Wednesday, April 16, 2008

Dollar Drops to Record Low Against Euro

Dollar Falls to Record Against Euro as EU Inflation Quickens

By Ye Xie and Bo Nielsen

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The dollar fell to a record low against the euro as European inflation accelerated last month, reducing chances the European Central Bank will follow the Federal Reserve in cutting interest rates.

The currency had its biggest decline versus the euro in three weeks, weakening to $1.5969 as U.S. housing starts dropped more than twice as much as forecast to a 17-year low. The Canadian and Australian dollars and the Norwegian krone increased after crude oil touched a record $114.53 a barrel.

‘‘We are seeing noticeable contrast between the ECB and Fed policies,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ‘‘The euro-dollar at these levels feels like a stretch, but the trend is your friend.''

The dollar depreciated 0.9 percent to $1.5936 against the euro at 11:41 a.m. in New York, from $1.5790 yesterday. The dollar decreased 0.2 percent to 101.62 yen, from 101.83. The euro rose 0.8 percent to 161.99 yen after touching 162.07, the highest level since Jan. 11.

The U.S. currency has fallen almost 1 percent against the euro since Group of Seven finance ministers said after meeting in Washington on April 11 that they're concerned ‘‘sharp fluctuations'' in currency markets may hurt the global economy.

‘‘The further we get away from the G-7 statement, people realize it really doesn't change policy in the near term,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ‘‘The likelihood of intervention remains very low if the decline of the dollar is orderly.''

Currency Volatilty

Implied volatility on options for the six most active currencies against the dollar rose to 11.67 percent today, from 11.58 yesterday, according to an index compiled by JPMorgan Chase & Co. The gauge touched a decade high of 14.48 on March 17, a level at which the G-7 bought the dollar to check its decline in a coordinated move in 1995.

The euro rose 0.3 percent against the pound today after touching the all-time high of 80.76 pence on the European inflation report. The Bank of England cut its target lending rate by a quarter-percentage point to 5 percent on April 10.

Norway's krone touched 4.9576 per dollar, the highest level since 1980, on crude oil prices that are 79 percent higher from a year ago. The Canadian dollar rose 1.4 percent, the biggest gain in seven weeks, while the Australian dollar increased 1.3 percent. Norway is the world's fifth-largest oil supplier, while commodities such as oil and gold account for half of Canada's exports. Exports of commodities, such as iron ore and coal, make up about 17 percent of Australia's economy.

Oil and Dollar

Crude oil and the euro versus the dollar have moved in lockstep in the past year. The correlation coefficient between the two was 0.957. A reading of 1 indicates they always move in the same direction.

‘‘There has been a clear and positive correlation between oil and the euro against the dollar,'' ‘‘People have to recycle out of the U.S. dollar when oil prices go up.''

Expectations became less bearish for the dollar, a survey of U.S. users of Bloomberg terminals showed. The index of expectations rose to 42.87 from 30.30. A reading below 50 indicates participants expect the currency will weaken. Users turned bearish against the Swiss franc and British pound.

The dollar has dropped 15 percent against the euro since September as the Fed cut the target lending rate 3 percentage points to 2.25 percent to protect the U.S. economy from the collapse of the subprime-mortgage market.

`Vacuous Notion'

Former Treasury Secretary Paul O'Neill said in an interview on Bloomberg Television today that the idea of strong dollar is a ‘‘vacuous notion.'' His successor, Henry Paulson, has said he favors a strong dollar.

Futures on the Chicago Board of Trade showed a 28 percent chance that policy makers will reduce the fed funds target by a half-percentage point to 1.75 percent on April 30, compared with a 42 percent likelihood a week ago. The rest of the odds were for a reduction of a quarter-percentage point.

The European inflation rate accelerated to 3.6 percent last month, the highest in almost 16 years, the European Union's statistics office in Luxembourg said today.

The yield on three-month Euribor contracts expiring in December rose 0.07 percentage point to 4.28 percent, indicating traders are betting policy makers will keep the main interest rate unchanged at a six-year high of 4 percent this year.

Work began on 947,000 U.S. homes in March at an annual rate, down 11.9 percent from February and the fewest since March 1991, the Commerce Department said. Starts were projected to fall 5.2 percent to a 1.01 million pace from an originally reported 1.065 million rate in February, according to the median forecast of 72 economists surveyed by Bloomberg News.

‘‘We are in an uncharted territory,'' said Robert Lynch, a senior currency strategist in New York at HSBC Bank USA NA. ‘‘It just highlighted there's additional downside risks to the housing market and to the broader economic growth.''

Housing Starts in U.S. Slide to 17-Year Low

Housing Starts Slump, Industrial Production Gains

By Bob Willis and Courtney Schlisserman

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The U.S. housing implosion worsened in March, while manufacturing stabilized and a stagnant economy limited the ability of companies to pass higher food and energy costs on to consumers.

Work began on 947,000 homes at an annual rate, the fewest since March 1991, the Commerce Department said today in Washington. Industrial production gained 0.3 percent in the month, according to the Federal Reserve, and the Labor Department reported that consumer prices rose 0.3 percent, matching economists' forecasts.

While foreclosures are pushing down property values and undermining construction, record exports have kept factories running to help make up for the damage. Stocks advanced after earnings from Intel Corp., JPMorgan Chase & Co. and Coca-Cola Co. eased concern that the economic slowdown is dragging down profits.

‘‘The data are all consistent with weak near-term growth,'' said Dean Maki, chief economist at Barclays Capital Inc. in New York. ‘‘But we believe the next significant move will be upward as we move into the third quarter. Manufacturing is holding up quite well as the strength in exports continues to largely offset the weakness,'' in the domestic economy, including housing, he said.

Building permits, a gauge of future construction, fell to a 927,000 rate from 984,000 the prior month.

Housing starts, which dropped 11.9 percent, were projected to decline 5.2 percent to a 1.01 million pace from an originally reported 1.065 million rate in February, according to the median forecast in a Bloomberg survey of 72 economists.

Homebuilding Outlook

‘‘Home construction is probably going to continue to fall right through this year,'' Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. ‘‘While we see a bottoming in sales in 2008, we really don't see an improvement until later 2009, early 2010'' in home building.

The increase in industrial production followed a revised 0.7 percent drop in February that was larger than previously reported, the Fed said. Capacity utilization, which measures the proportion of plants in use, rose to 80.5 percent.

Cooler temperatures in March boosted utility output, while demand from overseas may have helped U.S. factories offset declining domestic orders. A measure of manufacturing in the New York region yesterday showed an unexpected increase this month.

Production Forecasts

Economists forecast industrial production to fall 0.1 percent after an originally reported 0.5 percent decrease for February. Capacity utilization was forecast to decline to 80.3 percent, from a previously reported 80.4 percent.

The increase in the consumer price index followed no change the prior month, the Labor Department said. So-called core prices, which exclude food and energy, increased 0.2 percent, also after no change. Both readings matched median forecasts in a Bloomberg survey of economists.

Higher prices, combined with falling home values and mounting job losses, is leading to cutbacks in consumer spending that may push the economy into a deeper recession. Fed officials anticipate that the weakening economy will pull down the inflation rate.

‘‘Their primary focus has to be on the downside risk to growth,'' said Brian Bethune, director of financial economics at Global Insight Inc., in Lexington, Massachusetts. ‘‘There is very little ability for companies to pass on price increases.''

Annual Gain

Prices rose 4 percent in the 12 months to March, the same as the year-over-year gain in February. The core rate increased 2.4 percent from March 2007, after a 2.3 percent year-over-year increase the prior month.

Today's report showed energy expenses jumped 1.9 percent, the most since November, after a decrease of 0.5 percent the prior month. Gasoline prices rose 1.3 percent, fuel oil costs jumped 10.1 percent and natural gas prices were up 4.6 percent.

Energy costs continue to climb this month. Crude oil yesterday topped $114 a barrel, the highest since futures began trading on the on the New York Mercantile Exchange in 1983. The average cost of regular gasoline, which rose to $3.40 yesterday, is about 55 cents higher than a year earlier, according to AAA.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

Types of Properties

Work on single-family homes decreased 5.7 percent to a 680,000 pace, Commerce said. Construction of multifamily homes, such as townhouses and apartment buildings, fell 25 percent to an annual rate of 267,000 in March.

Starts dropped in all four regions, led by a 21 percent slump in the Midwest.

Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.

The National Association of Home Builders yesterday forecast housing starts would fall 30 percent this year, compared with a previously estimated 27 percent drop, as the credit crisis persists.

‘‘It's now clear that we have entered what we anticipate will be a mild recession,'' David Seiders, chief economist for the homebuilders' group, said in a statement.

KB Home, the fifth-largest U.S. homebuilder, last month reported a wider loss than analysts projected as the housing recession cut sales and led to land writedowns.

`Unable to Qualify'

‘‘Many potential buyers either cannot or will not make a purchase commitment today,'' Chief Executive Officer Jeffrey Mezger said on a conference call March 28. ‘‘Many are simply unable to qualify for financing given the more restrictive lending environment.''

Economists surveyed by Bloomberg this month forecast the economy will not grow at all in the first half of the year, the weakest performance since the 2001 downturn.

Fed policy makers are more focused on the threat of recession than inflation.

‘‘Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' according to the minutes of Fed's March 18 meeting released last week.

Investors project the central bank will lower the benchmark rate by at least a quarter point later this month.

DHS Terror Funds Creating Police Grid

DHS Terror Funds Creating Police Grid

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According to their own mission statement, the Department of Homeland Security was created in 2002 to investigate and prevent terrorism inside the United States. If this is so, then why are hundreds of millions of dollars in tax payer money being shoveled to local and state police and emergency agencies to stop car jackings, spy on citizens, and investigate minor crimes?

There is a Federal program called CEDAP(Commercial Equipment Direct Assistance Program) which uses equipment paid for by Congress, given to DHS, and is then piped down to the states via a grant program. States chomp at the bit for a chance at laptops, surveillance cameras, armor vests, night vision gear, etc.

CEDAP awardees have included local FEMA offices, fire and emergency units, and local and state police. The grantees’ own websites glorify the use of the CEDAP equipment to do everything from fighting crime to rescuing kittens from trees. The equipment was appropriated by Congress to the DHS to stop terrorism, yet there is little evidence that any of this equipment has been used to find one terrorist or prevent one single terrorist attack. It’s all done to stop red light runners, tail gaters, dead beat dads, and local dope sellers, all problems that could be solved with some good old detective work and a court order. Millions of dollars in used equipment, sometimes military equipment, does not need to be funded to the states just to get cats out of trees and sniff out marijuana bags at the local high school.

Coplink which is basically an IT database for police, champions its high tech gizmos that it uses to stop grand theft autos, kidnap rescues, low speed pursuits, and even a false suicide 911 call. Osama who?

One particular new toy being built and funded by the DHS is a Sergeant 4X4 armored van that will be used by first responders in Macomb County, Michigan. There will be 3 units built and will be used for the following:

“Firefighting, enabling personnel to transport heavy equipment to remote or isolated areas including so-called “hot zones”, hazard material incidents, providing protection from 59 chemical contaminants, crowd control and riots, to protect officers entering violent scenes and search and rescue with four-wheel drive and 360-degree thermal imaging cameras.

The funding for this program was done through the Urban Area Security Initiative, another offshoot under the CEDAP umbrella.”

Al-Qaeda where?

This entire grid being put over us is funded by Congress and given to an agency whose entire existence rests on the faithful mission of stopping terrorists. We’ve been sold the idea that terrorists are plane hijacking, bomb-strapped Muslim fundamentalists. If this is the case, then where is the justification for using this equipment and all this money to stop litterbugs, car thieves, and red light bandits? The answer is clear: the government sees its own people as the suspects and subjects of anti-terror laws, and the real question now is whether the people will awaken to this trap being placed around them before it’s too late.

Gas Prices Could Pass $3.50 in Weeks

Gas Prices Could Pass $3.50 in Weeks

NEW YORK (AP) — Gas prices fluctuated over the weekend but appear poised to resume their seemingly relentless trek toward a record high milestone of an average $3.50 a gallon. Forecasts call for gas to peak as high as $3.65 within a month.

Oil prices, meanwhile, rose to a record settlement and later hit an intraday trading record in Asia as the dollar fell and crude supplies were disrupted in the U.S. and overseas.

At the pump, the national average price of a gallon of gas edged lower overnight to $3.373 a gallon, 0.1 cent shy of a new record set Sunday, according to a survey of stations by AAA and the Oil Price Information Service. Still, prices are 0.8 cent higher than Friday, and almost 53 cents higher than a year ago.

The Energy Department recently predicted gas prices could average as much as $3.60 a month this summer, and said the daily national average could rise as high as $4 a times. Prices are already over $4 in some parts of the country.

But a growing number of analysts don't believe the national average will rise that high unless something unanticipated occurs.

"I don't think so, unless there is some sort of outage or refinery event," said Fred Rozell, retail pricing director at the Oil Price Information Service.

Indeed, barring such an event, prices could fall back to $3 a gallon, or lower, by late summer, said Jim Ritterbusch, president of Ritterbusch and Associates, an energy consultancy in Galena, Ill.

"Take your vacation late this year," said Ritterbusch, who believes prices will dip to those lows in July or August.

Still, unexpected refinery outages have forced pump price spikes in the past. Last spring, a string of unanticipated refinery outages caused gas prices to peak at record levels in May. Prices then mostly fell until late in the year, when they began to track crude oil higher.

Prices normally rise in the spring as suppliers stock up in advance of peak summer driving season, and as refiners switch over from making winter grade gasoline to the more expensive, but less polluting, summer version of the fuel. As they perform this switch, refiners try to sell off all of their winter grade fuel, driving overall supplies down.

This year, refiners are also facing short supplies of alkylate, a key ingredient in summer grade fuel. And gas prices are also following oil prices, which are near record levels. Light, sweet crude for May delivery rose $1.62 to settle at a record $111.76 a barrel Monday as the dollar weakened. The contract later rose to $112.48 a barrel in electronic trading on the New York Mercantile Exchange midmorning Tuesday in Singapore, surpassing the previous record set last week at $112.21.

Many investors regard commodities such as oil as a hedge against a weak dollar and inflation. Also, a weaker dollar makes oil cheaper to investors overseas.

Oil prices also rose on word of supply disruptions, including the weekend closure of a 1.2 million barrel a day Royal Dutch Shell PLC pipeline in the Midwest due to a leak. The pipeline has since reopened and is operating at reduced capacity. In Nigeria, Italian energy giant ENI said sabotage has cut crude production from one of its facilities by about 5,000 barrels a day.

Still, analysts believe the weak dollar is the main reason oil prices have risen to record levels this year, and have held above $100 for more than a month. Ritterbusch said prices could rise a few dollars higher than last week's record, but expects that moves by world governments to support the dollar will send oil prices lower later in the year.

The Group of Seven industrialized nations raised concerns about the dollar's fall in a statement on Friday, a warning some analysts see as a sign the G7 may be contemplating an intervention that could lessen crude's attraction as an inflation hedge and send it lower.

"That should provide some relief at the pump," Ritterbusch said.

In other Nymex trading Monday, May gasoline futures rose 1.45 cents to settle at $2.8218 a gallon, and May heating oil futures rose 0.54 cent to settle at $3.2029 a gallon. May natural gas futures rose 15.2 cents to settle at $10.053 per 1,000 cubic feet.

In London, May Brent crude rose $1.09 to settle at $109.84 on the ICE Futures exchange.

Oil Prices Surge to a New High

Oil Prices Surge to a New High

Oil prices surged to a new high on Tuesday, rising to nearly $114 a barrel, as scattered pipeline interruptions and a weak dollar pressured a tight global market.

Crude oil futures jumped more than $2, to $113.93 a barrel on the New York Mercantile Exchange. Oil prices have risen more than 18 percent since the beginning of the year.

Tuesday’s price set a record for oil and helped push gasoline to fresh highs. Retail gasoline averaged $3.39 a gallon, according to AAA, the automotive group. That is more than 50 cents a gallon higher than a year ago. Diesel prices have seen even bigger gains. Diesel now averages $4.12 a gallon, according to AAA, $1.18 more than last year.

The immediate driver behind higher oil prices has been a string of interruptions in pipeline operations in Nigeria and the Caspian region, as well as a shutdown of Mexican exporter terminals in the Gulf Coast because of bad weather. While small, these interruptions underlined how reactive the market is to the slightest disruption in supplies.

Despite slowing economic growth worldwide, in particular in the United States, energy prices are showing no signs of slowing. The International Monetary Fund recently slashed its global growth forecast as the financial crises spreads and warned the United States economy might shrink.

The darker outlook prompted the International Energy Agency, a forecaster for developed countries, to cut its estimates for global oil demand this year by nearly half a million barrels a day. The energy agency expects oil consumption to grow by 1.3 million barrels a day in 2008, to 87.2 million barrels a day. That is 460,000 barrels a day less than its previous forecast.

Higher energy costs are hurting business and consumers alike, and are adding up to the woes of an economy already ailing from a housing slump and a financial crisis. As a result, many analysts expect gasoline consumption to drop this year. The United States is the world’s top oil consumer, accounting for nearly a quarter of global demand.

Oil producers are also facing a tougher time increasing their supplies. Russia’s production is reaching a plateau after its post-Soviet recovery, for example. Mexico’s production is declining because of insufficient investments by its state-owned oil company, Pemex.

But this week also brought some potentially positive news for the future growth in supplies. The head of Brazil’s national oil agency suggested the country had discovered a massive offshore oil field that could potentially be three times bigger than the country’s current proven reserves.

But little relief is expected in the short term. OPEC does not want to step in and bring prices down by increasing its production, as it expects oil demand to fall in coming months. The oil group accounts for 40 percent of the world’s oil exports. Its members are not scheduled to meet until September.

Members of the Organization of the Petroleum Exporting Countries consider the global market well stocked with oil — that there is no shortage anywhere — and that prices are being conditioned more by market psychology than fundamental factors.

Saudi Arabia’s oil minister, Ali al-Naimi, suggested last week that the current oil prices had little to do with global supplies.

“I am not going to pull back, I’m not going to dump crude on the market,” Mr. Naimi told reporters last week, according to Reuters.

On Saturday, Saudi Arabia’s King Abdullah also suggested that new oil discoveries in the kingdom would remain untapped to preserve the nation’s wealth for future generation, according to various wire reports. “Let them remain in the ground for our children and grandchildren who need them,” the king said in a speech, according the official Saudi Press Agency.

In its latest monthly report, OPEC said on Tuesday that it expected global demand to fall 1.4 million barrels a day in the second quarter, a period of the year when consumption in the northern hemisphere typically slows after demand for winter fuels falls.

Analysts have also blamed a weak dollar for pushing up oil prices as investors seek to buy commodity assets to hedge against the falling value of the dollar, as well as rising inflation. The dollar has dropped against the euro because of concerns about the states of the American economy. It recently traded at $1.5811 against the euro, close to its lowest levels.

“The financial investors are coming at you from the sovereign funds, hedge funds, pension funds, and commodity fund managers are all betting on the weak dollar,” said Lawrence Goldstein, an economist at the Energy Policy Research Foundation. “This is now as much about the direction of the dollar as it is about the direction of oil.”

Record Crude Means More Record Profits for Oil Companies

Record Crude Means More Record Profits for Oil Companies

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Crude oil prices rose more than $1 today to over $111 a barrel. This puts the price of oil within striking distance of its record price of $112.21 a barrel reached just last week. Though today’s jump in prices is due more to the weakness of the dollar than a new decline in oil inventory, record level oil prices have and will continue to translate into record oil company profits.

Most prominently, Exxon Mobil Corporation (NYSE: XOM) set a record last year with net income of more than $40 billion on nearly $405 billion of revenue. Not content with those numbers, Exxon just announced a joint project with a Hungarian oil company to begin exploring nearly 400,000 acres in an area of the country known as the Mako trough.

Two of the other big players, BP (NYSE: BP) and ConocoPhillips (NYSE: COP) have combined market capitalizations of over $300 billion and combined net income of more than $30 billion. The two companies recently announced their intention to partner in the construction of a $30 billion pipeline from Alaska to the continental U.S. Though the plan is contentious and possibly more of a stunt than a real business plan, the willingness of the companies to bear such high capital costs show the lucrative nature of the energy markets.

The obvious question many ask is why do Exxon Mobil , BP, and ConocoPhillips profit so handsomely from these record crude oil prices? In simplified economic terms, the cost of extracting oil is fairly constant. Though equipment and personnel costs do indeed increase with higher oil prices – because oil extraction is a more attractive business – these costs do not increase proportionally with higher oil prices.

Most importantly, the oil fields the companies are producing from have most often been licensed or bought outright years ago because it takes years of exploration and development before significant production. Effectively, by paying for the potential reserves years ago the oil companies are producing oil now during an era of record prices that they likely paid for when oil was only $30 a barrel. The staggering outcome is that oil companies can sell their good – oil - for more than 3 times what they could only a few years ago while experiencing little increase in their costs of producing the good.

This is a simplified story, but the moral is what matters most: high oil prices will continue to be a windfall for oil companies.

Big Tax Breaks for Businesses in Housing Bill

Big Tax Breaks for Businesses in Housing Bill

By Stephen Labaton and David M. Herszenhorn

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Washington - The Senate proclaimed a fierce bipartisan resolve two weeks ago to help American homeowners in danger of foreclosure. But while a bill that senators approved last week would take modest steps toward that goal, it would also provide billions of dollars in tax breaks - for automakers, airlines, alternative energy producers and other struggling industries, as well as home builders.

The tax provisions of the Foreclosure Prevention Act, which consumer groups and labor leaders say amount to government handouts to big business, show how the credit crisis, while rattling the housing and financial markets, has created beneficiaries in the power corridors of Washington.

It also shows how legislation with a populist imperative offers a chance for lobbyists to press their clients' interests.

This has proved especially true on the housing legislation, which many lawmakers and lobbyists view as one of the last opportunities before Congress grinds to a halt amid election-year politics.

In the Senate bill, the nation's biggest home builders, some now on the verge of bankruptcy, won a provision that would let them claim millions in tax refunds by charging their current losses against the huge profits they made three or four years ago. Other struggling industries would benefit from this provision.

"This is our biggest legislative effort since the Tax Reform Act of 1986," said Jerry M. Howard, chief executive of the National Association of Home Builders. Hundreds of the association's members flooded the district offices of representatives and senators while they were home for the spring recess last month.

Supporters of the bill, including Senator Max Baucus, Democrat of Montana and the chairman of the Senate Finance Committee, say it represents sound tax policy carefully focused to help stimulate the lagging economy. But the White House opposes the Senate bill, and Democratic leaders in the House not only have promised to provide more relief for individual homeowners, but have also dropped the corporate tax provisions from their version.

Downtrodden automakers - Ford and General Motors - were especially dogged in securing a tax break that would let them collect alternative minimum tax credits, also known as the A.M.T., that would otherwise be out of reach because they did not pay enough taxes in recent years to claim a rebate.

If the provision becomes law, it could mean checks up to $40 million for the car manufacturers, as long as the companies had made investments in plant or equipment in that amount.

A Ford spokesman, Mike Moran, said he was aware that Ford would benefit from the tax credit in the bill passed by the Senate. But Mr. Moran said that the credit applied to a range of industries, not just automakers. A General Motors spokesman could not be reached.

Domestic airlines and manufacturers other than automakers would be eligible to claim the A.M.T. break as well. One lobbyist said that the companies that had sought the tax breaks in meetings with lawmakers included Ford, General Motors, American Airlines, Northwest Airlines and Goodyear Tire and Rubber.

Companies could claim only one of the new tax breaks, which in all, are expected to cost $6 billion through 2018. The jockeying among industry groups, including Realtors, home builders and bankers, is certain to intensify in coming weeks as lawmakers move to reconcile the Senate bill with a more ambitious package of housing legislation now under way in the House.

Lawmakers on the tax-writing House Ways and Means Committee have omitted the corporate tax cuts from their version of the bill in favor of tax breaks for first-time home buyers and developers of low-income rental housing, and more aid for owners facing foreclosure.

Congressional Democrats are also hearing from consumer advocates and other groups who say that the Senate bill does little to help Americans in danger of losing their homes to foreclosure.

"The Senate legislation gave corporations and Wall Street billions in tax breaks," Terence M. O'Sullivan, the president of the Laborers International Union of North America, said at a news conference on Tuesday to denounce the bill.

"Tax breaks for corporate home builders won't help stabilize the housing market, won't create jobs and won't prevent a single foreclosure," he continued. "If anything, this multibillion-dollar windfall will make things worse."

Even Senator Christopher J. Dodd, Democrat of Connecticut and the main author of the Senate bill, said the measure did not live up to its name and that he wanted changes. But other lawmakers, and the lobbyists who seek to influence them, also recognize a golden opportunity when they sense that the political winds virtually guarantee a bill's passage, and the housing crisis is just such a time.

In a sign of how such legislation allows lawmakers to advance many other goals, the Senate bill also includes tax provisions to encourage alternative energy production at a cost of roughly $6 billion over 10 years.

That provision was sponsored by Senator Maria Cantwell, Democrat of Washington, and Senator John Ensign, Republican of Nevada. A similar measure was dropped from a major energy bill last year and again from the economic stimulus bill in February.

But without quick action to extend expiring tax incentives, Ms. Cantwell said, many companies would simply drop projects. The housing bill was the easiest and fastest way to get things moving.

Other industries facing financial difficulties, like retailers, may realize that the tax provisions in the bill offer help for them, too.

Over the next few weeks, industry groups that fought to secure tax provisions in the Senate bill are expected to argue that providing help for important industries offers the best chance of helping to reverse the economic downturn.

To press their case on Capitol Hill, 15 of the biggest residential construction companies, including KB Homes and Toll Brothers, formed a coalition and hired a lobbying firm, the C2 Group, apart from the larger National Association of Home Builders.

Tom Crawford, a founder of the C2 Group, met with staff members of the Senate Finance Committee, several of whose members had already begun expressing concern about the effect of the slowing economy on home builders and other businesses.

The home builders were hardly the only industry that lawmakers heard from as the Senate housing legislation took shape and it became clear that the bill would provide more in the way of tax breaks aimed at stimulating the economy than direct assistance for distressed homeowners.

The cause of the automobile manufacturers was taken up by Senator George Voinovich, Republican of Ohio, and Senator Debbie Stabenow, Democrat of Michigan, who pushed to allow them access to up to $40 million each in alternative minimum tax credits.

Automakers and other companies that have lost money in recent years have accumulated billions of dollars in such credits, which are based on cumulative payments of the corporate alternative minimum tax. Companies, however, can claim a refund of such credits only in years when they pay regular corporate income taxes in amounts that exceed what they would owe under the alternative tax method.

The provision benefiting home builders and other struggling businesses would allow operating losses to be carried back over four years rather than the two years in current law. It is a strategy that Congress has used as a way of stimulating the economy in previous recessions, most recently in 2002 with the support of the Bush administration.

But the White House opposed the idea when members of Congress proposed it as part of the economic stimulus package earlier this year. And some House Democrats suggest that home builders and their lobbyists will face an uphill battle in trying to keep the provision when the Senate bill is reconciled with a rival tax package that was approved last week by the House Ways and Means Committee.

These Democrats said that the Ways and Means chairman, Representative Charles B. Rangel, Democrat of New York, and other leaders, including Nancy Pelosi, the House speaker, would oppose the provision as benefiting builders at a time when Congress should be helping homeowners.

"This ship largely sailed when Congressional Republicans left it out of the stimulus package," said one House Democratic aide, who spoke on condition of anonymity so as not to interfere with negotiations.

Unlike the Senate bill, which includes a tax credit of up to $7,500 for purchasers of foreclosed properties, Mr. Rangel's bill provides a credit for all first-time home buyers - a move that drew strong support from the National Association of Realtors.

"This is a meaningful incentive that should draw into the market many purchasers who, to date, have remained on the sidelines," the president of the group, Richard F. Gaylord, wrote. "We believe this credit can convert 'lookers' into first-time home buyers."

Other industry groups were also eager to sign on as supporters of Mr. Rangel's bill, even as many of them hope to push him to endorse a more expansive menu of tax breaks that will benefit them.

Among them were the National Association of Home Builders, the Mortgage Bankers Association, the Securities Industry and Financial Markets Association, the Council of Federal Home Loan Banks and the American Hospital Association.

Treasury Outlines Toothless Hedge Fund Rules

Treasury Outlines Toothless Hedge Fund Rules

By Kevin G. Hall

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Washington - With an eye toward shoring up shaky financial markets, Treasury Department officials unveiled a plan Tuesday to provide greater transparency and management of risk in hedge funds.

However, the Bush administration's "best practices" proposal is voluntary, and less than two dozen of the more than 8,000 registered hedge funds signed onto the plan.

Hedge funds are large pools of investment capital owned by the wealthy. They are largely unregulated.

The plan, presented by Treasury Secretary Henry Paulson, doesn't introduce new regulation. It depends instead on self-policing and good behavior by hedge fund managers - two qualities missing in action in recent years as Wall Street excesses have led to what former Federal Reserve Chairman Alan Greenspan recently called the worst global financial crisis since World War II.

A former CEO of investment bank Goldman Sachs & Co., Paulson didn't rule out the possibility of future regulation.

"Both market and regulatory practices will evolve from here, but this is certainly a logical step at this time," Paulson said. "We must implement best practices and continually seek to strengthen our market and regulatory practices."

Critics of the plan, such as Connecticut Attorney General Richard Blumenthal, think it gives hedge fund managers, who helped devise the "best practices," a free pass.

"This plan is one small step when giant strides are needed. The Treasury Department's proposals for greater transparency and risk disclosure must be mandatory or they are meaningless," Blumenthal said in a statement. "Non-binding best practices or voluntary guidelines are an imaginary fence and virtual farce: They stop nothing."

Many economists have warned that loosely regulated hedge funds pose a system-wide risk to financial markets, but so far they've emerged from the current credit crisis in good shape. Instead it has been the investment banks - their business partners - whose losses now pose risks to global finance.

Hedge funds require investors to have a minimum net worth of more than $1 million and prior-year income above $200,000. Upon meeting that qualification, investors are required to have a minimum investment, matched by a small pool of partners, that can range from $250,000 to as high as $10 million.

These hedge funds are closed to small investors under the premise that only the rich can afford the risk of high hedge fund losses. The funds also offer far greater rewards to investors than is generally available through safer mutual funds and 401(k) retirement plans.

Although an average American cannot invest in hedge funds, which now boast more than $2 trillion in assets under management worldwide, state pension funds can and increasingly do.

This has raised concerns about accounting practices, fees, transparency and risk-management practices, particularly after the spectacular September 2006 collapse of Amaranth Advisors LLC. It had such a large concentration of investment in contracts for future delivery of natural gas that it was later charged by federal regulators with price manipulation.

Eric Mindich, founder of giant hedge fund Eton Park Capital Management and co-drafter of the "best practices" plan, told reporters Tuesday that "a bunch of warning flags would have been triggered (about Amaranth) if this had been in place at the time."

The state employee pension plans of California, Pennsylvania, Massachusetts and New Jersey were among those that lost money during Amaranth's collapse. Employees of San Diego County in California also lost big.

The chief investment officer of California's state pension fund, Russell Read, led one of two working groups that together came up with Treasury's "best practices" plan. He acknowledged that there was nothing to compel compliance and that there would be no public record of which companies are adopting "best practices."

There will be a "fair amount of missionary work" to convince companies it is in their interest to adopt these proposed standards, Read said.

Three Amigos Summit

Three Amigos Summit

By Manuel Pérez Rocha and Sarah Anderson

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President George W. Bush will soon host what has become an annual "Three Amigos Summit." The leaders of Mexico, the United States, and Canada will be gathering in New Orleans on April 21 and 22. What do you suppose is on the agenda? A rational response to immigration, perhaps? A thoughtful renegotiation of the unpopular North American Free Trade Agreement? Lessons from Canada's affordable medicines program?

No. No. And no. Rather than putting their heads together around pressing issues such as these, the three leaders will be advancing a so-called Security and Prosperity Partnership (SPP). And while that may sound well and good, this initiative, begun in 2005, is unlikely to produce either security or prosperity. That's because the partnership is only with big business.

The chief executives of Wal-Mart, Chevron, and 28 other large corporations are in on the closed-door negotiations, while members of Congress, journalists, and ordinary citizens are excluded. And the secrecy is not just around the presidential summits, but also the meetings of about 20 SPP working groups that carry on negotiations over the course of the year.

What's on the table? Not much is public, but we do know that the executive powers of the three countries are hammering out regulatory changes that they claim do not require legislative approval. And given who's in the room, it's a safe bet that these changes will favor narrow corporate interests over the public good.

The official corporate advisory body, called the North American Competitive Council (NACC), made 51 proposals to the SPP negotiators last year on issues as varied as taxation and patent rights. The NACC later boasted that "all three of our governments have committed themselves to taking action on many of our recommendations."

Bad on Process and Substance

In essence, the SPP represents the privatization of policymaking. And so it's not surprising that on top of the outrageously anti-democratic process, there are also strong reasons to be concerned about the substance of SPP decisions. Here are just a few:

First, at a time when the Democratic presidential candidates have kicked up a long overdue debate over NAFTA, the SPP would actually expand this flawed policy. Even though the lifting of trade and investment barriers under the trade pact failed to create the promised good, stable jobs, the SPP is further chipping away at remaining economic regulations. For example, at the last SPP summit, the three leaders announced a weakening of NAFTA's "rules of origin" to allow products with a lower level of national content to receive preferential tariff treatment. This will undermine domestic industries by making trade in products from third countries like China even more profitable.

Second, the SPP could exacerbate tensions over energy resources and deepen our dependence on fossil fuels. Under the guise of a "North American integrated energy market," there is evidence that the U.S. government and corporations are aiming to gain greater control over its neighbors' resources. One SPP agreement, for example, reflects the corporate advisors' recommendations to promote energy privatization in Mexico - this in spite of a massive citizens' movement in that country, which has fought long and hard to prevent their nation's oil industry from being handed over to global corporations. In Canada, progressive activists are up in arms over an SPP report that envisioned a fivefold increase in environmentally destructive oil production from tar sands, with most of the increase to be exported to the United States.

Third, the SPP talks are aimed at expanding the militarized U.S. security perimeter to all of North America, with disturbing implications for civil liberties. The three countries have vowed to join forces against not only external but also "internal" threats, and Mexico and Canada have already agreed to share vast amounts of information with the U.S. government, including the fingerprints of refugees and asylum seekers. The Bush administration is also offering Mexico a multi-billion-dollar military aid package under the Merida Initiative (also known as Plan Mexico). While the new equipment is supposedly to combat drug cartels, many organizations have expressed concerns that it may also end up being used against political dissidents and immigrants.

Progressive vs. Conservative Critiques

Although the SPP has been the target of strong criticism from progressive groups in Canada and Mexico, right-wing anti-immigrant forces have dominated the discourse in the United States. And while there is unity among critics of all political stripes when it comes to denouncing the SPP's secretive process, there are vast differences on substance.

Xenophobic groups like the Minutemen and the John Birch Society fear that the three governments are secretly plotting to erase U.S. borders and surrender its sovereignty through some sort of merger a la the European Union. In reality, the SPP vision is nearly the polar opposite of many of the founding pillars of the EU:

  • The EU includes political institutions, including the European Parliament, which represents all the member countries' citizens. As stated above, SPP negotiators are only interested in hearing the perspectives of big business.
  • The EU has tackled inequalities directly by transferring massive funds from richer countries to poorer countries and regions. As a result, once-poor countries like Ireland, Spain, and Portugal have become strong trading partners for the rest of the Union. By contrast, SPP negotiators are perpetuating the false assumption behind NAFTA that free markets alone will lift all boats. The aid being offered is to boost Mexico's military power, not to reduce inequalities.
  • The EU enforces strong social and environmental standards that help ensure economic benefits are broadly shared and support sustainable development. The SPP negotiators are doing nothing to fix the extremely weak NAFTA side agreements on labor and the environment that have allowed corporations to continue to abuse workers and communities, particularly in Mexico, with impunity.
  • Thanks to their efforts to narrow economic gaps, the EU has been able to have an internal "open borders" policy without destabilizing migration flows. Contrary to the anti-immigrant paranoia, the SPP negotiators are not contemplating any loosening of borders, even as a long-term goal. Instead, they aim to facilitate transit only of so-called "legitimate people," while expanding border surveillance infrastructure to keep out other migrants. While the fall of the Berlin Wall symbolized the coming together of east and west Europe, the increasingly fortified wall between the United States and Mexico is a harsh sign of North America's deep divisions.

Of course, it is important not to over-romanticize the European Union. They have their own xenophobia problems, with anti-immigrant political parties on the rise in several countries. Moreover, Europe's trade policies towards developing countries are about as bad as those of the United States, and even within the EU, progressive forces are battling efforts to erode social protections.

However, the EU's internal integration model still offers some important lessons for our part of the world. And with both Democratic Presidential candidates promising to renegotiate NAFTA, this is an important moment for looking at alternative approaches.

In March, four broad-based citizens' networks from all three countries, the Alliance for Responsible Trade (United States), Common Frontiers (Canada), the Mexican Action Network on Free Trade, and the Quebec Network on Hemispheric Integration produced a detailed set of proposals for NAFTA's renegotiation. Like the EU, this new NAFTA would require strong enforcement of labor rights and environmental laws. And rather than boosting military aid, it would encourage greater cooperation between our three countries to create stable livelihoods for family farmers, as well as for the small and medium businesses that provide most of our region's jobs.

If they're really serious about security and prosperity, the "Three Amigos" would be discussing these types of alternatives. Instead, they are building a fortress North America in which large corporations (but not ordinary citizens) have even more power.

Retailer bankruptcies set to prompt thousands of store closings

Retailer bankruptcies set to prompt thousands of store closings

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A growing number of bankruptcies among US retailers is set to prompt thousands of store closings, the New York Times will report on the front page of its Tuesday edition.

"The consumer spending slump and tightening credit markets are triggering a wave of bankruptcies in American retailing," with ensuing store closures "expected to remake suburban malls and downtown shopping districts across the country," writes Michael Barbaro for the Times.

Barbaro notes that over half a dozen store chains have filed for bankruptcy in recent months amidst "mounting debt and plummeting sales" and warns that financial troubles are "quickly spreading to bigger national companies."

The Times articles comes amid a slew of reports underscoring America's economic woes. Even presumptive Republican presidential nominee Sen. John McCain, who only months ago panned talk of a recession, admitted today that he thought the country was now in one.

Even relatively well-off retailers face troubles. Added Barbaro in the article, such store chains who can avoid bankruptcy "are shutting down stores to preserve cash through what could be a long economic downturn."

Excerpts from the Times article, available in full at this link, follow

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.


"You have the makings of a wave of significant bankruptcies," said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company's interim chief financial officer and works at a corporate turnaround firm called AlixPartners. "For years, no deal was too ugly to finance," he said. "But now, nobody will throw money at these companies."

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-strapped chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.


In most cases, the collapses stemmed from a combination of factors: flawed business strategies, a souring economy and banks' unwillingness to issue cheap loans.

Your Internet provider is watching you

Your Internet provider is watching you

Fine print reveals that you have fewer rights than you might realize

By Peter Svensson

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NEW YORK - What's scary, funny and boring at the same time? It could be a bad horror movie. Or it could be the fine print on your Internet service provider's contract.

Those documents you agree to — usually without reading — ostensibly allow your ISP to watch how you use the Internet, read your e-mail or keep you from visiting sites it deems inappropriate. Some reserve the right to block traffic and, for any reason, cut off a service that many users now find essential.

The Associated Press reviewed the "Acceptable Use Policies" and "Terms of Service" of the nation's 10 largest ISPs — in all, 117 pages of contracts that leave few rights for subscribers.

"The network is asserting almost complete control of the users' ability to use their network as a gateway to the Internet," said Marvin Ammori, general counsel of Free Press, a Washington-based consumer advocacy group. "They become gatekeepers rather than gateways."

But the provisions are rarely enforced, except against obvious miscreants like spammers. Consumer outrage would have been the likely result if AT&T Inc. took advantage of its stated right to block any activity that causes the company "to be viewed unfavorably by others."

Jonathan Zittrain, professor of Internet governance and regulation at Oxford University, said this clause was a "piece of boilerplate that is passed around the corporate lawyers like a Christmas fruitcake.

"The idea that they would ever invoke it and point to it is nuts, especially since their terms of service already say they can cut you off for any reason and give you a refund for the balance of the month," Zittrain said.

AT&T removed the "unfavorably by others" wording in February after The Associated Press asked about the reason behind it. Subscribers, however, wouldn't know that it was gone unless they checked the contract word for word: The document still said it was last updated Oct. 8, 2007.

Most companies reserve the right to change the contracts at any time, without any notice except an update on the Web site. Verizon used to say it would notify subscribers of changes by e-mail, but the current contract just leaves that as an option for the company.

This sort of contract, where the subscriber is considered to agree by signing up for service rather than by active negotiation, is given extra scrutiny by courts, Zittrain said. Any wiggle room or ambiguity is usually resolved in favor of the consumer rather than the company.

Yet the main purpose of ISP contracts isn't to circumscribe the service for all subscribers, but rather to provide legal cover for the company if it cuts off a user who's abusing the system.

"Without the safeguards offered in these policies, customers could suffer from degradation of service and be exposed to a broad variety of malware threats," said David Deliman, spokesman at Cox Communications.

The language does matter: In a case involving a student accused of hacking, a federal appeals court held last year that subscribers should have a lower expectation of privacy if their service provider has a stated policy of monitoring traffic.

But these broadly written contracts still don't provide all the legal cover ISPs want. Comcast Corp. is being investigated by the Federal Communications Commission for interfering with file sharing by its subscribers. The company has pointed to its Acceptable Use Policy, which said, in general terms, that the company had the right to manage traffic. Since the investigation began, it has updated the policy to describe its practices in greater detail, and recently said it would stop targeting file-sharing once it puts a new traffic-management system in place late this year.

The Comcast case is a rare example of the government getting into the nitty-gritty of one of these contracts.

"There really should be an onus on the regulators to see this kind of thing is done correctly," said Bob Williams, who deals with telecom and media issues at Consumers Union.

If there were more competition, market forces might straighten out the contracts, he said. But most Americans have only two choices for broadband: the cable company or the phone company.

Williams himself knows that it's tough to pay attention to the contracts. He recently had Verizon Communications Inc.'s FiOS broadband and TV service installed in his home. Only after the installation was completed did he get the contract in the mail.

He could have read some of the terms earlier, when placing the order online, but he just clicked the "Accept" button.

"I'm a hard-nosed consumer advocate type ... I really should have examined it better than I did," he said. But, he added, he acted like most consumers, because of the lack of alternatives. "You click the 'Accept' button because it's not like you're going somewhere else."

Other common clauses of ISP contracts:

ISPs can read your e-mail
Practically all ISPs reserve the right to read your e-mails and look at the sites you visit, without a wiretap order. This reflects the open nature of the Internet _ for privacy purposes, e-mails are more like postcards than letters. It's also prompted by the ISPs' need to identify and stop subscribers who use their connections to send spam e-mails.

Some ISPs, like AT&T Inc., make clear that they do not read their subscriber's traffic as a matter of course, but also that they need little or no excuse to begin doing so. Cablevision, a cable operator in the Northeast, says one of the reasons it might look at what a customer is doing online would be to help operate its service properly.

The federal Electronic Communications Privacy Act protects e-mail and other Internet communications from eavesdropping, but several of its provisions can be waived by agreements between the ISP and the subscriber. Also, the law is mainly aimed at making it difficult for the government, not companies, to snoop.

Wiretapping laws may also apply, but the situation is unclear. A federal appeals court panel in 2004 dismissed charges against a company that provided e-mail services for booksellers and snooped on their order confirmations. The charges of illegal wiretapping were reinstated by the full appeals court the next year, but the case hasn't been tried.

ISPs can block you from Web sites
Or at least they would like to think so. In a clause typical of ISPs, Comcast reserves the right to block or remove traffic it deems "inappropriate, regardless of whether this material or its dissemination is unlawful."

The ISP sees itself as the sole judge of whether something is appropriate.
Broad enforcement of this kind of clause for business purposes other than protecting users is likely to draw attention from regulators like the FCC, as is happening in the Comcast file-sharing case.

ISPs can shut you down for using the connection too much
For cable ISPs, up to 500 households may be sharing the capacity on a single line, and a few traffic hogs can slow the whole neighborhood down. But rather than saying publicly how much traffic is too much, some cable companies keep their caps secret, and simply warn offenders individually. If that doesn't work, they're kicked off.

It's difficult to reach these secret bandwidth caps unless users are downloading large amounts of high-quality video from the Internet, but the advent of high-definition Internet video set-top boxes like the Apple TV and the Vudu could make it more common.

Oddly, some ISPs, like Cox, say it's the responsibility of subscribers to ensure that they don't hog the traffic of other subscribers, a determination that's impossible for a home broadband user. Cox, however, does make the monthly download and upload limits public on its Web site.

Time Warner Cable Inc. has said it will test putting public caps on how much new subscribers in Beaumont, Texas, can download per month, and charge them more if they go over.

Digital subscriber line providers like AT&T and Verizon aren't as concerned about bandwidth hogs, because phone lines aren't shared among households.

The Martial Law Act of 2006

The Martial Law Act of 2006

By James Bovard

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artial law is perhaps the ultimate stomping of freedom. And yet, on September 30, 2006, Congress passed a provision in a 591-page bill that will make it easy for President Bush to impose martial law in response to a terrorist “incident.” It also empowers him to effectively declare martial law in response to what he or other federal officials label a shortfall of “public order” – whatever that means.

It took only a few paragraphs in a $500 billion, 591-page bill to raze one of the most important limits on federal power. Congress passed the Insurrection Act in 1807 to severely restrict the president’s ability to deploy the military within the United States. The Posse Comitatus Act of 1878 tightened those restrictions, imposing a two-year prison sentence on anyone who used the military within the United States without the express permission of Congress. (This act was passed after the depredations of the U.S. military throughout the Southern states during Reconstruction.)

But there is a loophole: Posse Comitatus is waived if the president invokes the Insurrection Act.

The Insurrection Act and Posse Comitatus Act aim to deter dictatorship while permitting a narrow window for the president to temporarily use the military at home. But the 2006 reforms basically threw any concern about dictatorial abuses out the window.

Section 1076 of the Defense Authorization Act of 2006 changed the name of the key provision in the statute book from “Insurrection Act” to “Enforcement of the Laws to Restore Public Order Act.” The Insurrection Act of 1807 stated that the president could deploy troops within the United States only “to suppress, in a State, any insurrection, domestic violence, unlawful combination, or conspiracy.” The new law expands the list of pretexts to include “natural disaster, epidemic, or other serious public health emergency, terrorist attack or incident, or other condition” – and such a “condition” is not defined or limited.

One might think that given the experience with the USA PATRIOT Act and many other abuses of power, Congress would be leery about giving this president his biggest blank check yet to suspend the Constitution. But that would be naïve.

The new law was put in place in response to the debacle of the federal response to Hurricane Katrina. There was no evidence that permitting a president far more power would avoid future debacles, but such a law provides a comfort blanket to politicians. The risk of tyranny is irrelevant compared with the reduction of risk of embarrassment to politicians. According to Washington, the correct response to Katrina is not to recognize the failure of relying on federal agencies a thousand miles away but rather to vastly increase the power of the president to dictate a solution, regardless of whether he knows what he is doing and regardless of whether local and state rights are trampled.

The new law also empowers the president to commandeer the National Guard of one state to send to another state for as many as 365 days. Bush could send the South Carolina National Guard to suppress anti-war protests in New Haven. Or the next president could send the Massachusetts National Guard to disarm the residents of Wyoming, if they resisted a federal law that prohibited private ownership of semi-automatic weapons. Governors’ control of the National Guard can be trumped with a simple presidential declaration.

Section 1076 had bipartisan support on Capitol Hill, including support from Sen. Carl Levin (D-Mich.), Sen. John Warner (R-Va.), Sen. Ted Kennedy (D-Mass.), and Rep. Duncan Hunter (R-Calif.), chairman of the House Armed Services Committee. Since the law would give the feds more power, it was very popular inside the Beltway.

On the other hand, every governor in the country opposed the changes. Sen. Patrick Leahy (D-Vt.), the ranking Democrat on the Senate Judiciary Committee, warned on September 19, 2006, that “we certainly do not need to make it easier for presidents to declare martial law.” Leahy’s alarm got no response. Ten days later, he commented in the Congressional Record, “Using the military for law enforcement goes against one of the founding tenets of our democracy.”

A U.S. Enabling Act

The new law vastly increases the danger from the actions of government provocateurs. If there is an incident now like the first bombing of the World Trade Center in February 1993, it would be far easier for the president to declare martial law – even if, as then, it was an FBI informant who taught the culprits how to make the bomb. Even if the FBI masterminds a protest that turns violent, the president could invoke the “incident” to suspend the Constitution.

“Martial law” is a euphemism for military dictatorship. When foreign democracies are overthrown and a junta establishes martial law, Americans usually recognize that a fundamental change has occurred. Perhaps some conservatives believe that the only change when martial law is declared is that people are no longer read their Miranda rights before they are locked away. “Martial law” means: Obey soldiers’ commands or be shot. The abuses of military rule in Southern states during Reconstruction were legendary, but they have been swept under the historical rug.

Section 1076 is an Enabling Act-type legislation – something which purports to preserve law and order while formally empowering the president to rule by decree.

Bush can commandeer a state’s National Guard any time he declares a “state has refused to enforce applicable laws.” Does this refer to the laws as they are commonly understood – or to the “laws” after Bush “fixes” them with a signing statement? Unfortunately, it is not possible for Americans to commandeer the federal government even when Bush admits that he is breaking a law (such as the Anti-Torture Act).

Section 1076 is the type of “law” that would probably be denounced by the U.S. State Department’s Annual Report on Human Rights if enacted by a foreign government. But when the U.S. government does the same thing, it is merely another proof of benevolent foresight. The “comfort blanket” on Section 1076 is that the powers will not be abused because the president will show more concern with the Bill of Rights than Congress did when it rubberstamped this provision. This is the same “pass the buck on the Constitution” that worked so well with the PATRIOT Act, the McCain Feingold Campaign Reform Act, and the Military Commissions Act. As long as there is hypothetically some branch of the government that will object to oppression, no one has the right to fear losing his liberties.

The military on the home front

Section 1076 is more ominous in light of the Bush administration’s long record of Posse Comitatus violations. Since 2001, the Bush administration has accelerated a trend of using the military as a tool in the nation’s domestic affairs. From its support of the Total Information Awareness surveillance vacuum cleaner, to its use of Pentagon spy planes during the Washington-area sniper shootings in 2002, to the Pentagon’s seizures of Americans’ financial and other private information without a warrant, the Bush administration has not hesitated to use military force and intimidation at home whenever convenient. And Americans may have little or no idea of how far the military has actually gone on the home front, given the Bush team’s obsessive secrecy.

The Pentagon has sent U.S. military intelligence agents on domestic fishing expeditions. In 2004, two U.S. Army intelligence agents descended on the University of Texas’s law school in Austin. They entered the office of the Journal of Women and the Law and demanded that the editors turn over a roster of the people who attended a recent conference on Islam and women. The editors denied having a list; the behavior of one agent was described as intimidating. The agents then demanded contact information for the student who organized the conference, Sahar Aziz. University of Texas law professor Douglas Laycock commented,

We certainly hope that the Army doesn’t believe that attending a conference on Islamic law or Islam and women is itself ground for investigation.

Military officials later declared that U.S. Army intelligence agents had overstepped their bounds. But this did not stop the Bush administration from having a provision inserted in a bill passed in secret session by the Senate Intelligence Committee that would allow military intelligence agents to conduct surveillance and recruit informants in the United States. reported,

Pentagon officials say the exemption would not affect civil liberties and is needed so that its agents can obtain information from sources who may be afraid of government agents.
The provision would authorize military agents to go undercover and never inform their targets that they were dealing with a G-man. Kate Martin, director of the Center for National Security Studies, denounced the provision:

This ... is giving them the authority to spy on Americans. And it’s all been done with no public discussion, in the dark of night.
The controversy over the amendment scuttled its enactment, though it is unclear whether that has deterred the military from expanding its domestic spying.

There is no Honesty-in-Absolute-Power mandate in the federal statute books. The more power government seizes, the more easily it can suppress the truth. There is nothing to prevent a president from declaring martial law on false pretexts – any more than there is to prevent him from launching a foreign war on false pretenses. And when the lies become exposed years later, it could be far too late to resurrect lost liberties.

James Bovard [send him mail] is the author of the just-released Attention Deficit Democracy, The Bush Betrayal, and Terrorism & Tyranny: Trampling Freedom, Justice, and Peace to Rid the World of Evil. He serves as a policy advisor for The Future of Freedom Foundation. Visit his website.