Saturday, March 29, 2008

The Next Big Plan From The Bernanke Politburo

The Next Big Plan From The Bernanke Politburo

By Mike Whitney

"Instead of just propping up bankrupt banks, the governments should be democratising them - mobilising their assets to stimulate the productive economy, repairing infrastructure, researching and developing new markets, and refitting western economies to combat climate change." Iain MacWhirter, "The Red Menace"

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The Federal Reserve is presently considering an emergency operation that is so risky it could send the dollar slip-sliding over the cliff. The story appeared in the Financial Times earlier this week and claimed that the Fed was examining the feasibility of buying back hundreds of billions of dollars of mortgage-backed securities (MBS) with public money to restore investor confidence and clear the struggling banks’ balance sheets. The Fed, of course, denied the allegations, but the rumors abound. Currently the banking system is so clogged with exotic investments, for which there is no market, they can’t perform their main task of providing credit to businesses and consumers. Bernanke’s job is to clear the credit logjam so the broader economy can begin to grow again. So far, he has failed to achieve his objectives.

Since September, Bernanke has slashed interest rates by 3 percent and opened various auction facilities (Term Securities Lending Facility, the Term Auction Facility, the Primary Dealer Credit Facility, and the new Term Securities Lending Facility) which have made $400 billion available in low-interest loans to banks and non banks. He has also accepted a "wide range" of collateral for Fed repos including mortgage-backed securities and collateralized debt obligations (CDOs) which are worth considerably less than what the Fed is offering in exchange. But the Fed’s injections of liquidity have not solved the basic problem which is the fall in housing prices and the persistent downgrading of mortgage-backed assets that investors refuse to buy at any price. In fact, the troubles are gradually getting worse and spreading to areas of the financial markets that were previously thought to be risk-free. The credit slowdown has also put additional pressure on hedge funds and other financial institutions forcing them to quickly deleverage to meet margin calls by dumping illiquid assets into a saturated market at fire-sale prices. This process has been dubbed the "great unwind".

In the last six years, the mortgage-backed securities market has ballooned to a $4.5 trillion dollar industry. The investment banks are presently holding about $600 billion of these complex debt instruments. So far, the banks have written-down $125 billion in losses, but there’s a lot more carnage to come. Goldman Sachs estimates that banks, brokerages and hedge funds will eventually sustain $460 billion in losses, three times greater than today. Even so, those figures are bound to increase as the housing market continues to deteriorate and capital is drained from the system.

The Fed has neither the resources nor the inclination to scoop up all the junk bonds the banks have on their books. Bernanke has already exposed about half of the Central Bank’s balance sheet to credit risk. ($400 billion) But what is the alternative? If the Fed doesn’t intervene, then many of country’s largest investment banks will wind up like Bear Stearns; DOA. After all, Bear is not an isolated case; most of the banks are similarly leveraged at 25 or 35 to 1. They are also losing more and more capital each month from downgrades, and their main streams of revenue have been cut off. In fact, many of Wall Street’s financial titans are technically insolvent already. The generosity of the Fed is the only thing that keeps them from bankruptcy.

It’s generally accepted that the market for MBS will not improve until housing prices stabilize, but that’s a long way off. Mortgages are the cornerstone upon which the multi-trillion dollar structured investment market rests, and that cornerstone is crumbling. If housing prices continue to fall, the MBS market will remain frozen and banks will fail; it is as simple as that. No one is going to purchase derivatives when the underlying asset is losing value. The Bush administration is pushing for a "rate freeze" and other clever ways to keep homeowners from defaulting on their mortgages, but its a hopeless cause. The clerical work needed to change these complex mortgages is already proving to be a daunting task. Plus, since 60 percent of these mortgages were securitized, it is nearly impossible to change the terms of the contracts without first getting investor approval; another fly in the ointment.

Also, the tentative plans to expand Fannie Mae and Freddie Mac, so they can absorb larger mortgages (up to $729,000 jumbo loans) is putting an enormous strain on the already-overextended GSE’s. By attempting to reflate the housing bubble, the administration will only increase the rate of foreclosures and put the two mortgage behemoths at risk of default without any clear sign that it will help.

Yesterday’s release of the Case/Schiller Index of the 20 largest cities in the country, shows that housing prices have slipped 10.7 percent in the last year while sales were down 23 percent year over year. That means that retail equity of US homes just took a $2 trillion haircut. Still, prices have a long way to go before they catch up to the 50 percent decline in sales from the peak in 2005. From this point on, prices should fall and fall fast; following a trajectory as steep as sales. Many economist expect housing prices to drop at least 30% (Paul Krugman and G-Sax) which means that $6 trillion will be shaved from aggregate home equity. In a slumping market, many homeowners will be better off just "walking away" from their mortgage instead of making payments on an asset of steadily decreasing value. Who wants to make monthly payments on a $500,000 mortgage when the current value of the house is $350,000? It’s easier to pack the kids and vamoose then waste a lifetime as a mortgage slave. Besides, the Bush administration has no interest in helping the little guy stay out of foreclosure. Its a joke. All of the rescue plans are designed with just one purpose in mind; to save Wall Street and the banking establishment. Period.

There is a widespread belief that Bernanke has been proactive in addressing the turmoil in the credit markets. But it’s not true. The Fed chairman has simply responded to events as they unfold. The collapse of Bears Stearns came just weeks after the SEC had checked the bank’s reserves and decided that they had sufficient capital to weather the storm ahead. But they were wrong. The bank’s capital ($17 billion) vanished in a matter of days after word got out that Bear was in trouble. The sudden run on the bank created a risk to other banks and brokerages that held derivatives contracts with Bear. Something had to be done; Rome was burning and Bernanke was the only man with a hose.

According to the UK Telegraph: "Bear Stearns had total (derivatives) positions of $13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP - at least in "notional" terms. The contracts were described as "swaps", "swaptions", "caps", "collars" and "floors". This heady edifice of new-fangled instruments was built on an asset base of $80bn at best.

On the other side of these contracts are banks, brokers, and hedge funds, linked in destiny by a nexus of interlocking claims. This is counterparty spaghetti. To make matters worse, Lehman Brothers, UBS, and Citigroup were all wobbling on the back foot as the hurricane hit.

"Twenty years ago the Fed would have let Bear Stearns go bust," said Willem Sels, a credit specialist at Dresdner Kleinwort. "Now it is too interlinked to fail." (Ambrose Evans-Pritchard, UK Telegraph)

Bernanke felt he had no choice but to step in and try to minimize the damage, but the outcome was disappointing. Bernanke and Secretary of the Treasury Henry Paulson worked out a deal with JP Morgan that committed $30 billion of taxpayer money, without congressional authority, to buy toxic mortgage-backed securities from a privately-owned business that was failing because of its own speculative bets on dodgy investments. Wow. The transaction turned out to be bad for shareholders, bad for employees and bad for taxpayers. It made the Federal Reserve look like the unelected and unaccountable oligarchy of bankster sharpies they really are. The only people who made out were the investors who were holding derivatives contracts that would have been worthless if Bear went toes up.

Still,the prospect of a system-wide derivatives meltdown left Bernanke with few good options, notwithstanding the moral hazard of bailing out a maxed-out, capital impaired investment bank that should have been fed to the wolves.

It is worth noting that derivatives contracts are a fairly recent addition to US financial markets. In 2000, derivatives trading accounted for less than $1 trillion. By 2006 that figure had mushroomed to over $500 trillion. And it all can be traced back to legislation that was passed during the Clinton administration.

"A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.

Supported by Phil Gramm, then a Republican senator from Texas and chairman of the Senate Banking Committee, the legislation was a 262-page amendment to a far larger appropriations bill. It was signed into law by President Bill Clinton that December." ("What Created this Monster" Nelson Schwartz, New York Times)

Now the investment giants are lashed together by trillions of dollars of unregulated counterparty swaps. If one bank fails, it could domino through the whole system. Bernanke now finds himself in the unenviable position of having to make sure that all the equity bubbles are properly inflated so the banking system doesn’t suddenly come crashing to earth. Meanwhile, the tumbling housing market has paralyzed the corporate bond and structured investment markets which means that Bernanke’s job will get much harder, if not impossible.

The Fed chief is now facing a number of brushfires that will have to be put out immediately. The first of these is short term lending rates, which have stubbornly ignored Bernanke’s massive liquidity injections and continued to rise. The banks are increasingly afraid to lend to each other because they don’t really know how much exposure the other banks have to risky MBS. This distrust has sent interbank lending rates soaring above the Fed funds rate to more than double in the past month alone. So far, the Fed’s TAF hasn’t helped to lower rates, which means that Bernanke will have to take more extreme measures to rev up bank lending again. That’s why many Fed-watchers believe that Bernanke will ultimately coordinate a $500 billion to $1 trillion taxpayer-funded bailout to buy up all the MBSs from the banks so they can resume normal operations. Of course, any Fed-generated scheme will have to be dolled up with populous rhetoric so that welfare for banking tycoons looks like a selfless act of compassion for struggling homeowners. That shouldn’t be a problem for the Bush public relations team.

The probable solution to the MBS mess is the restoration of the Resolution Trust Corp., which was created in 1989 to dispose of assets of insolvent savings and loan banks. The RTC would create a government-owned management company that would buy distressed MBS from banks and liquidate them via auction. The state would pay less than full-value for the bonds (The Fed currently pays 85% face-value on MBS) and then take a loss on their liquidation. "According to Joseph Stiglitz in his book, Towards a New Paradigm in Monetary Economics, the real reason behind the need of this company was to allow the US government to subsidize the banking sector in a way that wasn’t very transparent and therefore avoid the possible resistance."

The same strategy will be used again. Now that Bernanke’s liquidity operations have flopped, we can expect that some RTC-type agency will be promoted as a prudent way to fix the mortgage securities market. The banks will get their bailout and the taxpayer will foot the bill.

The problem, however, is that the dollar is already falling against every other currency. (On Wednesday, the dollar plunged to $1.58 per euro, a new record) If Bernanke throws his support behind an RTC-type plan; it will be seen by foreign investors as a hyper-inflationary government bailout, which could precipitate a global sell-off of US debt and trigger a dollar crisis.

Reuters James Saft puts it like this:

"It is also hugely risky in terms of the Fed’s obligation to maintain stable prices.... it could stoke inflation to levels intolerable to foreign creditors, provoking a sharp fall in the dollar as they sought safety elsewhere." (Reuters)

Saft is right; foreign creditors will see it as an indication that the Fed has abandoned standard operating procedures so it can inflate its way out of a jam. According to Saft, the estimated price for this folly could be as high as $1 trillion dollars. Foreign investors would have no choice except to withdraw their funds from US markets and move them overseas. In fact, that appears to be happening already. According to the Wall Street Journal:

"While cash continues to pour into the U.S. from abroad, this flow has been slowing. In 2007, foreigners’ net acquisition of long-term bonds and stocks in the U.S. was $596 billion, down from $722 billion in 2006, according to Treasury Department data. From July to December as jitters about securities linked to US subprime mortgages spread, net purchases were just $121 billion, a 65% decrease from the same period a year earlier. Americans, meanwhile, are investing more of their own money abroad." ("A US Debt Reckoning" Wall Street Journal)

$121 billion does not even put a dent the $700 billion the US needs to pay its current account deficit. When foreign investment drops off, the currency weakens. Its no wonder the dollar is falling like a stone.

Bernanke should seriously consider the consequences of his next move before he acts. Once the dollar starts to free-fall, there’s no telling where it will land.

World Bank warns of shift

World Bank warns of shift

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STATE-backed sovereign wealth funds are likely to diversify their investments and move away from US dollar-denominated assets, a World Bank official says.

Central banks are likely to follow suit, shifting away from the US dollar over the next "three to five years," World Bank principal investment officer Arjan Berkelaar told a business conference in Sydney yesterday.

Sovereign funds, which are either government-owned or controlled, will increasingly switch from high-grade fixed-income assets such as government bonds to equities and broader-based assets including infrastructure and commodities, he said.

Alternatives would include investments denominated in the euro and pound, with some possible interest in the higher-yielding Australian and New Zealand currencies.

But any moves by central banks and sovereign wealth funds to move out of the dollar will be a "slow process," Mr Berkelaar said.

He cautioned that moves by sovereign wealth funds to buy offshore assets may cause concern for some Western governments.

"There is a danger that sovereign wealth funds will cause protectionism and capital controls by Western governments," he said.

There are about 50 sovereign wealth funds globally, with 10 holding 77 per cent of a total of $US5 trillion ($A5.45 trillion) in assets .

Berkelaar said the rise of these funds had been driven by a significant accumulation of foreign exchange reserves by central banks, huge fiscal surpluses by commodity export-driven countries and rapidly ageing populations in developed economies.

Was Polonium-210 Being Smuggled for a Dirty Bomb?

Was Polonium-210 Being Smuggled for a Dirty Bomb?

By Paul Craig Roberts

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In the recently published thriller, The Shell Game, Steve Alten weaves a tale of a neoconservative plot to attack Iran. To overcome resistance, a black op group associated with a Republican administration arranges for nuclear devices to be exploded in two American cities, with planted evidence pointing to Iran. Recent developments make one wonder if fact is following fantasy.

The Bush regime’s propaganda against Iran is going full blast and obviously has a purpose. The foreign press reports that the reason for Cheney’s latest trip abroad is to cajole, threaten, and purchase support for a US attack on Iran.

The Israeli government continues to see an Iranian nuclear weapon on the horizon and to agitate for US action against Iran.

According to John McGlynn in Japan Focus (March 22, 2008), the Bush regime is already attacking Iran with Treasury Department actions to cut off Iran’s banking system from all international banking relationships, thereby preventing Iran from importing and exporting. McGlynn calls the US Treasury’s action a "US declaration of war on Iran."

Cheney’s trip shows that the Bush regime is undeterred by the National Intelligence Estimate’s conclusion that Iran abandoned several years ago any nuclear weapons program that it might have had. The International Atomic Energy Agency has never found evidence of an Iranian nuclear weapons program. Despite all the facts and without evidence, the Bush Regime continues to assert that Iran has a nuclear weapons program that warrants an American attack on Iran.

Gen. David Petraeus, commander of US forces in Iraq and a member of the Cheney/neocon team, blamed Easter Sunday’s bombardment of the "secure" Green Zone in Baghdad on Iran. Petraeus says the attack is "in complete violation of promises made by President Ahmadinejad and the other most senior Iranian leaders." Petraeus’s claims are part of the neocon propaganda campaign to build support for an attack on Iran.

Central Command chief Admiral William Fallon is reported to have declared that there would be no attack on Iran on his watch. With his recent resignation effective the end of March, Fallon has been moved out of the picture. According to news reports, Fallon derided Petraeus as a "sycophant" and told him to his face that he considered him to be "an ass-kissing little chickenshit."

That it is Fallon who is gone and the ass-kissing little chickenshit who remains tells you all you need to know about the US military under the Cheney/Bush/neocon regime. It is an ass-kissing, yes boss, military.

On his Web site, University of Michigan professor and Middle East expert Juan Cole has an article by Vanity Fair contributing editor Craig Unger, author of The Fall of the House of Bush. Unger makes the point that the US attack on Iraq was not the result of "mistaken intelligence." It was a direct result of a plot by neoconservative conspirators, who fabricated "evidence" and spread propaganda that deceived Congress, the media, and the American people.

A conspiracy that would launch a war on the basis of forged "intelligence" and false allegations is a conspiracy that believes strongly in its agenda. Such a conspiracy would not be content with only partial achievement of its agenda. As we should all know by now, the neoconservative agenda is for the US to overthrow Iraq, Iran, and Syria at a minimum. As neoconservative Norman Podhoretz has formulated the agenda, the goal is to overthrow the regimes in Egypt, Saudi Arabia, and Pakistan in addition, and to clear Hezbollah out of Lebanon.

The difficulties of securing Iraq and Afghanistan have not dented the neocons’ faith in their agenda, but time might be running out for the neocons if we assume that Bush will step down and not utter the two words – catastrophic emergency – that transform him into a dictator, and that a war weary voting public will not elect "Bomb bomb bomb Iran" McCain.

A McCain presidency would give the neocons four more years to orchestrate an attack on Iran. Jeffery St. Clair in CounterPunch, March 24, notes that Hillary’s vaulting ambition could cause her to split and defeat the Democrats by playing the race card against Obama so that she can run against McCain in four years before she is too old for the game.

A conspiracy willing to launch an invasion of a country on false pretenses would not hesitate to pull off a false flag event if it would further their agenda. The massive human, financial and diplomatic cost of the Iraq invasion is a good indication that neoconservatives are willing for America to pay any price for establishing their agenda of achieving American/Israeli hegemony over the Middle East.

We will likely never know, but a neoconservative false flag operation might lie behind what appears to have been the accidental poisoning of Alexander Litvinenko by a rare and tightly controlled radioactive isotope, Polonium-210. Litvinenko, a former member of KGB counterintelligence, operated in the shadowy world of "security consultants" on a fake passport given to him by the British government. Litvinenko left Russia when his patron, oligarch Boris Berezovsky fled to escape fraud charges.

The British government and websites financed by Berezovsky blamed Litvinenko’s mysterious death on the Russian Federal Security Service, which allegedly sent an agent to put Polonium-210 in Litvinenko’s tea. On its face, the tale is far-fetched, but it served to divert attention from the fact that Polonium-210 had somehow got into private hands.

Where had the Polonium come from? No one knows, but nuclear physicist Gordon Prather noted at the time that Litvinenko had recently been to Israel and that Israel’s nuclear reactors are not subject to international safeguards.

For what purpose was Polonium being smuggled? No one knows, but Prather notes that Polonium-210 has a short shelf-life that would turn any stored weapon into a dud within months.

According to knowledgeable people, Polonium-210 would be useful for a dirty bomb that would do little real damage but would create enough fear and hysteria for the neocons to start another war.

Steve Alten was more alert than the media. He saw what might be the real story behind Litvinenko’s death by Polonium-210. Realizing that fantasy is one route by which Americans can be brought to the facts, and hoping to preclude any such real world event, Alten wrote a thriller predictive of our future between now and 2012.

Paul Craig Roberts a former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal, has been reporting shocking cases of prosecutorial abuse for two decades. A new edition of his book, The Tyranny of Good Intentions, co-authored with Lawrence Stratton, a documented account of how Americans lost the protection of law, is forthcoming from Random House in March, 2008.

The March 20, 2008 US Declaration of War on Iran

The March 20, 2008 US Declaration of War on Iran

By John McGlynn

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March 20, 2008, destined to be another day of infamy. On this date the US officially declared war on Iran. But it's not going to be the kind of war many have been expecting.

No, there was no dramatic televised announcement by President George W. Bush from the White House oval office. In fact on this day, reports the Washington Post, Bush spent some time communicating directly with Iranians, telling them via Radio Farda (the US-financed broadcaster that transmits to Iran in Farsi, Iran's native language) that their government has "declared they want to have a nuclear weapon to destroy people." But not to worry, he told his listeners in Farsi-translated Bushspeak: Tehran would not get the bomb because the US would be "firm."

Over at the US Congress, no war resolution was passed, no debate transpired, no last-minute hearing on the Iran "threat" was held. The Pentagon did not put its forces on red alert and cancel all leave. The top story on the Pentagon's website (on March 20) was: "Bush Lauds Military's Performance in Terror War," a feel-good piece about the president's appearance on the US military's TV channel to praise "the performance and courage of U.S. troops engaged in the global war on terrorism." Bush discussed Iraq, Afghanistan and Africa but not Iran.

But make no mistake. As of Thursday, March 20 the US is at war with Iran.

So who made it official?

A unit within the US Treasury Department, the Financial Crimes Enforcement Network (FinCEN), which issued a March 20 advisory to the world's financial institutions under the title: "Guidance to Financial Institutions on the Continuing Money Laundering Threat Involving Illicit Iranian Activity."

FinCEN, though part of the chain of command, is better known to bankers and lawyers than to students of US foreign policy. Nevertheless, when the history of this newly declared war is someday written (assuming the war is allowed to proceed) FinCEN's role will be as important as that played by US Central Command (Centcom) in directing the wars in Afghanistan and Iraq.

In its March 20 advisory FinCEN reminds the global banking community that United Nations Security Council Resolution (UNSC) 1803 (passed on March 3, 2008) "calls on member states to exercise vigilance over the activities of financial institutions in their territories with all banks domiciled in Iran, and their branches and subsidiaries abroad."

UNSC 1803 specifically mentions two Iranian state-owned banks: Bank Melli and Bank Saderat. These two banks (plus their overseas branches and certain subsidiaries), along with a third state-owned bank, Bank Sepah, were also unilaterally sanctioned by the US in 2007 under anti-proliferation and anti-terrorism presidential executive orders 13382 and 13224.

As of March 20, however, the US, speaking through FinCEN, is now telling all banks around the world "to take into account the risk arising from the deficiencies in Iran's AML/CFT [anti-money laundering and combating the financing of terrorism] regime, as well as all applicable U.S. and international sanctions programs, with regard to any possible transactions" with – and this is important – not just the above three banks but every remaining state-owned, private and special government bank in Iran. In other words, FinCEN charges, all of Iran's banks – including the central bank (also on FinCEN's list) – represent a risk to the international financial system, no exceptions. Confirmation is possible by comparing FinCEN's list of risky Iranian banks with the listing of Iranian banks provided by Iran's central bank.

The "deficiencies in Iran's AML/CFT" is important because it provides the rationale FinCEN will now use to deliver the ultimate death blow to Iran's ability to participate in the international banking system. The language is borrowed from Paris-based Financial Action Task Force (FATF), a group of 32 countries and two territories set up by the G-7 in 1989 to fight money laundering and terrorist financing. As the FinCEN advisory describes, in October 2007 the FATF stated "that Iran's lack of a comprehensive anti-money laundering and combating the financing of terrorism (AML/CFT) regime represents a significant vulnerability in the international financial system. In response to the FATF statement, Iran passed its first AML law in February 2008. The FATF, however, reiterated its concern about continuing deficiencies in Iran's AML/CFT system in a statement on February 28, 2008."

Actually, the February 28 FATF statement does not comment on Iran's new anti-money laundering law. The statement does say, however, that the FATF has been working with Iran since the October 2007 FATF statement was issued and "welcomes the commitment made by Iran to improve its AML/CFT regime." Moreover, the February 28 statement, for whatever reason, drops the "significant vulnerability" wording, opting instead to reaffirm that financial authorities around the world should "advise" their domestic banks to exercise "enhanced due diligence" concerning Iran's AML/CFT "deficiencies." In linking its March 20 advisory to the recent FATF statements, apparently FinCEN cannot wait for FATF or anyone else to evaluate the effectiveness of Iran's brand new anti-financial crime laws.

Anyway, the "deficiencies in Iran's AML/CFT" is probably the main wording FinCEN will use to justify application of one its most powerful sanctions tools, a USA Patriot Act Section 311 designation (see below).

Hammering away at Iran's state-owned banks is central to US efforts to raise an international hue and cry. Through its state-owned banks, FinCEN states, "the Government of Iran disguises its involvement in proliferation and terrorism activities through an array of deceptive practices specifically designed to evade detection." By managing to get inserted the names of two state-owned banks in the most recent UN Security Council resolution on Iran, the US can now portray the cream of Iran's financial establishment (Bank Melli and Bank Saderat are Iran's two largest banks) as directly integrated into alleged regime involvement in a secret nuclear weaponization program and acts of terrorism.

To inject further alarm, FinCEN accuses Iran's central bank of "facilitating transactions for sanctioned Iranian banks" based on evidence (which for various reasons appears true) gathered by Treasury and other US agencies that the central bank has facilitated erasure of the names of Iranian banks "from global transactions in order to make it more difficult for intermediary financial institutions to determine the true parties in the transaction." The central bank is also charged with continuing to "provide financial services to Iranian entities" (government agencies, business firms and individuals) named in two earlier UN Security Council resolutions, 1737 and 1747. In defense, Iran's central bank governor recently said: "The central bank assists Iranian private and state-owned banks to do their commitments regardless of the pressure on them" and charged the US with "financial terrorism."

So what does all this bureaucratic financial rigmarole mean?

What it really means is that the US, again through FinCEN, has declared two acts of war: one against Iran's banks and one against any financial institution anywhere in the world that tries to do business with an Iranian bank.

To understand how this works requires understanding what FinCEN does. This means going back in history to September 2005, when the US Treasury Department, based on the investigatory work of FinCEN, sanctioned a small bank in Macau, which in turn got North Korea really upset.

FinCEN's mission "is to safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity" (FinCEN website).

Under Section 311 of the USA Patriot Act the US Treasury Department, acting through FinCEN, has been provided with "a range of options that can be adapted to target specific money laundering and terrorist financing concerns." Specifically, Section 311 contains six "special measures" to significantly increase the powers of the Treasury (and other US government agencies) to block alleged terrorist financing activities. As explained by a Treasury official during April 2006 testimony before Congress, the most punitive measure requires:

"U.S. financial institutions to terminate correspondent relationships with the designated entity. Such a defensive measure effectively cuts that entity off from the U.S. financial system. It has a profound effect, not only in insulating the U.S. financial system from abuse, but also in notifying financial institutions and jurisdictions globally of an illicit finance risk."

On September 20, 2005 FinCEN issued a finding under Section 311 that Banco Delta Asia (BDA), a small bank in the Chinese territory of Macau, was a "primary money laundering concern." BDA was alleged to have knowingly allowed its North Korean clients to use the bank to engage in deceptive financial practices and a variety of financial crimes (such as money laundering of profits from drug trafficking and counterfeit US $100 "supernotes").

By publicizing its allegations, FinCEN let the world know that BDA was now at risk of having all "correspondent relationships" with US banks severed, a disaster for any bank wanting to remain networked to the largest financial market in the world. Frightened BDA customers reacted by staging a run on the bank's assets.

In the interest of self-preservation, BDA was forced to act. After a quick conference with Macau financial authorities the bank decided to freeze North Korean funds on deposit.

It just so happened that the day before the FinCEN finding was made public the US and North Korea, working through the Six-Party talks process (also involving host China, Russia, South Korea and Japan), had formally agreed on a new diplomatic roadmap that promised to lead to a denuclearized and permanently peaceful Northeast Asia. But because of Treasury's BDA sanctions, North Korea was now labeled an international financial outlaw and the Six Party process stalled.

Other banks began severing their business ties with North Korea, leaving the country more isolated than ever from global commerce and finance. These other banks had no choice. Treasury repeatedly made clear that any bank that continued to do business with North Korea was another potential Patriot Act Section 311 target.

In anger, North Korea withdrew from the Six-Party process. It required 18 months of negotiations before a diplomatic and financial approach was devised that left BDA blacklisted but allowed North Korea to regain access to its frozen funds and rejoin Six Party negotiations.

Neither FinCEN nor anyone else at Treasury has ever publicly produced any evidence in support of the financial crime allegations against BDA and North Korea (articles by this author on BDA, North Korea and Treasury's lack of proof can be found at the Japan Focus website).

If Treasury was eventually forced to back off in the BDA case (apparently because the Bush administration changed its policy priorities), it had discovered that Patriot Act Section 311 could really shake things up.

The "real impact" of the BDA-North Korea sanctions, as Treasury undersecretary Stuart Levey told members of the American Bar Association in early March 2008, was that "many private financial institutions worldwide responded by terminating their business relationships not only with [BDA], but with North Korean clients altogether." Levey and his Treasury colleagues had come up with a way to go beyond governments to use the global banking sector to privatize banking sector sanctions against an entire country (this, by the way, is presidential candidate John McCain's proposed strategy for dealing with Iran as described in the Nov/Dec 2007 issue of the journal Foreign Affairs ). This "key difference" in the "reaction by the private sector" was an exciting revelation. Through a little extraterritorial legal arm-twisting of the international banking community the US was able to put "enormous pressure on the [North Korean] regime – even the most reclusive government depends on access to the international financial system," said Levey. Washington now had "a great deal of leverage in its diplomacy over the nuclear issue with North Korea." Turning to the present, Levey informed the gathering of US lawyers that "we are currently in the midst of an effort to apply these same lessons to the very real threat posed by Iran." However, "Iran presents a more complex challenge than North Korea because of its greater integration into the international financial community."

Stuart Levey

Over the past two years Levey and other Treasury officials have been crisscrossing the globe to make it abundantly clear in meetings (described by Treasury as opportunities to "share information") with banking and government officials in the world's key financial centers that dealing with Iran is risky business. Levey frequently claims that major European and Asia banks, once they hear the US pitch, freely decided to cooperate with anti-Iran banking sanctions for reasons of "good corporate citizenship" and a "desire to protect their institutions' reputations."

But these meetings include quite a bit of browbeating. This can be deduced from some of Levey's public statements, such as his testimony to Congress. On March 21, 2007 Levey told the Senate Committee on Banking, Housing and Urban Affairs that unilateral US financial sanctions "warn people and businesses not to deal with the designated target. And those who might still be tempted to work with targeted high risk actors get the message loud and clear: if they do so, they may be next." Also, the possibility of becoming a Patriot Act Section 311 sanctions victim (which means exclusion from the US market) probably comes up at the meetings, as this part of his testimony indirectly suggests: "Our list of targeted proliferators is incorporated into the compliance systems at major financial institutions worldwide, who have little appetite for the business of proliferation firms and who also need to be mindful of U.S. measures given their ties to the U.S. financial system."

Reportedly, Treasury Secretary Henry Paulson has also been involved in high-level meetings around the world concerning Iran, which presumably includes presentations on the arsenal of US financial sanctions. The message he imparts is unknown, but hints of the likely content can be found in public statements. Among Treasury officials Paulson has used the most dramatic language by making the argument that not only is Iran a danger to the international community but that this danger permeates virtually all of Iranian society. In a June 14, 2007 speech to the Council on Foreign Relations he first makes the point that Iran's Revolutionary Guard Corps (IRGC) is a "paramilitary" organization "directly involved in the planning and support of terrorist acts, as well as funding and training other terrorist groups." Then he offers the alarming revelation that the IRGC "is so deeply entrenched in Iran's economy and commercial enterprises, it is increasingly likely that if you are doing business with Iran, you are somehow doing business with the IRGC." With such language, Treasury lays the groundwork for applying financial sanctions against the entirety of Iran. All this makes clear that the growing coalition of bankers against Iran the US likes to trumpet may not be such a willing group.

Some indication of how unwilling can be found in the pages of Der Spiegel (English edition). In July 2007 the German news magazine reported that "anyone wishing to do business in the United States or hoping to attract US investors had best tread softly when it comes to Iran. Germany's Commerzbank stopped financing trade with Iran in US dollars in January, after the Americans piled on the pressure." One German banker interviewed said: "German financial institutions feel the United States government has been engaging in 'downright blackmail'." The magazine goes on to report: "Anti-terror officials from the US Treasury are constantly showing up to demand they cut their traditionally good relations with Iran. The underlying threat from the men from Washington is that they wouldn't want to support terrorism, would they?"

Also, an April 2007 report from the UK's House of Lords Economic Affairs Committee states that the Confederation of British Industry indicated "strong concern" about Patriot Act provisions and other US extra-territorial sanctions. The Committee recognized the need for "vigorous action" in response to terrorist threats but also "endorse[d] the condemnation by the EU of the extra-territorial application of US sanctions legislation as a violation of international law."

Thus the US will need help from European government leaders to overcome resistance among major European financial institutions to US-led financial sanctions. Such help has already come from German Chancellor Angela Merkel. During her recent state visit to Israel, Merkel told the Knesset that Iran was global enemy number one. "What do we do when a majority says the greatest threat to the world comes from Israel and not from Iran?" she asked. "Do we bow our heads? Do we give up our efforts to combat the Iranian threat? However inconvenient and uncomfortable the alternative is, we do not do that." Iran is public enemy #1 in the world, and everyone – including the European banking establishment it would seem – has to accept that.

To summarize to this point: (1) the March 20 advisory represents a US declaration of war by sanctions on Iran and a sanctions threat to the international banking community, (2) the US has various unilateral financial sanctions measures at its command in the form of executive orders and Patriot Act Section 311 and (3) the BDA-North Korea sanctions were, at least in retrospect, a test run for Iran.

If the US succeeds, an international quarantine on Iran's banks would disrupt Iran's financial linkages with the world by blocking its ability to process cross-border payments for goods and services exported and imported. Without those linkages Iran is unlikely to be able to engage in global trade and commerce. As 30% of Iran's GDP in 2005 was imports of goods and services and 20% was non-oil exports (World Bank and other data), a large chunk of Iran's economy would shrivel up. The repercussions will be painful and extend well beyond lost business and profits. For example, treating curable illnesses will become difficult. According to an Iranian health ministry official, Iran produces 95% of its own medicines but most pharmaceutical-related raw materials are imported.

With a financial sanctions war declared, what happens next? There have been some hints.

On February 25 the Wall Street Journal reported that Treasury was considering sanctioning Iran's central bank (known as Bank Markazi). "The central bank is the keystone of Iran's financial system and its principal remaining lifeline to the international banking system," explains the Journal. "U.S. sanctions against it could have a severe impact on Iranian trade if other nations in Europe and Asia choose to go along with them." In anticipation of future events, the Journal notes: "U.S. officials have begun trying to lay the groundwork for a move against the central bank in public statements and meetings with key allies."

So look for the following to happen in the coming weeks: FinCEN will probably issue a Patriot Act Section 311 finding that Iran's central bank is a "primary laundering concern." The "deficiencies in Iran's AML/CFT" wording lifted from the FATF statement will be a key reason for that finding. The finding may be accompanied by a formal decision to cut off Iran's central bank from the US financial market, or such a decision could come later. Of course, an actual or threatened cut-off has no immediate financial implications for Iran since no Iranian-flagged bank is doing business in the US, except possibly to allow shipments from the US of humanitarian provisions of food and medicine, which, if they exist, probably terminate with the March 20 FinCEN announcement.

But a Section 311 designation of Iran's central bank would have a powerful coercive effect on the world's banks. For any bank in Europe, Asia or anywhere else that goes near the central bank once the 311 blacklist is on, it would be the kiss of death for that bank's participation in the international banking community, as it was (and remains today) for BDA. Not only would that bank be barred from the US financial market, it would also be shunned by European and Japanese financial markets, as government and private banking officials in those markets are likely to cooperate with Washington's intensifying sanctions campaign.

What about China, now one of the world's major financial centers (two Chinese banks ranked among the top 25 in The Banker's 2007 survey of world banks) and a major trading partner for Iran?

China and Japan "were the top two recipients of exports from Iran, together accounting for more than one-quarter of Iran's exports in 2006," according to an analysis of International Monetary Fund (IMF) trading statistics contained in a December 2007 US Government Accountability Office (GAO) report on Washington's anti-Iran sanctions regime. On the import side, the GAO found that in 2006 "Germany and China were Iran's largest providers of imports, accounting for 23 percent of Iran's imports." Airtight global banking sanctions imposed on Iran would presumably make the financial administration of this trade next to impossible.

Will China bend to US sanctions wishes? Early signs suggest the answer is yes.

In December 2007 reported that Chinese banks were starting to decline to open letters of credit for Iranian traders. Asadollah Asgaroladi, head of the Iran-China chamber of commerce, was quoted as saying that China's banks did not explain the refusal but "if this trend continues it will harm the two countries' economic cooperation and trade exchange." In February, found that China's cutbacks in its banking business with Iran was affecting a joint automobile production arrangement.

Such disruptions in the Chinese-Iranian banking relationship are minor. Meanwhile, Beijing keeps insisting that peaceful diplomacy with Iran is the best policy and that the only sanctions needed are those mandated under the three UN Security Council resolutions already on the books. Thus, to make China cooperate with Washington's unilateral banking sanctions, the US and the EU, reports the Financial Times, are apparently using a tag-team strategy.

On February 12 the FT told readers that "the US believes that tighter EU sanctions will put pressure on other nations that do more business with Iran - China for example - to curb their activities." Therefore, explained an anonymous diplomat apparently from the US: "We will be pushing the EU to go further than the Security Council," a move intended, the diplomat said, to "gold plate" Security Council requirements.

To explain this move the FT provided an example of "gold plating" from 2007, when the EU implemented UN Security Council resolutions 1737 and 1747 on Iran.

In similar language to the current text on Banks Saderat and Melli, the UN had called for "vigilance and restraint" concerning the movements of individuals linked to Iran's nuclear and missile programmes and members of its Revolutionary Guard. But in implementing the resolutions, the EU subjected all the named individuals to a travel ban - a much tougher measure.

Reading between the lines, the intention behind "gold plating" Security Council resolutions is to put pressure on China to bow to a more aggressive US-EU sanctions program. In the case of the most recent Security Council resolution on Iran, 1803, which put sanctions on two Iranian banks, FinCEN rolled two "gold plating" actions into one. It combined the Security Council's naming of the two banks with the October and February FATF statements to justify its March 20 warning to the world that Iran's entire banking system is a danger. Whether the EU will follow FinCEN's action, and how China will respond to any of this, remains to be seen.

In short, the US has in effect declared war on Iran. No bombs need fall as long as the US strategy relies solely on financial sanctions. But if the US Section 311 designates Iran's central bank as a financial criminal, the impact will be the financial equivalent to the first bombs falling on Baghdad at the start of the US-UK invasion of Iraq in March 2003.

In a 1996 publication written for the National Defense University, Harlan Ullman and James Wade introduced a military doctrine for "affecting the adversary's will to resist through imposing a regime of Shock and Awe to achieve strategic aims and military objectives."

Former US defense secretary Donald Rumsfeld made Shock and Awe famous by invoking it as the US strategy in the attack on Iraq in March 2003 (though weeks later Ullman was claiming Rumsfeld was misapplying the doctrine).

But Shock and Awe's authors (apparently with something like Vietnam or the 1993-1994 Somalia fiasco in mind) also envisioned that "[i]n certain circumstances, the costs of having to resort to lethal force may be too politically expensive in terms of local support as well as support in the U.S. and internationally." Consequently, they wrote:

"Economic sanctions are likely to continue to be a preferable political alternative or a necessary political prelude to an offensive military step . . .In a world in which nonlethal sanctions are a political imperative, we will continue to need the ability to shut down all commerce into and out of any country from shipping, air, rail, and roads. We ought to be able to do this in a much more thorough, decisive, and shocking way than we have in the past . . . Weapons that shock and awe, stun and paralyze, but do not kill in significant numbers may be the only ones that are politically acceptable in the future."

It was only a matter of finding a sanctions strategy systematic enough to make this more obscure portion of the Shock and Awe doctrine operational. What Ullman and Wade could not have imagined was that Washington's global planners would use extraterritorial legal powers and its financial clout to coerce the global banking industry into accepting US foreign policy diktat. North Korea was a test-run for the new strategy of Shock and Awe financial sanctions. As Washington Post columnist David Ignatius put it in February 2007, "[t]he new sanctions are toxic because they effectively limit a country's access to the global ATM. In that sense, they impose -- at last -- a real price on countries such as North Korea and Iran."

What then will the impact be of this US-Iran banking standoff? For the US, almost no impact at all. Treasury bureaucrats will spend some time and a little taxpayer money making phone calls, checking computer screens and paper trails to monitor global banking compliance with sanctions. The cost of financially ostracizing Iran will be a bargain for US taxpayers compared with the eventual $3 trillion cost of the Iraq and Afghanistan wars estimated by Nobel prize-winning economist Joseph Stiglitz and Harvard financial expert Linda Bilmes.

Iran, however, will become another Gaza or Iraq under the economic sanctions of the 1990s, with devastating impact on economy and society. That Iran's complete financial and economic destruction is the goal of US policy was spelled out by the State Department the day before the FinCEN announcement.

During a daily press meeting with reporters on March 19, the State Department's spokesperson was asked about a deal recently signed between Switzerland and Iran to supply Iranian natural gas to Europe. After condemning the deal, the spokesperson explained that the US is opposed to any "investing in Iran, not only in its petroleum or natural gas area but in any sector of its economy" and questioned rhetorically the wisdom of doing business with Iranian "financial institutions that are under UN sanctions or could become under sanctions if it's found that they are assisting or aiding or abetting Iran's nuclear program in any way." A clearer expression of US desires is hardly possible.

US Draws On Its Dominion To Wreak Havoc In Iran

US Draws On Its Dominion To Wreak Havoc In Iran

By Hamish McDonald

Go To Original

AVE we all been looking the wrong way on Iran, wondering when the United States or Israel will give up on its defiant President, Mahmoud Ahmadinejad, and launch a pre-emptive strike at his suspected nuclear weapons facilities?

A different kind of strike may be on the way. It's already been tested against North Korea and Burma, and it worked. Now the US may be getting ready to drop its financial atom bomb on the much bigger target of Iran.

The warning came last week in an advisory notice posted by the US Treasury's Financial Crimes Enforcement Network or FinCEN, titled "Guidance to Financial Institutions on the Continuing Money Laundering Threat Involving Illicit Iranian Activity".

In it, Washington's Treasury in effect accuses Iran's banking system, up to and including its central bank, of being complicit in money laundering associated with nuclear weapons proliferation and terrorism. The Treasury is warning banks worldwide to think twice about doing any business with 51 state-owned and seven private Iranian banks involved in foreign operations.

"Through state-owned banks, the Government of Iran disguises its involvement in proliferation and terrorism activities specifically designed to evade detection," it says, accusing Bank Markazi, the central bank, of helping disguise suspect transactions and helping sanctioned commercial banks continue to do business.

The notice is being interpreted in some quarters as a prelude to a blacklisting of all Iranian banks under the US Patriot Act's Section 311 powers, requiring all American financial institutions to sever ties with them.

While American banks don't do business with Iran - in Iran the only international credit card you can use is Mastercard, set up by British banks - the effect of such a ban is much wider. Banks from other countries also shy away from the sanctioned outfits, for fear of being contaminated in the eyes of American regulators.

Tay Za, the pre-eminent business crony of the Burmese military regime, found this to his cost after being put on the "Specifically Designated Nationals List" of the US Treasury along with other regime figures after the suppressed popular uprising last September.

Immediately after the listing, a widely circulated email attributed to his 19-year-old son, Htet Tay Za, boasted: "[The] US bans us, we're still f--king cool in Singapore. We're sitting on the whole Burma GDP. We've got timber, gems and gas to be sold to other countries like Singapore, China, India and Russia."

Not long after, a Singapore bank pulled its lines of credit to Tay Za's Air Bagan for the purchase of two Airbus jets, and his hopes of expanding the airline internationally were grounded. Although Singapore is not obliged to follow US sanctions, its banks evidently saw a risk to their US and international business from having sanctioned Burmese individuals and businesses on their books.

Earlier, in September 2005, the US Treasury applied a Section 311 listing to Macau's Banco Delta Asia for allegedly helping North Korea launder funds and pass fake $US100 bills. The ensuing run on the bank forced it to cut all business with North Korea and scared many other foreign banks away.

Neither Burma nor North Korea are at all significant in world trade or financial flows. Iran is another matter, ranking as the world's fourth-biggest oil producer and exporter, and with $US125 billion ($135 billion) in its total trade, according to 2006 figures.

What would happen to these oil flows and this trade if the Americans succeed in dragooning banks worldwide away from providing the finance?

Presumably some of the trade could be directed via intermediaries such as the Gulf states. But the Gulf sheikdoms are all US protectorates heavily dependent on American goodwill.

Could there be a rebellion against US financial system domination, say by China, which is increasingly reliant on oil from Iran and some other countries out of Western favour?

Unlikely: so far China has not used its veto against United Nations Security Council resolutions that have steadily tightened financial sanctions on Iran. The latest, on March 3, specifically called member states to "exercise vigilance" on Iranian banks, including the two largest commercial banks, Bank Melli and Bank Saderat.

A Tokyo-based financial analyst (in the always interesting website, John McGlynn, said Iranian trade officials started complaining openly in December that Chinese banks were refusing to open new letters of credit.

It's not another war in the Middle East, but how it affects Iran's already faltering economy and its paranoid-minded ruling clique of Revolutionary Guards and mullahs we don't know. As pressure it will be powerful, and like the atom bomb, the collateral damage could be extensive.

NPR News: National Pentagon Radio?

NPR News: National Pentagon Radio?

By Norman Solomon

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hile the Iraqi government continued its large-scale military assault in Basra, the NPR reporter's voice from Iraq was unequivocal on the morning of March 27: "There is no doubt that this operation needed to happen."

Such flat-out statements, uttered with journalistic tones and without attribution, are routine for the U.S. media establishment. In the War Made Easy documentary film, I put it this way: "If you're pro-war, you're objective. But if you're antiwar, you're biased. And often, a news anchor will get no flak at all for making statements that are supportive of a war and wouldn't dream of making a statement that's against a war."

So it goes at NPR News, where – on Morning Edition as well as the evening program All Things Considered – the sense and sensibilities tend to be neatly aligned with the outlooks of official Washington. The critical aspects of reporting largely amount to complaints about policy shortcomings that are tactical; the underlying and shared assumptions are imperial. Washington's prerogatives are evident when the media window on the world is tinted red-white-and-blue.

Earlier in the week – a few days into the sixth year of the Iraq war – All Things Considered aired a discussion with a familiar guest.

"To talk about the state of the war and how the U.S. military changes tactics to deal with it," said longtime anchor Robert Siegel, "we turn now to retired Gen. Robert Scales, who's talked with us many times over the course of the conflict."

This is the sort of introduction that elevates a guest to truly expert status – conveying to the listeners that expertise and wisdom, not just opinions, are being sought.

Siegel asked about the progression of assaults on U.S. troops over the years: "How have the attacks and the countermeasures to them evolved?"

Naturally, Gen. Scales responded with the language of a military man. "The enemy has built ever-larger explosives," he said. "They've found clever ways to hide their IEDs, their roadside bombs, and even more diabolical means for detonating these devices."

We'd expect a retired American general to speak in such categorical terms – referring to "the enemy" and declaring in a matter-of-fact tone that attacks on U.S. troops became even more "diabolical." But what about an American journalist?

Well, if the American journalist is careful to function with independence instead of deference to the Pentagon, then the journalist's assumptions will sound different than the outlooks of a high-ranking U.S. military officer.

In this case, an independent reporter might even be willing to ask a pointed question along these lines: You just used the word "diabolical" to describe attacks on the U.S. military by Iraqis, but would that ever be an appropriate adjective to use to describe attacks on Iraqis by the U.S. military?

In sharp contrast, what happened during the All Things Considered discussion on March 24 was a conversation of shared sensibilities. The retired U.S. Army general discussed the war effort in terms notably similar to those of the ostensibly independent journalist – who, along the way, made the phrase "the enemy" his own in a follow-up question.

It wouldn't be fair to judge an entire news program on the basis of a couple of segments. But I'm a frequent listener to All Things Considered and Morning Edition. Such cozy proximity of worldviews, blanketing the war-maker and the war reporter, is symptomatic of what ails NPR's war coverage – especially from Washington.

Of course, there are exceptions. Occasional news reports stray from the narrow baseline. But the essence of the propaganda function is repetition, and the exceptional does not undermine that function.

To add insult to injury, NPR calls itself public radio. It's supposed to be willing to go where commercial networks fear to tread. But overall, when it comes to politics and war, the range of perspectives on National Public Radio isn't any wider than what we encounter on the avowedly commercial networks.

Norman Solomon's latest book is “War Made Easy: How Presidents and Pundits Keep Spinning Us to Death.” His syndicated column focuses on media and politics.

Returning veterans face mounting joblessness and low wages

Returning veterans face mounting joblessness and low wages

By Alex Lantier
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On March 25, the Wall Street Journal published a brief summary of a US Veterans Affairs Department study on discharged veterans’ employment and wage prospects. The report, not yet publicly released and largely blacked out in the broader US media, paints a devastating picture of surging unemployment and low wages for returning veterans.

It found that the percentage of veterans not in the labor force—due to unemployment, having returned to school for further training, or having given up looking for work—had more than doubled between 2000 and 2005, jumping from 10 to 23 percent. Veterans aged 20-24 had an unemployment rate of 12 percent, 50 percent larger than the overall US unemployment rate for adults aged 20-24, which stands at 8 percent. On March 27, the military newspaper Stars and Stripes, writing on the same report, noted that 18 percent of veterans reported being unemployed.

Many employed veterans earn salaries leaving them at constant risk of financial hardship. Twenty-five percent reported earning less than $21,840 a year. Half of those aged 20-24 earned less than $25,000 a year.

The report also exposed one of most commonly promoted claims of military recruiters: that recruits will gain valuable gain job skills for future civilian life. The Journal wrote: “The report found that most of the returning veterans were unable to find civilian jobs that matched their previous military occupations. The only exceptions were the veterans working for private security firms such as Blackwater or in the maintenance and repair fields.”

The Journal added: “The Veterans Affairs Department offers educational-assistance programs for young veterans, but the report said the initiatives had little impact on the employment status or salaries of the former military personnel.”

Several other sources noted difficulties facing veterans in looking for civilian jobs., the veterans’ section of the online recruitment web site, released a survey of veteran jobseekers and civilian employers in November 2007. The survey found that 81 percent of discharged veterans did not “feel fully prepared for the process of entering the job market,” with 71 percent unsure of how to negotiate salary and benefits and 76 percent reporting “an inability to effectively translate their military skills into civilian terms.”

The way these facts came to public attention—through the leaking of an internal report, which then went broadly ignored in the mainstream press—speaks volumes about the state of American political life and class relations.

As US fatalities reached 4,000 this past week, the death toll in the war and occupation of Iraq received a certain amount of coverage in the print and broadcast media. The number of wounded soldiers, however, is controversial and rarely discussed. And the difficulties facing returning veterans—the lack of jobs, financial insecurity, denial of health care, and homelessness—also receive little press coverage.

The problems of returning veterans are closely tied to the deteriorating situation of the broader American working class. They follow inevitably from the US military’s thrusting often traumatized veterans into a society marked by rising unemployment, deindustrialization, the destruction of high-paying jobs, and increasingly difficult access to health care, education, and housing.

As Ricky Singh of Black Veterans for Social Justice told OneWorld news service in November 2007, “What typically happens to young adults who go into the military at 17 or 18, when they return home, the same kind of economic conditions that forced them towards the military still exist or have gotten worse.”

The career advice offered to veterans in a February 24, 2008, posting on provides a revealing picture of the US job market. It notes that in “farming, production, and transportation—you’re looking at slow or negative growth and poor job availability.” Another major sector that encourages veterans to consider—construction—is entering recession due to the bursting of the mortgage and real estate bubbles and the crisis on Wall Street.

Observing that the US economy is “becoming more technology-oriented and less dependent on agriculture and manufacturing,” recommends the following jobs as “the place to start”: software engineer, veterinarian, financial analyst, dental hygienist, nurse, college professor, doctor, and lawyer. However, the extensive training required for these jobs makes them difficult options for returning veterans, many of whom joined the armed forces upon graduating from high school. The drying up of student loans, amid the general tightening of US credit markets, aggravates the problem.

Among service jobs, noted, “Retail sales, wait staff, and cashier jobs are numerous, but each carries a wince-inducing median salary of between $14,000 and $20,000 per year. Customer service offers the fourth most job openings for new workers, with a substantially better median salary of just over $28,000.”

The crisis of veterans’ health care has surfaced several times to the media’s attention, especially after the March 2007 revelation of gross neglect of wounded veterans at Walter Reed Army Medical Center. In November 2007, the Boston Globe reported that, according to estimates by Physicians for Social Responsibility and staff physicians at the Veterans Affairs Department, the total cost of treating veterans would top $650 billion.

Several factors account for this figure. The development of body armor and rapid battlefield medical evacuation has greatly increased the number of severely wounded soldiers who survive their injuries, pushing the wounded-to-killed ratio to over 8 to 1, from 2 to 1 during World War II. The Globe noted that the percentage of amputees was the highest since the US Civil War. Moreover, the percentage of veterans afflicted by post-traumatic stress disorder (shell shock) is currently expected to reach between 30 and 36 percent of a total population of 1.5 million veterans of the current wars—an astounding half a million patients.

Though many wounded and disabled veterans are being denied treatment, the resulting flood of patients is overwhelming the Veterans Affairs Department. According to a January 2008 study by the Iraq and Afghanistan Veterans of America association, the number of outstanding claims by veterans for treatment rose from 254,000 to 378,000 between 2003 and 2006, with the average waiting time before a veteran receives treatment rising to 183 days.

This situation has provoked massive resentment among veterans. It forced the February 28 resignation of Veterans Affairs Undersecretary for Benefits Daniel Cooper, after a video surfaced in which Cooper, a member of the Christian Embassy missionary group, stated that Bible study was more important than his professional duties. In the video, Cooper said: “It’s not really about carving out time, it really is a matter of saying what is important. And since that’s more important than doing the job—the job’s going to be there, whether I’m there or not.”

CBS News reported on the epidemic of veteran suicides on March 20. Citing internal Veterans Affairs reports, CBS found that the number of suicide attempts by recently treated VA patients almost doubled, from 462 in 2000 to 790 in 2007. The total number of VA patients who succeeded in committing suicide was 1,403 in 2001 and 1,784 in 2005.

Large numbers of veterans are homeless. The Department of Veterans Affairs web page states, in its Overview of Homeless: “About 154,000 veterans (male and female) are homeless on any given night and perhaps twice as many experience homelessness at some point during the course of a year. Many other veterans are considered near homeless or at risk because of their poverty, lack of support from family and friends, and dismal living conditions in cheap hotels or in overcrowded or substandard housing.”

The Alliance to End Homelessness, a nonprofit organization quoted by the Boston Globe, gave higher estimates: “194,254 out of 744,313 homeless people on any given night [nationwide] are veterans.” The group had based its calculations on information from the Department of Veterans Affairs and the US Census Bureau.

American Axle strikers in Detroit respond to plant closing threats

American Axle strikers in Detroit respond to plant closing threats

By our reporting team
Go To Original

On Thursday a WSWS reporting team spoke to American Axle strikers on the picket line in Detroit about the threat by CEO Richard Dauch to close the factories where workers are presently on strike.

In an interview with Detroit Free Press columnist Tom Walsh, Dauch said, “We have the flexibility to source all of our business to other locations around the world, and we have the right to do so.” Walsh added that it was a “not-so-veiled threat” based on the fact that AAM has plants in Mexico, South America, Europe and Asia.

Striking American Axle auto workers responded with anger and defiance at the latest attempt by Dauch to break the strike and force the workers to accept a 50 percent cut in their wages.

Rick said, “If we don’t fight this tyrant (Dauch) we will have bread and soup lines. Now is the time to fight. If they say go back in and don’t worry about the money?that would be a mistake. If we can’t survive on $200 strike pay, how can we survive on what they want to pay us? We might as well stay out.”

Rick remarked on the fact that strikers were getting only $200 a week event though UAW controls a strike fund worth almost $1 billion. “It’s been 30 years since they had a big strike - they have all that money in the strike fund.”

Rick told the WSWS that there were signs that the police were starting to become more aggressive too. “We had a rally on Monday and on Tuesday; they ticketed our cars and towed a few away,” he said.

Several workers expressed the feeling that American Axle would move out jobs regardless of whether or not workers agreed to pay cuts. One worker said, “He wants us to take cuts, but all he wants is to take our money and move the jobs out anyway.”

Many workers said the huge payouts to Dauch and other auto executives only made them more angry and determined. “There was a multi-million dollar package for (Ford CEO Alan) Mulally too,” one worker said. “Corporate greed, that’s all it is. Dauch made a profit every year - the very first day here he made a profit. We will stay out another month if that’s what it takes; another two months if that’s what it takes.”

Brian, a worker with 14 years said he worked at the forge unit before moving to the gear division. Brian complained that the UAW kept workers in the dark in the period before the strike. “We didn’t hear anything before we went out on strike. Our shop chairman never said one word. We didn’t even know we were going on strike.”

Commenting on Dauch he noted, “His plan was to feed us a bunch of crap at every town hall meeting - to tell us everything was fine. Then, at the last town hall meeting he told us we would have to take concessions or he would have to move.

“Go to the people who put you where you are at and tell them to take concessions?! He says he wants us to go back to work and earn enough to just stay alive. He is figuring that the less he gives us the more we will be forced to come back in to work every day.”

Gene, an American Axle worker with 14 years said, “Since Ford, Chrysler and GM signed concessions, Dauch wanted the same thing. It is not because he can’t afford to pay current wages. Delphi and everyone are taking concessions, so he wants it.

“Now he says he wants to send everything out to China and elsewhere. But this business has already been bid out, so he will just stick the concessions in his pocket. We are not stupid.” Gene noted that Dauch owns 30 percent of American Axle stock. “You can imagine how much his stock will go up if we sign concessions; he will go from being a millionaire to being a billionaire.”

Gene also expressed his views of the broader political developments at home and abroad. “There has been an assault on the working class ever since Bush got into office. On the mortgage crisis - he is saying ‘people made the wrong decisions’, but I don’t have a crystal ball, I can’t see the future. People made a decision to buy a house based on the information they had.

On the war in Iraq, Gene said, “We are doing nothing for the people in Iraq. When this is over Bush will probably get a huge check from Halliburton. Bush does not care about any working class individual, but when Bear Sterns got in trouble, he rushed to help them out.”

Gene concluded by stating his opposition to the past union busting in Detroit. “The newspaper strike in 1995 was a disaster. It showed Dauch what could be done. If they get these wage cuts at American Axle it will be used as a springboard to lower wages somewhere else.”

Ron said he thought the threat by Dauch to move plants overseas was a scare tactic. “This threat by Dauch that he will move the production to another location - it’s the fear factor that he is trying to create. He can’t get things out. Dauch doesn’t have the capability to get things out of here. He knows that people are hurting, and his aim is to get us to jump at his offer.

“It is absolutely terrible the way they are treating us. It is almost like we are in a third world country. They believe they can do anything.”

Walter, a worker with many years at American Axle, said, “In my view the International union is part of the conspiracy along with the companies. They want to drive workers out who have one ounce of consciousness of previous struggles and bring in a new work force for $10-12.00 an hour. They want them to do double and triple the work and at the same time use them to expedite the transfer of their jobs to countries that pay even less. The companies are pursuing global interests and it is all for the purpose of making more and more money.

“The UAW is part of this plan. How can Gettelfinger, who oversaw concessions at Chrysler, Ford and GM and now has control of the VEBA retiree health plan, speak for me? The union itself is a stock holder; in fact they are one of the largest of the stockholders and represent that same corporate world.

“Workers are going to have to consider a revolutionary response,” Walter said.

“All the workers in America will have to come together and transcend color and gender lines. It has been difficult being out on strike for a month but there is an experience we’ve had which has been quite positive. The workers at American Axle, black, white and woman workers have come closer together. Some of the tension I experienced at work are no longer present. More than ever we see each other as one. We are all in the same boat fighting against a vicious corporate- and government-sponsored attack.

“The tensions on the picket line were very, very high,” Walter said. “All the cars were ticketed and the police made us move them. Two of the cars were broken into and this was most likely organized by company thugs. A group of supervisors boldly came out driving trucks doing our work. They are deliberately trying to create some type of riot scene. They know that workers are having a hard time.”

Death sentence postponed for Mumia Abu-Jamal

Death sentence postponed for Mumia Abu-Jamal

By Naomi Spencer
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A US federal court issued a ruling Thursday in the case of political prisoner Mumia Abu-Jamal, convicted of murder in the 1981 shooting death of a Philadelphia police officer.

Upholding in all respects a 2001 decision, a three-judge panel of the Third Circuit appeals court in Pennsylvania ruled against a reinstatement of Abu-Jamal’s death sentence, while upholding his murder conviction. The latest ruling was in response to appeals from both Abu-Jamal and the State of Pennsylvania after the 2001 ruling.

The court also rejected Abu-Jamal’s request for a new trial. Instead the court called for either a sentencing of life in prison, or a new penalty hearing within six months—at which a new jury could decide only whether Abu-Jamal should be re-sentenced either to death or life without parole.

The appeals court ruled in Abu-Jamal’s favor only in the sense that his execution has again been temporarily delayed. At the same time, the injustice of the case is perpetuated. Indeed, the bulk of the 118-page Third Circuit ruling was devoted to reaffirming the original charges against the longtime anti-death penalty activist, journalist, and former Black Panther Party member, and dismissing overwhelmingly contradictory evidence.

Abu-Jamal, now 53 years old, has been on death row for nearly half of his life. He has maintained his innocence throughout his decades of incarceration, and has become well known around the world as a journalist and opponent of capital punishment.

He was arrested in 1981 after the murder of Daniel Faulkner, a young police officer who had detained Abu-Jamal’s brother in an early morning traffic stop. Abu-Jamal, a taxi driver at the time, happened upon the scene and saw his brother had been beaten. As Abu-Jamal intervened, both he and Faulkner were shot. Faulkner was killed, and Abu-Jamal was hospitalized, charged with murder, and subjected to a trial compromised by false testimony and racism.

Abu-Jamal has appealed his conviction numerous times over the years. In 1989, he challenged that the prosecution had systematically excluded jurors during the selection process based solely on their race. That appeal for rehearing was rejected by the Pennsylvania Supreme Court at the time, but was considered in arguments by the Third Circuit.

The 1982 prosecution relied on witness testimony asserting that Abu-Jamal was the only person on the scene who could have committed the killing, that a gun in his possession was the murder weapon, and that he allegedly confessed to the killing at the hospital.

All of these elements of the prosecution’s case have been contradicted by evidence that emerged in the mid-1990s during a series of review hearings. Among the most damning revelations was the sworn deposition of a man named Arnold Beverly, who said he had shot Faulkner under the pay of corrupt police officers with ties to local mafia, whose activity Faulkner was disrupting.

The testimony of witnesses from the hospital where Abu-Jamal allegedly confessed was also refuted by these same witnesses, including one police officer who admitted that he had originally filed a report stating that Abu-Jamal had made no comments, but changed the report after meeting with prosecutors. Other witnesses admitted they had been coerced by police and the prosecutor’s office into giving false testimony.

In addition, basic facts were omitted from the original trial, including Faulkner’s autopsy, which found that the bullet removed from the police officer’s brain was a .44 caliber. Mumia’s gun was a .38 and could not have fired this larger caliber bullet.

In the March 27 decision, however, all the original distortions remained. Abu-Jamal, the court stated, “shot Officer Faulkner in the back” as he approached the scene, then, “standing over Officer Faulkner, fired four shots at close range.” The court repeated claims that he menaced other officers who arrived, resisted arrest, and bragged in the presence of police about the killing while in critical condition at the emergency room.

The court did rule that the jury decision was influenced by a “flaw” in jury instructions, whereby jury members were told they had to unanimously agree on mitigating circumstances in the case, which would have lessened Abu-Jamal’s sentence.

“The jury instructions and the verdict form created a reasonable likelihood that the jury believed it was precluded from finding a mitigating circumstance that had not been unanimously agreed upon,” chief judge Anthony Scirica wrote for the court. The mitigating circumstance in the case was Abu-Jamal’s lack of a criminal record and long history of activism against violence.

The three judges for the Third Circuit court were somewhat divided in their decision regarding one of Abu-Jamal’s contentions, regarding the racial composition of the jury in the original trial. The court ruled that Abu-Jamal “waived his objection” to the prosecution’s use of challenges during jury impanelment “by failing to make a contemporaneous objection during jury selection.”

However, one judge, Thomas Ambro, wrote that he would have granted Abu-Jamal a hearing on jury selection. “To move past the prima facie case is not to throw open the jailhouse doors and overturn Abu-Jamal’s conviction,” he wrote. “It is merely to take the next step in deciding whether race was impermissibly considered during jury selection.”

Reacting to the ruling Thursday, Abu-Jamal’s lead attorney, Robert Bryan, told the press, “I’ve never seen a case as permeated and riddled with racism as this one. I want a new trial and I want him free. His conviction was a travesty of justice.”

Global food prices rise and famine increases

Global food prices rise and famine increases

By Barry Mason
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The United Nations body World Food Programme (WFP) has warned that the rise in global food prices will reduce its ability to feed hungry and malnourished people.

Speaking last month in Rome, where the WFP is based, WFP Executive Director Josette Sheeran said, “Our ability to reach people is going down just as needs go up.... We are seeing a new face of hunger in which people are being priced out of the food market.... Situations that were previously not urgent—they are now.”

In a press release, the WFP gave a new estimate for the funds needed for its work this year at nearly US$3.5 billion, half a billion more than estimated last year. This money is for approved projects to feed 73 million people in 78 countries throughout the world. It notes that this money is for projected feeding schemes and does not include unforeseen emergencies that may arise.

It also notes that the poorest people on earth will have to spend an increasing portion of their meagre income on food. The WFP warns that these people will be forced to buy less food, or less nutritious food, or rely on outside help.

The countries that will be most affected include Zimbabwe, Eritrea, Djibouti, the Gambia, Togo, Chad, Cameroon, Niger and Senegal, all on the African continent. Also affected will be Haiti, Myanmar (Burma), Yemen and Cuba.

The WFP says amongst the factors pushing food increases are rising oil prices and the increase in demand for food, especially meat, in China and India. This increase in demand is a result of the rapid increase in economic power of these countries.

Weather events linked to climate change have also played a part in the rise in prices. The increasing use of crops for biofuels is another factor at work in the market.

Mark Thirlwell, writing in the Financial Times February 26, provided some data on the scale of the threat to food provision. He pointed out that world food prices have risen by 75 percent since the new millennium with a 20 percent increase last year alone. China’s consumption of meat and soybeans has gone up by 40 percent in the last decade as its economy started to soar.

He points out that whilst in the past, increases in food prices have been alleviated by subsequent increases in production, that may not apply this time.

He argues that the rise in oil prices and subsequent spurt in the production of biofuels will have a long-term impact on food supply. Increasingly, crops will be grown to meet the increased demand for biofuel rather than food.

The fact that food costs represent a bigger proportion of the income for the poor in the so-called undeveloped countries will exacerbate their plight. Thirlwell writes: “While the share of food in the consumption basket of a rich country such as the US is relatively low, at about 10 percent, it averages about 30 percent in China and more than 60 percent in sub-Saharan Africa. Those countries that are most vulnerable are the low-income net food importers. Higher food prices add more strain to import bills that have often already been stretched by higher energy prices. Several of the poorest economies fall into this category and are heavily dependent on food aid to meet their needs. But the worldwide volume of such aid has stagnated for the past two decades and, what is worse; the quantity of aid delivered tends to fall as prices rise, given that a large proportion comprises a fixed annual dollar amount.”

He points out that those most at risk will be the urban poor. Whilst in many sub-Saharan Africa countries, a large proportion of the population exist as subsistence farmers, the trend is for the poor to leave the land and head for the burgeoning urban centres.

The drive to switch to crop production for biofuels is having an impact in Africa. Ghana, Benin, Ethiopia, Uganda, Tanzania, Zambia and South Africa all have plans to produce crops for biofuel.

A report in the Independent, February 16, explained that a meeting of the African Biodiversity Network had met in South Africa to discuss biofuel production. The article quoted respected Nigerian environmentalist Nnimmo Bassey, who said: “Africa is a wide open continent and the energy industry wants to take advantage... This is a flashback to colonial plantations.”

The article continued; “From the savannahs of West Africa to the rainforests of Congo, the plains of Tanzania and the wilderness of Ethiopia, governments are handing over huge tracts of fertile land to private companies aiming to convert biomass grown on large plantations into liquid fuels for export markets. African leaders like Senegal Abdoulaye Wade are predicting a ‘green revolution’ and looking eagerly to lucrative exports.”

Climate change will also affect crop production in Africa. A recent report from Stanford University predicted a drop of nearly a third in the production of the food staple crop maize as a result of climate change over the next two decades.

A separate study carried out by the Centre for Environmental Economics and Policy in Africa (CEEPA), which is based in South Africa, states Africa will lose around 4 percent of its cropland over the next 30 years and will have lost around 18 percent by the end of the century.

The US Agency for International Development (USAID) has said it will cut the amount of food aid it provides. It blamed the recent sharp increase in commodity prices, which have left it with a US$120 million budget deficit.

Amy Barry, an Oxfam spokesperson on trade, quoted in the Observer on March 2, noted: “More and more people are going to be facing food shortages in the future.... Given what is happening due to rising food prices we need to think about the impact this will have on people [in the developing world] who are spending up to 80% of their incomes on food.”

The impact of the economic crisis of the capitalist system will have a devastating affect on the lives of some of the poorest people in the world.