Saturday, April 19, 2008

As losses mount, US banks cut thousands of jobs

As losses mount, US banks cut thousands of jobs

By David Walsh

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Banking and other financial firms in the US continue to report enormous financial losses, inevitably accompanied by mass layoffs. While present and former executives of these companies are well insulated from the disaster over which they have presided, tens of thousands of their employees are not so fortunate.

A number of major US banks reported first-quarter earnings this week, and more will do so next week.

On April 17, investment bank and the world’s largest brokerage Merrill Lynch announced a loss of $1.96 billion in the first three months of 2008, a turnaround of more than $4 billion from the same period a year ago (when it made a profit of $2.11 billion).

Merrill Lynch announced it was eliminating another 2,900 jobs, bringing the total of its proposed job losses for 2008 to 4,000.

The following day, banking giant Citigroup reported a $5.1 billion loss in the first quarter, a change in fortune of $10 billion from the first three months of 2007 (when its profits amounted to $5 billion). remarked that the earnings “were even more dreadful than the miserable results investors had expected.”

Citigroup has said it will lay off some 9,000 employees in the next 12 months. This comes on top of 4,000 cuts announced in January.

This is unlikely to be the end of the firm’s layoffs. Vikram Pandit, Citi’s chief executive, indicated Thursday that the bank would be seeking to slash costs by as much as 20 percent. The comment, noted the Financial Times, had the effect of “deepening fears that Wall Street and the City of London are about to be hit by tens of thousands of additional job losses.”

The business paper suggested that analysts are anticipating the elimination of some 25,000 jobs “in the next few months” at Citigroup.

The bank is not out of the woods yet. Moody’s Investors Service warned that because of “Citigroup’s complexity, its significant exposure to the global capital markets, and current illiquidity and volatility of some of those markets, additional marks in its investment bank cannot be ruled out.”

JPMorgan Chase announced April 16 that its earnings had been cut in half in 2008’s first quarter due to problems with mortgages and other bad loans. JPMorgan’s recent purchase of bankrupt Bear Stearns will undoubtedly lead to slashing the latter’s workforce of 14,000. The Wall Street Journal reported April 12 that the “emergency takeover” is expected to cost at least half of the jobs at Bear Stearns.

Other large US banking firms, such as Washington Mutual (a $1.14 billion loss and 3,000 layoffs), Wachovia (a $393 million loss and hundreds of layoffs) and Wells Fargo (a decline of 11 percent in profits), have also reported grim first quarter earnings. Bank of America is not expected to have anything good to report next week.

There is no end in sight to the financial and employment bloodletting. Financial firms globally have taken some $200 billion in write-downs (reductions in the book value of assets because they are overvalued compared to their market value) since the middle of 2007. Citigroup alone has now taken write-downs totaling nearly $39 billion since the crisis began; JPMorgan has taken about $10 billion.

After the announcement of Merrill Lynch’s most recent earnings, John Thain, its new chairman and chief executive, called the first three months of 2008 “as difficult a quarter as I’ve seen in my 30 years on Wall Street.” Merrill Lynch executives indicated that March was “a significantly more difficult month” than January or February.

In an interview with the New York Times April 17, Thain sounded “a more negative note than some of his Wall Street colleagues, saying he did not think the downturn was near its bottom.”

Thain told the Times that thus far “the slowdown has been finance-driven. ... What we haven’t seen yet is the impact on the consumer of falling house prices, rising energy prices, higher food prices and higher unemployment.”

Floyd Norris, the Times’ chief financial correspondent, writes April 18 that “Since the big banks first realized last fall that their capital situations were perilous, more than $100 billion has been poured into them. Without all that cash, the system would be in horrid shape, and there would be a lot more blood on the Street.”

Norris takes note that bank chief executives “now profess to see light at the end of the tunnel, and they may be right. ... The trouble with such assurances is that the bosses of Wall Street have been repeatedly blindsided by newly discovered risks that their firms—and others—had taken.”

Norris ends on a pessimistic note: “With credit hard to come by, the real economy may be in for rough times, creating more loan losses. Wall Street may not need to beg for any more capital, but it is a good bet that its layoffs are only starting. There is not much need for the people who put together securitizations when there is virtually no market for such deals.”

The estimates on potential job losses in the banking and wider financial arena vary, but they are all substantial.

On April 1 financial research firm Celent LLC issued a report suggesting that some 200,000 of the US commercial banking industry’s 2 million jobs could be lost over the next 12 to 18 months. That would be an unprecedented number. But Octavio Marenzi, the head of New York-based Celent’s financial consultancy unit, argued that the economic situation was without precedent.

“The banking industry over the past 40 years has never seen a downturn in its revenue growth,” Marenzi told the Associated Press. “In 2008, it looks like it will decrease for the first time in living memory. They’re going to have to respond with severe cost cutting. It’s not an environment they’re entirely used to.”

In addition, global securities firms have announced 20,000 job cuts, 6,000 of them in New York.

Financial companies in total have slashed at least 70,000 positions in the US and Europe. Data provider Experian estimates the final number by the end of 2008 could be 240,000.

A recent headline in BusinessWeek asked, “How Deep Will Wall Street Cut?” It reported that Wall Street has announced plans to slash 34,000 positions over the past nine months, but noted that the number of layoffs might not be as great as in recent recessions due to the fact that “after the dot-com debacle,” only 74 percent of the jobs that had been lost were filled.

Precisely because “There is not a lot of fat to cut,” as one economist puts it, the upcoming job slashing will be more damaging. “What’s worrisome,” writes BusinessWeek, “is that companies may have to cut into the meat of their operations.” Many positions have been eliminated permanently with improvements in technology, “helping to keep a lid on costs and head counts in recent years. Since those ranks remain relatively thin, firms now may have to whack analysts, traders, and dealmakers. That’s not good for the island of Manhattan, where many of these high-paid employees work; banks and brokerages account for 35 percent of the city’s wages.”

While workers in the industry suffer the consequences of the economic slump, their employers face no such prospect. Apparently whether their firms prosper or not, or even go under, banking executives have organized things so they will be paid fabulous amounts.

Citigroup’s Charles Prince and Merrill Lynch’s Stanley O’Neal, who stood at the helm of their companies as they lost billions on risky investments in mortgage-backed securities, made off with $68 million and $161 million, respectively, when they resigned or were forced out. Former Bear Stearns chairman James Cayne dumped his entire stake in the failed bank for a mere $61 million in late March, a fraction of what his stake in the company had once been worth. We needn’t worry too much about Mr. Cayne. He made $38.31 million in 2006 in total compensation and $155.26 million over five years. There are no indications that he plans to give any of it back.

BusinessWeek last November took note of some of the fantastic “exit packages” that CEOs have organized for themselves. Richard Fuld Jr., for example, CEO of Lehman Brothers, “has nothing to worry about—his exit package is valued at $299 million, putting him close to the record for any such package.” Bank of America’s chairman and CEO, Kenneth D. Lewis, stands to walk away with $120 million, down from an estimated value of $136 million at the end of 2006.

While much of the country is suffering from some combination of job losses, gas and food prices, disappearing benefits and pensions, soaring medical costs and declining house prices, the super-rich are doing quite nicely. The BBC headlined a recent piece “Manhattan property defies gravity,” and pointed out that property prices in New York’s wealthiest borough had soared 41 percent over the course of the past year.

On average a Manhattan home costs $1.6 million, an increase from $1.1 million a year ago. Prices in primarily working class Queens and Staten Island dropped by 5 percent and in the Bronx by 1 percent. In Brooklyn, which has seen its share of ‘gentrification’ and housing speculation, prices rose by 3 percent.

The Real Estate Board’s Steven Spinola commented, “Manhattan’s luxury market for high-end properties continues to remain untouched by the slowing economy.” In fact, Spinola suggested that several luxury developments had just become available to meet the “pent-up demand.”

For the working population, the situation continues to deteriorate rapidly. Mass layoffs have been announced in recent days, in addition to those at Merrill Lynch and Citigroup, at AT&T (5,000 jobs), Volvo Trucks (1,100), Asahi Glass (900 in the US and Canada), Harley-Davison (730), Lehman Brothers (600), Siemens Energy and Automation (477), AMD (420), Valley Health System (396), Newark Morning Ledger (367), Skybus Airlines (365), Greenville Hospital in Jersey City, New Jersey (356), Aramark Sports and Entertainments (303), Baja Marine Corp (283), Dutch Housing (250) and Summit Production Systems (200), among other firms.

Meanwhile, paychecks of those who have a job are getting smaller as hours and overtime decline. The New York Times reported April 18 that “the reduction of wages and working hours ... has become a primary cause of distress, pushing many more Americans into a downward spiral.”

From March 2007 to March this year, the average workweek fell slightly from 33.9 hours to 33.8, with the slippage greater in manufacturing. Nearly 5 million workers were working part-time at the end of March “because their companies had cut hours in the face of slack business.” That number had jumped 400,000 since November.

Average income declined in March, after accounting for rising prices, the sixth consecutive month “that pay failed to keep pace with inflation.” While the increase in average hourly earnings from February to September 2007 barely kept pace with inflation, that is no longer the case. From November through March 2008, as employers began to reduce their operations, “wage growth fell below the pace of inflation, meaning that paychecks were effectively shrinking.”

IMF and OECD: Europe will be hit hard by US recession

IMF and OECD: Europe will be hit hard by US recession

By Chris Marsden

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Reports issued by the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) warn that the United States is entering into a recession and reject all claims that Europe will be able to avoid severe economic dislocations as a result of America’s worsening situation.

The OECD meeting in Paris this week estimated that global losses from the US subprime mortgage crisis would surpass $440 billion. This was a sharp upward revision of its previous estimate of $200-300 billion.

Europe was more vulnerable than many thought to the global financial markets crisis, and would be especially so if trouble spread to the equity derivatives markets, officials said on April 15.

The OECD’s estimate of likely bank losses ranges from $350 billion to $420 billion, based on different assumptions as to the amount of distressed assets the banks will be able to recover. Assuming a 40 percent recovery rate, the OECD estimated losses in excess of $422 billion, of which $87 billion would be borne by US banks—$60 billion by commercial banks and the rest by investment banks.

These losses would ripple throughout the world. A third of the collateralised debt obligations (CDOs) and other financial instruments based on US residential mortgage-backed securities (RMBS) that are tied to sub-prime markets have moved offshore, mainly to Europe, the OECD said.

Forbes magazine, commenting on the OECD report, noted: “More dangerous still, it said, was another area so far not hit by the crisis that spilled out of the subprime market last August—capital-guaranteed financial products with exposure to equities and based on complex operations-replication programmes.”

The OECD stated that a $1 trillion equity derivatives market based on these products had developed between 2003 and the start of this year.

These instruments are the basis for many of the savings products offered by scores of retail banks and building societies. Europe is the dominant force in these Constant Proportion Portfolio Insurance (CPPI) products.

Thomas Weiser of the OECD said one of the big risks now was that economic growth could be hit by loss of capital at banks which played a key role in the wider economy. He called for massive injections of cash by the world’s central banks.

The IMF described last summer’s crisis in the financial markets as “the largest financial shock since the Great Depression.” It stated that the world’s bankers have created a pool of $1 trillion in toxic debt, twice the sum estimated in earlier projections.

The IMF’s conclusions are conservative, given such a description. It predicts that the US will go into a “mild recession” this year, with growth of around 0.5 percent, even after the economic stimulus package from the Bush administration and sweeping cuts in interest rates. It warns that there is a one-in-four chance of a full-blown global recession over the next 12 months. At best, it forecasts that world economic growth will fall to 3.7 percent for the next two years.

The IMF issued particular warnings that house price inflation in several European countries, including Britain and the Netherlands, where housing was said to be 30 percent overvalued, would make them more susceptible to the global downturn.

Britain has long been recognised as the European country most exposed to the economic turmoil unleashed in the United States and most heavily dependent on world financial markets. The IMF downwardly revised UK growth figures from the Treasury’s estimate of 2 percent this year and 2.5 percent next to 1.6 percent for both 2008 and 2009, the worst performance since the last recession ended in 1992.

After nationalising Northern Rock and injecting £50 billion of liquidity into the markets, the Brown government and the Bank of England plan to risk billions more, emulating the US Federal Reserve by taking over bad mortgage debts from banks in return for secure government bonds.

House prices in Britain already fell by 2.5 percent last month and are expected to decline by as much as 10 percent this year. Britain’s Royal Institution of Chartered Surveyors reports that the number of residential property agents saying prices declined exceeded those reporting gains by 78.5 percentage points in March, the worst since records began in 1978.

Britain is also labouring under staggering levels of personal, unsecured debt.

Total UK unsecured debt is £1.3 trillion—more than the rest of the European Union put together. Lorna Bourke, writing in Citywire, rejects claims that the present housing crisis is not as bad as that in the 1990s, when there were 78,000 repossessions a year, because unemployment is lower. She notes that “In the early nineties high unemployment created by the collapse of the debt market in 1987 and rising inflation meant homebuyers could not meet their mortgage obligations. Does that sound familiar?”

Credit card debt is much greater than it was in 1990. Financial analysts Mintel have reported that mortgage costs in Britain trebled during the past 10 years and now account for 25 percent of consumer spending, compared to 14 percent a decade earlier. The debt management company TDX Group estimates that the number of people struggling with debt is set to double during 2008. Around one million people have unsecured debts totalling £25 billion, averaging a staggering £25,000 each. Some 60 percent is owed on credit cards, with the rest mainly in personal loans.

London’s role as a financial centre will translate into a massive and relatively immediate impact from a global economic downturn. JPMorgan Chase analysts estimate that 40,000 City of London jobs could be lost as a result of the credit crunch, doubling the forecast by the Centre for Economics and Business Research.

Amongst the cuts already announced are 900 jobs at UBS, the European bank worst hit by the credit crunch, representing 10 percent of its London workforce. Merrill Lynch has warned of 450 imminent job losses in London.

Initial signs have emerged of a rise in unemployment from its present 1.6 million. Although the claimant count rate fell by 1,200 in March, the previous month’s 2,800 decline was revised to show a 600 increase—the first since September 2006.

Sterling has hit repeated all-time lows against the euro, which is presently worth more than 80 pence. The Bank of England has cut interest rates to 5 percent in an attempt to stimulate the release of credit by banks and building societies.

Europe’s economic powerhouse, Germany, does not at first appear to be in such a precarious position. Its exports continue to rise, even though the euro has dramatically risen in relation to the dollar.

But there are clear signs of troubles ahead, of which the €4.3 billion losses incurred by the Bavarian State Bank (BayernLB) from its dealings on the US subprime mortgage market, as well as the billions lost by SaxonyLB and WestLB, are only a foretaste. These banks, partly owned by the federal government and various German states, are to be bailed out to the tune of €30 billion—at taxpayer expense.

According to Der Spiegel, this is only the tip of the iceberg. It wrote on April 2, “The end of the crisis is not in sight: According to one study (by business advisory group Ernst and Young) German banks have hidden away rotten credits in their books—amounting to a total sum of €200 billion.”

This week, four leading German economic think tanks cut their forecasts for growth this year to 1.8 percent, down from the 2.2 percent they predicted last October, and projected even slower growth of 1.4 percent next year. The German government is less confident still, predicting growth of just 1.7 percent this year.

The Financial Times reported April 14 the views of several leading European industrialists that the worst effects of the credit crunch will not be felt for six months.

Peter Löscher, chief executive of Siemens, said, “I don’t see any impact at the moment. But I have no doubt it is coming, probably in 6 to 12 months’ time.” Wolfgang Reitzle, chief executive of the Linde industrial gases group, added, “It will happen with a time lag ... of maybe a year.... We are in the most critical business environment in decades.”

Gareth Williams of ING Financial Markets stated, “This [financial] quarter is going to be pretty horrible. But the worst will come in the fourth quarter.” Teun Draaisma of Morgan Stanley is forecasting a 16 percent drop in earnings over the year and an “earnings recession in Europe.”

Germany and Europe, with a monetary system based on stability and spending targets, are particularly fearful of the impact of runaway inflation and angry over how the US Federal Reserve is pumping money into the economy.

An article in Der Spiegel from April 14, entitled “The Madness of Ben Bernanke,” gave full vent to these tensions. Comparing Alan Greenspan and Ben Bernanke, the former and current heads of the Federal Reserve, to Siegfried and Roy, it described their “pumping easy credit into the system” as “a crazy policy that will worsen the crisis.... The aim is to keep on financing consumer spending and even to stimulate it further—for reasons of patriotism. There’s a word for this policy—madness.”

The strong euro has not so far done major damage to the European economy, particularly because it has reduced the cost of dollar-priced oil imports. But companies reliant on dollar sales such as Airbus have been hit and a “pain threshold” will eventually be breached.

More long term, the divergence of policy between the Fed and the European Central Bank (ECB), which has kept interest rates steady, cannot but destabilise the global economy. The dollar’s decline also means that its repayment of debts has less value, punishing US creditors in Europe and elsewhere.

Inflation is a major problem for Europe, now running at a record 3.6 percent in the euro zone. The ECB has set its main policy rate at 4 percent, but fears that inflation will make this unsustainable. Food and energy price rises alone added 1.6 percentage points to March’s inflation figures.

Jorg Kramer, chief economist at Commerzbank AG in Frankfurt, told the International Herald Tribune, “The Fed is not so interested in inflation, currently. They have a bigger problem: recession.” But he warned that “someday, this crisis will be over” and inflation will necessitate drastic action.

The Fed’s benchmark rate is currently at 2.25 percent and a further cut is expected. Krämer said he expected Bernanke to cut the fed funds rate to 1.25 percent by June.

The “fight against inflation” is always a codeword for moves to cut the wages of the working class. German government and bank officials are complaining of recent high wage settlements being unsustainable, including a meagre 8 percent agreement in Germany’s chemical sector that is staged over two years and barely matches the official inflation rate.

In Britain, Prime Minister Gordon Brown has imposed a 2.5 percent pay ceiling throughout the public sector, already provoking strikes involving hundreds of thousands of civil servants and teachers.

Draconian attacks are being prepared in France, where dissatisfaction with the country’s economic performance in ruling circles is most pronounced. Prime Minister Francois Fillon has cut the official forecast for gross domestic product (GDP) growth in France in 2008 to 1.7-2.0 percent from a previous estimate of “around 2.0 percent.” The right-wing administration of Nicolas Sarkozy has announced public spending cuts of €6-7 billion annually to run for a three-year period in 2009-2011. But with a public deficit running at €1.2 trillion in 2007, far greater attacks must be anticipated.

Ambushing Private Equity

Ambushing Private Equity

By Thomas Heath

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As SEIU harries new absentee owners, buyout firms dispute the union's agenda.

Forget the marches and strikes that once defined the union movement. Big labor is relying more on guile and theatrics than blunt force to attack the ascendancy of a new form of corporate ownership: private equity.

And tactics often get personal. Union allies staged a satire outside buyout king Henry Kravis's lavish Long Island home, asking passersby to sign a petition giving him a break on his property taxes. Weeks later, protesters in business suits sneaked into a private-equity conference at the Waldorf-Astoria hotel in New York, where Carlyle Group co-founder David M. Rubenstein was giving a speech. They sought to shame him with a banner that read: "Why does he pay taxes at a lower rate than the hotel's doorman?"

Then on Halloween, union members wearing Rubenstein masks paraded in front of Carlyle's offices, handing out Sugar Daddy suckers.

The unorthodox protests are part of a campaign by the Service Employees International Union and its allies to position themselves as a check on what they regard as a new economic order, one dominated by the big private buyout firms.

Those firms have swept up hundreds of companies in recent years. As the economy softens, union leaders say they increasingly worry that private-equity firms will try to salvage their investments by pressuring management to cut jobs or benefits. And those dealmakers are in New York or Washington, away from where most of the employees actually work.

"We are up against the Masters of the Universe here, so we've got to be smart about what we do," said Dan Cantor, executive director of a public interest group called the Working Families Party.

Executives at the private-equity firms say that they have been responsible stewards of the companies in their portfolios and note that the unions themselves have invested in private-equity funds.

One of the SEIU's chief targets has been Carlyle. On a February morning, the SEIU's private-equity team plotted a new attack from the union's headquarters on Massachusetts Avenue in Northwest Washington.

Five union activists led by Stephen Lerner, the campaign's field general, ringed the conference table in the glass-walled room. The plan: Tie America's biggest buyout firms to Middle Eastern investment funds. The goal: Scare Americans into thinking their security is threatened by Middle Eastern investments in firms such as the District-based Carlyle Group, which often invest in companies that do important business for the U.S. government.

"We have put our hand into a beehive," Lerner said to his staff. "Carlyle has proven us right. Carlyle is an influence peddler."

The SEIU, which represents 1.9 million janitors, security guards, health care workers and others, has marshaled a big chunk of its membership and resources (it won't say how much it is spending). On this day, it planned demonstrations around congressional hearings looking into links between private equity and Middle East oil money, also known as sovereign wealth funds.

The union identified friendly politicians in Washington and in state capitals to contact. Like-minded public interest groups such as ACORN, the Working Families Party and United Students Against Sweatshops were enlisted as allies. Advertising campaigns were brainstormed. Talking points were formulated.

Lerner proposed a "late-night CNN commercial" labeling the Abu Dhabi government's $1.35 billion ownership of a stake in Carlyle as a potential risk to U.S. security.

"We should make some hay of it," said one of the team members. "Maybe do some public demonstrations around it."

The stakes are high, union officials said.

"Our country and the rest of the world is living through the most profound, significant and transformative revolution in the history of the world," said SEIU President Andy Stern, whose union will spend $100 million trying to get candidates elected over the next two years. "What we are seeing is the growth of a new form of capitalism."

In the United States alone, there were 881 buyouts worth a total of $390 billion in 2006 and 752 deals totaling $397 billion in 2007, according to Dealogic, a data-research firm. Those included Carlyle's $22 billion purchase of energy infrastructure company Kinder Morgan, Blackstone Group's $39 billion acquisition of commercial real estate giant Equity Office Properties, Kohlberg Kravis Roberts's $33 billion purchase of for-profit hospital chain HCA and TPG's (formerly Texas Pacific Group) $45 billion purchase of utility TXU.

Since the SEIU's assault began, there have been private-equity hearings on Capitol Hill and federal legislation introduced on nursing-home care. Legislation was introduced in California to stop private-equity firms from accepting new investments from countries with poor human rights records. The bill has been withdrawn. The Carlyle Group issued a bill of rights for patient care last year following criticism from the union.

Lerner and Stern began meeting with the heads of the big private-equity firms about a year ago, asking them to be more generous with health care, salaries and other employee benefits.

"Our tone was, 'You are now employers and you have a responsibility to make life better for employees,' " Lerner said.

When the union didn't get the response it wanted, it turned up the heat. It picked Carlyle and its co-founder Rubenstein as foils because Rubenstein often speaks publicly on private-equity issues. They set up a Web site called "Behind the Buyouts" and issued a 42-page pamphlet criticizing the big profits at buyout firms.

Carlyle and its allies said the SEIU's goal was less about global economics and more about recruiting new union members and enhancing its ability to organize workers. They said the SEIU was conducting several similar campaigns designed to embarrass companies such as Wackenhut and HCA. Wal-Mart is going through a similar hazing from the United Food and Commercial Workers union.

"These campaigns are three-dimensional negative political campaigns waged against the reputation of the target," said Steven Law, general counsel for the U.S. Chamber of Commerce. The SEIU's "true goal is to inflict as much pain as possible so that the employer gives the union what they want."

What the union really wants, say private-equity executives, is to force employers to waive their rights to insist on a secret ballot on union representation. Unions want to be able to organize a workplace by gaining the signatures of a majority of employees; executives say signatures could be coerced.

Carlyle spokesman Chris Ullman said the firm has had "productive relations with unions for 20 years." He attributed the SEIU's recent attention to its desire to organize 60,000 workers at Manor Care, an Ohio-based nursing-home company that Carlyle only recently acquired.

"The SEIU is frustrated over its inability to organize Manor Care in the past 12 years before we acquired the company three months ago," Ullman said.

The buyout firms note that even as the SEIU blasts them, it benefits from private equity. The union's New York affiliate, 1199, has given Carlyle $15 million to manage its pension fund. The SEIU said the money has been tied up in a Carlyle buyout fund since 2005, before the private-equity campaign.

Whatever the motives, the SEIU has found novel ways to attract attention.

A few days after the Waldorf gig, for instance, the SEIU bused dozens of members to Carlyle's Pennsylvania Avenue headquarters, where they stood outside chanting, "Better staffing, better care, no more money for billionaires."

In January, activists showed up at a Rubenstein speech at the University of Pennsylvania and shouted at him with bullhorns, bringing about a testy exchange between Rubenstein and one activist. When Rubenstein last December bought a $21 million copy of the Magna Carta that he gave to the National Archives, the SEIU instantly prepared a "Top Ten" list of why Rubenstein donated the Magna Carta, including labeling him "a medieval baron."

"There's always been a history of us doing really creative things to shed light on issues, which includes humor and absurdity," Lerner said.

Not everything works.

The SEIU endured a setback last week when California lawmakers withdrew legislation to stop California's giant public pension funds from investing new money with private-equity firms that are partly owned by countries with alleged poor records on human rights. Gov. Arnold Schwarzenegger (R) said the bill "would cause a deep wound to our retirement funds and government programs when we can least afford it."

Crude closes at record, then touches $117

Crude closes at record, then touches $117

Workers Get Fewer Hours, Deepening the Downturn

Workers Get Fewer Hours, Deepening the Downturn

By Peter S. Goodman

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Not long ago, overtime was a regular feature at the Ludowici Roof Tile factory in eastern Ohio. Not anymore. With orders scarce and crates of unsold tiles piling up across the yard, the company has slowed production and cut working hours, sowing worry and thrift among its workers.

"We don't just hop in the car and go shopping or get something to eat," said Kim Baker, whose take-home pay at the plant has recently dropped to $450 a week, from more than $600. "You've got to watch everything. If we go to town now, it's for a reason."

Throughout the country, businesses grappling with declining fortunes are cutting hours for those on their payrolls. Self-employed people are suffering a drop in demand for their services, like music lessons, catering and management consulting. Growing numbers of people are settling for part-time work out of a failure to secure a full-time position.

The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.

While official unemployment has risen only modestly, to 5.1 percent, the reduction of wages and working hours for those still employed has become a primary cause of distress, pushing many more Americans into a downward spiral, economists say.

Moreover, this slippage is a critical indicator that the nation may well be on the verge of a recession, if not already in one.

Last month, the hours worked by those on American payrolls dropped, compared with six months earlier, according to an index maintained by the Labor Department. The last time the index moved into negative territory was February 2001, when the economy was on the doorstep of recession. A similar slide emerged in August 1990, one month into what proved an even more severe downturn.

From March 2007 to March of this year, the average workweek reported in the private sector slipped slightly to 33.8 hours, from 33.9 hours, while overtime for manufacturing workers fell by a larger margin.

At the end of last month, more than 4.9 million people were working part time either because they could not find full-time jobs or because their companies had cut hours in the face of slack business, according to a Labor Department survey. That represented an increase of 400,000 since November.

And on Wednesday, the government reported that average earnings slipped in March after accounting for the rising costs of food and fuel - the sixth consecutive month that pay failed to keep pace with inflation.

As people bring home paychecks that do not go as far, they are forced to economize, eliminating demand for goods and services that once captured their dollars, spreading pain to providers like auto dealers and lawn care providers. They, too, must trim their outlays on pay, shrinking working hours more and furthering the slowdown

"It means spending slows going forward," said Robert Barbera, chief economist at the trading and research firm ITG.

Paychecks are diminishing just as millions of Americans are finding their access to credit constricted as well. Borrowing against the value of real estate - a crucial artery of household finance in recent years - has been pared back as home prices have plummeted and as banks have tightened lending standards in the aftermath of the collapse of the housing bubble.

"At this point, those avenues are blocked," said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. "Consumption going forward is going to be in large part a good old-fashioned function of paychecks and incomes."

Even before the rollback in working hours, pay was barely keeping up with the rising costs of gas and food. From February to September of last year, the average hourly earnings for workers in the private sector was still growing at a slightly faster clip than the pace of inflation, according to the Labor Department. But from November through March, as employers began to scale back in a variety of ways, wage growth fell below the pace of inflation, meaning that paychecks were effectively shrinking.

Now, work opportunities are themselves declining, as the downturn snuffs out business.

In the suburbs of Denver, Max Garcia was netting as much as $2,000 a month last year as a self-employed computer repairman, he said. As recently as November, he was still receiving three and four calls for help a week. But since early February, calls have dropped to one a week or fewer, he said.

"Everybody's getting tighter," he said - himself included. With his income cut in half, Mr. Garcia, a single father, no longer takes his two young daughters out for fast food, he said. For clothing, he now goes to secondhand stores instead of the mall. For amusement, he visits the park instead of the museum.

"We spend more time at home," Mr. Garcia said. "We don't drive anywhere we don't have to."

In Los Angeles, William Righi, a musician, bemoans the sudden difficulty of getting jazz and blues gigs at restaurants and parties. He gives fewer private singing lessons to high school students.

"Their parents don't want to pay," Mr. Righi sighed. "They don't have the money to burn. In the last month, it's really dropped off."

With his income down, Mr. Righi has been putting off buying new musical instruments and sheet music. He has curtailed his traveling.

At a factory in Lancaster, Pa., Armstrong World Industries, which makes flooring products, cut production of vinyl sheets for two weeks in March in reaction to softening demand for its goods, the company said.

Management is now seeking to slow production further, said Joe Rumberger, president of the local branch of the United Steelworkers, which represents workers there.

Some of those sent home received temporary unemployment benefits, he said, securing government checks of about $520 a week in lieu of paychecks that reached $900.

"It hurts," he said. "If you're not working, unemployment checks only go so far."

At many companies, management is hanging on to as many workers as it can, cutting hours to try to limit layoffs, while hoping that business improves.

As the construction business deteriorated rapidly last fall, so did demand for the ceramic tiles produced in New Lexington, Ohio, at the Ludowici factory. In November, the company began drastically cutting overtime for many workers. The following month it laid off several people. Last month, the factory resorted to layoffs, cutting the hourly work force to 81, from 93. It idled the kiln on weekends.

But even as sales fell, the company kept producing, building up stocks of tiles that it assumed it could sell eventually.

"We thought that would be a smart way to do it in order to keep people working," said Derek Thomas, the plant manager. "The philosophy around here is we remain hopeful that things are going to pick up."

But if fresh orders do not arrive soon, Mr. Thomas acknowledged that his hopes were likely to be dashed. In that case, he said, the company was facing further "head count reductions."

With his overtime pay gone and faced with the ugly potential of a layoff from the job he has known for 14 years, Mr. Baker, the plant worker, is streamlining his spending every way he can.

This time of year, he would normally be planning a trip through Ohio in his camper. But he does not expect to take to the road anytime soon. "Not with the money flowing the way it is," he said, "and the price of gas."

To John E. Silvia, chief economist for Wachovia, the banking company based in Charlotte, N.C., Mr. Baker and his boss are representative of a national economy that is hunkered down and awaiting better while worrying about worse.

"You've got a lot of people sitting around now," he said, "waiting and hoping for orders."

US Financial Collapse Will End Bush/Cheney Iraq War

US Financial Collapse Will End Bush/Cheney Iraq War

And it won't be 'a time of our choosing'

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"Come and see our overflowing morgues and find our little ones for us...
You may find them in this corner or the other, a little hand poking out, pointing out at you...
Come and search for them in the rubble of your "surgical" air raids, you may find a little leg or a little head... pleading for your attention.
Come and see them amassed in the garbage dumps, scavenging morsels of food...
Come and see, come..."~
"Flying Kites," Layla Anwar

The US Military has won every battle it has fought in Iraq, but it has lost the war.

Wars are won politically, not militarily. Bush doesn't understand this. He still clings to the belief that a political settlement can be imposed through force. But he is mistaken. The use of overwhelming force has only spread the violence and added to the political instability. Now Iraq is ungovernable. Was that the objective? Miles of concrete blast-walls snake through Baghdad to separate the warring parties; the country is fragmented into a hundred smaller pieces each ruled by local militia commanders. These are the signs of failure not success. That's why the American people no longer support the occupation. They're just being practical; they know Bush's plan won't work. As Nir Rosen says, "Iraq has become Somalia."

The administration still supports Iraqi President Nouri al Maliki, but al-Maliki is a meaningless figurehead who will have no effect on the country's future. He has no popular base of support and controls nothing beyond the walls of the Green Zone. The al-Maliki government is merely an Arab façade designed to convince the American people that political progress is being made, but there is no progress. It's a sham. The future is in the hands of the men with guns; they're the ones who have divided Iraq into locally-controlled fiefdoms and they are the one's who will ultimately decide who will rule the state. At present, the fighting between the factions is being described as "sectarian warfare," but the term is intentionally misleading. The fighting is political in nature; the various militias are competing with each other to see who will fill the vacuum left by the removal of Saddam. It's a power struggle. The media likes to portray the conflict as a clash between half-crazed Arabs – "dead-enders and terrorists" – who relish the idea killing their countrymen, but that's just a way of demonizing the enemy. In truth, the violence is entirely rational; it is the inevitable reaction to the dissolution of the state and the occupation by foreign troops. Many military experts predicted that there would be outbreaks of fighting after the initial invasion, but their warnings were shrugged off by clueless politicians and the cheerleading media. Now the violence has flared up again in Basra and Baghdad, and there is no end in sight. Only one thing seems certain, Iraq's future will not be decided at the ballot box. Bush has made sure of that.

The US military does not rule Iraq nor does it have the power to control events on the ground. It's just one of many militias vying for power in a state that is ruled by warlords. After the army conducts combat operations, it is forced to retreat to its camps and bases. This point needs to be emphasized in order to understand that there is no real future for the occupation. The US simply does not have the manpower to hold territory or to establish security. In fact, the presence of American troops incites violence because they are seen as forces of occupation, not liberators. Survey's show that the vast majority of the Iraqi people want US troops to leave. The military has destroyed too much of the country and slaughtered too many people to expect that these attitudes will change anytime soon. Iraqi poet and blogger Layla Anwar sums up the feelings of many of the war's victims in a recent post on her web site "An Arab Woman's Blues":

"At the gates of Babylon the Great, you are still struggling, fighting away, chasing this or the other, detaining, bombing from above, filling up morgues, hospitals, graveyards and embassies and borders with queues for exit-visas.

Not one Iraqi wishes your presence. Not one Iraqi accepts your occupation.

Got news for you SOBs, you will never control Iraq, not in six years, not in ten years, not in 20 years....You have brought upon yourself the hate and the curse of all Iraqis, Arabs and the rest of the face your agony." (Layla Anwar; "An Arab Woman's Blues: Reflections in a sealed bottle")

Is Bush hoping to change the mind of Layla or the millions of other Iraqis who have lost loved ones or been forced into exile or seen their country and culture crushed beneath the boot heel of foreign occupation? The hearts and minds campaign is lost. The US will never be welcome in Iraq.

According to a survey in the British Medical Journal Lancet more than a million Iraqis have been killed in the war. Another four million have been either internally displaced or have fled the country. But the figures tell us nothing about the magnitude of the disaster that Bush has caused by attacking Iraq. The invasion is the greatest human catastrophe in the Middle East since the Nakba in 1948. Living standards have declined precipitously in every area – infant mortality, clean water, food, security, medical supplies, education, electrical power, employment etc. Even oil production is still below pre-war levels. The invasion is the most comprehensive policy failure since Vietnam; everything has gone wrong. The heart of the Arab world has descended into chaos. The suffering is incalculable.

The main problem is the occupation; it is the primary catalyst for violence and an obstacle to political settlement. As long as the occupation persists, so will the fighting. The claims that the so-called surge has changed the political landscape are greatly exaggerated. Retired Lt. General William Odom commented on this point in an interview on the Jim Lehrer News Hour:

"The surge has sustained military instability and achieved nothing in political consolidation.... Things are much worse now. And I don't see them getting any better. This was foreseeable a year and a half ago. And to continue to put the cozy veneer of comfortable half-truths on this is to deceive the American public and to make them think it is not the charade it is.... When you say that the Lebanization of Iraq is taking place, yes, but not because of Iran, but because the U.S. went in and made this kind of fragmentation possible. And it has occurred over the last five years.... The al-Maliki government is worse off now... The notion that there's some kind of progress is absurd. The al-Maliki government uses its Ministry of Interior like a death squad militia. So to call Sadr an extremist and Maliki a good guy just overlooks the reality that there are no good guys." (Jim Lehrer News Hour)

The war in Iraq was lost before the first shot was fired. The conflict never had the support of the American people and Iraq never posed a threat to US national security. The whole pretext for the war was based on lies; it was a coup orchestrated by elites and the media to carry out a far-right agenda. Now the mission has failed, but no one wants to admit their mistakes by withdrawing; so the butchery continues without pause.

How Will It End?

The Bush administration has decided to pursue a strategy that is unprecedented in US history. It has decided to continue to prosecute a war that has already been lost morally, strategically, and militarily. But fighting a losing war has its costs. America is much weaker now than it was when Bush first took office in 2000; politically, economically and militarily. US power and prestige around the world will continue to deteriorate until the troops are withdrawn from Iraq. But that's unlikely to happen until all other options have been exhausted. Deteriorating economic conditions in the financial markets are putting enormous downward pressure on the dollar. The corporate bond and equities markets are in disarray; the banking system is collapsing, consumer spending is down, tax revenues are falling, and the country is headed into a painful and protracted recession. The US will leave Iraq sooner than many pundits believe, but it will not be at a time of our choosing. Rather, the conflict will end when the United States no longer has the capacity to wage war. That time is not far off.

The Iraq War signals the end of US interventionism for at least a generation; maybe longer. The ideological foundation for the war (preemption/regime change) has been exposed as a baseless justification for unprovoked aggression. Someone will have to be held accountable. There will have to be international tribunals to determine who is responsible in the deaths of over one million Iraqis.

Germany to Allow Video Surveillance of Private Homes

Germany to Allow Video Surveillance of Private Homes

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Changes proposed to the law governing Germany's federal criminal police operations would allow investigators to use wire taps and surveillance cameras in homes of innocent citizens to keep tabs on terror suspects.

Under the government proposals, federal police would be permitted to install "hidden technical equipment, that is to say bugs or cameras inside or outside apartments ... if there is a pressing danger for state security," interior ministry spokesman Stefan Paris said at a news conference on Friday, April 18.

"I would urgently like to stress that there are very, very strict conditions ... and it is not the case that everywhere in this country secret cameras or listening devices will be installed in living spaces," he said. "It is about terrorist threats that would be averted through preventative measures by the federal police."

He added that such methods were already allowed in several German states.

"Recording and filming must be restricted to the suspect and the suspect's own home These methods are also permissible in the homes of other persons if evidence shows that the suspect is present or if employing these measures solely in the home of the suspect is insufficient to contain potential risk. The measure may also be taken if other persons are immediately at risk," says paragraph 20 of the draft, according to the dpa news agency.

In the past, such measures were illegal on the grounds that they marked a breach of the sanctities of the home and the confidentiality of private conversations. Current regulations call for police to turn off their equipment when suspect talk about private matters.

A cabinet decision on what is known as the BKA law is expected this summer. The acceptability of using video cameras as well as microphones in private homes for up to a month has divided opinion among the Social Democrats, who share power at the federal level with Chancellor Angela Mekel's Christian Democrats.

Skepticism persists

The new draft regarding video surveillance met with resistance among members of her party. Berlin's Interior Minister Ehrhart Koerting (SPD) and Sebastian Edathy (SPD), the chairman of the Bundestag's Interior Affairs Committee, were among those voicing strong skepticism.

"I see no need for video surveillance in private homes," said Edathy in the daily Neue Osnabrücker Zeitung on Friday. "There is no apparent justification."

He also stressed that his party would resist this most recent extension to BKA privileges.

After months of discussions, Justice Minister Brigitte Zypries (SPD) and Interior Minister Wolfgang Schaeuble (CDU) settled this week on a compromised version of the BKA Law, with Zypries drawing the line at allowing investigators to break into homes to install spyware programs on private computers.

As it stands, investigators may only access private computers via the Internet.

Resistance remains

The SPD's interior affairs expert Dieter Wiefelspuetz had similar reservations about the online searches.

"This needs to be looked into carefully," he said, also expressing the hope that the Christian Democrats' push to allow police to break into private homes would be unsuccessful.

"If they try to get this through, they will soon end up in the country's Constitutional Court," he predicted. "Covertly entering people's homes to install spying software would only be acceptable if the Constitution is changed," he stressed.

Interior ministers' conference

Germany's state interior ministers are ending their spring conference in the spa resort of Bad Saarow in Brandenburg on Friday.

Topping the agenda were the issues of online searches and a possible ban on the far-right party, the NPD.

In Friday's edition of the daily Schweriner Volkszeitung, Edathy criticized the participants' failure to make progress on the latter issue:

"The majority of the CDU and the CSU are unwilling to discuss creating a framework that would allow an NPD ban," he complained.

California to Review Canceled Health Insurance Policies

State to Review Canceled Health Insurance Policies

By Lisa Girion and Marc Lifsher

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The action, which affects thousands of Californians, is the boldest yet in dealing with companies' practice of rescinding coverage of sick policyholders.

Thousands of people whose policies were canceled by California health insurers will have a chance to win back their coverage and be reimbursed for outstanding medical bills, the Schwarzenegger administration announced Thursday.

The state's action is the boldest yet in dealing with the industry's increasingly controversial practice of canceling individual coverage - known as rescission - after patients have taken ill and submitted medical bills.

Cindy Ehnes, the director of the Department of Managed Health Care, said she would reopen policies dropped over the last four years by the state's five major insurers and submit them for reconsideration to an independent arbiter.

Those determined to have been wrongly canceled would be reinstated, and the insurers would be responsible for medical bills incurred while patients were without coverage, she said.

"Rescission is a harsh practice," Ehnes said. "It strips people of coverage and causes them to be uninsurable at the very time they need it most. For the first time, we are giving people a second chance to get that health coverage. We are putting our full regulatory and enforcement action to work on this. We are opening the door to health coverage for those thousands of Californians who have been impacted over the last four years."

Ehnes' department, Insurance Commissioner Steve Poizner, Los Angeles City Atty. Rocky Delgadillo, lawmakers and the courts are all scrutinizing the practice.

Those efforts gained steam in February when the first judgment in a rescission case awarded $9 million to a breast cancer patient whose coverage was canceled during chemotherapy. Health Net Inc., the insurer in that case, and Kaiser Permanente have voluntarily stopped canceling patients while awaiting guidance from authorities.

An industry spokesman said insurers have been making changes in an effort to restore confidence in the affected individual market, where consumers without access to employer-based or other group coverage can buy their own policies.

Christopher Ohman, president of the California Assn. of Health Plans, said, "On their own, health plans have been implementing new policies to strengthen and make more transparent the process for rescinding policies."

Companies are developing their own third-party reviews to validate rescissions, and they have simplified and clarified application processes and enhanced staff training, he said.

Insurers defend rescissions as a rare but important check on fraud that helps keep a lid on premiums. But critics say rescission often catches innocent consumers. They say confusing applications trap people into making honest mistakes about their medical histories.

Companies are accused of issuing coverage without verifying the information and collecting premiums until they receive claims for significant medical care. Only then, critics say, do they scrutinize the applications and pull medical records, looking for discrepancies and omissions to use as a basis for rescission.

Also Thursday, Ehnes said she would order three of the state's largest insurers - Anthem Blue Cross, Kaiser Permanente and Blue Shield - to immediately reinstate 26 patients whose cancellations were in her view clearly out of bounds.

Rescissions by those companies, along with those by PacifiCare and Health Net, will be subject to the independent reviews announced by the state.

Gov. Arnold Schwarzenegger hailed the move, calling it "outrageous that innocent patients have to live in fear of losing their healthcare coverage."

"I look forward to working with my partners in the Legislature to ensure this egregious practice is stopped," he said.

Ehnes launched investigations of rescissions by the state's top five insurers more than a year ago in the wake of articles in The Times highlighting the consequences of the sudden loss of coverage, including patients delaying and going without healthcare and running up medical debt.

Four of the reviews are pending. The probe of Anthem Blue Cross, believed to be the largest player in the individual market, was concluded last year. It found that all 90 sampled rescissions were flawed. Ehnes said she would fine the company $1 million but has yet to collect.

Ehnes had come under fire from lawmakers and consumer advocates in recent weeks over her attempts to negotiate resolutions with the five insurers and for failing to reinstate many patients.

She said Thursday that she had hoped to reach agreements with the insurers that would result in reinstatements for patients and broad reforms without getting tied up in legal battles. But she said she resorted to using her enforcement powers when those efforts failed. She said she expected that some of the plans might choose to fight her.

Ehnes also said she moved as quickly as she could after the state Supreme Court last month let stand a key appellate court ruling that helped define the limited circumstances under which health insurers could cancel individual and family policies.

"I try very hard to do things that ultimately hold up in a court of law, not just a court of public opinion," she said. "I don't move easily until I feel I have that defensible position. I feel I am in that position. We will vigorously defend any action that is taken, and feel like we will be sustained."

The insurers had varied responses.

Shannon Troughton, a spokeswoman for WellPoint Inc., parent company of Anthem Blue Cross, said the insurer had taken steps to improve its rescission processes before the department had concluded its investigation. "We are committed to rigor and being thoughtful in any case where rescission review is warranted," she said.

Anthem Blue Cross, the state's largest for-profit health insurer, rescinds about 1,500 policies a year in California.

Troughton noted that the department ordered reinstatement Thursday in only eight of 90 rescissions it reviewed in its audit. But Ehnes said the 82 others and thousands of other Blue Cross rescissions awaited further scrutiny by the arbiter she appoints.

Kaiser Senior Vice President Jerry Fleming said the health plan was "supportive of an independent, third-party review process for rescission that applies fair and clear standards to assess the accuracy of the information provided by an applicant to the plan and the appropriateness of the plan's decision."

Health Net spokeswoman Margita Thompson said the company would work with the department to "meet our shared goal of ensuring people have confidence in their healthcare coverage."

Thompson said the company could not say how it would respond to the department's orders until it had time to review the details.

A Blue Shield representative declined to comment, saying the company had not had time to review the orders.

On Thursday, consumer advocates praised the spirit of Ehnes' announcement. But they cautioned that its success depended upon the credibility and independence of the arbiter she selected, the rigor of the process and the standards to which cancellations were held.

"This is wonderful and welcome news," said William Shernoff, a Claremont lawyer who represents rescinded policyholders.

Jerry Flanagan, a patient advocate with Santa Monica-based Consumer Watchdog, said, "This is an incredibly important victory.... a landmark step on the road to justice for the thousands of innocent patients whose health insurance was retroactively canceled."

At a news conference in Sacramento, Ehnes said the third-party review of cancellations would begin "within the month" and insurers would pay the cost of the effort, which she said would be "several million" dollars.

The state doesn't know how many policies were canceled over the four years but believes "it's thousands," she said.

Asked whether any criminal laws were violated, Ehnes said her office was in contact with the California attorney general's office. "We have spoken to them about this issue," she said, declining to elaborate.

Atty. Gen. Jerry Brown said his office had been looking into health-plan practices "for quite some time," focusing on questions of "denial of care, denial of claims and specialty care."

The goal, he said, was "to make sure that we protect policyholders and when there is an improper denial, we rectify that and we get these companies to be responsible."

He said he planned to use meetings with insurers, lawsuits or "whatever we have to do to get the job done."

GAO: Stolen U.S. military gear sold on eBay, Craigslist

GAO: Stolen U.S. military gear sold on eBay, Craigslist

Few safeguards found to prevent the sale of defense equipment, agency says

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Stolen and sensitive U.S. military equipment, including body armor, night vision goggles, and gear to protect against nuclear or biochemical warfare, are being sold on Craigslist and eBay, a GAO report says.

The Government Accountability Office found many defense-related items for sale on Craigslist and eBay, according to the report, released last week.

After reviewing the policies and procedures for those Web sites, the GAO determined that there were few safeguards to prevent the sale of military items. Although it is not illegal to buy and sell some defense-related items in the U.S., many items are made solely for military use and are not meant for public use, the GAO said.

From January 2007 to March 2008, GAO undercover investigators were able to buy a dozen sensitive items on eBay and Craigslist to demonstrate how easy it was to obtain them, the agency said. Many of these items were stolen from the U.S. military, it said.

The items GAO investigators were able to purchase online include the following:

  • Two F-14 aircraft components, including an antenna, from separate buyers on eBay. The GAO said that "F-14 components are in demand by Iran" and could be used by the Iranian military. "By making these components available to the general public, the eBay sellers provided an opportunity for these components to be purchased by an individual who could then transfer them to Iran," according to the report. "The continued ability of Iran to use its F-14s could put U.S. troops and allies at risk."
  • Night vision goggles on eBay containing a sensitive component that allows U.S. service members to identify friendly fighters wearing infrared tabs on the battlefield.
  • An Army combat uniform and accessories on eBay that could be used by a terrorist to pose as a U.S. service member.
  • Body armor vests and small-arms protective inserts (SAPI) on eBay and Craigslist, including advanced enhanced SAPI plates used by U.S. troops in Iraq and Afghanistan.

"Unauthorized individuals, companies, terrorist organizations, and other countries continue their attempts to obtain sensitive items related to the defense of the United States," the GAO said. "The Internet is one place that defense-related items can be purchased, raising the possibility that some sensitive items are available to those who can afford them. In addition to the risk that sensitive defense-related items could be used to directly harm U.S. service members or allies on the battlefield, these items could be disassembled and analyzed (i.e., reverse engineered) to develop countermeasures or equivalent technology."

Executives from eBay and Craigslist appeared before the National Security and Foreign Affairs Subcommittee investigating this issue last Thursday.

"We have the most proactive policies and tools to combat fraud and illegal activity of all the major Internet commerce companies," said Tod Cohen, eBay Inc.'s vice president and deputy general counsel for government relations, in a statement to the committee. "EBay is no place for the sale of stolen or illegal military goods. The transparency of our site, our rules, enforcement tools and our commitment to working with law enforcement makes it an unwelcome venue for criminals to fence these goods."

Cohen said eBay looked forward to working with the committee and government officials on more effective ways to prevent stolen or illegal items from being listed on the auction site.

In a statement, Craigslist CEO Jim Buckmaster said, "Contrary to what the GAO report implies, Craigslist has more people actively engaged in its antifraud efforts than any Web site on Earth. In addition to our in-house antifraud team numbering a dozen or more staff members, and the automated blocking and screening routines we have developed, Craigslist benefits from tens of millions of passionate users diligently reviewing every ad on the site, with each user having the power to delete inappropriate ads, which power they exercise to the tune of several million ads removed each month."

Buckmaster added that GAO investigators said they saw questionable ads being removed from Craigslist as they searched the site. He also said he was surprised that the GAO did not highlight the fact that, unlike every other party cited in the report, Craigslist doesn't earn money from the sale of military items.

"It should be noted that, with the exception of Craigslist, each of these parties has a strong financial incentive for failing, or at least delaying, putting an end to this trade," he said.

Petraeus Hid Maliki Resistance to US Troops in Basra

Petraeus Hid Maliki Resistance to US Troops in Basra

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WASHINGTON, Apr 17 (IPS) - In testimony before Congressional committees last week, Gen. David Petraeus portrayed Iraqi Prime Minister Nouri al-Maliki's late March offensive in Basra as a poorly planned effort that departed from what U.S. officials had expected.

What Petraeus did not reveal is that al-Maliki was deliberately upsetting a Petraeus plan to put U.S. and British forces into Basra for a months-long operation to eliminate the Mahdi Army from the city.

Petraeus referred to a plan for an operation to be carried out in Basra that he and his staff had developed with the head of the Basra Operational Command, Gen. Mohan al-Furayji. But Petraeus carefully dodged a question from Sen. Hillary Clinton about what resources he was planning to deploy to Basra and over what length of time.

Clinton evidently suspected that the plan envisioned the deployment of U.S. troops on a large scale in the Shiite south, despite the fact that the Iraqi government is supposed to be responsible for security there. Petraeus responded vaguely that it was "a phased plan over the course of a number of months during which different actions were going to be pursued."

Reports in the British press indicated, however, that the campaign plan was based on the assumption that British and U.S. troops would play the central role in an effort to roll up the Mahdi Army in Basra. The Independent reported Mar. 21 that Gen. Furayji had publicly declared there would be a "final battle" in Basra, probably during the summer, and that Britain had already promised to provide military forces for the campaign. It quoted "senior government sources" as saying that Prime Minister Gordon Brown's earlier pledge to cut the number of British troops in the south from 4,100 to 2,500 would "almost certainly be postponed until at least the end of the year".

Two days later, the Sunday Mirror quoted a "senior U.S. military source" as saying that the "coalition" would turn its attention to Basra once the "huge operation" in Mosul against al Qaeda and nationalist Sunni insurgents was completed, and that the U.S. was prepared to redeploy "thousands" of U.S. marines to Basra, if necessary.

This plan for a major foreign troop deployment to the south for the first time since the U.S. battles against the Mahdi Army in April 2004 did not sit well with al-Maliki. In 2006 and 2007, he had repeatedly blocked U.S. proposals that U.S. and Iraqi forces target Moqtada al-Sadr's Mahdi Army in Baghdad as well as in the south.

When Vice President Dick Cheney, who had previously played the "bad cop" in the George W. Bush administration's relations with al-Maliki, visited Baghdad in mid-March, one of his objectives was to get al-Maliki to go along with the Petraeus plan to eliminate the commanding position of Sadr's forces in Basra. Al-Maliki has told Iraqi officials that Cheney put pressure on him to go along with the Basra operation, according one Iraqi source.

After Cheney met briefly with al-Maliki Mar. 17, he discussed the "security situation" with Sadr's Shiite rival, Abdul-Aziz al-Hakim, head of the Supreme Islamic Iraqi Council, which has been pushing for the destruction of the Mahdi Army. Cheney lavished praise on Hakim, whom he ostentatiously called "my friend", for "working so hard with the United States and with Iraq's other leaders to advance the cause of Iraq's freedom and democracy." The signal of the Bush administration's intentions toward Sadr could hardly have been clearer.

The Cheney visit apparently mobilised al-Maliki, but not in the way Cheney had intended.

Four days later, when Petraeus met with al-Maliki's national security adviser Mowaffak al-Rubaie to talk about the U.S. campaign plan for Basra, al-Rubaie warned Petraeus that al-Maliki had a different plan. Petraeus was apparently told that the operation would last from a week to 10 days -- not the several months envisioned in the Petraeus plan.

The main point of al-Maliki's operation, however, was that it would exclude U.S. troops. As al-Maliki explained in an interview with CNN correspondent Nic Robertson Apr. 7, he had demanded that U.S. and British troops stay out of Basra, "because that would give an excuse to some militant groups to say that this is a foreign force attacking us."

al-Maliki thus feared that a confrontation between thousands of U.S. and British troops and the Mahdi Army would further inflame the feelings of Shiites in the south about the occupation, with which his own regime has been so tightly linked.

The Shiite south has become the most anti-occupation region in the country. The British polling firm ORB, which has been doing opinion surveys in Iraq since 2005, found in March that 69 percent of respondents in the south believed security would improve if foreign troops were withdrawn, and only 10 percent believed it would get worse.

When al-Maliki met with Petraeus the following morning, according to Petraeus's spokesman, Petraeus warned against sending "a couple of brigades" into the city, suggesting that he did not consider the scale of the operation to be large enough. Nevertheless, when al-Maliki told him the decision to launch an operation in Basra had already been made and that it would begin in three days, Petraeus agreed to support it.

When the Basra operation became an obvious disaster, however, Washington officials began to question al-Maliki's motives. On the third day of the operation, as Bush administration officials were reassessing what they described as "a rapidly deteriorating situation in southern Iraq", one official told the Washington Post's Peter Baker they were comparing conspiracy theories about why al-Maliki had acted so precipitously.

Although that comment was not explained, it clearly implied that al-Maliki was deliberately undermining the U.S. objective of eliminating the Mahdi Army by using U.S. and British troops.

Bush administration suspicions of al-Maliki's intentions could not have been eased by the fact that a delegation of pro-government parties traveled to Iran to ask the commander of the Iranian Revolutionary Guard Corps (IRGC) to negotiate a ceasefire with the Mahdi Army. That ploy move, which did result in a tenuous ceasefire, raised the possibility that al-Maliki intended from the beginning that the outcome of the Basra operation would be a new agreement that would prevent the deployment of U.S. and British troops to fight the Mahdi Army during the summer.

Bush administration officials have been asserting that the most important thing about the Basra operation is that al-Maliki is now convinced that Iran is really an enemy rather than a friend. But al-Maliki's Apr. 7 interview with CNN's Robertson made it clear that he has not budged from his position that his government's interests lie in an accord between Iran and the United States -- not in taking sides against Iran.

"We will always reject the idea of any side using Iraq as a launching pad for its attack on others," said al-Maliki. "We reject Iran using Iraq to attack the U.S., and at the same time we reject the idea of the U.S. using Iraq to attack Iran..."

*Gareth Porter is an historian and national security policy analyst. The paperback edition of his latest book, "Perils of Dominance: Imbalance of Power and the Road to War in Vietnam", was published in 2006.