents and from the assassination, days before 9/11, of Afghan Northern Alliance leader Ahmed Shah Masood, that bin Laden expected this American counter-strike to come in Afghanistan, which would have given al-Qaeda the opportunity to do to the remaining superpower what it had done - so the myth went, anyway - to the Soviet Union a dozen years before: trap its arrogant, hulking military in a quagmire and, through patient, unrelenting guerrilla warfare, force it to withdraw in ignominious defeat. In the event, of course, the Americans, by relying on air bombardment and on the ground forces of their Afghan allies in the Northern Alliance, avoided the quagmire of Afghanistan - at least in that initial phase in the fall of 2001 - and instead offered bin Laden a much greater gift. In March 2003, they invaded Iraq, a far more important Islamic country and one much closer to the heart of Arab concerns.

General Bush

Why did General George W. Bush do it? Lacking in legitimacy and on the political defensive, the President and his administration moved instantly to transform the War on Terror into an ideological crusade, one implicitly crafted as a New Cold War.

"They hate our freedoms," Bush told Congress and the nation a few days after the 9/11 attacks. "Our freedom of speech, our freedom to vote and assemble and disagree with one another... We are not deceived by their pretenses to piety. We have seen their kind before. They are the heirs of all the murderous ideologies of the 20th century. By sacrificing human life to serve their radical visions - by abandoning every value except the will to power - they follow in the path of fascism, and Naziism, and totalitarianism. And they will follow that path all the way, to where it ends: in history's unmarked grave of discarded lies."

Drawing a lurid picture of a New Cold War, with terrorists playing the role of communists, Bush rallied the country behind the War on Terror, obliterating the subtleties of the struggle against al-Qaeda and with them the critique of U.S. Middle East policy implicit in the assault. "This is not about our policies," as Henry Kissinger put it soon after the attack. "This is about our existence." In this view, the attack came not because of what the United States actually did in the Middle East - what regimes it supported, for example - but because of what it stood for: the universalist aspirations it symbolized. Iraq quickly became part of this crusade, the great struggle to protect, and now to spread, freedom and democracy.

One can argue long and hard about the roots of the Iraq War, but in the end one must tease out a set of realist compulsions (centrally concerned with the restoration of American credibility and American deterrent power) and idealist aspirations (shaped around the so-called Democratic Domino effect). The realist case was well summarized, once again, by Henry Kissinger, who, when asked by a Bush speechwriter why he supported the Iraq War, replied: "Because Afghanistan wasn't enough." In the conflict with radical Islam, he went on, "They want to humiliate us and we have to humiliate them." The Iraq war was essential in order to make the point that "we're not going to live in the world that they want for us."

Ron Suskind, in his fine book The One Percent Doctrine, puts what is essentially the same point in "geostrategic" terms, reporting that, in meetings of the National Security Council in the months after the 9/11 attacks, the main concern "was to make an example of [Saddam] Hussein, to create a demonstration model to guide the behavior of anyone with the temerity to acquire destructive weapons or, in any way, flout the authority of the United States."

Set alongside this was the "democratic tsunami" that was to follow the shock-and-awe triumph over Saddam. It would sweep through the Middle East from Iraq to Iran and thence to Syria and Palestine. ("The road to Jerusalem" - so ran the neoconservative gospel at the time - "runs through Baghdad.") As I wrote in October 2002, five months before the Iraq War was launched, this vision was detailed and well elaborated:

"Behind the notion that an American intervention will make of Iraq 'the first Arab democracy,' as Deputy Defense Secretary Paul Wolfowitz put it, lies a project of great ambition. It envisions a post-Saddam Hussein Iraq - secular, middle-class, urbanized, rich with oil - that will replace the autocracy of Saudi Arabia as the key American ally in the Persian Gulf, allowing the withdrawal of United States troops from the kingdom. The presence of a victorious American Army in Iraq would then serve as a powerful boost to moderate elements in neighboring Iran, hastening that critical country's evolution away from the mullahs and toward a more moderate course. Such an evolution in Tehran would lead to a withdrawal of Iranian support for Hezbollah and other radical groups, thereby isolating Syria and reducing pressure on Israel. This undercutting of radicals on Israel's northern borders and within the West Bank and Gaza would spell the definitive end of Yasir Arafat and lead eventually to a favorable solution of the Arab-Israeli problem.

"This is a vision of great sweep and imagination: comprehensive, prophetic, evangelical. In its ambitions, it is wholly foreign to the modesty of containment, the ideology of a status-quo power that lay at the heart of American strategy for half a century. It means to remake the world, to offer to a political threat a political answer. It represents a great step on the road toward President Bush's ultimate vision of 'freedom's triumph over all its age-old foes.'"

One can identify two factors underlying this vision: first, the great enthusiasm for a moralistic foreign policy based on universalized principles and democratic reform that dated back to containment's main rival, the "rollback" movement of the 1950s, and that had been revivified by the thrilling series of Eastern European revolutions of the late 1980s and by scenes of popular, American-aided democratic triumph (as it was then thought to be) in Afghanistan; and, second, the recognition that terrorism, at the end of the day, was a political problem that arose from a calcified authoritarian order in the Middle East and that only a dose of "creative destabilization" could shake up that order. "Transforming the Middle East," in Condoleezza Rice's words, "is the only guarantee that it will no longer produce ideologies of hatred that lead men to fly airplanes into buildings in New York and Washington."

The latter perception - that terrorism as it struck the United States arose from political factors and that it could only be confronted and defeated with a political response - strikes me as incontestable. The problem the administration faced, or rather didn't want to face, was that the calcified order that lay at the root of the problem was the very order that, for nearly six decades, had been shaped, shepherded, and sustained by the United States. We see an explicit acknowledgment of this in the "Bletchley II" report drafted after 9/11 at Defense Department urging by a number of intellectuals close to the administration: "The general analysis," one of its authors told the Washington Post's Bob Woodward, "was that Egypt and Saudi Arabia, where most of the hijackers came from, were the key, but the problems there are intractable. Iran is more important… But Iran was similarly difficult to envision dealing with. But Saddam Hussein was different, weaker, more vulnerable…"

A Very Complicated War

In this sense, many of the Bush administration's leading Iraq War backers comprised a kind of guerrilla force within the U.S. government, fighting against a longstanding strategic alignment in the Middle East. This guerrilla status, which defined many of the government's most knowledgeable Middle East hands as enemies to be isolated and ignored, helps to account, at least in part, for a great many of the extraordinary incompetencies and disasters of the war itself. That the roots of the war lie in stark opposition to established U.S. policy also helps explain the central conundrum of the current U.S. strategic position in Iraq and the Middle East. This was defined for me with typical concision and aplomb by Ahmed Chalabi in Baghdad last year. "The American tragedy in Iraq," said Chalabi, "is that your friends in Iraq are allied with your enemies in the region, and your enemies in Iraq are allied with your friends in the region."

Chalabi's concision and wit are admirable (and typical); but his point, once you look at the map, is obvious. The United States has made possible the rise to power in Iraq of a Shiite government which is allied with its major geopolitical antagonist in the region, the Islamic Republic of Iran. And the United States has been fighting with great persistence and distinctly mixed results a Sunni insurgency which is allied with the Saudis, the Jordanians, and its other longtime friends among the traditional Sunni autocracies of the Gulf.

This is another way of saying that the U.S. policy built on the famous meeting between President Franklin D. Roosevelt and King ibn Saud aboard Roosevelt's cruiser on the Great Bitter Lake near the end of World War II - a policy that envisioned a vital, mutually beneficial, and enduring alliance between the Saudis and the Americans - having been put in grave question by the Saudi insurgents at the controls of those mighty airliners of September 11th, now smashed full on into the strategic assault perpetrated by the Bush administration insurgents led by Paul Wolfowitz and his associates. Their "creative destabilization" was aimed not just at Saddam Hussein's Iraq, but at more than a half century of American policy in the Middle East.

Al-Qaeda, opportunistic as always, was willing to play this game, seizing on the occupation of Iraq as the golden opportunity it most certainly was and focusing on the Shiite-Sunni divide on which U.S. policy was foundering. The late Abu Musab al-Zarqawi's famous intercepted letter to Ayman al-Zawahiri and bin Laden, in which the insurgent leader of al-Qaeda in Mesopotamia told the al-Qaeda potentates - the front office, as it were - that his aim in Iraq was to "awaken the sleeping Sunnis" by launching a vast bombing campaign against the "Shiite heretic," describes precisely both the national and regional strategy: "If we manage to draw them into the terrain of partisan war, it will be possible to tear the Sunnis away from their heedlessness, for they will feel the weight of the imminence of danger."

This is a strategy that, after the bombing of the revered al-Askari mosque and shrine in Samarra in February 2006, bore terrible fruit. My map that shows divisions running through Baghdad will show, if you zoom out, those same divisions running through Iraq and beyond its borders. Like the former Yugoslavia, Iraq is a nation that gathers within itself the cultural and sectarian fault lines of the region; the Sunni-Shia divide running through Iraq in effect runs through the entire Middle East. The United States, in choosing this place to stage its Democratic Revolution, could hardly have done al-Qaeda a better favor.

At this moment, the Iraq War is at a stalemate. Confronted with a growing threat from those "enemies allied with its friends in the region," the Sunni insurgents, the Bush administration has adopted a practical and typically American strategy: it has bought them. The Americans have purchased the insurgency, hiring its foot soldiers at the rate of $300 per month. The Sunni fighters, once called insurgents, we now refer to as "tribesmen" or "concerned citizens."

This has isolated al-Qaeda, a tactical victory. But because these purchased Sunni fighters have not been accepted by the Shiite government - the allies of our enemies - the United States has set in motion a policy that will require, to keep violence at current levels, its own permanent presence in the country. This at a time when two in three Americans think the war was a mistake and when both surviving Democrat candidates vow to begin bringing the troops home "on day one" of a Democratic administration.

On the horizon, after such a withdrawal, is a re-ignition of the civil war at an even more brutal level, helped by the American rearming of the Sunni forces - and indeed the American arming of Shia government forces as well. It is a curious reality, if we look again at the regional map, that the current geostrategic situation in the Middle East resembles nothing so much as the Iraq-Iran War of the 1980s, in which the United States, along with Egypt, the Saudis, and the Jordanians supported Saddam Hussein's Iraq in its great war against Ayatollah Khomeini's Iran. We see a similar array of forces today, with these two differences: First, we must move the line of conflict about two hundred miles west, shifting it from the Iraq-Iran border to a line running through Baghdad along the Tigris River. Second, the United States is now arming and supporting both sides. And behind the current configuration and the supposed "success of the Surge" looms the darkening threat of regionalization - a region-wide struggle fought over the body of Iraq in the wake of an American withdrawal. It has become, to appropriate a phrase, a Very Complicated War.

A Defeat Only American Power Could Have Brought About

Whether or not this darkest of dark visions comes to pass, that very complicated war in Iraq, as the intelligence analysts and our own eyes tell us, will continue to pay vast dividends into the account of political grievances with which terrorist groups recruit. This has only partly to do with the original al-Qaeda itself (or "al Qaeda prime," as some analysts now call it); for however much it has managed to "reconstitute" itself, the true game has moved elsewhere, toward "viral al-Qaeda" - "spontaneous groups of friends," in the words of former CIA analyst and psychiatrist Marc Sageman, "as in [the] Madrid and Casablanca [bombings], who have few links to any central leadership, [who] are generating sometimes very dangerous terrorist operations, notwithstanding their frequent errors and poor training."

While U.S. and allied intelligence agencies have had considerable success attacking the various formal nodes of al-Qaeda prime on the Arabian peninsula and elsewhere, those struggles have about them the air of the past; we have really passed into a different era, the era of the amateurs. Today's network is self-organized, Internet reliant, and decentralized, dependent not on armies, training, or even technology but on desire and political will. And we have ensured, by the way we have fought this forever war, that it is precisely these vital qualities our enemies have in large and growing supply.

So how, finally, do we "take stock of the War on Terror"? Let me suggest three words:

  • 1. Fragmentation - brought about by "creative destabilization," as we see it not only in Iraq but in Lebanon, Palestine, and elsewhere in the region;

  • 2. Diminution - of American prestige, both military and political, and thus of American power;

  • 3. Destruction - of the political consensus within the United States for a strong global role.

    Gaze for a moment at those three words and marvel at how far we have come in a half-dozen years.

    In September 2001, the United States faced a grave threat. The attacks that have become synonymous with that date were unprecedented in their destructiveness, in their lethality, in the pure apocalyptic shock of their spectacle. But in their aftermath, American policymakers, partly through ideological blindness and preening exaggeration of American power, partly through blindness brought about by political opportunism, made decisions that led to a defeat only their own actions - that only American power itself - could have brought about.

    A small coven of America's enemies, using the strategy of provocation so familiar in guerrilla warfare, had launched in spectacular fashion on that bright September morning a plan to use the superpower's strength against itself. To use a different metaphor, they were trying to make good on Archimedes' celebrated boast: having found the perfect lever and place to stand, they proposed to move the Earth. To an extent I am sure even they did not anticipate, in their choice of opponent - an evangelical, redemptive regime scornful of history and determined to remake the fallen world - lay the seeds of their success.

    Mark Danner is the author, most recently, of Torture and Truth: America, Abu Ghraib and the War on Terror (2004) and The Secret Way to War: The Downing Street Memo and the Iraq War's Buried History (2007). He has covered the Iraq war from its beginning for the New York Review of Books. He teaches at both Bard College and the Graduate School of Journalism at the University of California, Berkeley. His work is archived at