Friday, April 4, 2008

Kansans Grill Lawmaker on Economy, Foreclosures, Gas Prices

Kansans Grill Lawmaker on Economy, Foreclosures, Gas Prices

By Michael Janofsky

Go To Original

John Gilbert, a retired food company executive, was one of the first voters to show up at Representative Dennis Moore's ``community office hour'' near the deli section of the Price Chopper supermarket in Overland Park, Kansas.

``Why are we borrowing from China just so people can buy Chinese goods?'' said Gilbert, 71, pointing to a portion of the $9.4 trillion in U.S. government debt held by the world's most populous country.

Rita Osterkamp, 73, a widow living on a fixed income, told Moore that rising food and gas prices threaten to make her ``the first bag lady of Overland Park.'' Dave Kellogg, 46, a marketing manager for Sprint Nextel Corp., had prepared a six-page Power Point presentation. His message: ``Don't let tax cuts expire.''

The encounters last week in Moore's northeast Kansas district underscored how an economy on the brink of recession and voter anxiety are shaping the campaigns of lawmakers seeking re-election this year.

``In state after state, the economy is becoming the single most important voting issue,'' said Scott Rasmussen, president of Asbury Park, New Jersey-based Rasmussen Reports, which publishes daily public opinion polls.

Moore, 62, a five-term incumbent, is one of two Democratic members of Congress from a state the Republicans have carried in 16 of the past 17 presidential elections. The district includes Johnson County, the wealthiest in Kansas, and poor areas of Kansas City. President George W. Bush won it twice, with 53 percent of the vote over Al Gore in 2000 and 55 percent over John Kerry in 2004.

Probable Challenger

Moore's probable Republican challenger is Nick Jordan, a state senator making his first run for federal office who is facing a perennial candidate, Paul Showen, in an Aug. 5 primary, said Christian Morgan, executive director of the Kansas Republican Party.

Jordan favors making the Bush tax cuts permanent. Moore said he wanted to do more for middle-class families without adding to the debt. Moore voted for Bush's $168 billion stimulus package, while Jordan thinks it inadequate, according to his campaign manager, Dustin Olson.

In two days of community meetings, Moore answered more questions about the economy than any other issue, including what he might do about it as a member of the House Financial Services Committee.

``There are limits to what Congress can do,'' he said at a lunch in Lawrence with faculty from the University of Kansas who raised concerns about home foreclosures. ``People think Congress has more power than it really does have.''

Rising Foreclosures

Later, during a driving tour of Kansas City with Mayor Joe Reardon, Moore asked Reardon, a Democrat, whether there had been a rise in foreclosures there.

``A slight increase,'' the mayor said.

Moore told Reardon that he favors encouraging lenders to negotiate with mortgage holders who have fallen behind.

Reardon's car approached the downtown section called Strawberry Hill, where two community development companies, CHWC Inc. and City Vision Ministries, are building 100 three-bedroom townhouses they plan to price between $215,000 and $220,000.

Reardon told Moore the project would help revitalize his city's core -- if it can attract buyers.

John Harvey, president of City Vision, said in a separate interview that while developers have lined up financing for the first 30 units, they haven't sold any homes yet. Banks are refusing to lend any more until three of the first five houses completed are sold.

Risk Averse

``Lenders aren't in the mood to take any risk right now,'' Harvey said.

Reardon then showed Moore Village West, a 400-acre site where retailers, restaurants and a planned theme park are turning open fields into an entertainment center.

The economy's instability is affecting progress there, too. Reardon said he needs a $3 million federal grant to help create a rapid bus line to shuttle unemployed city workers to jobs the Village West contractors are having trouble filling because of its rural location.

Moore made no promises in light of the Bush administration's proposed budget for fiscal 2009, starting Oct. 1, which calls for cuts of nearly $55 million in federal grants for Kansas.

Another stop on Moore's district visit was a procurement conference his office helped arrange at Johnson County Community College, a day-long event to teach local business owners how to secure government contracts.

Bear Stearns

Governor Kathleen Sebelius, a two-term Democrat, told the group that Kansas remained ``pretty robust.'' After her keynote address, she said in an interview she was unhappy with the Bush administration's strategy of helping investment banks, such as Bear Stearns Cos., before homeowners facing foreclosure.

``We need huge reinvestment to help average Americans,'' she said. ``We have to save their homes and save their jobs.''

Everywhere he went, Moore faced reminders of economic challenges -- even at the Nerman Museum of Contemporary Art.

By coincidence, he encountered William Muntean, a trade policy officer from the State Department who was in the area to meet with the International Relations Council of Kansas City, Missouri, and promote a bilateral trade agreement with Colombia.

Congressional passage would ``help further our goals around the world,'' he told Moore, as they stood beside a sculpture of a giraffe with its head in a noose.

``I'm still thinking about it,'' Moore said, referring to the agreement, not the giraffe.

Lenders Buried By Foreclosures Let Late Borrowers Stay in Homes

Lenders Buried By Foreclosures Let Late Borrowers Stay in Homes

By Bob Ivry

Go To Original

Banks are so overwhelmed by the U.S. housing crisis they've started to look the other way when homeowners stop paying their mortgages.

The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on.

Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody's Economy.com, a unit of New York-based Moody's Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.

``We don't have a sense of the magnitude of what's really going on because the whole process is being delayed,'' Zandi said in an interview. ``Looking at the data, we see the problems, but they are probably measurably greater than we think.''

Lenders took an average of 61 days to foreclose on a property last year, up from 37 days in the year earlier, according to RealtyTrac Inc., a foreclosure database in Irvine, California. Sales of foreclosed homes rose 4.4 percent last year at the same time the supply of such homes more than doubled, according to LoanPerformance First American CoreLogic Inc., a real estate data company based in San Francisco.

Reluctant Banks

``Some people stay in their houses until someone comes to kick them out,'' said Angel Gutierrez, owner of Dallas-based Metro Lending, which buys distressed mortgage debt. ``Sometimes no one comes to kick them out.''

Banks are reluctant to foreclose on homeowners for a variety of reasons that include the cost, said Peter Zalewski, real estate broker and owner of Condo Vultures Realty LLC, a property consulting firm in Bal Harbour, Florida.

Legal fees and maintaining a vacant property while paying the mortgage, insurance and taxes can add up to as much as 15 percent of the value of the home, and it may take months for the foreclosure to work through the legal system, he said.

``The end result is taking back a property that the bank will have to manage, rent out and or sell,'' Zalewski said.

In many cases, lenders also have to foot the bill for fixing up vacant homes that have been vandalized.

Real estate broker Georgia Kapsalis is offering a home for sale in Birmingham, Michigan, a Detroit suburb, where the owner last wrote a mortgage check in July. He still lives in the house, she said.

Empty Houses

``Some of the banks just don't want the houses to be empty, especially if it's in an area where there's a lot of theft or there are five other houses empty on the street,'' said Kapsalis, who works at Added Value Realty LLC in Livonia, Michigan, another Detroit suburb. ``They'll lose toilets, plumbing, appliances, everything. Banks are getting wise and allowing people to live there longer.''

Alexis McGee, president of Internet database Foreclosures.com in Sacramento, California, said she toured a property where the departing resident tried to make off with the outdoor air conditioning unit by sawing the metal legs off its concrete apron.

``People take what they want to take,'' McGee said. ``They feel that they're owed.''

With home sales dropping and national inventories rising, the lenders have another reason to delay foreclosures, said Howard Fishman, a real estate investor based in Minneapolis.

``What are the banks going to do?'' Fishman said. ``They don't want the house. They have a mortgage for $1 million and the house is worth $750,000.''

Flooded Market

Five million existing homes were sold in February, down 31 percent from the peak of 7.25 million in September 2005, data compiled by the Chicago-based National Association of Realtors show. More than 4 million existing homes were on the market in February, 53 percent more than the 2.6 million average of the past nine years, the Realtors reported.

``Excess inventories pose the biggest risk to the market,'' Michelle Meyer and Ethan Harris, New York-based economists at Lehman Brothers Holdings Inc., wrote in a report last month. ``As long as inventories are high, home prices will fall.''

Growing inventory pulled median home prices down to $195,900 in February, a 15 percent drop from the peak of $230,200 in July 2006, the Realtors said.

The civil court in St. Lucie County, Florida, is getting about 44 foreclosure cases to file every day. That's the same number it averaged in a typical month in 2005, said Clerk of the Circuit Court Ed Fry.

`Moral Hazard'

``It's pretty overwhelming,'' he said.

Fry said he has 12 full-time employees and two temporary workers he just hired handling nothing but foreclosures. Still, the 50-page filings sit in cardboard boxes for three weeks before the court staff can process them, Fry said. Then it takes another two months to get a date on the court docket, he said.

Mortgage servicers, who collect monthly payments and are responsible for starting the foreclosure process, also were caught short-staffed, said Grant Stern, a mortgage broker and owner of Morningside Mortgage Corp. in Miami Beach, Florida.

``The most experienced people you can bring in are origination people,'' Stern said. ``But for a bank it's a moral hazard to have the same people who originated the loans now modifying those loans. That wouldn't be desirable. Once around is enough.''

Servicers Expand

The five largest servicers -- Countrywide Financial Corp., Wells Fargo & Co., CitiMortgage Inc., Chase Home Finance Inc. and Washington Mutual Inc. -- together manage more than half the home loans in the U.S., according to New York-based National Mortgage News, an industry publication.

While more than 100 mortgage originators have suspended operations, closed or sold themselves since the beginning of 2007, mortgage servicing units are expanding.

Chase Home Finance, a unit of New York-based JPMorgan Chase & Co. and the fourth-largest U.S. servicer, expects to spend $200 million more servicing loans in 2008 than it did last year, said spokesman Thomas Kelly.

Kelly wouldn't say how many Chase borrowers have quit paying their mortgages and remain in their homes.

Efforts to keep borrowers paying their bills have slowed the foreclosure process, Mark Rodgers, a spokesman at CitiMortgage, a division of New York-based Citigroup Inc., said in an e-mail message.

Delayed Foreclosure

``In a number of cases, we have delayed foreclosure proceedings to allow our loss mitigation teams additional time to explore potential solutions to keep distressed borrowers in their homes,'' Rodgers said.

Joe Ohayon, vice president of community relations for Wells Fargo Home Mortgage in Frederick, Maryland, a unit of San Francisco-based Wells Fargo, said trying to modify loan terms case by case adds time to the foreclosure process.

``Foreclosure is only a last resort after all available options for keeping the customer in the home have been exhausted,'' Ohayon said in an e-mail message.

Olivia Riley, a spokeswoman at Seattle-based Washington Mutual, said in an e-mail that the company's goal is to keep customers in their homes ``with payments they can afford.''

Representatives for Calabasas, California-based Countrywide, the biggest U.S. mortgage servicer last year, didn't respond to requests for comment.

Few mortgage companies will admit they allow homeowners to stay in their homes without paying their bills.

State Laws

``No servicer will say you can live rent-free for six months, go ahead,'' said Paul Miller, a mortgage industry analyst at Friedman Billings Ramsey & Co. in Arlington, Virginia. ``Eventually, the servicers will clear these guys out.''

Homeowners usually get 90 days to resume paying before foreclosure proceedings begin with the filing of a complaint or notice of non-payment.

State laws determine the length of time between the filing and an auction of the house. In most states, it's two to six months, according to Foreclosures.com. In Maine, it can be up to a year and in New York, 19 months; in Georgia, it's as quickly as one month, and in Nevada, it can be 35 days, according to the database.

Borrowers in California who fight foreclosure can stretch the process to 18 months, said Cameron Pannabecker, chapter president of the California Association of Mortgage Brokers and president of Cal-Pro Mortgage Inc. in Stockton.

That doesn't take into account the woman he knows who hasn't made a mortgage payment in eight months and hasn't heard from her lender, Pannabecker said.

``Now she's afraid to mail in a payment for fear it'll come to somebody's attention,'' he said.

Employers Cut Most Workers Since 2003

Employers Cut Most Workers Since 2003

By Bob Willis

Go To Original

Employers in the U.S. cut the most workers in five years last month, signaling the economic contraction is deepening and the Federal Reserve will continue to lower interest rates.

Payrolls shrank by 80,000, more than forecast and the third monthly decline, the Labor Department said today in Washington. The jobless rate rose to 5.1 percent, the highest level since September 2005, from 4.8 percent.

....This is the final blow,’’ said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ....It’s clear the U.S. economy is in a recession. That’s going to shake the confidence of investors and companies across the world and cause people to curtail spending in other countries.’’

Traders raised bets the Fed will cut its benchmark rate half a point this month after central bankers already enacted the deepest reductions in borrowing costs in two decades last quarter. Officials signaled increasing concern about the economy and credit markets this week, with Chairman Ben S. Bernanke saying for the first time the U.S. may enter a recession.

Treasuries climbed, with 10-year note yields falling to 3.50 percent at 11:10 a.m. in New York, from 3.59 percent late yesterday. Odds of a half-point rate cut at the Fed’s April 29- 30 meeting rose to 38 percent from 20 percent yesterday, futures show. Stocks dropped.

Economists’ Estimates

The loss of jobs in February was revised to 76,000 from 63,000. Economists had projected payrolls would fall by 50,000 in March, according to the median of 79 forecasts in a Bloomberg News survey. Economists’ forecasts ranged from a decline of 150,000 to a gain of 65,000.

....If you’re ever going to ring a bell on a recession, these numbers do it,’’ Stuart Hoffman, chief economist at PNC Financial in Pittsburgh said in a Bloomberg Television interview. ....You have had job losses all year.’’

The job figures come a week before Bernanke and Treasury Secretary Henry Paulson meet their counterparts from the Group of Seven major industrial nations alongside the spring meetings of the International Monetary Fund in Washington.

IMF Chief Economist Simon Johnson said yesterday in a statement that the U.S. economy has slowed to a ....virtual standstill,’’ hurting global growth prospects. A document featuring IMF forecasts obtained by Bloomberg News this week showed the fund characterized the U.S. financial crisis as the worst since the Great Depression.

Private Payrolls

Gains in government jobs prevented a deeper drop in payrolls last month as private employers cut 98,000 workers, the fourth straight monthly decline. Revisions subtracted 67,000 jobs from the originally reported total figures for January and February. The last time the economy lost jobs for at least three months coincided with the start of the Iraq War in 2003.

The jobless rate was forecast to rise to 5 percent from 4.8 percent in February, the Bloomberg survey said.

Factory payrolls shrank by 48,000 workers, the biggest decrease since July 2003, Labor said. The drop included a loss of 24,000 jobs in the auto manufacturing and parts industries, which the government said ....largely’’ reflected the effects of a strike at a supplier for General Motors Corp. Economists had forecast a decline of 35,000 in manufacturing jobs.

The walkout by workers at American Axle & Manufacturing over pay and benefits that started on Feb. 26 has idled almost half of GM’s North American workforce.

Ford Cuts

Ford Motor Co., which lost $15.3 billion in the past two years, may cut more jobs in North America, Chief Executive Officer Alan Mulally said last month.

....We must continue to downsize and simply will not have enough jobs for all of our current hourly workers,’’ Joe Hinrichs, Ford’s manufacturing chief, and Marty Mulloy, vice president of labor affairs, said in a March 19 commentary sent to newspapers in communities where Ford has plants.

Builders eliminated 51,000 jobs after a decline of 37,000 in February.

Service industries, which include banks, insurance companies, restaurants and retailers, added 13,000 workers last month after an increase of 6,000 in February, the report showed. Retail payrolls decreased by 12,400 after dropping 46,700 in February.

Payrolls at financial firms decreased by 5,000, after declining 11,000 the prior month, Labor said. Job losses in the industry are mounting following the collapse in subprime lending.

Wall Street Losses

Wall Street banks hit by mortgage losses and writedowns have cut more than 34,000 jobs in the past nine months, the most since the dot-com boom fizzled in 2001, according to the Securities Industry and Financial Markets Association.

This year, financial firms including Lehman Brothers Holdings Inc., Citigroup Inc. and Morgan Stanley have reduced staff in fixed income trading, securitization and investment banking. Lehman has eliminated 18 percent of its workforce, Morgan Stanley has cut 6.2 percent, and Merrill Lynch & Co. has trimmed 4.5 percent.

The average work week lengthened to 33.8 hours from 33.7 hours. Average weekly hours worked by production workers increased to 41.3 from 41.2, while overtime increased to 4.1 hours from 4 hours. That brought average weekly earnings up by $3.47 to $603.67 last month.

Hourly Wages

Workers’ average hourly wages rose in line with forecasts to $17.86, up 5 cents, or 0.3 percent. Hourly earnings were 3.6 percent higher than a year earlier. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from the prior month and a 3.6 percent gain for the 12-month period.

Economists are increasingly forecasting a prolonged recession. Martin Feldstein, the Harvard economics professor who heads the research group that determines when downturns begin, said last month that a contraction had begun.

Stephen Roach, chairman of Morgan Stanley’s Asia division, said in a Bloomberg Television interview today in Cernobbio, Italy, that the U.S. ....will stay in recession long after’’ the current financial crisis ends.

....It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly,’’ Bernanke said in testimony to Congress April 2. He said he expected unemployment to move ....somewhat higher,’’ in line with recent data showing a ....softer labor market.’’

Bernanke told lawmakers yesterday that the central bank is ....ready to respond to whatever situation evolves,’’ and cited ....considerable stress’’ in markets. New York Fed President Timothy Geithner said policy makers must ....continue to act forcefully.’’

Carlyle Group's Plan to Takeover the Banking System

Carlyle Group's Plan to Takeover the Banking System

Go To Original

So what's Treasury Secretary Henry Paulson's call for changes in regulation of the financial markets all about? A clue may have been revealed today by Randal Quarles, former Under Secretary of the Treasury who led the Treasury Department's effort in the coordination of the President's Working Group on Financial Markets and is a current Managing Director at Carlyle Group.

Quarles spoke at a luncheon meeting of the Washington DC-based National Economists Club. His topic: "Restructuring Financial Regulation". Quarles told the luncheon group that he chose the topic in January. Hmmm. Didn't Treasury Paulson just make the proposal to restructure the financial regulatory agencies last week? How did Quarles pick this topic back in January? Short-answer, Quarles is a major insider and his comments should be monitored to get a sense for what insiders are thinking.

In his talk, Quarles said that estimates go into the hundreds of billions in terms of capital that will be required by the financial industry, because of losses sustained by the financial industry. He said there will be more financial institutions that will go under in coming months.

He said that public markets will not supply the necessary funds because they don't have the capabilities to study in detail the risks and potential rewards of the complex financials of financial institutions. He said private equity firms have the capabilities to do so and to supply the necessary funds. (N.B. Carlyle Group is a private equity firm).

Quarles stated that some changes in the structure of regulations that Paulson proposed were necessary, but would take time to develop. He specifically stated that one regulation that needed to be changed was the limitation on the size of positions that non-banks could take in banks. (Note: Limitations in the size of non-banks positions in banks, would limit Carlyle Group from taking large positions in banks).

During the Q & A session, one questioner summarized Quarles talk this way:

So what you said here today is that you would like to see regulatory changes to make it easier for private equity to take major positions in banks? And private equity, through various entities on and offshore gets its money from banks. So what you want is an environment where private equity can borrow from banks to takeover banks?

In response, Quarles laughed.

We might add this private equity acquisition of financial institutions will go on as the general public is scared off from investing in the financial institutions by scare headlines, or as Quarles would put it, "Public markets just don't have the capabilities to judge the risks and rewards of the various financial institutions." Translation: The public is not clued in on which firms the insiders have decided to let survive, like JPMorgan, and which they are going to takedown, like Bear Stearns.

Individual bankruptcy filings up 27%

Individual bankruptcy filings up 27%

Go To Original

NEW YORK - The number of individuals filing for bankruptcy surged during the first-quarter as American households struggled to stay on top of debt, according to a report released Wednesday.

The American Bankruptcy Institute said that consumer bankruptcy filings increased 27% nationwide in the first three months of the year, compared with the same period last year. In March alone, 86,165 individuals filed for consumer bankruptcy - a 13% increase over the 76,120 cases filed in February.

"Bankruptcies are rising due to the heavy burden of household debt and growing mortgage problems," said ABI Executive Director Samuel J. Gerdano. "We expect this trend to continue through 2008."

The ABI found that nearly 32% of all consumer bankruptcy cases were Chapter 13 filings, which is available to individuals with regular income and calls for budgeting some of the debtor’s future earnings to pay off creditors.

Oil Rises, Gasoline Surges to Record on U.S. Fuel-Supply Drop

Oil Rises, Gasoline Surges to Record on U.S. Fuel-Supply Drop

By Mark Shenk

Go To Original

Crude oil rose more than $3 a barrel and gasoline surged to a record after an Energy Department report showed that U.S. supplies of the motor fuel fell a third week.

Gasoline stockpiles declined 4.53 million barrels to 224.7 million barrels last week, the biggest drop since August, the report showed. The dollar fell against the euro for the first time in three days, bolstering the appeal of commodities as an inflation hedge.

``The robust supply cushion for gasoline appears to be vanishing before our eyes,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York.

Crude oil for May delivery rose $3.85, or 3.8 percent, to settle at $104.83 a barrel at 2:46 p.m. on the New York Mercantile Exchange. Prices are up 59 percent from a year ago.

Gasoline for May delivery rose 13.44 cents, or 5.1 percent, to $2.7736 a gallon in New York, a record settlement price. Futures touched $2.7836, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

Pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 0.1 cent to a record $3.827 a gallon, AAA, the nation's largest motorist organization, said today on its Web site.

Crude oil is often pulled higher by gasoline in the spring and summer when refiners bolster output of the fuel, increasing demand for the raw material.

U.S. Economy

The dollar fell after Federal Reserve Chairman Ben S. Bernanke said that the U.S. economy may contract in the first half of this year. Bernanke spoke to Congress's Joint Economic Committee today.

Oil futures rose to a record $111.80 a barrel on March 17 in New York as investors purchased commodities in response to the plunging U.S. dollar. Gold, silver and platinum futures were also higher today.

``The surge in prices over the last month was not driven by any change in the oil-market fundamentals,'' said Rachel Ziemba an analyst at RGE Monitor, an economic research company in New York. ``The primary reason for the rise in prices was the flow of funds by investors looking for a safe haven in the face of the credit crisis.''

Gasoline inventories were forecast to decline 2.75 million barrels, according to the median of 15 responses in a Bloomberg News survey.

`Real Eye-Opener'

``The gasoline drop was a real eye-opener,'' said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``Supplies are falling when we aren't even close to the driving season. We should be building stocks ahead of the driving season, not seeing them drop.''

U.S. gasoline demand increases during the summer, when Americans take to the highways for vacations. The peak- consumption period lasts from the Memorial Day weekend in late May to Labor Day in early September.

Refineries operated at 82.4 percent of capacity last week, up 0.2 percentage point from the week before, the report showed. Plants used 87 percent of capacity during the same week last year. Utilization dropped 1.7 percentage points in the week ended March 21 to 82.2 percent of capacity, the lowest since October 2005, the department said in last week's report.

Lower refinery margins, or crack spreads, last month reduced the incentive of refiners to process oil into products, including gasoline and diesel fuel. The margin for making a barrel of crude oil into one of gasoline was negative on March 17 for the first time since February 2005, according to closing futures prices. The spread rose as high as $14.656 a barrel today.

`Cranking Up Output'

``Refiners started cranking up output and they should increase output further in the weeks ahead,'' said Jim Ritterbusch, president of Galena, Illinois-based energy consulting firm Ritterbusch & Associates. ``You are going to see refiners end their voluntary run cuts because cracks are going to improve.''

Valero Energy Corp., the largest U.S. refiner, said last week that output from its catalytic cracking units, the primary gasoline-making devices at its 15 U.S. refineries, has been reduced to 73 percent because of ``uneconomic'' margins.

Declines in gasoline inventories ``will likely accelerate given the expected increase in seasonal gasoline demand,'' MF Global's Kilduff said. ``Consumers need to maintain their vigilance in holding back on driving if they are going to have any chance in seeing lower prices soon.''

U.S. Demand

Total implied U.S. fuel demand averaged 20.3 million barrels a day in the past four weeks, down 1.3 percent from a year earlier, according to the department. Gasoline consumption averaged 9.2 million barrels a day over the period, unchanged from a year earlier.

Crude-oil supplies rose 7.32 million barrels to 319.2 million barrels last week, the report showed. It was the 11th gain in 12 weeks. Stockpiles were estimated to advance 2.3 million barrels, according to the analyst survey.

Brent crude for May settlement rose $3.58, or 3.6 percent, to settle at $103.75 a barrel on London's ICE Futures Europe exchange. Futures reached a record $108.02 a barrel on March 14.

Monsanto’s Harvest of Fear

Monsanto’s Harvest of Fear

Vanity Fair

Monsanto already dominates America’s food chain with its genetically modified seeds. Now it has targeted milk production. Just as frightening as the corporation’s tactics–ruthless legal battles against small farmers–is its decades-long history of toxic contamination.

by Donald L. Barlett and James B. Steele May 2008

Gary Rinehart clearly remembers the summer day in 2002 when the stranger walked in and issued his threat. Rinehart was behind the counter of the Square Deal, his “old-time country store,” as he calls it, on the fading town square of Eagleville, Missouri, a tiny farm community 100 miles north of Kansas City.

The Square Deal is a fixture in Eagleville, a place where farmers and townspeople can go for lightbulbs, greeting cards, hunting gear, ice cream, aspirin, and dozens of other small items without having to drive to a big-box store in Bethany, the county seat, 15 miles down Interstate 35.

Everyone knows Rinehart, who was born and raised in the area and runs one of Eagleville’s few surviving businesses. The stranger came up to the counter and asked for him by name.

“Well, that’s me,” said Rinehart.

As Rinehart would recall, the man began verbally attacking him, saying he had proof that Rinehart had planted Monsanto’s genetically modified (G.M.) soybeans in violation of the company’s patent. Better come clean and settle with Monsanto, Rinehart says the man told him—or face the consequences.

Rinehart was incredulous, listening to the words as puzzled customers and employees looked on. Like many others in rural America, Rinehart knew of Monsanto’s fierce reputation for enforcing its patents and suing anyone who allegedly violated them. But Rinehart wasn’t a farmer. He wasn’t a seed dealer. He hadn’t planted any seeds or sold any seeds. He owned a small—a really small—country store in a town of 350 people. He was angry that somebody could just barge into the store and embarrass him in front of everyone. “It made me and my business look bad,” he says. Rinehart says he told the intruder, “You got the wrong guy.”

When the stranger persisted, Rinehart showed him the door. On the way out the man kept making threats. Rinehart says he can’t remember the exact words, but they were to the effect of: “Monsanto is big. You can’t win. We will get you. You will pay.”

Scenes like this are playing out in many parts of rural America these days as Monsanto goes after farmers, farmers’ co-ops, seed dealers—anyone it suspects may have infringed its patents of genetically modified seeds. As interviews and reams of court documents reveal, Monsanto relies on a shadowy army of private investigators and agents in the American heartland to strike fear into farm country. They fan out into fields and farm towns, where they secretly videotape and photograph farmers, store owners, and co-ops; infiltrate community meetings; and gather information from informants about farming activities. Farmers say that some Monsanto agents pretend to be surveyors. Others confront farmers on their land and try to pressure them to sign papers giving Monsanto access to their private records. Farmers call them the “seed police” and use words such as “Gestapo” and “Mafia” to describe their tactics.

When asked about these practices, Monsanto declined to comment specifically, other than to say that the company is simply protecting its patents. “Monsanto spends more than $2 million a day in research to identify, test, develop and bring to market innovative new seeds and technologies that benefit farmers,” Monsanto spokesman Darren Wallis wrote in an e-mailed letter to Vanity Fair. “One tool in protecting this investment is patenting our discoveries and, if necessary, legally defending those patents against those who might choose to infringe upon them.” Wallis said that, while the vast majority of farmers and seed dealers follow the licensing agreements, “a tiny fraction” do not, and that Monsanto is obligated to those who do abide by its rules to enforce its patent rights on those who “reap the benefits of the technology without paying for its use.” He said only a small number of cases ever go to trial.

Some compare Monsanto’s hard-line approach to Microsoft’s zealous efforts to protect its software from pirates. At least with Microsoft the buyer of a program can use it over and over again. But farmers who buy Monsanto’s seeds can’t even do that.

The Control of Nature

For centuries—millennia—farmers have saved seeds from season to season: they planted in the spring, harvested in the fall, then reclaimed and cleaned the seeds over the winter for re-planting the next spring. Monsanto has turned this ancient practice on its head.

Monsanto developed G.M. seeds that would resist its own herbicide, Roundup, offering farmers a convenient way to spray fields with weed killer without affecting crops. Monsanto then patented the seeds. For nearly all of its history the United States Patent and Trademark Office had refused to grant patents on seeds, viewing them as life-forms with too many variables to be patented. “It’s not like describing a widget,” says Joseph Mendelson III, the legal director of the Center for Food Safety, which has tracked Monsanto’s activities in rural America for years.

Indeed not. But in 1980 the U.S. Supreme Court, in a five-to-four decision, turned seeds into widgets, laying the groundwork for a handful of corporations to begin taking control of the world’s food supply. In its decision, the court extended patent law to cover “a live human-made microorganism.” In this case, the organism wasn’t even a seed. Rather, it was a Pseudomonas bacterium developed by a General Electric scientist to clean up oil spills. But the precedent was set, and Monsanto took advantage of it. Since the 1980s, Monsanto has become the world leader in genetic modification of seeds and has won 674 biotechnology patents, more than any other company, according to U.S. Department of Agriculture data.

Farmers who buy Monsanto’s patented Roundup Ready seeds are required to sign an agreement promising not to save the seed produced after each harvest for re-planting, or to sell the seed to other farmers. This means that farmers must buy new seed every year. Those increased sales, coupled with ballooning sales of its Roundup weed killer, have been a bonanza for Monsanto.

This radical departure from age-old practice has created turmoil in farm country. Some farmers don’t fully understand that they aren’t supposed to save Monsanto’s seeds for next year’s planting. Others do, but ignore the stipulation rather than throw away a perfectly usable product. Still others say that they don’t use Monsanto’s genetically modified seeds, but seeds have been blown into their fields by wind or deposited by birds. It’s certainly easy for G.M. seeds to get mixed in with traditional varieties when seeds are cleaned by commercial dealers for re-planting. The seeds look identical; only a laboratory analysis can show the difference. Even if a farmer doesn’t buy G.M. seeds and doesn’t want them on his land, it’s a safe bet he’ll get a visit from Monsanto’s seed police if crops grown from G.M. seeds are discovered in his fields.

Most Americans know Monsanto because of what it sells to put on our lawns— the ubiquitous weed killer Roundup. What they may not know is that the company now profoundly influences—and one day may virtually control—what we put on our tables. For most of its history Monsanto was a chemical giant, producing some of the most toxic substances ever created, residues from which have left us with some of the most polluted sites on earth. Yet in a little more than a decade, the company has sought to shed its polluted past and morph into something much different and more far-reaching—an “agricultural company” dedicated to making the world “a better place for future generations.” Still, more than one Web log claims to see similarities between Monsanto and the fictional company “U-North” in the movie Michael Clayton, an agribusiness giant accused in a multibillion-dollar lawsuit of selling an herbicide that causes cancer.

Monsanto’s genetically modified seeds have transformed the company and are radically altering global agriculture. So far, the company has produced G.M. seeds for soybeans, corn, canola, and cotton. Many more products have been developed or are in the pipeline, including seeds for sugar beets and alfalfa. The company is also seeking to extend its reach into milk production by marketing an artificial growth hormone for cows that increases their output, and it is taking aggressive steps to put those who don’t want to use growth hormone at a commercial disadvantage.

Even as the company is pushing its G.M. agenda, Monsanto is buying up conventional-seed companies. In 2005, Monsanto paid $1.4 billion for Seminis, which controlled 40 percent of the U.S. market for lettuce, tomatoes, and other vegetable and fruit seeds. Two weeks later it announced the acquisition of the country’s third-largest cottonseed company, Emergent Genetics, for $300 million. It’s estimated that Monsanto seeds now account for 90 percent of the U.S. production of soybeans, which are used in food products beyond counting. Monsanto’s acquisitions have fueled explosive growth, transforming the St. Louis–based corporation into the largest seed company in the world.

In Iraq, the groundwork has been laid to protect the patents of Monsanto and other G.M.-seed companies. One of L. Paul Bremer’s last acts as head of the Coalition Provisional Authority was an order stipulating that “farmers shall be prohibited from re-using seeds of protected varieties.” Monsanto has said that it has no interest in doing business in Iraq, but should the company change its mind, the American-style law is in place.

To be sure, more and more agricultural corporations and individual farmers are using Monsanto’s G.M. seeds. As recently as 1980, no genetically modified crops were grown in the U.S. In 2007, the total was 142 million acres planted. Worldwide, the figure was 282 million acres. Many farmers believe that G.M. seeds increase crop yields and save money. Another reason for their attraction is convenience. By using Roundup Ready soybean seeds, a farmer can spend less time tending to his fields. With Monsanto seeds, a farmer plants his crop, then treats it later with Roundup to kill weeds. That takes the place of labor-intensive weed control and plowing.

Monsanto portrays its move into G.M. seeds as a giant leap for mankind. But out in the American countryside, Monsanto’s no-holds-barred tactics have made it feared and loathed. Like it or not, farmers say, they have fewer and fewer choices in buying seeds.

And controlling the seeds is not some abstraction. Whoever provides the world’s seeds controls the world’s food supply.

Under Surveillance

After Monsanto’s investigator confronted Gary Rinehart, Monsanto filed a federal lawsuit alleging that Rinehart “knowingly, intentionally, and willfully” planted seeds “in violation of Monsanto’s patent rights.” The company’s complaint made it sound as if Monsanto had Rinehart dead to rights:

During the 2002 growing season, Investigator Jeffery Moore, through surveillance of Mr. Rinehart’s farm facility and farming operations, observed Defendant planting brown bag soybean seed. Mr. Moore observed the Defendant take the brown bag soybeans to a field, which was subsequently loaded into a grain drill and planted. Mr. Moore located two empty bags in the ditch in the public road right-of-way beside one of the fields planted by Rinehart, which contained some soybeans. Mr. Moore collected a small amount of soybeans left in the bags which Defendant had tossed into the public right-of way. These samples tested positive for Monsanto’s Roundup Ready technology.

Faced with a federal lawsuit, Rinehart had to hire a lawyer. Monsanto eventually realized that “Investigator Jeffery Moore” had targeted the wrong man, and dropped the suit. Rinehart later learned that the company had been secretly investigating farmers in his area. Rinehart never heard from Monsanto again: no letter of apology, no public concession that the company had made a terrible mistake, no offer to pay his attorney’s fees. “I don’t know how they get away with it,” he says. “If I tried to do something like that it would be bad news. I felt like I was in another country.”

Gary Rinehart is actually one of Monsanto’s luckier targets. Ever since commercial introduction of its G.M. seeds, in 1996, Monsanto has launched thousands of investigations and filed lawsuits against hundreds of farmers and seed dealers. In a 2007 report, the Center for Food Safety, in Washington, D.C., documented 112 such lawsuits, in 27 states.

Even more significant, in the Center’s opinion, are the numbers of farmers who settle because they don’t have the money or the time to fight Monsanto. “The number of cases filed is only the tip of the iceberg,” says Bill Freese, the Center’s science-policy analyst. Freese says he has been told of many cases in which Monsanto investigators showed up at a farmer’s house or confronted him in his fields, claiming he had violated the technology agreement and demanding to see his records. According to Freese, investigators will say, “Monsanto knows that you are saving Roundup Ready seeds, and if you don’t sign these information-release forms, Monsanto is going to come after you and take your farm or take you for all you’re worth.” Investigators will sometimes show a farmer a photo of himself coming out of a store, to let him know he is being followed.

Lawyers who have represented farmers sued by Monsanto say that intimidating actions like these are commonplace. Most give in and pay Monsanto some amount in damages; those who resist face the full force of Monsanto’s legal wrath.

Scorched-Earth Tactics

Pilot Grove, Missouri, population 750, sits in rolling farmland 150 miles west of St. Louis. The town has a grocery store, a bank, a bar, a nursing home, a funeral parlor, and a few other small businesses. There are no stoplights, but the town doesn’t need any. The little traffic it has comes from trucks on their way to and from the grain elevator on the edge of town. The elevator is owned by a local co-op, the Pilot Grove Cooperative Elevator, which buys soybeans and corn from farmers in the fall, then ships out the grain over the winter. The co-op has seven full-time employees and four computers.

In the fall of 2006, Monsanto trained its legal guns on Pilot Grove; ever since, its farmers have been drawn into a costly, disruptive legal battle against an opponent with limitless resources. Neither Pilot Grove nor Monsanto will discuss the case, but it is possible to piece together much of the story from documents filed as part of the litigation.

Monsanto began investigating soybean farmers in and around Pilot Grove several years ago. There is no indication as to what sparked the probe, but Monsanto periodically investigates farmers in soybean-growing regions such as this one in central Missouri. The company has a staff devoted to enforcing patents and litigating against farmers. To gather leads, the company maintains an 800 number and encourages farmers to inform on other farmers they think may be engaging in “seed piracy.”

Once Pilot Grove had been targeted, Monsanto sent private investigators into the area. Over a period of months, Monsanto’s investigators surreptitiously followed the co-op’s employees and customers and videotaped them in fields and going about other activities. At least 17 such surveillance videos were made, according to court records. The investigative work was outsourced to a St. Louis agency, McDowell & Associates. It was a McDowell investigator who erroneously fingered Gary Rinehart. In Pilot Grove, at least 11 McDowell investigators have worked the case, and Monsanto makes no bones about the extent of this effort: “Surveillance was conducted throughout the year by various investigators in the field,” according to court records. McDowell, like Monsanto, will not comment on the case.

Not long after investigators showed up in Pilot Grove, Monsanto subpoenaed the co-op’s records concerning seed and herbicide purchases and seed-cleaning operations. The co-op provided more than 800 pages of documents pertaining to dozens of farmers. Monsanto sued two farmers and negotiated settlements with more than 25 others it accused of seed piracy. But Monsanto’s legal assault had only begun. Although the co-op had provided voluminous records, Monsanto then sued it in federal court for patent infringement. Monsanto contended that by cleaning seeds—a service which it had provided for decades—the co-op was inducing farmers to violate Monsanto’s patents. In effect, Monsanto wanted the co-op to police its own customers.

In the majority of cases where Monsanto sues, or threatens to sue, farmers settle before going to trial. The cost and stress of litigating against a global corporation are just too great. But Pilot Grove wouldn’t cave—and ever since, Monsanto has been turning up the heat. The more the co-op has resisted, the more legal firepower Monsanto has aimed at it. Pilot Grove’s lawyer, Steven H. Schwartz, described Monsanto in a court filing as pursuing a “scorched earth tactic,” intent on “trying to drive the co-op into the ground.”

Even after Pilot Grove turned over thousands more pages of sales records going back five years, and covering virtually every one of its farmer customers, Monsanto wanted more—the right to inspect the co-op’s hard drives. When the co-op offered to provide an electronic version of any record, Monsanto demanded hands-on access to Pilot Grove’s in-house computers.

Monsanto next petitioned to make potential damages punitive—tripling the amount that Pilot Grove might have to pay if found guilty. After a judge denied that request, Monsanto expanded the scope of the pre-trial investigation by seeking to quadruple the number of depositions. “Monsanto is doing its best to make this case so expensive to defend that the Co-op will have no choice but to relent,” Pilot Grove’s lawyer said in a court filing.

With Pilot Grove still holding out for a trial, Monsanto now subpoenaed the records of more than 100 of the co-op’s customers. In a “You are Commanded … ” notice, the farmers were ordered to gather up five years of invoices, receipts, and all other papers relating to their soybean and herbicide purchases, and to have the documents delivered to a law office in St. Louis. Monsanto gave them two weeks to comply.

Whether Pilot Grove can continue to wage its legal battle remains to be seen. Whatever the outcome, the case shows why Monsanto is so detested in farm country, even by those who buy its products. “I don’t know of a company that chooses to sue its own customer base,” says Joseph Mendelson, of the Center for Food Safety. “It’s a very bizarre business strategy.” But it’s one that Monsanto manages to get away with, because increasingly it’s the dominant vendor in town.

Chemicals? What Chemicals?

The Monsanto Company has never been one of America’s friendliest corporate citizens. Given Monsanto’s current dominance in the field of bioengineering, it’s worth looking at the company’s own DNA. The future of the company may lie in seeds, but the seeds of the company lie in chemicals. Communities around the world are still reaping the environmental consequences of Monsanto’s origins.

Monsanto was founded in 1901 by John Francis Queeny, a tough, cigar-smoking Irishman with a sixth-grade education. A buyer for a wholesale drug company, Queeny had an idea. But like a lot of employees with ideas, he found that his boss wouldn’t listen to him. So he went into business for himself on the side. Queeny was convinced there was money to be made manufacturing a substance called saccharin, an artificial sweetener then imported from Germany. He took $1,500 of his savings, borrowed another $3,500, and set up shop in a dingy warehouse near the St. Louis waterfront. With borrowed equipment and secondhand machines, he began producing saccharin for the U.S. market. He called the company the Monsanto Chemical Works, Monsanto being his wife’s maiden name.

The German cartel that controlled the market for saccharin wasn’t pleased, and cut the price from $4.50 to $1 a pound to try to force Queeny out of business. The young company faced other challenges. Questions arose about the safety of saccharin, and the U.S. Department of Agriculture even tried to ban it. Fortunately for Queeny, he wasn’t up against opponents as aggressive and litigious as the Monsanto of today. His persistence and the loyalty of one steady customer kept the company afloat. That steady customer was a new company in Georgia named Coca-Cola.

Monsanto added more and more products—vanillin, caffeine, and drugs used as sedatives and laxatives. In 1917, Monsanto began making aspirin, and soon became the largest maker worldwide. During World War I, cut off from imported European chemicals, Monsanto was forced to manufacture its own, and its position as a leading force in the chemical industry was assured.

After Queeny was diagnosed with cancer, in the late 1920s, his only son, Edgar, became president. Where the father had been a classic entrepreneur, Edgar Monsanto Queeny was an empire builder with a grand vision. It was Edgar—shrewd, daring, and intuitive (“He can see around the next corner,” his secretary once said)—who built Monsanto into a global powerhouse. Under Edgar Queeny and his successors, Monsanto extended its reach into a phenomenal number of products: plastics, resins, rubber goods, fuel additives, artificial caffeine, industrial fluids, vinyl siding, dishwasher detergent, anti-freeze, fertilizers, herbicides, pesticides. Its safety glass protects the U.S. Constitution and the Mona Lisa. Its synthetic fibers are the basis of Astroturf.

During the 1970s, the company shifted more and more resources into biotechnology. In 1981 it created a molecular-biology group for research in plant genetics. The next year, Monsanto scientists hit gold: they became the first to genetically modify a plant cell. “It will now be possible to introduce virtually any gene into plant cells with the ultimate goal of improving crop productivity,” said Ernest Jaworski, director of Monsanto’s Biological Sciences Program.

Over the next few years, scientists working mainly in the company’s vast new Life Sciences Research Center, 25 miles west of St. Louis, developed one genetically modified product after another—cotton, soybeans, corn, canola. From the start, G.M. seeds were controversial with the public as well as with some farmers and European consumers. Monsanto has sought to portray G.M. seeds as a panacea, a way to alleviate poverty and feed the hungry. Robert Shapiro, Monsanto’s president during the 1990s, once called G.M. seeds “the single most successful introduction of technology in the history of agriculture, including the plow.”

By the late 1990s, Monsanto, having rebranded itself into a “life sciences” company, had spun off its chemical and fibers operations into a new company called Solutia. After an additional reorganization, Monsanto re-incorporated in 2002 and officially declared itself an “agricultural company.”

In its company literature, Monsanto now refers to itself disingenuously as a “relatively new company” whose primary goal is helping “farmers around the world in their mission to feed, clothe, and fuel” a growing planet. In its list of corporate milestones, all but a handful are from the recent era. As for the company’s early history, the decades when it grew into an industrial powerhouse now held potentially responsible for more than 50 Environmental Protection Agency Superfund sites—none of that is mentioned. It’s as though the original Monsanto, the company that long had the word “chemical” as part of its name, never existed. One of the benefits of doing this, as the company does not point out, was to channel the bulk of the growing backlog of chemical lawsuits and liabilities onto Solutia, keeping the Monsanto brand pure.

But Monsanto’s past, especially its environmental legacy, is very much with us. For many years Monsanto produced two of the most toxic substances ever known— polychlorinated biphenyls, better known as PCBs, and dioxin. Monsanto no longer produces either, but the places where it did are still struggling with the aftermath, and probably always will be.

“Systemic Intoxication”

Twelve miles downriver from Charleston, West Virginia, is the town of Nitro, where Monsanto operated a chemical plant from 1929 to 1995. In 1948 the plant began to make a powerful herbicide known as 2,4,5-T, called “weed bug” by the workers. A by-product of the process was the creation of a chemical that would later be known as dioxin.

The name dioxin refers to a group of highly toxic chemicals that have been linked to heart disease, liver disease, human reproductive disorders, and developmental problems. Even in small amounts, dioxin persists in the environment and accumulates in the body. In 1997 the International Agency for Research on Cancer, a branch of the World Health Organization, classified the most powerful form of dioxin as a substance that causes cancer in humans. In 2001 the U.S. government listed the chemical as a “known human carcinogen.”

On March 8, 1949, a massive explosion rocked Monsanto’s Nitro plant when a pressure valve blew on a container cooking up a batch of herbicide. The noise from the release was a scream so loud that it drowned out the emergency steam whistle for five minutes. A plume of vapor and white smoke drifted across the plant and out over town.Residue from the explosion coated the interior of the building and those inside with what workers described as “a fine black powder.” Many felt their skin prickle and were told to scrub down.

Within days, workers experienced skin eruptions. Many were soon diagnosed with chloracne, a condition similar to common acne but more severe, longer lasting, and potentially disfiguring. Others felt intense pains in their legs, chest, and trunk. A confidential medical report at the time said the explosion “caused a systemic intoxication in the workers involving most major organ systems.” Doctors who examined four of the most seriously injured men detected a strong odor coming from them when they were all together in a closed room. “We believe these men are excreting a foreign chemical through their skins,” the confidential report to Monsanto noted. Court records indicate that 226 plant workers became ill.

According to court documents that have surfaced in a West Virginia court case, Monsanto downplayed the impact, stating that the contaminant affecting workers was “fairly slow acting” and caused “only an irritation of the skin.”

In the meantime, the Nitro plant continued to produce herbicides, rubber products, and other chemicals. In the 1960s, the factory manufactured Agent Orange, the powerful herbicide which the U.S. military used to defoliate jungles during the Vietnam War, and which later was the focus of lawsuits by veterans contending that they had been harmed by exposure. As with Monsanto’s older herbicides, the manufacturing of Agent Orange created dioxin as a by-product.

As for the Nitro plant’s waste, some was burned in incinerators, some dumped in landfills or storm drains, some allowed to run into streams. As Stuart Calwell, a lawyer who has represented both workers and residents in Nitro, put it, “Dioxin went wherever the product went, down the sewer, shipped in bags, and when the waste was burned, out in the air.”

In 1981 several former Nitro employees filed lawsuits in federal court, charging that Monsanto had knowingly exposed them to chemicals that caused long-term health problems, including cancer and heart disease. They alleged that Monsanto knew that many chemicals used at Nitro were potentially harmful, but had kept that information from them. On the eve of a trial, in 1988, Monsanto agreed to settle most of the cases by making a single lump payment of $1.5 million. Monsanto also agreed to drop its claim to collect $305,000 in court costs from six retired Monsanto workers who had unsuccessfully charged in another lawsuit that Monsanto had recklessly exposed them to dioxin. Monsanto had attached liens to the retirees’ homes to guarantee collection of the debt.

Monsanto stopped producing dioxin in Nitro in 1969, but the toxic chemical can still be found well beyond the Nitro plant site. Repeated studies have found elevated levels of dioxin in nearby rivers, streams, and fish. Residents have sued to seek damages from Monsanto and Solutia. Earlier this year, a West Virginia judge merged those lawsuits into a class-action suit. A Monsanto spokesman said, “We believe the allegations are without merit and we’ll defend ourselves vigorously.” The suit will no doubt take years to play out. Time is one thing that Monsanto always has, and that the plaintiffs usually don’t.

Poisoned Lawns

Five hundred miles to the south, the people of Anniston, Alabama, know all about what the people of Nitro are going through. They’ve been there. In fact, you could say, they’re still there.

From 1929 to 1971, Monsanto’s Anniston works produced PCBs as industrial coolants and insulating fluids for transformers and other electrical equipment. One of the wonder chemicals of the 20th century, PCBs were exceptionally versatile and fire-resistant, and became central to many American industries as lubricants, hydraulic fluids, and sealants. But PCBs are toxic. A member of a family of chemicals that mimic hormones, PCBs have been linked to damage in the liver and in the neurological, immune, endocrine, and reproductive systems. The Environmental Protection Agency (E.P.A.) and the Agency for Toxic Substances and Disease Registry, part of the Department of Health and Human Services, now classify PCBs as “probable carcinogens.”

Today, 37 years after PCB production ceased in Anniston, and after tons of contaminated soil have been removed to try to reclaim the site, the area around the old Monsanto plant remains one of the most polluted spots in the U.S.

People in Anniston find themselves in this fix today largely because of the way Monsanto disposed of PCB waste for decades. Excess PCBs were dumped in a nearby open-pit landfill or allowed to flow off the property with storm water. Some waste was poured directly into Snow Creek, which runs alongside the plant and empties into a larger stream, Choccolocco Creek. PCBs also turned up in private lawns after the company invited Anniston residents to use soil from the plant for their lawns, according to The Anniston Star.

So for decades the people of Anniston breathed air, planted gardens, drank from wells, fished in rivers, and swam in creeks contaminated with PCBs—without knowing anything about the danger. It wasn’t until the 1990s—20 years after Monsanto stopped making PCBs in Anniston—that widespread public awareness of the problem there took hold.

Studies by health authorities consistently found elevated levels of PCBs in houses, yards, streams, fields, fish, and other wildlife—and in people. In 2003, Monsanto and Solutia entered into a consent decree with the E.P.A. to clean up Anniston. Scores of houses and small businesses were to be razed, tons of contaminated soil dug up and carted off, and streambeds scooped of toxic residue. The cleanup is under way, and it will take years, but some doubt it will ever be completed—the job is massive. To settle residents’ claims, Monsanto has also paid $550 million to 21,000 Anniston residents exposed to PCBs, but many of them continue to live with PCBs in their bodies. Once PCB is absorbed into human tissue, there it forever remains.

Monsanto shut down PCB production in Anniston in 1971, and the company ended all its American PCB operations in 1977. Also in 1977, Monsanto closed a PCB plant in Wales. In recent years, residents near the village of Groesfaen, in southern Wales, have noticed vile odors emanating from an old quarry outside the village. As it turns out, Monsanto had dumped thousands of tons of waste from its nearby PCB plant into the quarry. British authorities are struggling to decide what to do with what they have now identified as among the most contaminated places in Britain.

“No Cause for Public Alarm”

What had Monsanto known—or what should it have known—about the potential dangers of the chemicals it was manufacturing? There’s considerable documentation lurking in court records from many lawsuits indicating that Monsanto knew quite a lot. Let’s look just at the example of PCBs.

The evidence that Monsanto refused to face questions about their toxicity is quite clear. In 1956 the company tried to sell the navy a hydraulic fluid for its submarines called Pydraul 150, which contained PCBs. Monsanto supplied the navy with test results for the product. But the navy decided to run its own tests. Afterward, navy officials informed Monsanto that they wouldn’t be buying the product. “Applications of Pydraul 150 caused death in all of the rabbits tested” and indicated “definite liver damage,” navy officials told Monsanto, according to an internal Monsanto memo divulged in the course of a court proceeding. “No matter how we discussed the situation,” complained Monsanto’s medical director, R. Emmet Kelly, “it was impossible to change their thinking that Pydraul 150 is just too toxic for use in submarines.”

Ten years later, a biologist conducting studies for Monsanto in streams near the Anniston plant got quick results when he submerged his test fish. As he reported to Monsanto, according to The Washington Post, “All 25 fish lost equilibrium and turned on their sides in 10 seconds and all were dead in 3½ minutes.”

When the Food and Drug Administration (F.D.A.) turned up high levels of PCBs in fish near the Anniston plant in 1970, the company swung into action to limit the P.R. damage. An internal memo entitled “confidential—f.y.i. and destroy” from Monsanto official Paul B. Hodges reviewed steps under way to limit disclosure of the information. One element of the strategy was to get public officials to fight Monsanto’s battle: “Joe Crockett, Secretary of the Alabama Water Improvement Commission, will try to handle the problem quietly without release of the information to the public at this time,” according to the memo.

Despite Monsanto’s efforts, the information did get out, but the company was able to blunt its impact. Monsanto’s Anniston plant manager “convinced” a reporter for The Anniston Star that there was really nothing to worry about, and an internal memo from Monsanto’s headquarters in St. Louis summarized the story that subsequently appeared in the newspaper: “Quoting both plant management and the Alabama Water Improvement Commission, the feature emphasized the PCB problem was relatively new, was being solved by Monsanto and, at this point, was no cause for public alarm.”

In truth, there was enormous cause for public alarm. But that harm was done by the “Original Monsanto Company,” not “Today’s Monsanto Company” (the words and the distinction are Monsanto’s). The Monsanto of today says that it can be trusted—that its biotech crops are “as wholesome, nutritious and safe as conventional crops,” and that milk from cows injected with its artificial growth hormone is the same as, and as safe as, milk from any other cow.

The Milk Wars

Jeff Kleinpeter takes very good care of his dairy cows. In the winter he turns on heaters to warm their barns. In the summer, fans blow gentle breezes to cool them, and on especially hot days, a fine mist floats down to take the edge off Louisiana’s heat. The dairy has gone “to the ultimate end of the earth for cow comfort,” says Kleinpeter, a fourth-generation dairy farmer in Baton Rouge. He says visitors marvel at what he does: “I’ve had many of them say, ‘When I die, I want to come back as a Kleinpeter cow.’ ”

Monsanto would like to change the way Jeff Kleinpeter and his family do business. Specifically, Monsanto doesn’t like the label on Kleinpeter Dairy’s milk cartons: “From Cows Not Treated with rBGH.” To consumers, that means the milk comes from cows that were not given artificial bovine growth hormone, a supplement developed by Monsanto that can be injected into dairy cows to increase their milk output.

No one knows what effect, if any, the hormone has on milk or the people who drink it. Studies have not detected any difference in the quality of milk produced by cows that receive rBGH, or rBST, a term by which it is also known. But Jeff Kleinpeter—like millions of consumers—wants no part of rBGH. Whatever its effect on humans, if any, Kleinpeter feels certain it’s harmful to cows because it speeds up their metabolism and increases the chances that they’ll contract a painful illness that can shorten their lives. “It’s like putting a Volkswagen car in with the Indianapolis 500 racers,” he says. “You gotta keep the pedal to the metal the whole way through, and pretty soon that poor little Volkswagen engine’s going to burn up.”

Kleinpeter Dairy has never used Monsanto’s artificial hormone, and the dairy requires other dairy farmers from whom it buys milk to attest that they don’t use it, either. At the suggestion of a marketing consultant, the dairy began advertising its milk as coming from rBGH-free cows in 2005, and the label began appearing on Kleinpeter milk cartons and in company literature, including a new Web site of Kleinpeter products that proclaims, “We treat our cows with love … not rBGH.”

The dairy’s sales soared. For Kleinpeter, it was simply a matter of giving consumers more information about their product.

But giving consumers that information has stirred the ire of Monsanto. The company contends that advertising by Kleinpeter and other dairies touting their “no rBGH” milk reflects adversely on Monsanto’s product. In a letter to the Federal Trade Commission in February 2007, Monsanto said that, notwithstanding the overwhelming evidence that there is no difference in the milk from cows treated with its product, “milk processors persist in claiming on their labels and in advertisements that the use of rBST is somehow harmful, either to cows or to the people who consume milk from rBST-supplemented cows.”

Monsanto called on the commission to investigate what it called the “deceptive advertising and labeling practices” of milk processors such as Kleinpeter, accusing them of misleading consumers “by falsely claiming that there are health and safety risks associated with milk from rBST-supplemented cows.” As noted, Kleinpeter does not make any such claims—he simply states that his milk comes from cows not injected with rBGH.

Monsanto’s attempt to get the F.T.C. to force dairies to change their advertising was just one more step in the corporation’s efforts to extend its reach into agriculture. After years of scientific debate and public controversy, the F.D.A. in 1993 approved commercial use of rBST, basing its decision in part on studies submitted by Monsanto. That decision allowed the company to market the artificial hormone. The effect of the hormone is to increase milk production, not exactly something the nation needed then—or needs now. The U.S. was actually awash in milk, with the government buying up the surplus to prevent a collapse in prices.

Monsanto began selling the supplement in 1994 under the name Posilac. Monsanto acknowledges that the possible side effects of rBST for cows include lameness, disorders of the uterus, increased body temperature, digestive problems, and birthing difficulties. Veterinary drug reports note that “cows injected with Posilac are at an increased risk for mastitis,” an udder infection in which bacteria and pus may be pumped out with the milk. What’s the effect on humans? The F.D.A. has consistently said that the milk produced by cows that receive rBGH is the same as milk from cows that aren’t injected: “The public can be confident that milk and meat from BST-treated cows is safe to consume.” Nevertheless, some scientists are concerned by the lack of long-term studies to test the additive’s impact, especially on children. A Wisconsin geneticist, William von Meyer, observed that when rBGH was approved the longest study on which the F.D.A.’s approval was based covered only a 90-day laboratory test with small animals. “But people drink milk for a lifetime,” he noted. Canada and the European Union have never approved the commercial sale of the artificial hormone. Today, nearly 15 years after the F.D.A. approved rBGH, there have still been no long-term studies “to determine the safety of milk from cows that receive artificial growth hormone,” says Michael Hansen, senior staff scientist for Consumers Union. Not only have there been no studies, he adds, but the data that does exist all comes from Monsanto. “There is no scientific consensus about the safety,” he says.

However F.D.A. approval came about, Monsanto has long been wired into Washington. Michael R. Taylor was a staff attorney and executive assistant to the F.D.A. commissioner before joining a law firm in Washington in 1981, where he worked to secure F.D.A. approval of Monsanto’s artificial growth hormone before returning to the F.D.A. as deputy commissioner in 1991. Dr. Michael A. Friedman, formerly the F.D.A.’s deputy commissioner for operations, joined Monsanto in 1999 as a senior vice president. Linda J. Fisher was an assistant administrator at the E.P.A. when she left the agency in 1993. She became a vice president of Monsanto, from 1995 to 2000, only to return to the E.P.A. as deputy administrator the next year. William D. Ruckelshaus, former E.P.A. administrator, and Mickey Kantor, former U.S. trade representative, each served on Monsanto’s board after leaving government. Supreme Court justice Clarence Thomas was an attorney in Monsanto’s corporate-law department in the 1970s. He wrote the Supreme Court opinion in a crucial G.M.-seed patent-rights case in 2001 that benefited Monsanto and all G.M.-seed companies. Donald Rumsfeld never served on the board or held any office at Monsanto, but Monsanto must occupy a soft spot in the heart of the former defense secretary. Rumsfeld was chairman and C.E.O. of the pharmaceutical maker G. D. Searle & Co. when Monsanto acquired Searle in 1985, after Searle had experienced difficulty in finding a buyer. Rumsfeld’s stock and options in Searle were valued at $12 million at the time of the sale.

From the beginning some consumers have consistently been hesitant to drink milk from cows treated with artificial hormones. This is one reason Monsanto has waged so many battles with dairies and regulators over the wording of labels on milk cartons. It has sued at least two dairies and one co-op over labeling.

Critics of the artificial hormone have pushed for mandatory labeling on all milk products, but the F.D.A. has resisted and even taken action against some dairies that labeled their milk “BST-free.” Since BST is a natural hormone found in all cows, including those not injected with Monsanto’s artificial version, the F.D.A. argued that no dairy could claim that its milk is BST-free. The F.D.A. later issued guidelines allowing dairies to use labels saying their milk comes from “non-supplemented cows,” as long as the carton has a disclaimer saying that the artificial supplement does not in any way change the milk. So the milk cartons from Kleinpeter Dairy, for example, carry a label on the front stating that the milk is from cows not treated with rBGH, and the rear panel says, “Government studies have shown no significant difference between milk derived from rBGH-treated and non-rBGH-treated cows.” That’s not good enough for Monsanto.

The Next Battleground

As more and more dairies have chosen to advertise their milk as “No rBGH,” Monsanto has gone on the offensive. Its attempt to force the F.T.C. to look into what Monsanto called “deceptive practices” by dairies trying to distance themselves from the company’s artificial hormone was the most recent national salvo. But after reviewing Monsanto’s claims, the F.T.C.’s Division of Advertising Practices decided in August 2007 that a “formal investigation and enforcement action is not warranted at this time.” The agency found some instances where dairies had made “unfounded health and safety claims,” but these were mostly on Web sites, not on milk cartons. And the F.T.C. determined that the dairies Monsanto had singled out all carried disclaimers that the F.D.A. had found no significant differences in milk from cows treated with the artificial hormone.

Blocked at the federal level, Monsanto is pushing for action by the states. In the fall of 2007, Pennsylvania’s agriculture secretary, Dennis Wolff, issued an edict prohibiting dairies from stamping milk containers with labels stating their products were made without the use of the artificial hormone. Wolff said such a label implies that competitors’ milk is not safe, and noted that non-supplemented milk comes at an unjustified higher price, arguments that Monsanto has frequently made. The ban was to take effect February 1, 2008.

Wolff’s action created a firestorm in Pennsylvania (and beyond) from angry consumers. So intense was the outpouring of e-mails, letters, and calls that Pennsylvania governor Edward Rendell stepped in and reversed his agriculture secretary, saying, “The public has a right to complete information about how the milk they buy is produced.”

On this issue, the tide may be shifting against Monsanto. Organic dairy products, which don’t involve rBGH, are soaring in popularity. Supermarket chains such as Kroger, Publix, and Safeway are embracing them. Some other companies have turned away from rBGH products, including Starbucks, which has banned all milk products from cows treated with rBGH. Although Monsanto once claimed that an estimated 30 percent of the nation’s dairy cows were injected with rBST, it’s widely believed that today the number is much lower.

But don’t count Monsanto out. Efforts similar to the one in Pennsylvania have been launched in other states, including New Jersey, Ohio, Indiana, Kansas, Utah, and Missouri. A Monsanto-backed group called afact—American Farmers for the Advancement and Conservation of Technology—has been spearheading efforts in many of these states. afact describes itself as a “producer organization” that decries “questionable labeling tactics and activism” by marketers who have convinced some consumers to “shy away from foods using new technology.” afact reportedly uses the same St. Louis public-relations firm, Osborn & Barr, employed by Monsanto. An Osborn & Barr spokesman told The Kansas City Star that the company was doing work for afact on a pro bono basis.

Even if Monsanto’s efforts to secure across-the-board labeling changes should fall short, there’s nothing to stop state agriculture departments from restricting labeling on a dairy-by-dairy basis. Beyond that, Monsanto also has allies whose foot soldiers will almost certainly keep up the pressure on dairies that don’t use Monsanto’s artificial hormone. Jeff Kleinpeter knows about them, too.

He got a call one day from the man who prints the labels for his milk cartons, asking if he had seen the attack on Kleinpeter Dairy that had been posted on the Internet. Kleinpeter went online to a site called StopLabelingLies, which claims to “help consumers by publicizing examples of false and misleading food and other product labels.” There, sure enough, Kleinpeter and other dairies that didn’t use Monsanto’s product were being accused of making misleading claims to sell their milk.

There was no address or phone number on the Web site, only a list of groups that apparently contribute to the site and whose issues range from disparaging organic farming to downplaying the impact of global warming. “They were criticizing people like me for doing what we had a right to do, had gone through a government agency to do,” says Kleinpeter. “We never could get to the bottom of that Web site to get that corrected.”

As it turns out, the Web site counts among its contributors Steven Milloy, the “junk science” commentator for FoxNews.com and operator of junkscience.com, which claims to debunk “faulty scientific data and analysis.” It may come as no surprise that earlier in his career, Milloy, who calls himself the “junkman,” was a registered lobbyist for Monsanto.